Bank Holding Companies Are Not a Legal Impediment To Regulatory Receivership

By Big Tent Democrat, Section Economy
Posted on Sat Apr 04, 2009 at 11:10:03 AM EST
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One of the strange inaccurate defenses that you read about President Obama's reluctance to use the power of regulatory receivership regarding the financial crisis is that since banks are held by bank holding companies, the banks themselves can not be taken over without new legislative authority. Here is an example:

First, the Prompt Corrective Action ("PCA") law does not give the FDIC the ability to take over any Bank Holding Company ("BHC"). Instead, BHC's are regulated and governed by the Federal Reserve, pursuant to The Bank Holding Act of 1956. Amongst the financial institutions that are thus not subject to the PCA are JP Morgan Chase, Citigroup, Bank of America, Wells Fargo HSBC, Goldman Sachs, Morgan Stanley. . . . [B]y the way, the FDIC has been seizing commercial banks, including Washington Mutual when it has determined it to be necessary. But, for obvious reasons the FDIC has decided that trying to gobble up the entire banking system is neither legal nor wise.

(Emphasis supplied.) This is sophistry. We can debate the wisdom of regulatory receiverships for insolvent banks, but you can not question that the power currently exists. To argue so is to simply ignore the facts. Here's a clue, every bank holding company has a bank that it holds. There is no need to seize the bank holding company, just the bank. Indeed, the WaMu example cited by that diarist, Geekesque, is instructive. In fact, the WaMu bank holding company has sued the government, but not for the seizure itself, but for not garnering sufficient value from the sale of the WaMu bank assets:

Washington Mutual's holding company is suing federal regulators for billions of dollars, saying the firesale of the bank's assets to JPMorgan Chase violated its rights. The lawsuit was filed Friday [March 21] in federal court against the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September. It was the largest bank failure in U.S. history.

Lawyers for the holding company, Washington Mutual Inc., argue that the bank was worth more than the $1.9 billion JPMorgan paid for it in a deal arranged by the FDIC. The lawsuit argues that if WaMu's assets had been liquidated prudently, they would have been worth more than that.

The WaMu bank holding company is not arguing that its bank could not be seized. It is arguing that the government did not maximize the value of the bank assets seized.

When discussing the financial crisis and the Obama Administration's policies addressing the crisis, it is important to try and stick to the facts - whether you favor or oppose the Obama Administration policies.

Speaking for me only

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Bank Holding Companies Are Not a Legal Impediment To Regulatory Receivership | 80 comments (80 topical)

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I wish someone could explain (5.00 / 1) (#1)
by andgarden on Sat Apr 04, 2009 at 11:19:21 AM EST

what exactly the technical problem of just seizing the banks would be. I know, big conglomerates, etc. But someone should explain what exactly would happen to the rest of Citigroup if the NA bank is seized.

BTW, scanning the comments over at Orange: almost no substance whatsoever. I'm clearly not missing anything.

there is no impediment (5.00 / 2) (#2)
by Big Tent Democrat on Sat Apr 04, 2009 at 11:26:44 AM EST

A bank holding company is no different than any other holding company for the most part - it holds shares in other corporations, in this case, banks.

To be honest, the bank holding company is irrelevant to the discussion.

If you have a problem with taking over Citibank, then say so and why. Hiding behind the "bank holding company" defense is an admission that you really have no argument.

This is not to say that, for example, other parts of Citigroup should not be seized (Travelers Insurance, etc.), and I can not say for sure what regulatory exists for seizure, but I am fairly certain that it exists.

An argument AGAINST seizing, say Citibank, could be that the whole is greater than the parts and it is not efficient to seize the parts, but if that is the argument, then that argument should be made.

I personally doubt the truth of that assertion, but I am amenable to hearing the argument.


: Hard to imagine how it could be worse (none / 0) (#3)
by andgarden on Sat Apr 04, 2009 at 11:30:07 AM EST

than "cash for trash." But that's apparently what they believe. . .

: Bailing Out Citigroup Not Citibank (none / 0) (#78)
by JulieW on Tue Apr 07, 2009 at 06:34:56 AM EST

The problem is "holding companies" owning both investment banks and commercial banks. Citigroup Inc. and Bank of America own both as a result of the GLBA.
Commercial Banks are under the control of the FDIC - FDIC Failed Bank List, they have taken over many banks.
GLBA gave the Investment Banks to SEC or CFTC, but it is voluntary - no regulation.
We are bailing out Citigroup Asset Guarantee, which included the unregulated hedge funds trading of credit default swaps.
We are bailing out "Bank of America Asset Guarantee." It is the investment bank portion that got them into trouble, the part that we are bailing out.
The different business sections of Citigroup:
Read the Business Summary
GAO reports that there was no authority to take over the investment banks portion of holding companies, but the Federal Reserve can provide money if the bank is a threat to the economy.
FINANCIAL REGULATION: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System, GAO-09-216, January 2009

BTW (5.00 / 2) (#4)
by Big Tent Democrat on Sat Apr 04, 2009 at 11:31:49 AM EST

This mistaken critique is also seen when folks discuss the wisdom of the repeal fo Glass Steagall.

the idea is that Glass Steagall somehow was the cause of weakened regulation. This is false. The regulatory authority was in fact shared over different parts of financial institutions.

