Tuesday, April 28, 2009
What is less known is how he got to be paid so much. Elementary: he put on his compensation committee people whose businesses are regulated by the Hong Kong Monetary Authority he heads. Second, he paid those below him huge salaries which automatically meant his own compensation had to be higher. It became a matter of how much higher, not whether it should be.
Instead of keeping the regulated at arms length, Joseph Yam embraced them for his self interest. And that was his worst and unforgivable sin.
However, as James Kwak, co-author of Baseline Scenario, a respectable economics blog, has so eloquently pointed out, Geither, Summers cannot but share many of values of Wall Street especially given their close connections to Goldman Sachs, the ultimate symbol of Wall Street culture. Read Here.
Those shared values played the central role in Geithner/Summers's bailout plan that is so biased in favored of the very bankers that had themselves helped manufacturer the biggest financial disaster since the Great Depression.
It is also instructive to note that Geither wants to kick out Vikram Pandit at Citibank as a belated acknowledgement that senior Wall Street bankers had behaved badly.
Yet, a cursory look at Vikram Pandit's cv shows he had been at his job for about a year, long after Citibank under previous tutelage of Bob Rubin, former Goldman Sachs co-chair and mentor of Larry Summers had done their damage at Citigroup.
How come no one at Goldman Sachs or Morgan Stanley have been singled out for a little public humiliatio, but Pandit who was never a Goldman Sachs alumnus?
Saturday, April 25, 2009
I wrote about that comparison weeks ago published in the Bangkok Post, the country's leading English language paper. (Here.) I didn't expect to be taken seriously. After all, I was no world famous Nobel laureate.
My view is no longer so "weird". Read Columbia's Joseph Stiglitz, Nobel laureate in economics and Simon Johnson, MIT professor's testimony at the US Congress Joint Economic Committee on April 21. (Here.) Enough to make you do a Peter Finch "I am mad as hell and I can't take it anymore" in that classic movie "Network'.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas, at that same hearing, weighed in with his thinly vieled criticism of the Geithner/Summers bailout strategy. Sober reading.
Saturday, April 18, 2009
Table A. States with unemployment rates significantly differ-
ent from that of the U.S., March 2009, seasonally adjusted
State | Rate(p)
United States (1) ...................| 8.5
Arkansas ............................| 6.5
California ..........................| 11.2
Colorado ............................| 7.5
Connecticut .........................| 7.5
Delaware ............................| 7.7
District of Columbia ................| 9.8
Florida .............................| 9.7
Hawaii ..............................| 7.1
Idaho ...............................| 7.0
Indiana .............................| 10.0
Iowa ................................| 5.2
Kansas ..............................| 6.1
Kentucky ............................| 9.8
Louisiana ...........................| 5.8
Maryland ............................| 6.9
Michigan ............................| 12.6
Montana .............................| 6.1
Nebraska ............................| 4.6
Nevada ..............................| 10.4
New Hampshire .......................| 6.2
New Mexico ..........................| 5.9
New York ............................| 7.8
North Carolina ......................| 10.8
North Dakota ........................| 4.2
Ohio ................................| 9.7
Oklahoma ............................| 5.9
Oregon ..............................| 12.1
Pennsylvania ........................| 7.8
Rhode Island ........................| 10.5
South Carolina ......................| 11.4
South Dakota ........................| 4.9
Tennessee ...........................| 9.6
Texas ...............................| 6.7
Utah ................................| 5.2
Vermont .............................| 7.2
Virginia ............................| 6.8
West Virginia .......................| 6.9
Wyoming .............................| 4.5
Friday, April 17, 2009
The "Yellow Shirts" illegally occupied the airport last year with impunity earning Thailand the dubious right of becoming a member of the global club of banana republics. At that time, those anti-Thaksin Yellow Shirts suffered a dead whose funeral was attended by the Queen of Thailand.
The "Red Shirts", the pro-Thaksin mob, are not so fortunate. Military were called out in force to disperse the demonsrators. Two were shot dead. Over 80 were wounded. Leaders were put on "Wanted List" by the police.
The asymmestry of justice is now breeding lawlessness with exiled Thaksin widely believed to be funding the Red Shirts.
This cycle of political chaos is likely to continue as the institutions of democracy are being systematically trampled on by all sides.
Thursday, April 16, 2009
Mr O'Neill told ABC News:
“So they all took the money. Stop and think about that. What was the purpose of this policy? To deceive the people so that the public would not know which banks were in danger of failing? Why didn’t any of the CEO’s, claiming not to need the money, have the courage to refuse?” ...
