Merrill Lynch's John Thain: Villain of the Century

Update II: Obama Calls Wall Street Bonuses ‘Shameful’

Update: John Thain's Top Ten Greatest Moments

Can you believe this? Sick.

Merrill Lynch, with CEO John Thain presiding, paid fifteen billion dollars in bonuses in December with public money. This news is sure to be iconic.

As in outrageously sociopathic, meet the Jeffrey Dahmer of finance: Merrill Lynch CEO John Thain.

From Clusterstock.com, read John Carney's Wall Street’s Sick Psychology of Entitlement

Writes Carney:

The news that Merrill Lynch paid out $15 billion in bonuses is sure to ignite new questions about the wisdom of bailing out Wall Street. Merrill Lynch took $10 billion from the TARP, allegedly to fill holes in its balance sheet. But instead of using that to repair its financial health, it simply put the money into the pockets of its employees. There is no way to defend this disgusting payout.

But that won’t stop Bank of America, which now owns Merrill, from
defending the bonuses. And across Wall Street there are lots of people who actually believe that Merrill did the right thing.

How can so many smart people be so dumb?

Easily.

There is a sick psychology of entitlement on Wall Street that was created during the bubble years. Many simply cannot believe that they do not deserve huge pay packages. Their brains have (not) caught up with the idea that they are working in broken institutions that would
be unable to pay to keep the lights on if not for the fact that Washington has given them billions of taxpayer dollars.
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See also Henry Blodget's 75% Of Latest Bank Of America Bailout Used To Pay Merrill Lynch Bonuses (BAC):

Remember the latest Bank of America (BAC) bailout, the one we were all so steamed about last week? (The $20 billion of cash and $100+ billion of trash-asset guarantees that absolutely had to be given or else Bank of America shareholders might have lost everything?)

Yes, well, you probably thought that that cash would be used to bolster the bank's capital or something. (We know you weren't dumb enough to think it might have been used to make loans).

Alas, it wasn't used for that. It was used to pay Merrill Lynch executives the huge bonuses they deserved for unloading their balance sheet on for-some-reason-not-yet-fired Bank of America CEO Ken Lewis.*

*BOFA will say that the cash used to pay the bonuses was not the actual cash received from taxpayers. Please. Cash is cash. What BOFA and Merrill are already saying in their defense is that the bonuses were accrued (and mostly paid) all year and that Merrill just shelled out the last $4 billion in December...a month before the latest bailout funds arrived.

But that's ridiculous. ...

From a political perspective, Obama can propose and pass just about any regulatory framework to hold these guys accountable.

This is the 911 of Wall Street greed. CEO John Thain, this is the *$^&* who will make Enron's Kenneth Lay look like Jesus Christ.

Krugman on Hardball

Nobel Prize-winning economist and NYT columnist Paul Krugman is in a unique position to influence the conversation on the next administration's fiscal and economic policies.

Here he is advocating a gigantic stimulus package on a scale of the national mobilization of World War II.

Roubini: Dismal Outlook for the US and Global Economy

Warnings that President-elect Obama err on the side of doing too much as Americans watch their retirement savings dissipate are words from the wise.

From Nouriel Roubini's The Dismal Outlook for the US and Global Economy and the Financial Markets:

- The U.S. will experience its most severe recession since WWII, much worse and longer and deeper than even the 1974-75 and 1980-82 recessions

- Obama will inherit and economic and financial mess worse than anything the U.S. has faced in decades

- The world economy will experience a severe recession ...

Go for the Juggler, Obama

Paul Krugman has a piece in the Times this morning advocating that President-elect Obama pursue a full-blooded “progressive agenda.”

In opposition to the warnings of the center-right pundits who recommend that Obama go slow and not attempt too much change, Krugman echoes most citizens in our democracy who advise or more accurately demand: Change.

That rabble! And it’s all going so well.

Seriously, in light of the gargantuan problems facing our country and the irrefutable electoral mandate, in which direction do you think Obama will direct his legislative and administrative agendas?