For example, Merrill Lynch, now owned by the BOA holding company (though still a separate corporation), is regulated by the SEC.

BOA, the bank is regulated by the FDIC and the Fed.

that regulators failed to do their job is not the same thing as arguing the repeal of Steagall caused the failure.

On the other hand, the Gramm Amendment on commodity futures deregulation was clearly a terrible idea.


Glass-Steagall repeal... (5.00 / 1) (#21)
by Dadler on Sat Apr 04, 2009 at 02:16:27 PM EST

...certainly played a role in this fiasco. To deny that seems just not logical in any sense. One can argue that not a single piece of deregulation actually helped in the end, that it all was bricks in a wall without morter, made to collapse. Clinton's administration, as much as I liked it in many respects, did little to nothing to stop this tide, and in fact encouraged it. The mantra of Clinton's economic plan was "We will allow nothing to stand in the way of growing the economy." That kind of attitude is precisely what got us into this mess, that anything is possible, that everything is desirable.

Of course, I know you disagree. So be it.

Go Spartans.


: BTW (none / 0) (#22)
by Dadler on Sat Apr 04, 2009 at 02:20:05 PM EST

I happen to think Thomas Geoghegan's cover piece in the new Harper's, about the end of usary laws being the real spark of our demise, is spot on. His take gets right to the floor of the problem, outside the box analysis from deep inside it.

Glass Steagall repeal was a big deal... (none / 0) (#77)
by Samuel on Mon Apr 06, 2009 at 08:40:25 AM EST

it allowed the 10% fractional reserve system to go NEGATIVE by investing in leveraged derivative products!

I post because you mention commodity deregulation and there's a pretty neat article that you may not have seen yet on a recent COMEX gold futures call http://seekingalpha.com/article/129128-did-the-ecb-save-comex-from-gold-default


Repeal Glass Steagall Made Voluntary (none / 0) (#79)
by JulieW on Tue Apr 07, 2009 at 06:43:49 AM EST

GLBA gave the authority to SEC or CFTC, but it is voluntary. Neither have legal authority to go after the investment banks/holding companies.

BOA has both commercial and investment banks under the corporation (holding company). The commercial bank is regulated by the FDIC. The investment bank is the part we are bailing out.

We have no authority to take over the investment banks. They know that and our holding us hostage because they know the government does not want them to fail.

SEC had an out of court settlement with AIG. Elliot Spitzer had been after AIG for years. AIG was making false insurance policies.


The best argument I've heard ... (none / 0) (#8)
by Demi Moaned on Sat Apr 04, 2009 at 12:18:32 PM EST

(which is not to say I consider it a sufficient argument) is a lack of expertise to manage the work on the scale that would be involved here.


Good diary on this ... (5.00 / 1) (#36)
by Demi Moaned on Sat Apr 04, 2009 at 03:29:40 PM EST

over at (shudder) Daily Kos. Diarist cites comments by FDIC Chairman Sheila Bair. One snippet:

Unlike the clearly defined and proven statutory powers that exist for resolving insured depository institutions, the current bankruptcy framework available to resolve large complex non-bank financial entities and financial holding companies was not designed to protect the stability of the financial system.

Whether or not you agree with (5.00 / 1) (#53)
by inclusiveheart on Sat Apr 04, 2009 at 07:58:55 PM EST

Baird's position that receivership is a risky option here, her argument against bank conglomerate bank take overs is actually much more intellectually honest and reality-based than the claims that it is illegal or impossible.


I found Sheila Bair's testimony (5.00 / 2) (#64)
by Militarytracy on Sun Apr 05, 2009 at 10:37:42 AM EST

to be lukewarm on anything factual and fallaciously reassuring. I find it sad that our leaders want to attempt to preserve the system over preserving the people. She says we will dig out of this.......well of course we will because we have no other choice. It is so unlikely though that these unbelievably leveraged conglomerates will survive no matter what anyone does. I find the time, money, and efforts they are blowing on attempting the impossible to be a complete failure of leadership.


The argument against nationalization (none / 0) (#55)
by Politalkix on Sat Apr 04, 2009 at 09:04:04 PM EST

is also provided by former FDIC chairman, William Isaac. Please follow [link].


