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Congratulations and Good Luck to Elizabeth Warren

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I’m cautiously optimistic with the dual appointment of Elizabeth Warren to be Assistant to the President to work at Treasury to set up the Consumer Financial Protection Board.

Frankly, no one knows what this appointment will mean in practice except perhaps Obama, Warren, and Timmeh Geithner. And no one knows how well Warren will negotiate the inevitable bureaucratic battles ahead, particularly with whoever replaces Rahm.

But I’m optimistic for two reasons. First, I have a lot of trust in Warren herself. She’s proven her ability to surprise her opponents in bureaucratic battles thus far. I also suspect (though don’t know for a fact) that she negotiated the Assistant to the President position as protection against anything Timmeh and Larry Summers might try. She seems to have demanded certain things with this nomination. And gotten them. And–as DDay linked earlier–she has expressed confidence that this is a win.

The President asked me, and I enthusiastically agreed, to serve as an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. He has also asked me to take on the job to get the new CFPB started—right now. The President and I are committed to the same vision on CFPB, and I am confident that I will have the tools I need to get the job done. [my emphasis]

So given the respect I have for Warren, I take her at her word that she will have the power to make of CFPB what it needs to be.

The other reason I’m cautiously optimistic is because the Chamber of Commerce is screaming like a stuck pig over these developments. Which, in my book, is generally a sign that something good has happened.

All that said, the appointment of Warren just means that both the White House and activists have more work to do. For the White House, not only do they need to fulfill whatever promises they made to Warren. Just as importantly, though, if they don’t actually use the fact that they finally have someone who can speak for and to the middle class (without the kind of gaffes that Joe Biden inevitably makes) to their advantage they will be really hurting themselves. Is Warren booked for the Sunday shows this weekend? If not, why not?

As for the rest of us, one of the reasons I think Warren was successful in negotiating what she sees as a successful resolution to this position is because her broad support was very clear to the White House. A wide group of people made it clear that Warren was the only acceptable candidate for this position.

If we get complacent, it’ll be a lot harder for Warren to do what she’d like to do with the position.

Progressives finally won something from this Administration. Maybe. But we’re only going to be able to keep it if we continue to make noise.

Nothing To Be Done But Blame Republicans

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Jake Tapper hammered Robert “a recovery that got our economy moving again” Gibbs yesterday on whether the Administration is not doing more for the economy because of political paralysis. After four attempts to avoid answering the question or focus exclusively on blaming Republicans, Gibbs finally suggested there wasn’t all that much the Administration can do to stimulate the economy.

Q Is the reason the President is not pushing for a bolder move on the economy because he doesn’t believe there is one, or because he doesn’t think he could get it through Congress?

MR. GIBBS: Well, Jake, I think you will hear the President — you heard him today after meeting with his economic team, and you will hear him over the course of the next several weeks outlining a series of ideas, some of which are stuck in Congress and some of which we continue to work through the economic team, that will be targeted measures to continue to spur our recovery and to create an environment in which the private sector is hiring.

Q But these are smaller-bore type proposals. These aren’t $787 billion stimulus packages.

MR. GIBBS: No, they’re not. But let’s understand — when you mention small bore — some of you probably saw this article today — “Small businesses sit in holding pattern.” “Small businesses have put hiring, supply buying, and real estate expansion on hold as they wait out the vote on a small business aid bill that is stalled in the Senate earlier this summer.” Right?

As the President said in the Rose Garden, 60 percent of our job losses have come from small business. Small businesses are waiting for the Senate to act on a bill that would cut their taxes and provide them greater loans and investment opportunities with which to expand.

The Republican Party talks a lot about their support for and their helping of small business, and I think the question that the President put toward them today is, if that’s what you support, why are you standing in the way of something that small businesses acknowledge would help with their hiring, with their purchasing, and with their expansion?

Q Okay, but the question I asked was, do you think — does the President think that there should be a bolder move taken beyond a $30 billion small business lending initiative —

MR. GIBBS: Well, again, I think —

Q — and there aren’t the votes for it, or he just didn’t think there is such a thing?

MR. GIBBS: I think, Jake, I think the President mentioned several ideas today that he believes are important to continue that recovery that we will pursue. I think these will be areas and initiatives that are targeted towards spurring recovery and creating an environment for hiring, not some —

Q But does that mean he believes that that is the right approach, or he believes that it’s the only politically possible approach?

