Is This Another Bubble?
November 24, 2009 9:48 pm

Charlie Gasparino, CNBC

It's true-Wall Street loves unemployment.

How do I know this? When I speak to CEOs and others in the executive suites of our big banks, they tell me that if not for the unemployment rate heading toward 10.5 percent, the markets would never have recovered from their financial-meltdown lows. Business conditions are uniformly lousy, but the markets are surging because they are celebrating the government's solution to high unemployment: easy money. The near-zero percent interest rate offered by the Federal Reserve is supposed to make credit cheap and allow businesses to expand. It hasn't quite worked out that way, but easy money has made stocks more liquid because investing in anything else doesn't pay. (Just check out 10-year bond prices.) So stocks will keep going up as long as interest rates remain where they are, and that's why Wall Street loves high unemployment. Even as the number of jobless Americans continues to mount, the investment banks make money off free money.

But even Wall Street knows this scheme has got to end; the dollar is getting hammered and people are bidding up gold, all pointing to the growing realization that unless the Fed raises rates again, the dollar will soon be worth far less than a dollar. That's why a growing number of senior Wall Street executives I speak to use the word "bubble" to describe the market's recent rally, with the Dow Jones Industrial Average going from a low of around 6500 in March of this year, to comfortably above 10000.......

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Geithner's Disgrace
November 26, 2009 8:52 pm

By Eliot Spitzer:

The issue has been festering for months: Why were AIG's counterparties—including Goldman Sachs, JPMorgan Chase, and UBS—paid 100 cents on the dollar when the feds rescued the insurance giant, helping raise the cost of the bailout to nearly $200 billion? A new report issued by Special Inspector General Neil Barofsky now reveals that government officials, notably then-New York Fed President and current Treasury Secretary Timothy Geithner, grievously damaged the nation and capitulated to the very banks they should have been supervising.

Barofsky's report reads like a case study in failed negotiation. The New York Fed didn't have the backbone to stand up to Wall Street, didn't understand its capacity to protect taxpayers, and didn't appreciate that its responsibility was to taxpayers.

Geithner and the Fed have proffered a series of spurious reasons for their willingness to pay AIG's counterparties-the leading Wall Street banks-in full while demanding concessions from every other entity with whom the Treasury or the Fed dealt. Geithner suggested he could not use the threat of AIG's default in the absence of a federal bailout to get concessions from AIG's creditors. Why not?

That is exactly what the government did with the auto industry, and rightly so. The entity providing financing to a near-bankrupt institution must always seek contributions from everyone else at risk. The fact that the Fed had a strong predisposition against letting AIG go into bankruptcy didn't mean the Fed shouldn't have used every opportunity to wrangle concessions from the other parties. For Geithner to say it would have been "unethical" to negotiate for concessions is sheer silliness. It is akin to saying that having decided that you are willing to pay up to $250,000 for a house, it is unethical to negotiate to buy it for $225,000.

Geithner also claims that using the possibility of AIG's default as a negotiating opportunity would have cast doubt on the government's commitment to financial stability. What? Seeking to get other parties to share the burden demonstrates a lack of commitment to restoring financial stability and market-based realities? Pressuring Goldman and the other counterparties to offer concessions would have forced them to absorb the consequences of making suspect deals with an insurance company that was essentially a Ponzi scheme. Forcing them to give concessions would have been one small step toward ending the moral hazard the Fed had allowed to flourish for years......

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Fools Rush In
November 29, 2009 2:53 pm

by digby at Hullabaloo, Digby

I've heard a number of people make the point that "rushing" into health care reform is the domestic equivalent of the rush into Iraq and therefore, will have the same disastrous results. It's very clever, but completely absurd. I'll let Andrew Sullivan explain why:

... [U]nlike the Iraq war, health insurance reform was a signature issue in the previous campaign debates - both primary and general - and a clear Obama campaign pledge from the get-go. Unlike the Iraq war, the proposal's long term costs have been inspected closely by the CBO. I know no one who believes that the total final costs over ten years could go from $50 billion to, by some estimates, between $2 trillion and $3 trillion and counting. And I know of no one who thinks the end result will wreck America's international standing.

But yes, more debate and scrutiny. If you really think three decades of failures, a year of campaign debate and a year of legislative wrangling really hasn't aired the issues sufficiently.

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