Turn On The Lights, Watch The Roaches Scatter Part 67

I've got your Sunday morning movie right here, folks.

You can now watch the Oscar-winning documentary on the financial crisis, Charles Ferguson's brilliant Inside Job, at Open Culture, for free.  It's worth picking up the DVD version at Amazon absolutely, but if you haven't yet seen this film, set aside two hours and do so today as a public service to yourself as an informed consumer.  It will explain the financial crisis to you in stunning clarity and rich detail, and features very candid interviews with some of the major players:  Obama economic advisor Paul Volcker, Rep. Barney Frank, IMF chief Dominique Straus-Kahn, billionaire George Soros, French Finance Minister Christine Lagarde, New York state AG and Gov. Elliot Spitzer, economist Nouriel Roubini as well as people from all over the financial industry.

These are the folks I've been quoting and following in this blog for close to three years now, guys.  The film, narrated by Matt Damon, is must-watch stuff for anyone who is even remotely interested in how the bottom fell out of our economy:  the bottom was cut out on purpose.

It was, after all, an inside job.

Go watch.

Zandar's Thought Of The Day

Paul Volcker's out at the White House.

Former Federal Reserve Chairman Paul Volcker plans to leave his role as head of a panel of experts advising President Barack Obama on the economy, sources familiar with the decision said on Wednesday.

The departure of Volcker, 83, from the President's Economic Recovery Advisory Board is among a series of changes Obama is planning to announce soon.

The decision to leave the board was Volcker's. A source close to him said he was ready to continue to advise Obama on an informal basis as often as the president would like.

The one guy who knew what he was doing as far as the economy is leaving.  Meanwhile Helicopter Ben and Timmy get to stay, and Obama has just picked up JP Morgan Chase exec Bill Daley as his new Chief of Staff, because apparently Rahmbo didn't have enough corporate ties.

This is one of those times where I think Obama is doing the wrong thing to the point of outright stupidity.  All you need to know about Bill Daley?  Larry Kudlow loves the guy.

President Obama marks another milestone in his post-election move to the center by appointing pro-business Democrat William E. Daley to the powerful post of White House chief of staff. If there are any doubts that Obama wants to repair his business-bashing image, this should dispel them.

It’s an excellent appointment. 

Which means here in reality, it's as lousy as they come.

In Other Completely Expected News

Via Yggy, the Financial Times is reporting Senate Republicans will kill the Volcker Rules cold:

Senate Banking Committee ranking member Richard Shelby (R-AL) said he opposes the so-called Volcker rule and the Obama administration’s call to levy a USD 90bn tax on banks. His comments come as House Financial Services Committee Chairman Barney Frank (D-MA) predicted the proposals outlined by President Obama could be law within six months.

Speaking to this news service on Thursday, Shelby said if Democrats push forward with the proposals they risk unravelling much of the bipartisan support already reached regarding the passage of financial regulatory reform in the Senate. Shelby said that the Obama administration risks losing Republican support for the bill if they begin to “politicise” the issue.

However, Shelby said he expects to hold a meeting with Banking Committee Chairman Chris Dodd (D-CT) regarding the way forward on regulatory reform in two weeks time. A Democratic banking committee staffer confirmed that the meeting between Dodd and Shelby will be critical as Dodd needs to determine the level of bipartisan agreement and the timing of bringing the bill through committee and on the Senate floor.

With the election of Republican Scott Brown to the Senate, the Democrats no longer have the necessary 60 votes to force through a Regulatory Reform package, and any bill will need at least some Republican support to pass. A Dodd staffer said the senator is likely to quietly drop or modify many of the recommendations in the Volcker rule to ensure Republican support for regulatory reform.

And so it goes.  Hey Dems?  Scream bloody murder on this. They are obstructing it.  Make them pay.  This should be a high, fat fastball across Obama's plate.  Burn them on this.  Daily.

That Volcker, He Rules

Paul Volcker takes to the Sunday NY Times with a guest op-ed on the economy in this morning's must-read on Too Big To Fail.

What we do need is protection against the outliers. There are a limited number of investment banks (or perhaps insurance companies or other firms) the failure of which would be so disturbing as to raise concern about a broader market disruption. In such cases, authority by a relevant supervisory agency to limit their capital and leverage would be important, as the president has proposed.

To meet the possibility that failure of such institutions may nonetheless threaten the system, the reform proposals of the Obama administration and other governments point to the need for a new “resolution authority.” Specifically, the appropriately designated agency should be authorized to intervene in the event that a systemically critical capital market institution is on the brink of failure. The agency would assume control for the sole purpose of arranging an orderly liquidation or merger. Limited funds would be made available to maintain continuity of operations while preparing for the demise of the organization.