MR. GIBBS: Well, look, I don’t think there’s any — I think there’s no doubt that there are — there’s only so much that can be done.

Q Not having to do with politics?

MR. GIBBS: Not having to do with politics. [my emphasis]

At which point Gibbs promptly pivoted and adopted the most thread-bare of DC excuses: whocouldanode.

Q In retrospect, was the stimulus too small?

MR. GIBBS: Look, we always — I think it makes sense to step back just for a second. If you look at — and I don’t think anybody had — and I think we’d be the first to admit that nobody had, in January of 2009, a sufficient grasp at the sheer depth of what we were facing. I think that’s, quite frankly, true for virtually every economist that made predictions. You had — the chart that I generally show, adding the job losses for the last three recessions up doesn’t get you to the job loss that we’ve seen in this recession alone.

It took us a long time to get to this point. We got here not simply because of one thing but because of many things. We’ve seen the housing market collapse. We saw what happened to credit markets. We saw what happened to the stability of our financial system. All of that accumulated after many years into one big pothole that — the size of which any stimulus was unlikely to fill.

I think that for all of the political back-and-forth on the Recovery Act, there should no longer be any doubt — despite some Capitol Hill nonbelievers — that what the Recovery Act did was prevent us from sliding even into a deeper recession, with greater economic contraction, with greater job loss, than we have experienced because of it. [my emphasis]

Calculated Risk didn’t even have to look outside of the Administration–at least as it existed when people were making predictions about the recovery act–to find an economist who had enough of a grasp on what was happening.

How about Christina Romer (the chair of the Council of Economic Advisers)? From Ryan Lizza at the New Yorker:

At the December [2008] meeting, it was Romer’s job to explain just how bad the economy was likely to get. “David Axelrod said we have to have a ‘holy-shit moment,’ ” she began. “Well, Mr. President, this is your ‘holy-shit moment.’ It’s worse than we thought.” She gave a short tutorial about what happens to an economy during a depression, what happened during previous severe recessions, and what could happen if the Administration didn’t act. She showed PowerPoint slides emphasizing that the situation would require a bold government response.

…

The most important question facing Obama that day was how large the stimulus should be. Since the election, as the economy continued to worsen, the consensus among economists kept rising. … Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn’t require two trillion dollars of government spending, but Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion.

So Romer thought the right size was probably about double what was actually enacted (excluding the Alternative Minimum Tax relief).

And then there are the prominent Nobel prize winning economists in the Democratic party who predicted the stimulus was too small.

So basically, the Administration’s strategy for limiting the political damage of the dismal economy (to say nothing of doing something to fix it) is simply to blame Republicans, because actually admitting that the Administration fucked up–much less doing something like firing Tim Geithner and starting fresh–is just not palatable.

A pity for all those struggling Americans who have to pay for the Administration’s arrogance, huh?

“We the Parasites” Benefiting from HAMP

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You’ve probably already read DDay’s and Atrios’s pieces on what some Treasury officials admitted about HAMP the other day. But partly because I want to link to this really comprehensive account of the entire meeting and partly because I want to elaborate on a point made in it, I thought I’d join in.

Basically, at some blogger chats last week, some folks at Treasury judged that, in spite of the catastrophic failure of HAMP to achieve its stated purpose–to help homeowners stay in homes either bought during a bubble or refinanced at a time when lending standards had been all but eliminated–it was still a good thing because it gave the banksters some time to recover from their catastrophic investment in the shitpile.

On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

As these revelations about Treasury’s self-congratulation on HAMP have come out, I keep thinking of the word “parasite.” The folks we pay to keep our financial system running for the good of the citizens of the United States are unabashedly celebrating that they’ve made individual families’ lives more miserable because the banks–who while SCOTUS may treat them as people are not actually part of the “We the people” originally envisioned by the Constitution–will have time to recover from their own damn mistakes.

Our government is happy–not from the pain of the families, per se–but because a bunch of artificial entities that seem to have replaced “we the people” as those who will receive  “general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity” from our government will be better off.

The guys in charge of our economy actually seem incapable of understanding who they work for–not to mention the additional problems their “qualified success” will cause. (What happens in a decade when large numbers of middle class kids can’t go to college because the government decided it was okay to subject their families to more misery during a foreclosure?)