Once again not really a substantial (none / 0) (#65)
by Militarytracy on Sun Apr 05, 2009 at 10:54:19 AM EST

argument because the insolvency is destroying our entire economy. I wish we were in the same situation we were in in the 80's but we aren't even close. This is an extreme crisis beyond anything that most people could have comprehended on Feb 24th. Most of us who care and who are paying attention have a much better understanding now that the pit is bottomless. And whining about how hard it is......please.....I'm a soldier's wife and part of a military family in the middle of two wars, so you are whining to the wrong person about not being able to deal with what must be dealt with because it's too hard and nobody is even effing shooting at you or blowing you up in a roadside bomb. I find all this whining bordering on pathetic right now. The only thing that will not change whether the administration does what needs to happen here and we inspire a speedier recovery, or they play terrified chicken and drag this thing out for ten years is that the rest of America is going to learn how to live through very very hard tear inspiring and trying times and it won't just be military families suffering the consequences of arrogant, lazy, beltway leadership. I suppose it was time though. Politically speaking our leaders have become so cash corrupted and so far removed from serving the people that major lessons were coming, and now they are here.


Since you have brought up a military analogy (none / 0) (#69)
by Politalkix on Sun Apr 05, 2009 at 11:47:20 AM EST

let me say that the choices of fixing the financial system is akin to what Paul Bremer faced during reconstruction of Iraq after the invasion. There were two approaches that could have been taken. One was the approach that he took, i.e. completely try to build the system from scratch which involved totally disbanding the Iraqi military and de-Baathifying the civil bureaucracy. Another approach that could have been considered would be to retain the imperfect and corrupt Baathist civil bureacracy and military but put more strict controls over them through Constitutional fixes so that Iraq could get democratised in an incremental way.
The Geithner-Bernanke way is to put in more regulatory fixes so that the financial house can be reformed from within. The Krugman way is to destroy the existing financial system first and build a new Wall Street.
Destroying an existing economical structure totally and rebuilding from the ashes has never been a painless process. It is the height of demagoguery to pretend that it is the less painful way. People who are practising such demagoguery would have more credibility in my book if they first owned up to their roles in the 1990s in building up the financial system to its present form and then outlining the pain that people have to go through if their plans are implemented.


Paul Bremer disbanded (5.00 / 1) (#70)
by Militarytracy on Sun Apr 05, 2009 at 12:14:47 PM EST

systems of structure though that were not failing. He didn't even consider probing the soundness of the existing structures and preserving what was sound. We have probed our structures and hidden the results because they are so broken we fear the anger of our people. Our structures are insolvent sixteen times over. Nice try though. Paul Bremer didn't even care to know facts such as many people in the Baathist party weren't even Baathists, and also not all Baathists would have fought us if they could have worked with us. I know facts, I want the facts, and now facts are even being hidden from me. Nice try, but you can do better.


Stress Tests (none / 0) (#72)
by Politalkix on Sun Apr 05, 2009 at 01:44:25 PM EST

The probing of financial structures is not complete yet. It is expected to get completed by the end of April.

From the Washington Post[link]
"As part of the new administration's overhaul of the $700 billion bailout effort, banking regulators are requiring stress tests for the 19 largest banks to see whether they will need additional support to withstand a more severe downturn than the country is experiencing now.
Those tests are scheduled to be completed by the end of April. After that, the banks in need of additional capital will be given time to raise it on their own."


: Stress tests are utter bull$hit with (5.00 / 2) (#73)
by Militarytracy on Sun Apr 05, 2009 at 03:29:55 PM EST

this administration now since the banks can value their toxic crap at whatever they say it is worth. I'm a millionaire several times over based on what I say the property in this house is worth now and that's just a brand new terrific fact. The test findings will also be a state secret just like how much money the FED is printing and pumping into the economy in a whole variety of ways. It's all smoke and mirrors at this point. Make it tranparent......make it public........then we can actually have a conversation in reality.

Seems easy to me (none / 0) (#34)
by ding7777 on Sat Apr 04, 2009 at 03:08:26 PM EST

Have all credit swap derivative contracts canceled
Return all money paid to anyone who redeemed a CDS except for those who can prove they actually owned the underlying financial instrument.

: The sticking point is the (5.00 / 2) (#40)
by inclusiveheart on Sat Apr 04, 2009 at 05:42:05 PM EST

"return money paid" part. I don't think they have the money anymore. That's why the assessment of what would happen in the event of a huge economic downturn would have been useful some years ago. Because someone might have required that they be able to make good on these crazy bets if they were going to enter into them.

: CDS is Worth Less (none / 0) (#80)
by JulieW on Tue Apr 07, 2009 at 06:48:30 AM EST

401-Ks, pension plans, money market accounts, etc are invested in CDS.
Some CDSs are subprime mortgages that were sliced and diced to supposedly spread risk. It is a very tangled web.