To help facilitate that process, the concept of a “living will” has been set forth by a number of governments. Stockholders and management would not be protected. Creditors would be at risk, and would suffer to the extent that the ultimate liquidation value of the firm would fall short of its debts.

To put it simply, in no sense would these capital market institutions be deemed “too big to fail.” What they would be free to do is to innovate, to trade, to speculate, to manage private pools of capital — and as ordinary businesses in a capitalist economy, to fail. 

And this is the guy who should have been running the show at Treasury from the start.  Obama needs to make sure the major thing Dems in Congress can do to win and to do the right thing is get the Volcker Rules made into law ASAP.  Dump Larry Summers.  Dump Timmy.  You had your chance to dump Helicopter Ben but didn't, but that means all the more that Obama's policy needs to be Volcker's, and the rest of the econ team needs to be pushing the Volcker Rules as a good idea.

Make this happen, Dems.  You want to win in 2010?  You want to save the economy?  Make this happen.

The Helicopter Ben And Timmy Show Blows A Rotor

Three items taken separately may not amount to much.  But taken all in the same week, it may finally spell out that Obama is serious about changing the game on banks.  First, the Volcker Rules look like a major restoration of the firewall between bank and investment house.  Second, is this article from Reuters that Timmy doesn't like the Volcker Rules or Obama's TARP fee one bit.

Geithner is concerned that the proposed limits on big banks' trading and size could impact U.S. firms' global competitiveness, the sources said, speaking anonymously because Geithner has not spoken publicly about his reservations.

He also has concerns that the limits do not necessarily get at the heart of the problems and excesses that fueled the recent financial meltdown, the sources said.

Really?  Privately the SecTreas is pissing all over the President's new economic proposals and he is taking the line that the Wall Street banksters he's supposed to be regulating are right after they lost trillions?  I have said Tim Geithner was the wrong man from the very beginning and it's looking more and more like I was right.

Number three is the news today that Helicopter Ben doesn't have 60 votes in the Senate to beat the numerous Senate holds on his reconfirmation.

"The American people are disgusted with the greed and recklessness of Wall Street," Sen. Bernie Sanders, I-Vt., said in an interview with The Associated Press last month. "People are asking, 'Why didn't the Fed intervene at the appropriate time to stop the casino-type activities of large financial companies?'"

Sanders, Sen. Jim Bunning, R-Ky., Sen. Jim DeMint, R-S.C., and Sen. David Vitter, R-La., have all put holds on Bernanke's nomination, requiring 60 votes to proceed to a vote.

Voter anger is of heightened concern to members of Congress given the surprise victory of Sen.-elect Scott Brown, R-Mass., who rode a tide of voter discontent and economic anxiety to an upset victory in a special election earlier this week.

Last month, the Senate Banking Committee voted in favor of Bernanke's nomination by a vote of 16-7, not exactly a reflection of overwhelming positive feelings towards the Fed chair given the fact that he was first appointed in 2006 by President George W. Bush and nominated by President Obama for a second term last August.

Senate Majority Leader Harry Reid, D-Nev., at one point was planning on scheduling a vote on Bernanke for Friday, but the Senate is currently in the midst of a debate over raising the debt limit and the vote has been pushed.

Like Salon's Andrew Leonard, I'm thinking Volcker should be offered Timmy's job and Helicopter Ben should get the boot too.  Maybe this is a turning point for Obama's econ team.

Maybe.

The Volcker Rules

When I heard Obama was going to take another swipe at banks today, I dismissed it as another meaningless gesture like last week's TARP tax initiative.  Wall Street's been on a streak in the new year, betting big that Scott Brown's win means Obama won't be able to even do the meaningless gestures anymore.

I've also been saying that Paul Volcker is the best weapon Obama has in his arsenal when it comes to doing real reform against the banksters.  Obama has been all but ignoring him totally in favor of Larry Summers.  Earlier this year I argued Volcker should say "listen to me or I'm out" and like Colin Powell did resign instead of being used as a tool by an administration that didn't believe a word he was saying.

Apparently Obama really did gain one of the lessons of Scott Brown's win this week:  Obama has been losing the populist fight on the banksters, so now finally he turns to Paul Volcker.

But Paul Volcker is back. Big time. Reportedly on the margins of the Obama administration even in his current role as an adviser, "the tall guy behind me," in the words Thursday of President Barack Obama, is back on stage figuratively and literally.

As the president announced two major initiatives that would radically change the world of America's big banks, he was flanked by Treasury Secretary Timothy Geithner and adviser Larry Summers. He also had with him two key Congressional leaders, Rep. Barney Frank (D., Mass.) and Sen. Christopher Dodd (D., Conn.).

But importantly, the president had Mr. Volcker, and he had another regulatory veteran who's been a straight shooter unbound by ideological restraints or misplaced party fealty.

