Thursday, February 12, 2009

Killer Instinct

The debate about what to do with the financial institutions that are arguably insolvent continues.
Christopher Whalen (Institutional Risk Analytics) argues in "Does Fair Value Accounting + Credit Default Swaps = Global Deflation?" (Feb 11, no link yet) that Fair Value Accounting, put in place 13 months ago, is helping to cause instability in the system:

FVA makes the long view impossible and basically turns what are supposed to be low-beta, low risk, highly solvent hold-to-maturity vehicles into mark-to-market liquidations every day via the derivatives markets.
DoctoRx here: Kill the derivatives, not FVA.
Unfortunately for the markets, the hope that Barack Obama would be a miracle worker has given way to reality. His Treasury Secretary, Mr. Geither, impressed few in his maiden major speech 2 days ago. At least Henry Paulson was credible when he said that he carried a big bazooka. Mr. Geithner, in contrast, looks like a nervous kid with a popgun. We don't exactly need shock and awe, but a commanding presence helps in a crisis. When Ronald Reagan sauntered into town, the Iranians immediately handed over the hostages. Soon enough, the air traffic controllers kowtowed, and the postal workers wanted big raises but were forced to take little. And then he survived a bullet to the lung. America was back; the Roaring 80's beckoned.
Where is that sense of command from the Obama Administration? Stock, T-bond and gold traders are all turning thumbs down.

In the blogosphere, the anti-Bush, anti-Paulson sentiment has quickly morphed into anti-Geithner, anti-ruling party sentiment. Or to be fairer, many bloggers have adopted the view expressed here from day one that there is one Establishment, corporatist in nature, with different wings. For example, in "Congress Removes Provisions to Limit Wall Street Bonuses "Behind Closed Doors", Jesse says:

The Democrats talk a good game, but their record of reform and renewal after winning the Congressional elections and then the Presidency is pathetic.

Nancy Pelosi is useless as House Speaker. Barney Frank is all talk and little action. The Democratic leadership should be replaced along with about half the remaining Republican congressmen.

Ok, Obama how about some transparency on this one. And better yet, can we see a single reform that improves the system, other than firedrills to shore up the status quo?

The article that set off that rant was "Congress kills plan to recover Wall Street bonuses" (AP, Feb. 12):

WASHINGTON (AP) -- Congressional leaders have killed a plan that would have forced financial institutions to compensate taxpayers if they paid their executives large bonuses after receiving federal bailout money.

The Senate had approved the repayment plan as part of an effort to crack down on Wall Street firms that paid huge bonuses -- some in the millions of dollars -- to their top executives even as they received taxpayer money in the federal bailout last fall.

The provision was removed as House and Senate negotiators hammered out final details of the $789 billion economic stimulus legislation this week.

A spokeswoman for Sen. Ron Wyden, D-Ore., said no one spoke against the amendment when Wyden introduced it on the Senate floor. "Somehow, it got stripped out behind closed doors," said the spokeswoman, Jennifer Hoelzer.

Jesse was not, definitely not, a Bush supporter. At Naked Capitalism, Yves Smith publicly questioned why she voted for Mr. Obama.

At Minyanville tonight, Jeff Macke writes a tough post titled "If the British Empire Wasn't Too Big to Fail, Neither is Citigroup" and keeps up the theme:

I am neither a Republican nor a Democrat. Honestly, I can no longer tell the difference between the two.

Mr. Obama, you are the President. Mr. Geithner works for you. What Wall Street wants really does not matter. As Jeff Macke and so many others argue, it is clear that Citigroup is a zombie. It only exists because of extraordinary and beyond extraordinary Federal favors. Kill it.

No comments:

Post a Comment