Yes, well there's a lot left to be (5.00 / 5) (#5)
by inclusiveheart on Sat Apr 04, 2009 at 12:05:29 PM EST

desired in that diary.

Not the least of which is leaving a whole lot of relevant information from the law he cites that limits the extent to which that loop hole he thinks he found can be used. There is a section called "Appointment of receiver required if other action fails to restore capital" addressing his "loop hole" in which a time limit is given in trying alternative meathods of stabilizing the banks. He conveniently left that part out and ranted about people being ignorant - cruel trickery. That's why I click on links.

i admire your effort, over there (5.00 / 4) (#37)
by Turkana on Sat Apr 04, 2009 at 04:26:13 PM EST

but you can't argue with cultists. and i am not shy about calling them such.


The cultists are not my target. (5.00 / 5) (#39)
by inclusiveheart on Sat Apr 04, 2009 at 05:38:39 PM EST

It is their prey that I hope to protect.

I don't actually think I know any more than he does, but I do know that the answers are not as simple as he makes them out to be. It is not fair to people to play the games he does with deflection and obsfucation.

Also, if this country really is on the precipice of total economic collapse, the fact that there are no laws to guide us - if there are none - a debatable point - does NOT mean we can't take action - we don't just have to throw up our hands and say "Oh no laws! Just gotta live with it!" That's ridiculous and it is not what the Founding Fathers intended at all when they created our government. We are supposed to be an agile and innovative body, not lead-footed fools carried by the fates.


Well said (5.00 / 1) (#43)
by lambert on Sat Apr 04, 2009 at 06:09:50 PM EST

"... it is their prey I hope to protect..."

Hardest work in the world.


: I don't know why I bother. (5.00 / 1) (#54)
by inclusiveheart on Sat Apr 04, 2009 at 08:11:41 PM EST

It isn't like I am some sort of expert, but my mom always says that my dad and I inherited some gene that provokes us both to get involved when we see something that we feel is dishonest or wrong. She says that we got it from my great granddaddy who was a sheriff. Since none of us are particularly into police on the whole, it is sort of ironic. On the other hand, I do believe that people should be encouraged to look at all points of view and all of the angles in a political debate before they make a decision rather than following chest pounding people whose contribution to the debate is craftily edited and over-simplified. There is a lot at stake here.
If you are going to choose the Geithner plan, I really believe you should understand what the liabilities and consequences would be as much as I believe that if you were to choose Krugman's course you should be fully informed of what that choice means. I think what I really hate is when people insist that the liabilities of any choice be ignored. The large majority of choices we make daily have a potential downside, I see no reason in a situation as important as this to gloss over the danger. It isn't like both approaches do not hold a considerable amount of danger. People need to be prepared for the challenges ahead. Pretending that there are none on one course or another doesn't achieve that end.

and in purely political terms (5.00 / 6) (#44)
by Turkana on Sat Apr 04, 2009 at 06:10:38 PM EST

my great fear is that by coddling the miscreants, obama will fail to repair enough of the damage. and then the republicans might actually have a chance of coming back, in the next election cycles.

the cultists don't realize it, but their inability to think critically and even slightly objectively hurts obama- and us.


I go back and forth on this (5.00 / 2) (#46)
by Pacific John on Sat Apr 04, 2009 at 06:22:43 PM EST

... since I was involved in a key healing gesture, getting Hillary recognized and entered into nomination in Denver. There's an argument that honesty and transparency enhances Obama's support and legitimacy, even if you have to force him into it.

On the other hand, the Alinsky culture his grassroots internalized seems to think you can't win if you play fair. They may have a point, as they do seem to act like their leader and movement is too fragile to play by established rules.

I don't know. I hate to think that a Democratic President is incapable of living within our values.


: I think in the context of ideology (5.00 / 3) (#49)
by inclusiveheart on Sat Apr 04, 2009 at 06:46:20 PM EST

the bullying has been an effective tool for both sides. Obama's problem on this issue is that real results for people who are hurting a lot will be the measure - this economic downturn is not a theoretical debate - it is hitting home and hitting hard. So the perception that something is unfair or misdirected will be very difficult to knock down - you can't just insist that a disgruntled party read his books and have hope and expect that to soothe the masses - especially when many aren't in the position to spring for the cost of a book at the moment.

That's my concern (5.00 / 3) (#47)
by Cream City on Sat Apr 04, 2009 at 06:34:56 PM EST

is that it will take more than four years to fix so much else, as well as the economy -- but he will not get to much of anything else, as we already have seen, if his advisors do not do better by him . . . and us.