Or, they don’t give a shit that this program asks homeowners to pay over and over for their mistakes, all to make sure the banksters never have to pay for their own.

Which is the other problem with this attitude. The alternative to HAMP, of course, is cram-down, in which the banksters have to cut the principle owed to them to what was probably more realistic value in the first place. Every time cram-down gets dismissed, the person dismissing it as an option mobilizes the language of morality, the need to make homeowners pay for buying more home than they could afford (assuming, always, they haven’t been laid off because the banksters ruined the economy or run into medical debt). But there seems to be no language of morality to describe the price banksters should have to pay by failing to do any real due diligence on loans or for accepting transparently bogus assessments of value. Heck, even the banksters get the equivalent of cram-down without a big morality play.

Treasury’s attitude about HAMP is not just evidence they’ve lost all track of who they work for and where the benefits of the economy are supposed to be delivered, but it also suggests that these Treasury folks have lost the most basic notion of capitalism, that if businessmen never pay for bad decisions, they’ll continue to make bad decisions.

And meanwhile, a whole bunch of “we the people” will be worse off because of the really twisted sense of purpose held by the folks working for “we the people.”

Rahm and Axe: Timmeh Has Got His Groove Back

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What a ridiculous piece of crap this A1 article by Anne Kornblut is, proclaiming that Eric Holder is having a good week.

It parrots conventional wisdom about what a bad time Eric Holder has had–pointing to turf battles he lost, rather than matters reflecting on the success or failure of DOJ itself. And then proclaims that the arrest of Faisal Shahzad makes all those political battles disappear, at least for this week. For Anne Kornblut, it’s more valuable for the Attorney General to win the approval of a bunch of demagoguing political enemies than to get one after another terrorist to plead guilty and cooperate with the government.

Which sort of tells you about Kornblut’s judgment.

But it’s not Kornblut’s judgment that is most ridiculous in this article. It’s Rahm and David Axlerod’s:

Likewise, White House Chief of Staff Rahm Emanuel acknowledged that Holder had “a very good week,” comparing his ups and downs to those experienced by Treasury Secretary Timothy F. Geithner. “A year ago, people were saying Geithner isn’t what he’s supposed to be — and now he has his mojo back,” Emanuel said Wednesday. “The same with Eric.”

David Axelrod, a senior adviser to President Obama, drew an identical comparison in a separate interview, saying: “Washington is a town of ups and downs, and there are other members of the administration — I think of Geithner, for example — who was in the barrel for a while. And it’s just the way this town works.”

So apparently Anne Kornblut felt her little theory that Eric Holder had a good week was important enough to ask the White House Chief of Staff about.

Really, Anne? That’s what you waste Rahm’s time with? Rather than, say, a question about the coordination between Janet Napolitano and John Brennan on terror strikes and oil spills, something that is not only part of the Chief of Staff’s job description but actually matters?

Apparently, though, both Rahm and Axe not only took her call to answer such an inane question, but they gave her … exactly the same answer. “Sure Anne, Holder has had a good week, but have you noticed what a good week Timmeh is having?” That is, both of them magically turned her inquiry about Holder’s mojo into a question to highlight what they claim to be Tim Geithner’s mojo.

Really, Rahm? Really, Axe?

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NY Post Floats Dimon to Replace Geithner

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Talk about unclear on the concept! The NY Post claims that “a number of policy makers” have proposed ousting Geithner and giving the position of Treasury Secretary to one of the MOTUs who was effectively Geithner’s “client” at both the NY Fed and Treasury. (h/t scribe)

Sources tell The Post that a number of policy makers have begun mentioning Dimon as a successor to Geithner, whose standing in Washington has suffered because of the country’s high unemployment rate, the weakness of the dollar, the slow pace of the recovery and the government’s mounting deficit.

Last week, Geithner faced a withering attack from some Republican members of the Joint Economic Committee, getting into a testy exchange with one congressman who at one point asked Geithner if he would step down.

Dimon, meanwhile, has achieved rock star status during the financial crisis, having navigated JPMorgan through the recession and being a go-to guy when Uncle Sam last year needed Wall Street’s help during the collapses of Bear Stearns and Washington Mutual.

Furthermore, while many bank chiefs are facing heat over outsize bonuses, Dimon has repeatedly made clear he won’t write fat checks to attract or keep talent.