“If banks now claim they want to return the money because they don’t need it, why do they have to raise new capital to replace the money from we the people in order to repay the government?”...
“Is the public ever going to have clear facts regarding any of the individual institutions?...
For months I have been calling for a public disclosure of all bank assets by rating class, along with facts showing the face value of so-called toxic assets along with the associated current book keeping value and associated reserve account. The public and members of Congress seem to be accepting of the idea that a handful of people in the administration and the Fed should do all of this in secret.”
I couldn't have said it better than he regarding the current Team Obama's refusal to be transparent and its favoritism towards Wall Street.
Tuesday, April 14, 2009
What is really worrying is the increasing animosity of the rural vs urban (read Bangkok) and the poor vs rich.
Call him Evil, but the fact remains the ousted Thaksin did something concrete for the rural poor the traditional money bags in Bangkok never did. Apparently the rural folks do not believe the new government headed by Eton, Oxford educated Prime Minister Abhisit is any different. These rural guys are the hard core of the Red Shirts.
Thaksin is not sitting idle abroad either. He has called for a military overthrow of the current civilian government. How ironic.
He was himself overthrown by the military a few years ago in a coup d'etat that was totally uncontitutional.
Thailand is now quite lawless. Some would say it had always been.
Constitutions come and go. The last government was declared illigetimate because some of the elected officials were found violating elections rules.
That's bad, of course. Except such rules had been violated by any number of officials on any side of the political spectrum and had always been part of the "accepted" price of democracy. Politicans had always gotten away with them as long as the principal leaders got elected fair and square. The Thaksin electoral victories had been monitored by foreign independent non-profit groups that do that stuff to promote democracy.
Oh yes, that does not excuse Thaksin of having been a blatant corrupt politican. Whilst in power, he looked after his own cronies and his alone, breaking traditional practice of being inclusive in sharing economic spoils with your political opponents. He was generous to the rural poor no Bangkok politicians had ever given two hoots about.
Thaksin was duly elected by a convicing majority -- twice. Those who couldn't stand him just couldn't dislodge him in fair and open elections.
As self-serving civilian politicians circle one another to grab or to remain in power, the country will continue to swing between factional struggles intervened by the military with a certain unmentionable power arbitrating from time to time behind a wall of secrecy. It is unmentionable for the law governing that particular topic is draconian, if not medieval. Bloggers and writers have found themselves behind bar in uncharacteristic haste not found in the rest of the economy.
Any expectation that Thailand would join the dynamic Asian tigers in the years ahead is highy imaginative.
Saturday, April 11, 2009
If those assets were really worth that much, there would not have been a financial crisis in the first place.
But of course this is only the offer price. If you were running a zombie bank knowing that the PPIP scheme will be bidding for those assets at bloated prices, wouldn't you be asking for the sky as well?
Friday, April 10, 2009
The report made in part these two points: a) the Treasury may be relying on too rosy an economic scenario to guide its $700 billion bailout... The success of the program after six months is “mixed.”; b) "All successful efforts to address bank crises have involved the combination of moving aside failed management and getting control of the process of valuing bank balance sheets.” Emphasis added.
The Congressional Report is Here.
I have been arguing for sometime that keeping failed management on team Obama's bailout program is somewhat like keeping arsonists on fire department's payroll to help put out fires.
Perhaps arsonists do know how to help out since they would know how the fires were started in the first place.
Surely they are not the only ones who know how to put out a fire. More important, is it ethical to keep them around instead of putting them behind bars? Just asking.
Regulators punish those who trade on insider information available to only a few. We also require quoted companies to publish their financial statements on a timely basis audited by reputable accounting firms. False information is a crime. Lack of disclosure is normally taken as a sign of troubles and markets mark down the prices of those who do not disclose much.
What is happening these days in Washington is mind-boggling. The Federal Reserve Bank is asking the banks not to disclose the results of "stress tests"which the Treasury secretary has so loudly touted as a central feature of his rescue operation. (Here.)
I have a better idea. Let's abolish the requirement that quoted companies must publish anything at all!
It is extraordinary that banking profits accounted for a third of all corporate profits in the last decade of the last century.
While "illusion" as Krugman put it was certainly a factor in the seeming success of that industry back then, there must have been a number of other important and fundamental factors at work. Unless we can understand better what those factors were, it is almost certain that the banking industry will again become the engine that drives corporate profits after we get out of this mess to begin another cycle of the same.