I agree with this sentiment big time. (5.00 / 4) (#48)
by inclusiveheart on Sat Apr 04, 2009 at 06:36:26 PM EST

They're not doing him any favors imo. I think some of them know that too actually.


self knowledge (5.00 / 6) (#6)
by souvarine on Sat Apr 04, 2009 at 12:15:30 PM EST

Geekesque acknowledges in the comments that Citibank NA could be put into receivership by the FDIC, though he seems to believe that Citibank NA has some other set of assets to cover the toxic assets that have put a hole in their balance sheet. He is not arguing in good faith, he is making noises to distract from substantive disagreements with Obama's policies. He misleads and then constructs a straw man, signaling DailyKos's amen chorus to post, not unlike Freepers.

Yes. (5.00 / 3) (#10)
by Romberry on Sat Apr 04, 2009 at 12:45:22 PM EST

Not unlike Freepers.

I used to visit the great orange ghetto on a pretty regular basis. Once the Hallelujah chorus started during the primaries and anyone singing a different tune was treated like a devil, I sort of withdrew and never much went back. Until today.

Is it my imagination or is that place now very much the same sort of intolerant of dissent (or even uncomfortable, inconvenient facts) place as is The Free Republic? I read through the Moyers thread about his interview with WK Black and I quickly lost count of the insults and "STFU" comments directed at anyone who dared to think that there might actually be some problem with Geithner, Summers and (Dog forbid!) Obama on this whole bailout the rich deal.

Insults aimed at Moyers, at William Black, at anyone who was troubled by what they heard in that interview...well...it's a pretty ugly place and it isn't because of the shade of orange. It was like looking into a some weirdly distorted version of reality where Bushbots had morphed into Democrats and taken up the cause of their new Maximum Leader. Whatever else there was among those who seem to be forming the mob, abundant logical thought was not on the list. Geez...


size? policy? (5.00 / 2) (#13)
by souvarine on Sat Apr 04, 2009 at 01:21:52 PM EST

I don't know, maybe mob behaviour was inevitable once DK grew past a certain size. Or maybe a moderation policy that encouraged the forming of "in" and "out" groups, regardless of the substance of arguments, made it that way.


Sociological experiment (5.00 / 2) (#25)
by Dr Molly on Sat Apr 04, 2009 at 02:26:26 PM EST

It's possible to think of it as an interesting, if depressing, sociological experiment. No rules, and a system that allows the users to determine the quality of the result.

They seem to have chosen intellectual vacuousness, a totalitarian culture, frat-boy dominance, and aggressive attacks on dissent.


: Not a New Development (5.00 / 1) (#31)
by squeaky on Sat Apr 04, 2009 at 02:50:24 PM EST

The mob aspect of dkos was firmly in place well before the primary. You probably did not notice it because you were part of the club.
Apart from reading some of the articles which were really good, the club aspect in the comments etc, was gross.
Much of that mentality came here via refugees for a year, which was really ironic considering the reason many had for fleeing.

William Black...check him out... (5.00 / 5) (#7)
by S on Sat Apr 04, 2009 at 12:16:13 PM EST

last night Bill Moyers had William Black, the author of 'The Best Way to Rob a Bank is to Own One' on his show...

...for people that are not financial wizards, like most of us, Mr. Black gave the best explanation for what the hell has been going on with our financial institutions and in relation to our government for the last few years up to Paulson and now right into the Obama admin and Geithner...

Mr. Black, who was/is an obama supporter, basically said that the banks, a few concentrated elites and are government have been and are still defrauding the public and the taxpayers.

He blatantly stated that fraud and gone on and is going on, and that the banks are in much worse shape than the admin is letting on...and basically the admin is going to continue to soak and create fraud on the public/taxpayers...

...folks, we are being robbed...after the depression there were investigations set up to get to the bottom of things, now, in today's paper we read that Summers, Geither were paid millions by the very people they are supervising now...and the Obama admin is trying to losen the few restrictions we are trying to impose...

where the hell are our heros? who is going to call this for what it is and put a stop to it...

the american people are being played for complete suckers when it comes to wall st and the banks...

everyone should try to catch what Mr. Black had to say...he can explain it so much better than little ole me...

And then I read this (5.00 / 2) (#26)
by Cream City on Sat Apr 04, 2009 at 02:31:26 PM EST

in Der Speigel by its correspondent in D.C. -- a devastating column with more that I did not know, more done by Bush and Greenspan that is not being fixed but actually accelerated under the Obama administration:

Perhaps the Americans even knew just how irresponsible their actions were -- at any rate, they did everything they could to hide them from the world. Since 2006, figures for the money supply -- in other words, the total number of dollars in circulation -- have no longer been published in the US. As a result, a statistic which is regarded by the European Central Bank as a key indicator is now treated as a state secret in the US.
Only on the basis of independent estimates can the outside world get a sense of the internal erosion of what was once the strongest currency in the world. These estimates report a steep rise in the amount of money in circulation. Since the decision to keep the figures confidential, the growth rate for the expansion of the money supply has tripled. Last year alone, the money supply increased by 17 percent. As a comparison, the money in circulation in Europe grew by a mere 5 percent during the same period.