Putting aside the ludicrous notion that we are a center-right country that discredited-by-facts pundits are spewing (and didn’t we just have an election or two these last two years repudiating the thesis?), Obama can be counted on to go for the juggler.

That sage advice decided upon by the American people in the 2008 election is called an “electoral mandate.”

Following the radical interventions of the Bush administration and the Federal Reserve System into the financial systems (without which we would be looking at, at best, a deep L-shaped recession as critical confidence dissipated), Obama is assembling the toughest political operation available to fight for the people who elected him to bring about change, and offer hope.

Obama, contra Bush, will save Social Security, Medicaid and Medicare, and expand the health care system to: Provide health care for more Americans.

Obama will likely push an array of innovations across the board that will be geared to help working Americans achieve the American Dream, or at least give them a fighting chance to survive and prosper during what we hope will only be a short-lived U-shaped recession.

The fact is that Bush was spot-on correct to bail-out critical streams of the financial system.

And Obama is equally spot-on correct to directly bail out the American public by giving them a fighting chance to make their children’s’ futures brighter than what may seem apparent during these next couple of years.

Cries of “welfare” and “socialism” or other such nonsense emitted by the rightwing who saw the results of their economic fantasies and orthodoxies obscenely played out in front of the American people these last 10 years will not sit well because voters aren’t likely to soon forget the great bail-out.

As Krugman says, “… a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.”

And politically it’s exactly what enough politicians require to stay in office.
- via mal contends

Roubini's Global EconoMonitor: Deflation and Stag-deflation Coming Soon

This is some scary stuff that President Obama and the rest of us will be dealing with next year.

From RGE - Nouriel Roubini's Global EconoMonitor, chosen as one of the world's best economics websites delivering "ahead-of-the-curve global economic insights":

(L)ast January I argued that four major forces would lead to a risk of deflation (or stag-deflation where a recession would be associated with deflationary forces) rather than the inflation risk that at that time – and for most of 2008 – mainstream analysts worried about: slack in goods markets, re-coupling of the rest of the world with the US recession, slack in labor markets, and a sharp fall in commodity price following such US and global contraction would reduce inflationary forces and lead to deflationary forces in the global economy.

How have such predictions fared over time? And will the US and global economy soon face sharp deflationary pressures? The answer deflation and stag-deflation will in six months become the main concern of policy authorities. Let me now explain in more detail why…

The political ramifications if Roubini is at all correct in his assessment will see new policy prescriptions from a President Obama constituting a new New Deal that will have Republicans screaming into the next century.

Hyper Power Corrupts

In December 2000, the Clinton administration announced projections that “the United States is on course to eliminate its public debt within the next decade.”

Then George W. Bush took over.

Discussion ensued over the next two years about the consequences of paying off the public debt in toto. It was stirring to hear the Federal Reserve Chair talk about the ramifications of this scenario before Senate committees.

Attending a critical meeting in the Bush administration in November 2002, Treasury Secretary Paul O’Neill warned of impending fiscal crises as he objected to a new round of regressive tax cuts that O’Neill saw as locking in fiscal debt were Bush to tack in the same fiscal direction. O’Neill was fired one month later.

Vice President Dick Cheney cut O’Neill off in the meeting, saying "Reagan proved deficits don't matter. We won the midterms (congressional elections). This is our due" (Ron Suskind, The Price of Loyalty; Simon and Schuster, 2004).

But Reagan had proved no such thing.