Now, you can never tell whether the Post is reporting news or spewing propaganda, and the fact that the Post reports only that Republicans want to get rid of Geithner and not–for example–Democrat Peter DeFazio suggests that this might be the current state of Republican spin.

Still, it is true that Obama thinks Dimon can do no wrong. And it is true that Obama’s economic policy has been totally captured by people like … Dimon.

So who knows? Maybe this is a genuine trial balloon?

Elizabeth Warren’s Not Allowed to Know the Super Stress Test Secrets, Either

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I noted the other day that Timmeh (or, according to other coverage of this, Helicopter Ben) told the banks to keep their stress test results to themselves.

Well, apparently, stockholder and taxpayers are not the only ones left out of the secret. So is Congressional Oversight Board Chair Elizabeth Warren. In fact, she’s not even allowed to know the formulas they used to measuring the banks. (h/t My Philosophy at DKos)

Q: Do you have a clear sense of what the overall TARP plan at this point is supposed to do? Are you capable of summarizing what it’s supposed to be doing?

A: No. And neither is Treasury. Treasury has given us multiple contradictory explanations for what it’s trying to accomplish.

There’s a major problem and a minor problem. The minor problem is documentation. I’ve spent four weeks now looking for someone who can give me the details of the stress test so that we can do an independent evaluation of whether the stress test is any good.

We get: "someone will call [you] right back." Only the call doesn’t come.

Then again, I think it’s clear that Timmeh is trying desparately to prevent anyone from assessing whether the stress tests are worth a damn.

Which pretty much tells you what you need to know about them.

Update: Apologies to selise, whose diary on this I just saw.

Geithner to Banks: “Ix-Nay on the Solvency-Inay”

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I suppose, if Wells Fargo boasted wildly in its earnings report that it not only made a profit, but passed its stress test with flying colors, and Bank of America and Citi remained silent about the results of their stress tests in their earnings report, then we all might conclude that Bank of America and Citi had fared rather poorly on their tests.

As opposed to all of us concluding that Bank of America and Citi failed their no-fail stress test based on the FDIC want ads and the way Geithner has been wandering around saying "Shhhhhhh!" all week.

Still. Isn’t it bad form for the Treasury Department to order financial institutions to hide data about their financial health on their earnings reports? (h/t Stephen)

The U.S. Treasury Department is asking banks not to mention the regulatory "stress tests" as part of their first-quarter earnings results, according to a source familiar with government discussions.

If I were a BoA or Citi stockholder, I’d be finalizing my suit against Geithner right now to avoid the rush.

Debt Negotiations: JP Morgan Chase and Friends Claim They Found a Pony!

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I’ll say this for the Administration. They’re driving a harder bargain on behalf of Chrysler and GM than Hank and Timmeh bargained with AIG (a cynic might say that’s to push both companies towards bankruptcy).

But I’m fascinated by the claims the creditors are making in the case of Chrysler. Where Chrysler estimated its secured creditors could get 25 cents on the dollar (around $1.7 billion; it picked the 25 cents out of the 11 to 43 cent range), and the Administration is offering them the 15 cents on the dollar they can currently get in the market (around $1 billion), the creditors claim they believe they can get 70 cents on the dollar (around $4.75 billion).

Some senior lenders believe they would get more than 70 cents for each dollar of their secured loans if Chrysler is broken up and sold, said people familiar with the talks. Other lenders don’t have an exact number nailed down and are awaiting detailed figures from the auto maker on its assets.

All of the 40-plus lenders and investors are nonetheless incensed by the last Treasury offer: that they accept about 15 cents per dollar of face value of their loans, or roughly $1 billion of the $6.9 billion owed them.

[snip]

But some of the senior secured lenders think that is a low-ball estimate and say recoveries could reach 70 cents on the dollar in liquidation, said another person familiar with the talks.

Gosh. Cerberus has been trying for two years to sell Chrysler, much of that time before the crash drove down the value of Chrysler and wiped out the ability of many potential buyers to do so. Yet these banksters think they’re going to get $4.75 billion off Chrysler’s remains now that the market is really abysmal?

Who knew Chrysler has secretly been a shiny pony all this time?

Or perhaps the creditors are using the 70 cent number for a different reason, and not just to drive an equally hard bargain in response to the Administration. Perhaps that’s what at least some of the creditors know they’ll get in bankruptcy, once you take what they’ll get to sell Chrysler’s pieces parts and get the payoffs of the credit default swaps and other hedges they’ve got on Chrysler. 