We are just beginning to figure out even the, uh, known unknowns about this financial mess/fraud perpetrated upon us. But the powers that be, that were and still are in D.C.? They know.


Link, please (none / 0) (#12)
by gyrfalcon on Sat Apr 04, 2009 at 01:18:13 PM EST

to the accusation that Geithner was "being paid millions by the very people (he and Summers) are supervising now." I can find no such report in the papers, but perhaps my Google News skills are deficient.

Link please?


Geithner wasn't paid millions. (5.00 / 2) (#15)
by souvarine on Sat Apr 04, 2009 at 01:30:39 PM EST

Half a million severance from the N.Y. Federal Reserve, which is run by its member banks.


This (none / 0) (#18)
by cal1942 on Sat Apr 04, 2009 at 02:02:02 PM EST

is a direct link to the video of the Moyers/Black interview.


: Thank You so much (none / 0) (#61)
by Amiss on Sun Apr 05, 2009 at 02:50:29 AM EST

for posting that link.

link to Bill Moyers/William Black interview (5.00 / 4) (#9)
by S on Sat Apr 04, 2009 at 12:38:09 PM EST

www.pbs.org/moyers/journal/04032009/profile.html

BTD, I believe Mr. Black discusses the receivership topic in this interview...the whole thing is so incredulous...so unbelieveable...and frankly, I fear, we are all being sidetracked by the 'hope and change' popularity, magical, mystery tour ourselves and NO ONE is really not only questioning, STOPPING, what is only continuing from the Bush admin to and thru the Obama admin...

...this is so serious as 'trillions' move from our hands to 'theirs' and everyone is just standing by idly letting Geither and Summers who were there during the origin of the whole mess, continue to be in charge of the whole mess...and using many of the same gimmicks...

...even someone like me, no financial wizard, can see that something is very, very wrong with this picture...

BTD is one of my fav's, if not my fav. (5.00 / 2) (#11)
by ChiTownDenny on Sat Apr 04, 2009 at 12:55:58 PM EST

In an effort to express my opinion, but hold the peace, I'll just state the issue is not technical, but confidence. Look at Lehman for clarification.
Oh, Geekesque, from Dkos, is the definitive? Ugh.

I think it is confidence and that (5.00 / 3) (#14)
by inclusiveheart on Sat Apr 04, 2009 at 01:23:27 PM EST

if the FDIC seized the conglomerate's banking operations all of those conglomerates would likely come crashing down as a result. I think that's what stopping them from going that route. And I think Black as a former regulator who is probably looking at this problem through the lens of the principles behind the structure of the Great Depression banking laws which were essentially created to protect depositors and our banking system from collapse - looks at the take over option as a salvage mission more than as a way to deal with the conglomerates' other problems.


Well, it's pay me now or pay me later (5.00 / 2) (#45)
by lambert on Sat Apr 04, 2009 at 06:12:40 PM EST

You can pump all the blood you want into a zombie, and its still a zombie.


: Absolutely true. (5.00 / 1) (#56)
by inclusiveheart on Sat Apr 04, 2009 at 10:05:55 PM EST

I'm just guessing about motives for doing nothing for people. I smell desperation.

Actually Black (none / 0) (#19)
by cal1942 on Sat Apr 04, 2009 at 02:07:14 PM EST

goes beyond that. Watch the full interview.


Very interesting. (none / 0) (#50)
by ChiTownDenny on Sat Apr 04, 2009 at 07:07:53 PM EST

However, the culpable, according to Mr. Black, are only on Wall Street. While Wall Street is certainly culpable, Main Steet seems to get a pass from Mr. Black. Our calamaty is a result of both "streets".
Secondly, fear of institutional collapse, as Mr. Black states, is the overriding motive behind current federal actions. It appears the Obama team has decided not to risk such an outcome.


: Oh (5.00 / 1) (#75)
by cal1942 on Sun Apr 05, 2009 at 07:36:48 PM EST

and what has 'main street' done that didn't come about as a result of the dominance of the finance industry?
I'd really like to hear this one.

leave baracky (5.00 / 2) (#16)
by Turkana on Sat Apr 04, 2009 at 01:30:50 PM EST

aloooooooooooone!

fannie/freddie moratorium (5.00 / 1) (#41)
by Jlvngstn on Sat Apr 04, 2009 at 05:57:09 PM EST

on evictions and foreclosures quietly lifted this weekend, while they ask for 210 million in retention bonuses. Th wrong people are losing their jobs, 5 million and counting.

so what are we going to do about it? Blog ourselves into obliviion?