As Reagan presided over the catastrophic October 1987 stock market crash, Walter Isaacson noted:

What crashed was more than just the market. It was the Reagan Illusion: the Idea that there could be a defense buildup and tax cuts without a price, that the country could live beyond its means indefinitely. ... As he shouted Hooverisms over the roar of his helicopter ... or doddered precariously through his press conference, Reagan appeared embarrassingly irrelevant to a reality that he could scarcely comprehend. Stripped of his ability to create economic illusions ... he elicited the unnerving suspicion that he was the emperor with no clothes. [Time Magazine, November 2, 1987
pp. 20-21. Quoted in Haynes Johnson, Sleepwalking Though History, pp. 385-386; W.W. Norton, 1991] (It's worth noting that assertions that Reagan was a deregulator of markets is a myth, though he did share with George W. Bush a profound ignorance of policy, and though Reagan had neocon aspirations, they were knocked down after Iran-Contra blew. His true heir is George W. Bush who took the first term of Reagan's and streched it to its absurd and destructive conclusion.)

Now, eight years after the Clinton announcement projecting the end of public debt, we have a $10 trillion national debt and $500 billion projected annual fiscal deficit.

Many wonder whether foreign investors might decide to find greener pastures than twenty-first century America, resulting in dire consequences to the American way of life should this occur.

As “old Europe” and Latin America and indeed most of the world engage in schadenfreude, many mainstream intellectuals in America now openly wonder if America is "A Power That May Not Stay So Super."

Greed-and-crony finance, deregulation, corruption, and eight years of nihilistic politics may spell the beginning of the end of America as a hyper power and the launching of something new, something better.

As American citizens something new is our due.

We should have listened to warnings issued before. We can listen now.

From September 26, 2005 in CounterPunch, an excerpt from a piece by Paul Craig Roberts:

George W. Bush will go down in history as the president who fiddled while America lost its superpower status. Bush used deceit and hysteria to lead America into a war that is bleeding the US economically, militarily, and diplomatically. ... Once China completes its acquisition of US capabilities, it will no longer have a reason to support the dollar. ... When the dollar goes, it will affect costs, profits, interest rates and living standards in dramatic ways. Costs and interest rates will soar, and profits, living standards, equity values, bond prices and real estate will plummet. ...
These unpleasant events await only Asia's decision to curtail its support for US red ink. That will happen when this support no longer serves Asia's interest. ...
Time is running out for Republicans and Democrats to escape from the distraction of a pointless war and to focus on the real threats that endanger the United States of America.

Chomsky on Wall Street Crisis

Disasters and spectacular events like the Wall Street crisis have a way of invoking the recreational imaginations of Americans usually vaguely aimed at the personal lives of movie stars and the performance of sports celebrities.

So perhaps America can hear from people whose thoughts are usually excluded from discussion.

Noam Chomsky offers some thoughts on the antidemocratic face of capitalism.

The simultaneous unfolding of the US presidential campaign and unraveling of the financial markets presents one of those occasions where the political and economic systems starkly reveal their nature.

Passion about the campaign may not be universally shared but almost everybody can feel the anxiety from the foreclosure of a million homes, and concerns about jobs, savings and healthcare at risk.

The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as ‘a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close’, as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf.

The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation. …

Financial liberalisation has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a ‘virtual parliament’ of investors and lenders, who closely monitor government programmes and ‘vote’ against them if they are considered irrational: for the benefit of people, rather than concentrated private power. …

John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods (commercial and financial system) to be the establishment of the right of governments to restrict capital movement.

In dramatic contrast, in the neoliberal phase after the breakdown of the Bretton Woods system in the 1970s, the US treasury now regards free capital mobility as a ‘fundamental right’, unlike such alleged ‘rights’ as those guaranteed by the Universal Declaration of Human Rights: health, education, decent employment, security and other rights that the Reagan and Bush administrations have dismissed as ‘letters to Santa Claus’, ‘preposterous’, mere ‘myths’.

Charles Schwab: Depression Fears Overblown

We have heard the bromide: 911 changed everything!

For instance, “…9/11 changed everything for us. 9/11 forced us to think in new ways about threats to the United States, about our vulnerabilities, about who our enemies were, about what kind of military strategy we needed in order to defend ourselves.” (Remarks by Vice President Cheney at McChord Air Force Base, Tacoma, Washington,December 22, 2003).

