Friday, August 7, 2009

Being Outraged II

Reuters reports, according to the Wall Street Journal, that with the bailout of AIG "Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and American International Group Inc to help manage and break apart the insurer."

Is this simply outrageous in a company where the government, you and me, has an ownership stake of 80%, having already received some $180 billion dollars from taxpayers? Among those who could collect these big fees (people, in banking, in case you didn't know, it's all about the fees)...
"Morgan Stanley could collect as much as $250 million, the newspaper said, citing banking experts and documents released by the New York Fed. Bank of America Corp, private equity firm Blackstone Group LP, law firm Davis Polk & Wardwell LLP, accounting firm Ernst & Young, Goldman Sachs Group Inc and JPMorgan Chase & Co are among others that have or could get big paydays for helping dismantle AIG."
Call me a conspiracy theorist if you want, but once you have been head of the New York Fed as, Timothy Geithner has, developing close relationships with these bankers and allowing poor oversight of the same, I wonder if there is a conflict of interest as the chief spokesperson on behalf of the People as the Treasury Secretary.

Not only did Timothy Geithner allow these banks to fly below the radar while engaging in activities that by any standard outside of Wall Street would be bogus as the head of the New York Fed, but with the breakup up AIG the fees that will be given are doubled than any other breakup in our history--this at a time where the country has been at the brink of financial collapse and in serious debt.

AIG seems to have been the distribution center for Goldman Sachs, J.P. Morgan Chase, Citibank, and Banks of America. All have gotten assignment to assist in the dismantling of AIG, not to mention that many of these have already gotten bailout money having been insured by AIG. The Wall Street journal reports that the AIG breakup will be four times the fees paid to break up AT&T Corp. in 1996, and nearly double those paid for Visa USA's 2008 initial public offering, the largest U.S. IPO ever. Is this not outrageous?


chesapeake said...


Yes, yes it is. You hit the nail on the head.

I enjoyed our dialogue on my dad's blog the other day. I loved the quote from Ayn Rand that you chose. One of the things I admire most about her is that she was a female philosopher unafraid to state her opinion in a time where women were not seen as equals.

"This may simply mean that there are various forms of discipline which in one sense undermines objectivism." I don't know. Maybe I'm taking her philosophy too much at face value, but I don't see objectivism defined in the word itself. Maybe the disciplined businessman who is unsuccessful in business is disciplined in the wrong things.

But the argument you present in that paragraph also goes back to the whole issue of "talk is cheap." I agree with you wholeheartedly that thought means little if there is no action to back it up. I can think about creme brulee all day, and discuss the theory of making it, but I won't have creme brulee until I get up and make creme brulee.

An argument could be made that regulation can also be coercion, which is the scenario that Rand sets up in Atlas Shrugged. But, any time you have people involved, it can get ugly. What amazes me about democracy, with all of its pitfalls, that it still manages to run at all. I truly believe in capitalism, just as you wrote.

Your quote about finding solace in books teared me up. I spent many, many school years with a book under the desk. When it became clear to my teachers that I knew the material, I stopped hiding my books. These books were truly my teachers. Your words are very inspiring. Thank you for taking the time to write, and through your words, tell me your story. I feel that it is the most important thing that anyone can do.

Good luck on the novel!

Judith Ellis said...

Chesapeake - The pleasure was mine. All the very best. You are a fine young lady.

With regards to the quote that you have taken here from me on your dad's post, "this may simply mean that there are various forms of discipline which in one sense undermines objectivism," the reference is not disciplines as in work, but discipline as in thought. Please see the post below, Being Ayn Rand. There are some interesting comments there. I also cite your thoughtful piece in the post.

With regards to your point about coercion, I'm assuming you are addressing my point that without regulation there will be coercion among the private sector, the interest of the People has to paramount in government. If those who we elect are doing so to the detriment of the People and the betterment of themselves, this should not be tolerated. (Most are betting on our apathy. Freedom sometimes lulls.) I am for reform in campaign finance laws and I believe in term limits.

While I believe in capitalism, I do NOT believe that the markets will take care of themselves. The markets are constantly being manipulated by traders. Please read the story of Jessie Livermore’s life in "Reminiscences of a Stock Operator" by Edwin Lefevre and Nicholas Darvas' "How I Made $2,000,000 dollars in the Stock Market" (1960) and "Wall Street the Other Las Vegas" (1964). I read both of these books years ago and they are still very relevant today.

Jack Bogle, founder of the Vanguard Group, somebody whom I admire greatly and chat with, said in a CNBC video posted here that "the stock market is a giant distraction to business." Another brilliant person with whom I chat rather regularly, Nassim Nicholas Taleb, also has great points concerning the markets. If you haven't read "The Black Swan" it is a must read. So, while capitalism is good for its basic element of choice, trade, and freedom, it needs regulation as people are forever managing morality and greed to some extent. Self-interest is natural but being selfless divine. Some do a much better job at it than others.