BTD : show some leadership, be the working mans Milk. I volunteer to start the chicago chapter of the "Make our money work by letting us work for our money" campaign. Obama has it right, grassroots knockin on doors, getting people out.

While we sit insde and blog about it.

We need a movement, and not the kind of movement of excremnt taht rewards millionaires.

adn i am dead serious.

: and i mean (none / 0) (#42)
by Jlvngstn on Sat Apr 04, 2009 at 06:00:17 PM EST

you lead the movement, I am ready, willing and able to knock on doors and compel anyone who will listen to knock on doors with me to march down t ocity hall in a coordinated effort in every state where we can get volunteers.
All you need is 12 to start with, biblically speaking

My favorite quote this morning (none / 0) (#17)
by jussumbody on Sat Apr 04, 2009 at 01:57:02 PM EST

I think it was on CNN (I was in a food court), some dim bulb named Curry said that the 21% gain in the stock market over the last couple weeks was its best performance since (wait for it.....) 1933!!!! And that people are now looking for things to turn around. OK. I would figure the context of that reference was pretty ominous, but Ms Curry started chirping along like we can all relax now, the worst is over (except that little 1933 to 1945 unpleasantness).

Ah, I can only resort (none / 0) (#20)
by Cream City on Sat Apr 04, 2009 at 02:10:23 PM EST

to the Irish wake philosophy that if you're not laughing, you're crying. Thanks for the laughs, as you so captured cable "news" "reporting" so perfectly: "Curry chirping" (she does) and "that little 1933 to 1945 unpleasantness."


Jim Cramer said that the Depression (none / 0) (#23)
by inclusiveheart on Sat Apr 04, 2009 at 02:20:59 PM EST

is over the other day.

It's all good people - all good.


I'll see your Jim Cramer (5.00 / 1) (#24)
by caseyOR on Sat Apr 04, 2009 at 02:26:05 PM EST

and raise you a Suze Orman who stated on Oprah this past week that she does not see real recovery until 2015.

Suze also said that the actions by the banksters that got us into this mess were criminal acts. And that it seems the criminals are getting away with it.

Seemed like mighty strong language for an Oprah show.


She's all over the map. (none / 0) (#27)
by inclusiveheart on Sat Apr 04, 2009 at 02:38:06 PM EST

I saw her on Morning Joke saying that we had to stop telling people that the economy is in trouble or we're suppressing the potential for people to feel better and shop.


Neither Orman nor Cramer (5.00 / 1) (#29)
by caseyOR on Sat Apr 04, 2009 at 02:45:43 PM EST

is a source of good information on the current state of the economy. I did find her remarks on Oprah to be more negative than anything I'd heard her say previously.


It seems (none / 0) (#30)
by Ga6thDem on Sat Apr 04, 2009 at 02:46:00 PM EST

to me that she's not really all over the map. One is the psychological effect and the other is talking about the reality of the situation the bankers have wrought.


Well, which is it? (none / 0) (#33)
by inclusiveheart on Sat Apr 04, 2009 at 02:57:04 PM EST

Am I supposed to be happy and shopping or scared and trying to figure out how to hold onto what I already have? All of these pundits have engaged in swinging on this pendulum. I think they ought to stick with the facts because when they try to do both facts and happy talk they lose credibility - at least in my mind.


: Fair enough. (none / 0) (#35)
by Ga6thDem on Sat Apr 04, 2009 at 03:11:36 PM EST

I happen to like Suze because she makes a lot of sense with what she says whereas Cramer is just an idiot imo.
For pure economics, I like Krugman the best.

That's the way Suze Ormon always (none / 0) (#28)
by gyrfalcon on Sat Apr 04, 2009 at 02:42:33 PM EST

talks. She's been nothing but shrieking doom and gloom since this all started, from what I've seen. She's also neither an economist nor a financial system expert, she's someone who's made a gazillion dollars selling books with simple-minded financial advice.


: Considering what and who got (5.00 / 1) (#38)
by caseyOR on Sat Apr 04, 2009 at 04:52:08 PM EST

us into this mess, and the to date ineffective attempts to get us out, Suze's doom and gloom sounds like the appropriate response.

If you think about it, Suze O is right. (none / 0) (#32)
by ChiTownDenny on Sat Apr 04, 2009 at 02:55:48 PM EST

Without having had the opportunity to witness Suzie's remarks personally, the days of supporting a standard of living via credit are over. IMO, there will be lots of changes.


Statutory construction, please (none / 0) (#51)
by lambert on Sat Apr 04, 2009 at 07:35:10 PM EST

Does the Prompt Corrective Action Law really mandate receivorship? I try to extract the key points in a truly horrific flame war over at The Obama 527 Formerly Known as Daily Kos here. Hard to believe Black's wrong, but arguments from authority are weak.