We know that the assertion is ludicrous in the face of unprecedented tax cuts for the super-rich and the utter lack of mobilization and asked sacrifice from the American people for this alleged monolithic threat.

You ask for sacrifice and people start asking a lot of questions, which is the last thing Bush and Cheney wanted.

How about the Wall Street multi-day meltdown? "The Dow and the broader Standard & Poor’s 500-stock index both closed down 18 percent for the week," reports the NYT.

Has the last few weeks changed everything and are we heading for a new depression?

Our trust in the Bush administration ripped apart by audacious lies about the "War on Terror," weapons of mass destruction and so forth, Americans wonder vaguely: What the heck is really going on with the economy?

Mark Riepe, Senior Vice President, Schwab Center for Financial Research, offers a view that more optimistic than some, such as RGE Monitor's assessment that the "world is at severe risk of a global systemic financial meltdown and a severe global depression."

Writes Riepe:

Buffeted by weeks of withering financial news, nearly six out of 10 Americans now believe the U.S. economy is somewhat or very likely to fall into a depression, according to an October 4–5 CNN/Opinion Research Corp. poll. But while the U.S. economy is not as strong and our financial system isn’t as healthy as it needs to be, we’re nowhere near the types of economic difficulties seen in the depths of the Great Depression—nor does Schwab believe we’re headed there.

For context, consider these two realities. First, the U.S. economy is much stronger today than during the Great Depression. In the 1930s, America was primarily an industrial powerhouse, and industrial production shrank 52% from peak to trough, while gross domestic product (GDP) shrank 27%. As an example, if we assume December 1, 2007, is ultimately declared the start of a recession, you can see below that GDP and industrial production are nowhere near depression levels. Industrial production declines suggest a garden-variety recession, and GDP is still positive (although we don’t expect it to stay that way).

Someone to go to the well with

President Lyndon Baines Johnson nationalized the old Texas sentiment of confidence and respect: He’s someone to go to the well with.

As we approach the end of the Bush-Cheney administration, we are presented with the consequences of eight years of nihilistic politics, greed-and-crony finance, and feeding of hatreds and division among our brothers and sisters.

That catastrophic bequest is the lack of confidence and fading liquidity in our financial system that threatens to squander our life savings, and kill innovation and the common effort.

The legacy of Bush-Cheney is the loss of confidence and respect, the belief that we’re all in this together with men and women who are people we would go the well with.
- 30 -
-via mal contends

Risk of Severe Global Depression

One does not need to be a Cassandra to suggest that the "world is at severe risk of a global systemic financial meltdown and a severe global depression," but RGE Monitor's site warning of just that is worth giving a read in light of recent financial market developments.

RGE Monitor "delivers ahead-of-the-curve global economic insights that financial professionals need to know. (Their) analysts define the key geostrategic debates and continuously distill the best thinking ... ."

At Counterpunch, Paul Craig Roberts offers an outline of a possible solution to the crisis suggesting: Refinancing the troubled mortgages, carefully re-regulated financial markets, addressing US budget and trade deficits, halting the Bush wars, cutting the extravagant US military budget, among other fiscal and regulatory reversals.

Krugman: New Plan or Else

Moment of Truth
If a new rescue plan is not announced this weekend, the world economy may experience its worst slump since the Great Depression.

End of American Capitalism or Something

The End of American Capitalism? asks Anthony Faiola in this morning's Post.

The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.

What's interesting is that queries of a pharmacist, a dry-cleaning worker, a clerk, coffee shop workers, and a support staff person in the Madison area their opinions on the week-long crash get vague and Palinesque words of comprehension.

I don't get it.

Fear

Fear.

From Reuters

By Doris Frankel
CHICAGO, Oct 8 (Reuters) - Wall Street's favorite measure of investor fear, the Chicago Board Options Exchange Volatility Index .VIX, set record highs once again on Wednesday as traders clamored for insurance after a coordinated worldwide cut in interest rates failed to bolster confidence in the battered markets.