In all of this the People must remain vigilant on all fronts. Democracy and freedom demand this.

Anonymous said...

There is a point when this is not something to blame on Geithner and must instead be blamed on the guy who hired him.
Obama has all the information about Geithner's background that we have access to plus much more.
We have no idea how close to the edge of the cliff we were/are. We won't know any of the really important details until years from now. We have a choice between supporting Obama and not supporting Obama. I choose to support Obama and by default support Geithner. We hired Obama and we need to let him do his job. BTW,Rubini and Krugman have both said good things about Geithner. Obama knows more about what is actually going on than we do. That's one of many things that set him apart from the previous president. At least that is the way I see it.
Capitalism failed back in the 1920's. We became a super power because of the government programs known as WWII and the cold war that followed. Some of the main technologys (if not all) that are driving our economy today were developed under defense programs which are after all socialist. We had a gigantic economic boom fueled by the socialism of the GI bill. The large middleclass was created by the changes brought about in the New Deal. Much of this growth happened during the 1950's when the top tax rate was 90%. When JFK became president, he fought to drop that to rate to 70% and Eisenhour (Republican) came out of retirement to fight against that tax cut. For the past 30 years, we have been living under the illusion that Reagan turned the economy around in the 1980's, when none other than Arthur Laffer (Reagans advisor on tax policy) recently said the success of Reaganomics had nothing to do with tax cuts, but instead was fueled by Paul Volker's (the fed chairman appointed by Jimmy Carter) managment of interest rates. What outrages me is that people beleive Ronald Reagan was a great president. Look up communism in Wiki. One of its main tenets is public education. We've accepted socialist ideas since the 1800's when the first public high schools opened. Unfettered capitalism works as well as unfettered socialism.

Judith Ellis said...

Thanks, Anon. Many of your points are well received. This is a great point: "Unfettered capitalism works as well as unfettered socialism."

There is no doubt that we were/are close to the cliff. But what concerns me are the policies that got us here have not changed. Wall Street seems to be doing just as it pleases as it always has done. So, there is undoubtedly faulty thinking going on here and I don't care whose thinking it is. Real change is needed now and do a major crisis is the best time to implement it.

If there are things that are going on that we do not know about, should we not know about them? Perhaps this is the problem. We need to know what's going on and not only from think tanks who do not think but instead push their own agendas hired by big businesss as lobbyists.

Anonymous said...

I don't buy into the idea that lobbyists or big business is the major problem. Its us.
For example, most of the protesters at these twon hall meetings seem to ba made up of people on Medicare who 'don't want the goverment in thier healthcare'
They are flat out ignorant. I say a woman in an Arkansas meeting actually crying. She was worrined that the counrty was being taken away from her. These people seem to be buying Rush Limbaugh's nonsense hook line and sinker. He has taken the logo Obama uses for the healthcare plan and morphs it until it looks like a swatika. These people seem to be under the spell of some sort of mass hysteria. They like what Rush has to say and so the believe it.
Have you seen this? It sent chills down my spine. This is much more dangerous than mere greed.

Judith Ellis said...

Anon - I agree that it is up to the People to be informed and to educate themselves on policies that the Congresspersons implement that are not in our best interest whether it is for the self-interest or big business.

I strongly disagree if you are exonerating the likes of AIG and Wall Street banks whose practices nearly brought the global economy to the brink of collapse. These banks are unyielding considering that it is the People who bailed them out and it is the people whose homes loans will are not being renegotiated and interest rate are hiked if they are even five minutes late in making their payment.

At the gym just minutes ago I heard this story. This guy was five minutes late on his credit payment online and his monthly Citibank credit card changed indefinitely from $150 to $565 monthly. Bill Maher calls Citibank Shittybank. From the way it sounds, having received many bailouts and bonuses, perhaps Bill's got a point.

Anonymous said...

I'm not exonerating the banks.
I'm just that its possible that way things are being done is just the way things have to be done. There are Committees in Congress working on how to re-regulate the finantial system. Whatever happens, it will be a battle in Congress. Many of the people who are underwater (its easy for me to say since I own my house outright) bit off more than they could chew. These people weren't motovated by extreme greed as much as they were by thinking they were investing in their future etc. As a nation, we need to rethink what we value. Paul Krugman thinks (and knows its impossible politically) we should tax super sized incomes - incomes that are 50 times greater than median for example, at a high rate. For example, in Japanese corporations, the CEO in a company make 11 times more than the median salary in that company. This a a reflection of a people who have a differnt set of values than we do. In the US, it can be around 400 times. To get chane this so it would be more along the lines of what the Japanese do would be a change in how we think and what we value.