So, can any of the lawyers here say whether the law mandates receivorship, or not?

This Act does not require (1.50 / 2) (#60)
by Green26 on Sun Apr 05, 2009 at 01:21:30 AM EST

receivership.

Also, and more importantly, the Act applies only to undercapitalized banks. The head of the FDIC has said recently that all of the big banks are currrently "well-capitalized", i.e. not even close to be undercapitalized.

Here's a link to the Act: http://www.law.cornell.edu/uscode/uscode12/usc_sec_12_00001831---o000-.html

Black is a snake oil salesman.


The whole f*cking system... (5.00 / 1) (#68)
by lambert on Sun Apr 05, 2009 at 11:44:15 AM EST

... has been undercapitalized for a good while now. That's why Biig Money (not normal banks) is sucking down trillions of dollars and not lending it out.


How many well capitalized (none / 0) (#62)
by standingup on Sun Apr 05, 2009 at 08:54:18 AM EST

institutions require multiple capital infusions form the government? The Fed, Treasury and FDIC have committed billions of capital directly and backstopped losses in the hundreds of billions with Bank of America and Citibank.

I'm not so sure I'd buy what the chair of the FDIC is peddling either. Unfortunately the taxpayers are on the hook for it.


Adding capital to banks is (none / 0) (#63)
by Green26 on Sun Apr 05, 2009 at 10:15:53 AM EST

one of way of helping the banks, the banking system, the US economy and the world economy, as well as complying with the Act. Allowing more banks to fail, or shutting them down, might have been another alternative. However, the impact of Lehman's failure and Bear Stearns almost-failure caused huge problems, and the US decided to choose a different approach.

Some have estimated that the mark-to-market rule resulted in financial institutions having to write down assets by $500 billion dollars below what the assets were worth. (Note the "below what they were worth".) Had the mark-to-market rule been written better (or the accounting firms not been so conservative in interpreting it), the banks would have had $500 billion more of capital and would not have needed as much capital and intervention by the US.


"Some have estimated..." (none / 0) (#67)
by lambert on Sun Apr 05, 2009 at 11:42:40 AM EST

With no link.

Pretty shoddy argumentation for an issue that boils down to allocating trillions of taxpayer dollars.

Surely you must know that asset valuation is one of the central issues here? So who are the "some" doing the estimating?


: 600 billion according to (none / 0) (#74)
by Green26 on Sun Apr 05, 2009 at 04:01:18 PM EST

former FDIC chairman Issac:
"The main thing that is missing today that I really wanted to see was I wanted them to address mark to market accounting, which is a horrible system of accounting that the SEC put in place. The Securities and Exchange Commission put it in place in the early 1990s, and it requires banks to mark assets to market, even where there isn't a market, as there isn't today. They are required to mark these assets to an arbitrary market price, and it has destroyed over $600 billion dollars of bank capital, which equates to roughly $6 trillion dollars of bank lending capacity."
http://74.125.95.132/search?q=cache:3-nVeqXYP5sJ:www.cuinfosecurity.com/articles.php%3Fart_id%3D1222 %26opg%3D1+issac+fdic+mark+to+market+500+billion&cd=1&hl=en&ct=clnk&gl=us

I asked for a construction... (none / 0) (#66)
by lambert on Sun Apr 05, 2009 at 11:41:02 AM EST

... not an unsupported opinion.

Do you have one?


And as I read the law (none / 0) (#52)
by lambert on Sat Apr 04, 2009 at 07:36:29 PM EST

some action is required, whether recievorship or not. So we are still firmly in "rule of law, please" territory so far as the Obama administrations actions are concerned. Again, the lawyers on this thread will correct me.


Your "here" link (none / 0) (#57)
by themomcat on Sat Apr 04, 2009 at 10:13:33 PM EST

doesn't work


It just did for me (none / 0) (#58)
by lambert on Sat Apr 04, 2009 at 10:22:59 PM EST

Something wrong with the Intertubes, I guess.


: OK. It's working now (none / 0) (#59)
by themomcat on Sat Apr 04, 2009 at 11:20:53 PM EST

Must have been a kink in the tube.

The Wamu Seizure is... (none / 0) (#71)
by santarita on Sun Apr 05, 2009 at 12:44:29 PM EST

instructive - The banking subsidiary was seized and assets sold. Then the holding company sues the feds for the firesale price.

This demonstrates some of the risks inherent in taking piecemeal actions against the subsidiary and not the holding company.

: That is not instirctive at all (none / 0) (#76)
by Big Tent Democrat on Mon Apr 06, 2009 at 08:19:48 AM EST

Anyone can sue anyone.
Please. do not run that line. It makes you seem uninformed.