Are JP Morgan Chase and friends suggesting they’ve placed a $3 billion bet against American industry?

What If Big Media Became a Systemic Risk?

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During today’s hearing, in the context of asking why the Administration was somewhat urgently pressing its proposal for systemic wind-down authority first, John Campbell (R-CA) asked Tim Geithner whether there were other non-banks that constituted systemic risks that might fail.

TG: In context of proposals for more accountability. They need to be viewed together. We’ll work with committee on best legislative vehicle. Understand can’t do this piecemeal. 

Campbell: Why move on this separately. Are you expecting additional non-bank failures.

TG: [Again no real answer]  It would be in the interest of the country to make sure we’ve got broader rules. Less costly for the taxpayer.

Geithner pretty pointedly didn’t answer that question, which doesn’t reassure me that there’s not another AIG out there.

Which is why I find it interesting that Ed Royce (R-CA) brought up one of the other entities that–like AIG–chose to be regulated by the Office of Thrift Supervision rather than a stricter European regulator: GE.

GE held a panicked investor meeting last week to lay out the status of GE Capital, and has failed to meet a number of recent promises.

Shortly before announcing first-quarter earnings in 2008, [Jeff] Immelt—who was not at the Mar. 19 session—said the quarter’s results were "in the bag," only to miss the quarter’s number significantly.

Then last fall, Immelt said the company would not need to raise new capital—not long before it sold $3 billion in preferred stock to Warren Buffett and announced plans to offer at least $12 billion in stock to the public. More recently, GE slashed its dividend 68% for the second half of 2009, following months of stating that it would maintain its dividend for the year.

And, as happened to AIG last year, ratings agencies have been cutting GE’s credit rating.

Oh, and there’s that bit about GE’s media employees being asked to put off raises for a while.

Now, at least some observers are advising not to be too concerned about GE–so I will assume that Royce was presenting a scary hypothetical rather than predicting the demise of GE. And I will take it as Royce presented it–a big what if?

What if the world’s largest non-bank finance company attached to the arms and lightbulb manufacturer attached to one of the biggest media companies in the US were considered a risk to our finance system? What if FDIC and Treasury and the Fed grew worried that NBC’s parent company was sinking under the weight of GE Capital’s defaulting loans and started thinking about "resolving" it? Read more →

Yet More House Finance Hearing Geithner Liveblog

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If I understand the rules Barney Frank laid down on Tuesday, the members who waited patiently but never got a chance to ask questions on Tuesday (people like Alan Grayson) get to go first.

You can follow along at CSPAN3 or the committee stream.

Here is Geithner’s statement.

Frank: When Geithner and Bernanke here on Tuesday, these members were here when they had to leave: After myself and Sub Chair. (Reads a list of name, including Grayson), they will be the first ones to ask. Systemic risk. Long had ability to wind down banks. Do we need authority to regulate excessive leverage? Innovations that have no value die of their own weight. But innovations that have values, thrive. By definition there are no rules. Securitization a set of innovations on par with earlier set. Greatly magnifies value of money. Problems when there are no rules. 

Bachus: I have been informed AIG trying to force creditors to accept 70% reduction. Foreign bank paid dollar for dollar in bailout. Essential that any new regime not rely on taxpayer funding. What was released yesterday relies on taxpayer funding. This is unacceptable and will perpetrate moral hazard.

Kanjorski:  We need to do this before these entities are close to death. Need to do this to prevent unknown calamities down the road. We must include regulation in the resolution authority. And we must regulate insurance–which is only regulated at state level. Particularly reinsurance. 

Garrett: In light of Chinese and Russian calls for reserve currency, you might want to clarify your remarks [not sure if this was directed to Barney or Tim]. What are roles of current regulators. Federal reserve created to avoid asset bubbles, but they do. Forgive me if I’m still a skeptic if you say systemic regulator will prevent this from ever happening again. We will only be encouraging that it will happen again. 

Geithner: [Note, this is NOT precisely what was in his statement] Here’s the list he just gave:

  • First, we need to establish a single entity with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities.
  • Second, we need to establish and enforce substantially more conservative capital requirements for institutions that pose potential risk to the stability of the financial system, that are designed to dampen rather than amplify financial cycles.
  • Read more →