Krugman reminds his readers that Larry Summers ridiculed those who in as recent as 2005 warned against a financial meltdown. Summers was then the President of Harvard. At the age of 28 he was already granted tenure by Harvard. He was at the top of his game, wasn't he?
David Halberstam wrote that classic "The Best and the Brightest" in the early 60's as a satire of those with impeccable academic and intellectual credentials who guided the US into the disastrous Vietnam War. One wit called them members of the Harvard Alumni Association in Washington DC.
I have nothing against that great university. However, that institution does seem to breed hubris among many of its alumni who honestly believe they are the best and the brightest.
We maybe seeing history repeating itself in the current financial morass.
Wednesday, April 08, 2009
The technical shortcomings of the Geithner-Summers plan are now no longer news. However, Mr. Buiter and other critics remain circumspect on the sociological side of the Geithner-Summers plan: how much the economic team members of Obama share the same values, background and friendships with the Wall Street crowd and how much they defer to what Wall Street wants. Simon Johnson's article in the May issue of The Atlantic remains a classic.
Tuesday, April 07, 2009
In a widely read economics blog, Econospeak published online today, we learn of a financial analyst, Ms Iris Mack, fired by Harvard Management Company that manages Harvard's endowment for having written to Larry Summers, then President, back in 2002 warning him of the risks of derivatives the management company was getting into by fund managers who did not really understand those products. Ms Mack has a PhD in mathematics from Harvard.
Last fiscal year Harvard reported a decline of 22% in its endowment due to those derivatives blowing up. That story was published by Boston Globe: Here
We were also reminded that Summers was not forced out of his Harvard presidency only for his ill-considered comments on why women were not somehow constitutionally suited for scientific research. Rather he steadfastly supported his fellow Harvard academic, Andrei Schleifer, who had used his insider information as an advisor to the new Russian government to benefit from market trading under US government contract. Harvard had to reimburse USAID $26 million for Schleifer's fraudulent act.
Summers as Harvard's president not only did not terminate Schleifer's job at Harvard, he made sure he kept his tenure and gave him a prestigious endowed chair.
David McClintick, a writer at Institutional Investor, had written an exhaustive investigative report on that episode in Institutional Investor.
He is making the same mistake in confusing "banks" with the current crop of Wall Street leaders.
Yes, we need bankers. But the world will not stop if the current group of "masters of universe" leave the scene, as they should do.
By kowtowing to these people, we are saying effectively we need the arsonists to help us put out the fire they helped set. What about the classic issue of "moral hazard" in banking?
To her, that "cosmology" fogged their view and made them write huge wasteful checks to support the banks come what may.
New York Times has documented how Larry Summers was receiving payments from Morgan Stanley, Goldman Sachs, Citigroup and others which have received Federal aid. Moreover he was richly rewarded by D.E.Shaw, a large hedge fund. Click here for the story.
All payments were disclosed and were legitimate.
Obama's Chief of Staff Rahm Emanuel was employed by a Wall Street investment bank where he worked for 30 months and was paid more than$16 million. He had no prior experience as a financial professional. The payment was disclosed and was legitimate.
Tim Geithner's deputy was a Goldman Sachs lobbyist.
The public officials and those they are helping are all part of the same fraternity sharing common values. In the 3 cases cited above the officials were recipients of monetary rewards they in their careers could never ever make except for the generosity of Wall Street firms that have all since needed Federal (taxpayers) help to avoid financial collapse.
This calls into question whether the public servants were acting on behalf of the best interest of the public at all times or did they ever put the interests of those Wall Street above everything else.
For a devastating analysis of the elite in charge of public economic policy and those who are benefiting from it, read MIT professor Simon Johnson's article in the May issue Atlantic. Click here.
Monday, April 06, 2009
Defenders of Obama's new "surge" in Afghanistan as well as defenders of Geithner's Xmas gift to Wall Street avoiding temporary "nationalization" of banks deliberately obfuscate the relevant issues by drawing seemingly nonsensical comparisons.
What are the relevant issues?
Let me just start with two such issues that should not be controversial irrespective of one's political sympathies.
1) During the Vietnam War, the US had to constantly confront the issue that their ally in the South Vietnam government could not motivate its troops. US had to inject training, manpower, battle field leadership, hardware and huge amounts of money into the S Vietnamese military to keep it fighting. In the end the US had to send in half a million of ground troops to fight the war on behalf of their ally against the enemy -- the Vietcong's and later the Vietnamese troops from the North.