'Fear' Index Hits All-time High

Who can argue that the Bailout Plan, incomplete though it is, is not needed to halt the fear breeding on fear?

From Reuters:

By Doris Frankel
CHICAGO, Oct 6 (Reuters) - An index regarded as Wall Street's fear gauge surged to a record high on Monday in a sign investors expect more stock market turmoil as they scramble for options to insure their stock portfolios.

CBOE VOLATILITY INDEX (^VIX) or Fear Index over Five Years

Roberts on Wall Street: Bush Loosed Greed onto Imprudence

Update II: 'Fear' Index at All-time Intraday High
Update: Five percent down and dropping

Paul Craig Roberts ought to be required reading for all policy makers during this apparently long period of multiple crises.

Holding the Clinton and the George W. Bush administrations accountable for the financial crises currently (as in right this second) shaking the world, Paul Craig Roberts points to three extraordinary culprits:

- The repeal of the repeal of the Glass-Steagall Act [known as the Financial Services Modernization Act of 1999], repealing the separation of commercial from investment banking, that was signed into law during the Democratic Clinton Administration in 1999

- The exclusion of derivatives and credit default swaps from regulation in 2000

- And most importantly:

The greatest mistake was made in 2004, the year that Reagan died. That year the current Secretary of the Treasury, Henry M. Paulson Jr, was head of the investment bank Goldman Sachs. In the spring of 2004, the investment banks, led by Paulson, met with the Securities and Exchange Commission. At this meeting with the New Deal regulatory agency tasked with regulating the US financial system, Paulson convinced the SEC Commissioners to exempt the investment banks from maintaining reserves to cover losses on investments. The exemption granted by the SEC allowed the investment banks to leverage financial instruments beyond any bounds of prudence.
In place of time-proven standards of prudence, computer models engineered by hot shots determined acceptable risk. As one result Bear Stearns, for example, pushed its leverage ratio to 33 to 1. For every one dollar in equity, the investment bank had $33 of debt!

We Were Told of Crisis Beforehand

Before the bailout crisis dominated the political and financial news, a high-circulation political newsletter, CounterPunch, continued its breaking analyses and exclusives on its free website, sounding alarms to which we all should have listened.

Prominent among CounterPunch writers is Paul Craig Roberts, former assistant secretary of the Treasury in the Reagan administration and former associate editor of the Wall Street Journal editorial page, and former contributing editor of National Review.

Roberts has been warning for years that America is hollowing out its labor force, and is in clear and present danger of a market crash with clearly dangerous ramifications.

Writes Roberts:

In American today the greatest rewards go to investment bankers, who collect fees for creating financing packages for debt. These packages include the tottering subprime mortgage derivatives. Recently, a top official of the Bank of France acknowledged that the real values of repackaged debt instruments are unknown to both buyers and sellers. Many of the derivatives have never been priced by the market.

Think of derivatives as a mutual fund of debt, a combination of good mortgages, subprime mortgages, credit card debt, auto loans, and who knows what. Not even institutional buyers know what they are buying or how to evaluate it. Arcane pricing models are used to produce values, and pay incentives bias the assigned values upward.

‘Richistan’ [a financial reality derided by Robert Frank as the new American world of the super-rich operating virtually unregulated] wealth may prove artificial and crash, bringing an end to the new Gilded Age.

Roberts wrote that in an August 2, 2007 piece, The Return of the Robber Barons.

Roberts also notes that the titans of American capitalism, Warren Buffet and Bill Gates, particularly Buffet, offer proressive advice on fiscal and regulatory policy. Buffet's thoughts on fiscal and tax policy in line with mainstream progressive Democratic thought, arguing for a progressive income tax structure and against rising inequality in America under neocon economic doctrine.

Some of the super rich, such as Warren Buffet and Bill Gates, have benefited society along with themselves. Both Buffet and Gates are concerned about the rapidly rising income inequality in the US. They are aware that America is becoming a feudal society in which the super-rich compete in conspicuous consumption, while the serfs struggle merely to survive.