Judith Ellis said...

Very good points, Anon.

"I'm just that its possible that way things are being done is just the way things have to be done."

If these things have been done the same way after every created recession based on the lack of corporate and government governance is this not insanity. We do we expect that we can do the same things over and over again and expect different results.

I have said this repeatedly. If the government and banks did not allow such lending the people could not have acted. I do not think that some members of Congress and business are not culpable. For me, all of those who were head of major committees during this collapse should be relieved of their duties.

Anonymous said...

"if these things have been done the same way after every created recession based on the lack of corporate and government governance is this not insanity. We do we expect that we can do the same things over and over again and expect different results. "

We haven't had a problem like this before. At least not since I can remember. And I can rememeber back to 1961. This is a first (at least since 1929) And what they did this time has kept us out of what happened back then. I guess I'm sort of saying the same thing David Brooks said in his column a week or so ago. I agree that lending became far too lenient. But who actually made the loans? Thousands of people from the middle class working as loan officers. I'm not defending the rich and powerful or anything like that. Its just that as I watch the healthcare bill work its way though congress, I'm coming to the conclusion that its not the rich and powerful that screw everything up. Its our irrational behevior that allows them to push our buttons. And they play us like a fiddle.

Anonymous said...

The myth of the rational voter By Bryan Douglas Caplan

I was walking around a bookstore yesterday thinking the thoughts I've been writing about. I came across the book above and spent and hour or so looking through it and it strengthened by views a bit.

Judith Ellis said...

Yes, Anon, we have not had something like this since 1929 but what we most certainly have had are bailout of banks and major scandals where not a lot has changed. Can you say Enron, Adelphia, and WorldCom?

Arianna Huffington has a great book, Pigs at the Trough: How corporate greed and political corruption are undermining America
, that has been re-released. It's a good read. Arianna, by the way, has a master's degree in finance from Oxford. She is a sharp woman and great entrepreneur.

Judith Ellis said...

Thanks for the book recommendation, Anon. I read books of all kind.

Anonymous said...

Rachel Maddow pointed something out last night on her show. The proposal in the health care bill to
provide 'death councilor' was a
Republican idea. It was put in by Johnny Issicson of Georgia. To me, this is an example of the press dropping the ball.(which they did in the run up to the war and when they never reported on credit default swaps until they had done their damage) All they have done for days is repeat the charges about the 'death' provision without digging very deep. I don't see this as corruption. I see this as lazyness. They had their story that they could use to provide the conflict they needed to draw in viewers and so they were satisfied. I see this as an example that hurts the democratic process, but has little to do with greed driven by money. It may be greed driven by climbing the corporate ladder in media, but its not all about money. Krugman reviewed a book today that seems to conclude that a big part of the problem with the stock market could be that people were (and still are) seduced by the beauty of an flawed idea. The review has something quite good to say about Larry Summers.

To me, these sorts of things are at least as responsible as pure greed driven by money.

Judith Ellis said...

Anon - You bring up a very good point about the laziness of the media. Perhaps some things are done for ratings, to keep hysteria in the news in order to report on it. I'm not saying that this is the case, but what I am saying is that journalism isn't what it used to be and we should not take it at face value.

"Krugman reviewed a book today that seems to conclude that a big part of the problem with the stock market could be that people were (and still are) seduced by the beauty of an flawed idea. The review has something quite good to say about Larry Summers."

This is an interesting statement and I will read the Krugman article. Thank you.

zorro said...

I've been looking at in search of excellence and noticed that none of the companies it looked at were automobile companies. In fact, if I'm not mistaken, none of the companies had any Japanese competition. They were companies such as IBM, Xerox, Westinghouse (I think they made electric power plants),GE, General Foods etc. A while ago on on the Tom Peters blog, I mentioned that I thought that business gurus should share part of the blame of our shrinking manufacturing base. What I should have said is that gurus are (unintentionally) some what responsible for the losses in the automobile industry. In Search of (and The Halo Effect) points out that when ISOE was first published, most business books were about how to manage like the Japanese. I bet the reason for this was because these books were written for industries that were competing with the Japanese. ISOE decided to ignore the problem of Japanese competion and look at entirely different industries - whatever was not in direct competition (and therefore more likely to be doing well) with the Japanese. The success of ISOE lead to a raft of copycat books that more than likely ignored companies that were in competition with Japanese industries. So it is possible that a uninteneded consequence of the huge success of ISOE was that the best and the brighest focused on industies that did not compete with the Japanese, which was just another blow to the auto industry.
BTW, Tom's powerpoint on Health Care ignores policy - and that is the 800 lb gorilla (much as the question of Japanese competition was).

zorro said...

If I ever had a chance to talk to Obama, I'd tell him forget about going to Mars. What we should do is build a space elevator. Here's a link from CNN.