While the enemy also received military aid from its allies -- China and the Soviet Union, they never seemed to have a morale issue! Quite the contrary despite the fact that the communist hardware was vastly inferior to what the US possessed. They lived in primitive conditions without the animal comfort US money bought for the South Vietnamese troops.
We are seeing history repeating itself, alas, in today's Afghanistan.
The Talibans, the tribes, Al Qaeda do not seem to have a morale problem among their fighting men. They live in primitive conditions. And their military hardware is hugely inferior to what their enemy (that's NATO) possesses.
In fact they seem to be holding pretty well against a technologically superior force. 17th century still enjoying a military edge against 21st century.
Let me declare myself.
I think the Taliban's attitude towards women, education, religion is despicable. I think Al Qaeda is evil. Al Qaeda needs to be defeated. Taliban's should be avoided like a plague.
I also think the "legitimate" Afghan government in Kabul is also despicable. It is the wrong ally for the civilized world. The Karzai government is spelled "disaster waiting to happen."
The brother of the president is a well-known drug lord and is perhaps the single largest supplier of opium to the world with the US as the largest consumer. Everyone in Afghanistan knows it and is therefore unimpressed by the democratic rhetoric coming out from any Western leader.
Back in the Vietnam war days the US government also helped the international opium trade to gain support of the hill tribes in the Golden Triangle to fight the Vietcongs. James Bondian airline: Air America, a CIA company, transported opium from inaccessbile hills in that Triangle to facilitate that trade.
The result? Massive influx of narcotics into the US. Did that help the war effort? Yes. But in favor of the wrong side!
2) The corruption in Kabul and those allied with the US is rampant and is fueling popular resentment agains the "legitimate" Afghan government.
No military surge can really eradicate that.
The more US invests in that government, the more it wants to avoid defeat and the more money it will pull into Afghanistan which will further worsen official corruption.
Just as in the case in S Vietnam, more money would disappear into corrupt Afghan officials. Incidentally that has happened in Iraq as well.
Yes, Afghanistan is not Vietnam. But there are some serious issues that are common to both wars that are extremely troublesome to the Nato effort there. Any wonder no countries other than the UK agreed to send combat troops to help out Uncle Sam?
Many non US military experts have written that the effort would be futile unless the government in Kabul is not what it is -- just as in the case of South Vietnam.
Replacing one by another is also tricky. In Vietnam JFK decided President Ngo, a corrupt Catholic leader in a Buddhist country, had to go. CIA assassinated him. Then came a serial change of unsavory and equally corrupt leaders in the capital of South Vietnam - Saigon. It is now renamed Ho Chi Minh City.
Sunday, April 05, 2009
Saturday, April 04, 2009
Obama's chief of staff, Rahm Emanuel, was paid over $16 million for 30 months of work for a Wall Street investment firm. He had no prior experience as a financial professional.
The deputy of Tim Geithner was a senior executive at Goldman Sachs.
Obama's erstwhile advisor, Bob Rubin, was co-chair of Goldman Sachs and chair of Citigroup before he left in a hurry to avoid more media attention on his $150 million pay off and his supervision of Citi's demise.
Tim Geithner himself worked for Kissinger Associates, a advisory firm to many of the large Wall Street firms.
The closeness of Wall Street and Obama's Administration is surely a relevant factor in understanding how the team shaped its rescue package that is skewed in favor of Wall Street firms.
Friday, April 03, 2009
The article said in part: "... Although Geithner repeatedly raised concerns about the failure of banks to understand their risks, including those taken through derivatives, he and the Federal Reserve system did not act with enough force to blunt the troubles that ensued.
That was largely because he and other regulators relied too much on assurances from senior banking executives that their firms were safe and sound, according to interviews and a review of documents by The Washington Post and the nonprofit journalism organization ProPublica.
A confidential review ordered by Geithner in 2006 found that banking companies could not properly assess their exposure to a severe economic downturn and were relying on the "intuition" of banking executives rather than hard quantitative analysis, according to interviews with Fed officials and a little-noticed audit by the Government Accountability Office.
The Fed did not use key enforcement tools until later, after the credit crisis erupted, according to its records and interviews.
Geithner defended his tenure as New York Fed president in an interview last week. He said he had been "deeply concerned about risk in the system" and worked assiduously behind the scenes to cajole banking institutions to do more to identify weaknesses and protect the financial system. But he also took some responsibility for falling short.
"These efforts to improve risk management did change behavior, but they did not achieve enough traction," Geithner said. "We're having a major financial crisis in part because of failures of supervision."