Baseball91's Weblog

December 7, 2008

Ad Hoc: Latin for when there is no plan

“Fascism should rightly be called corporatism, as it is the merger of state and corporate power.” – Benito Mussolini

Who would have thought that era of Mussolini in Italy would end up feeling so palpable in the United States as 2008 drew to a close? Since George Washington was inaugurated though the times of William Jennings Bryant, whether the United States had a National Bank was like the abortion issue of today day, argued in every national election. The Fed seems to me to be that National Bank. Over the last 12 months news about the Fed and the Treasury Department has been front and center on page one. From the New York Times this week:

“It is clear that regulators still lack a comprehensive plan to address problems in our financial markets,” Senator Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, said through his spokesman Jonathan Graffeo. “It is unclear whether they have carefully considered the implications of their continued ad-hoc approach.”

Eric Hovde wrote in the Washington Post: “Looking for someone to blame for the shambles in U.S. financial markets? As someone who owns both an investment bank and commercial banks, and also runs a hedge fund, I have sat front and center and watched as this mess unfolded. And in my view, there’s no need to look beyond Wall Street — and the halls of power in Washington. The former has created the nightmare by chasing obscene profits, and the latter have allowed it to spread by not practicing the oversight that is the federal government’s responsibility. Without Wall Street, the housing bubble would have ended shortly after the Fed started to raise interest rates in 2004, because no lenders would have originated these toxic mortgages if they had to keep the loans on their own balance sheets.”

From the New York Times: “The Fed’s balance sheet expanded $1.3 trillion in the past year as the Fed auctioned $415 billion of cash to banks and purchased $272 billion of commercial paper.

 

“’The model is that there is no model,’ said V. Gerald Comizio, senior partner in the banking practice at the Paul, Hastings, Janofsky & Walker law firm in Washington. ‘It is an improvisation battle plan.’”

“Fed officials have pushed to keep the risks involved in future bailouts at the Treasury, which would be forced to negotiate with Congress about the use of taxpayer funds. Now, the Fed is stepping outside the liquidity boundary once again. The central bank took a step toward risk sharing earlier this month when it opened two new facilities with up to $52.5 billion in loans to help American International Group wind down its portfolio.”  

“‘The Treasury and the Fed are doing what they can do to hold the pieces together, and it hasn’t been easy,’ said Martin Regalia, chief economist at the U.S. Chamber of Commerce, which lobbies on behalf of 3 million businesses. ‘If we don’t keep the financial system going that is going to impose costs on the American public that will be real and palpable.’”

“’Many investment professionals operating in my world believe, as do I, that we are facing the greatest financial crisis since 1929…We have a 35-year-old technology investment banker running the TARP that has no background in financials or in real estate or was around during the last banking crisis. Then they switch and change to what should have been done and that’s injecting capital into the banks,” Hovde said. “However, they’ve even messed that up.’”
From the New York Times: “U.S. authorities acted after Citibank, the second-biggest U.S. bank by assets touched $3.05, the lowest level since 1992, threatening confidence among its depositors and counterparties. Citigroup had already received a $25 billion infusion under Paulson’s $250 billion capital-injection program.”

“Other banks ‘are going to show up’ and ask for the Citigroup deal, predicted Joseph Mason, a professor at Louisiana State University in Baton Rouge who previously worked at the Treasury Department’s Office of the Comptroller of the Currency.”

 

As noted on the blog of Fred Norris of the N Y Times: Bob Prince of Bridgewater Associates, on downward spirals:

“The pressure on corporate margins is now passing through to employment cuts. Employment cuts will reduce incomes which will raise defaults. Rising defaults will hinder bank capital adequacy, which will constrain credit growth, which will slow spending, which will hurt profit margins, then employment. This chain of events was virtually sealed when demand dropped off the table in October, although it was highly probable earlier this year when credit conditions deteriorated rapidly. We are now in the middle of it and there really isn’t much that anyone can do besides hang on.”

 

For the time being, Americans are in denial. Listening to GM ask for help came my own realization that all cars were luxuries. What happened when you were in a luxury position? When your employer was involved in products that were luxuries. We are going all going to learn that the only necessities are food, clothing and shelter. In Minnesota there was discussion by the retired Minnesota House of Representative leader, Dee Long, about a sales tax for the first time on clothes here.

It is difficult to see how the political parties are going to line up on issues of bailouts. The quote above from the U.S. Chamber of Commerce, traditionally a Republican Party supporter, seems to favor of bailouts. Nancy Pelosi and Barney Frank are supporters of bailouts, as Democrats. A sales tax on clothes does not seem to be a populist position.

 

The “merger of state and corporate power” sounds an awful lot like what is coming from Republican and Democrats. There has been a silent revolution that occurred in America, perhaps because of a government formed by lobbyists and what it takes in the way of capital to acquire a seat in Congress. One of those seats cost a lot more now than one on the Chicago Mercantil Exchange.

 

Bill White said, “But in the end, if the fundamental position is that there is too much credit in the system, something has to give.”

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1 Comment »

  1. Comment by baseball91 — June 18, 2012 @ 1:59 PM | Reply


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