That's William Donaldson, former head of the Securities and Exchange Commission. President Obama thanked both Mr. Volcker and Mr. Donaldson for their counsel, which, given the nature of the Obama proposals, was "old school" in more senses than simply a reference to the vast combined financial experience of both men. Agree with it or not, the "Volcker Rule," enunciated by the president Thursday—which would keep a bank from having anything to do with investment vehicles such as hedge or private equity funds— certainly signals Mr. Volcker's return.

It is a fascinating resurrection. Mr. Volcker himself hasn't changed his thinking. What has changed is the environment. The heavy, popular furor as big bank profits and big bonuses are rolled out likely played a role in the new Obama plan. That plan includes flat-out limits on bank size and restrictions on industry consolidation.

I'm happy to say I was wrong.  The Volcker rules, such as they are, are a major step towards what I've been saying Obama needed to do since day one:  restore the separation between bank and investment house that Glass-Steagall provided.

If you have any doubts as to how concerned Wall Street is right now, the Dow lost over 200 points in its worst day in almost eight months, and its worst two day drop since June, giving back all the Scott Brown gains and more.

On Tuesday, Wall Street was betting on Brown ending Obama's crusade against the banksters for good.  They bet and lost yesterday and today.  There's a new Sheriff in town, and his name is Paul Volcker.

The problem is, as James Kwak over at Baseline Scnario says, there's even less chance now of this financial reform passing the Republican party's 41 blockade in the Senate.  But this means that the Republicans are the party of Wall Street, not the Democrats.  And that's what Obama should have done in February.

It's a start.  Even Krugman admits it's a positive sign.  More Volcker, please.

Volcker's Game

Today's must-read comes from Steve M. at NMMNB.  The banksters, it seems, are going to have a rough time of it in 2010.  The forced consolidation of the industry means that the community bank is rapidly disappearing from the country, to be replaced by the Too Big To Fail megabanks.  140 banks went under in 2009...I expect far more to go under in 2010 as the commercial real estate market continues to swan dive.

Needless to say, the banksters are beefing up their lobbying presence bribery in 2010 significantly.

Steve's post ends with this point on Paul Volcker, however:

But Volcker is the Colin Powell of this administration. Maybe he resists administration groupthink on the economy more vigorously than Powell did on foreign policy in the first Bush term, but, like Powell, he's the guy nobody in the administration listens to. If he wants to make the case that we need a return to Glass-Steagall-style regulation and an end to "too big to fail," he should have the guts to resign, making it obvious that he's not doing so "for personal reasons." He should write a book. He should speak out against business as usual as an independent gray eminence. He should, in other words, be outside the tent pissing in, rather than the opposite, which is just where it suits the fat-cat-friendly administration to have him.

Agreed.  It's time for Volcker to put the screws on Obama from the outside and do the honorable thing.  Right now, he is effectively neutered.

Following The Money, Honey

Nate Silver crunches the numbers on Obama's overall favorability ratings at Pollster.com and his favorability ratings on the economy and health care:


Gee, notice any similarities?  It looks very much so that America's spotting Obama about 5-8 points, but the perception of the economy is driving everything, including health care.

(More percecption as reality after the jump...)

Good Money After Bad

Britain is dumping another $50 billion or so into the Royal Bank of Scotland and Lloyd's Banking Group in order to keep them going.

The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s 21 billion-pound fundraising. Both banks said they won’t pay cash bonuses to workers earning more than 39,000 pounds this year.

The rescue will bring the government closer to full ownership over RBS, while Lloyds will escape government control. Lloyds CEO Eric Daniels will raise funds from money managers to avoid the Treasury’s asset insurance plan that would give the government a majority stake. He’s betting bad loans will decline after the Bank of England said the country’s recession was nearly over. In contrast, Stephen Hester, RBS’s CEO, will accept greater government oversight and insure 282 billion pounds of his banks’ riskiest assets with the Treasury.

“There is now a very fine line between RBS being nationalized,” said Danny Gabay, director of Fathom Consulting in London and a former Bank of England economist. “This contrasts with Lloyds willing to fight harder for its independence.”

RBS fell 8.3 percent to 35.45 pence as of 12:12 p.m. in London trading, for a market value of 20.1 billion pounds. Lloyds declined 2.1 percent to 83.25 pence.

RBS is all but nationalized, and Lloyd's is simply struggling in flypaper at this point. Over at Big Picture, Barry flags Joseph Stiglitz reminding us that we should have gone with Plan N in the first place.

“If we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai Oct 31. “They would be lending and the economy would be stronger.”

Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year…

The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system.”

Why are we planning on how to bail out banks in the future when we should be making sure that banks never get too big to need to be bailed out instead?

And people wonder why I think Helicopter Ben, Timmy and the rest of Obama's economic knuckleheads (save Paul Volcker) need to go.