No doubt then that Roberts is a talking head seen on every major broadcast network, achieving a celebrity as some sort of oracle and prophet to whom we all should have listened. Right?

But the reasons for excluding writers such as Roberts ought to be contemplated by every thinking American.

Roberts latest piece, Bail Out the Homeowners!, makes the argument that the American government ought work directly for the American people.

Congress should focus the bailout on refinancing the troubled mortgages as the Home Owners’ Loan Corp. [other radicals like Alan S. Blinder, professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve are on board with the idea] did in the 1930s, not on the troubled institutions holding the troubled instruments linked to the mortgages.

CounterPunch and Paul Craig Roberts--dangerous people indeed, who must be excluded from the broadcast networks of our country, lest they reach too many people.

Let's hope President Obama pays heed.

Warren Buffett Says Confidence is Oxygen

"You want to be greedy when others are fearful. You want to be fearful when others are greedy. It's that simple. ... They're pretty fearful. In fact, in my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are right now."
- Warren Buffett, October 1, 2008 on the Charlie Rose Show

Why the Charlie Rose show featuring an exclusive conversation with Warren Edward Buffett, regarded as the world's greatest investor and chair of Berkshire Hathaway, is not endlessly broadcast this week is a mystery of the American political culture.

Even as House Republicans scream (at the apparent urging of Newt Gingrich) that the Emergency Economic Stabilization Act 2008 is a slippery slope to socialism, Buffett's reasoned defense of the Bush-Paulson-US Senate-Everyone-except-the-GOP-House Members Act assures that not only may the bailout bill produce a net profit (if conceived of in those terms) for American taxpayers, but the fear and loathing epitomized by the House Republicans (though not singled out by Buffett in the interview) is ludicrously removed from reality.

The insistence by some progressive Democrats that similar investments be made in the American people directly is certainly called for, but stemming the fear [the VIX or Volatility or Fear Index remains extremely high] is imperative during this time of what Buffett calls a financial "Pearl Harbor".

The psychosocial superstructure holding up our economy ought not be bombed, especially now.

As Buffett says: "Confidence is key. ... You don't want to do too little too late."

NYT Business Page

NYT Business Page

Pelosi's Five-Minute Speech

Here's Nancy Pelosi's speech that House Minority Leader John Boehner (R-Ohio) said caused House Republicans to vote against George W. Bush's historically high-stakes legislation, the Emergency Economic Stabilization Act of 2008, that if the Bush administration is to be believed, would have prevented a collapse of the economic system.

House GOP Kills Bush Bailout Bill

The House narrowly defeated the Bailout bill 228-205; as stocks plunge and everyone is wondering how ineffectual is George W. Bush that he cannot bring along his own caucus to back his own historically high-stakes legislation.

Incredibly, the GOP leadership is taking the line that their caucus suffered from hurt feelings by Speaker Nancy Pelosi's speech before the speech that "poisoned" some 12 Republicans prepared to vote for the bill but changed their minds after Pelosi spoke, though Paulson and Bush continued to urge support up until the end.

Said House Minority Leader John Boehner (R-Ohio): Speak Nancy Pelosi’s speech “poisoned” the Republican caucus and “caused a number of members we thought we could get to go south. ... I do believe that we could have gotten there today, had it not been for the partisan speech that the Speaker gave on the floor of the House.”

A Pelosi spokesman said, "You don't vote on a speech, you vote on a bill."

Maybe John McCain will suspend his campaign again and air-drop into the Capital to save the day.

Some 133 Republicans voted against the Bush-sponsored legislation.

From Andrew Sullivan: "Here's the Roll Call: Democrats backed the bailout by 140 - 95 votes, or roughly 60% - 40% (for). Republicans opposed it by 133 to 65, or 67% - 33% (against)."

Rep. Barney Frank, D-Mass: