The Across the Curve blog often has insightful and potent analysis, with a focus on credit markets that reveals some real expertise in the area. Today, however, its author, originally a weak supporter of government intervention, has made a rather public about-face.
We are forced to agree with him. Matters are quickly getting out of hand and deeper government involvement in the essential engines of the economy, and the deficit spending required to entrench it, is looking less and less desirable by the day.
From the outset, I have always been a supporter of government intervention as a means to prevent this unique crisis from taking the system down. I have always believed that the consequences of inaction were greater than the cost of government involvement. I question that assumption now.
The bailouts began with the deal in which JPMorgan took control of Bear Stearns with government assistance and continues to this day with the government intervention in the Bank of America union with Merrill Lynch.
The Federal government will now be an integral part of the financial system for a very long time and will influence decision making and risk taking in that sector during the time in which taxpayers are a partner in those businesses.
I now think that we would have been better off with some truly cathartic event which would have curbed the animal spirits of traders but which would have established a basis for a market prescribed recovery. Succinctly stated, the government is not in the business of taking risk and I would argue is in the business of risk avoidance.
In retrospect, the commonweal would have been better served had nature taken its course and allowed for capitalism to travel its natural course. I fear that this new course has placed on us a path to a very slow recovery and one in which innovation and risk taking will be viewed through the narrow and ill begotten prism of some bureaucrat.
Some Opening Comments [Across The Curve]
In the grand scheme of things, we are all now European fags.
We no longer live in a free mkt system. All the shit I learned at the Chicago GSB is completely blown out of the water. Essentially BAC and C are insolvent. Lewis goes on a buying spree and blows up his own bank. And why the FUCK are traders at MER still losing billions of dollars?
The US is a joke, complete joke. And yet people worry about “first year associate numbers” You know what your numbers should be? ZERO.
Best example of this is the sale of Smith Barney.
Dylan Ratigan plays gourd flutes.
dreamy.
On Tuesday night, with no fanfare whatsoever, Congress left out a provision of the Troubled Assets Relief Program (TARP) that would have prohibited TARP beneficiaries from using bizjets. No word on exactly why the provision was deleted, but NBAA, among other aviation member organizations, is delighted. In a release on Wednesday, NBAA President Ed Bolen put it nicely, saying “Congress has clearly recognized that it is important to provide Americans with strong oversight of the federal dollars in the TARP program, but that the language addressing business aviation had the potential to fuel job losses for countless people in the general aviation community.” The bill looked to be headed for approval by as early as Thursday.
This blog simply states the obvious if we are still trying to stick to the notion of a free market capitalist society. At the risk of oversimplifying, the government caused most of this mess by providing below-market loans that could never be repaid. Companies simply amplified the pain by using the same loose credit to up their leverage. In the end if you write a stupid loan and the borrower defaults you should go out of business. The system doesn’t need banks to function, it needs PROFITABLE banks to function. Back to basics. Let the bloated pigs fail and be replaced by smaller, smarter banks that don’t make stupid decisions. Use the TARP money to keep the former employees off the street until the new banks get off the ground.
Another example:
http://www.bloomberg.com/apps/news?pid=20601087&sid=acUuT2UCwMEM&refer=home
“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”
I wonder which $700 billion fund Hank’s referring to. It can’t be the one that already been spent, ya think?
Anyone have First Year Associate Numbers for GS?
Pretty much spot on.
The government is simply reacting. I don’t really blame them. The real problem is that these so-called titans of finance keep threatening the government with financial armageddon if it doesn’t intervene.
How many other industries are now playing the same tactic? Auto, porn, home builders.
The terrorists have truly won.
Soemone please also tell me why the fuck the government can’t just nationalize these banks? Why do they keep putting money in with Pfd shares? Just inject $100B in commmon equity and get it over with?
@10 because the government doesn’t know sh*t about running a bank and has no constitutional right to do so. We are a capitalist society. The banks should be allowed to fail. The market should be allowed to work. We keep looking at the symptoms and ignoring the virus…the credit that sent all these banks to their inflated values never should have been created in the first place. You thought you invested in an asset but all you bought was air. Air isn’t fetching very much on the open market these days.
That’s the first blog I read in the morning. I believe the situation with Bank of America and the unavoidable bust of the treasury markets is getting us down big time.
What to with Ken Lewis, another Sandy Weill wannabe? The people should not be paying for the masters of the universe running wild. They’ll never self-correct and will continue in their reckless ways as long as they demand a government rescue. Get those monkeys off our backs. I think that’s Jensen’s point.
Let them all fail.
Vive la revolución!
@2. Yea, when your right, your right. How can professors of finance etc. get up and lecture anymore.
oh oh, @1 used the ‘f-word’!!!
oh oh, @1 used the ‘f-word’!!!
Remember people, the individuals running the show are the same ones who swore to us that unless they had $700B to buy bad assets from financial companies the system was going straight to hell. Well, they got $700B, and what did they do with it?
The decisions as to how to help the economy are being made by politicians (we could argue there are no reputable economists out there since every freaking one of them was oblivious to what was happening in the run up to this train wreck, but that is another conversation). Government is making decisions as to what companies will fail and which will survive based on the political agenda of those in charge.
The next $1trillion is all being allocated to further political agendas of individual Congressmen and chosen friends of The Messiah. This is going to get MUCH worse before it gets any better. We probably still have a few trillion dollars that need to be pissed down the drain in pork barrel spending and social engineering schemes before we get so beaten down as a nation that we are willing to undertake the painful remedies we should have accepted from day one.
2 no, no. Its been argued that associates work so hard that to suggest no bonus shows that you don’t understand the comp system as it applies to them. Apparently for associates bonus, despite the usual understanding of the term, is NOT incentive comp. As described to me, it is instead something to which they are entitled, without regard to the profitability of their firm or department, simply for putting up with all that they do. Otherwise their hourly wage would be at the McDonald’s level. Or so they claim. Isn’t that special?
I think the problem is BAC has now realized that buying ML wasn’t such a great idea once they had a chance to go through their books on their own.
Also how did Morgan Stanley come up with billions in CASH to buy part of another company? If they had that much CASH then why did taxpayers have to give them billions? The bailout is nothing but a scam and nobody is doing anything about it. Soon we’re going to have someone in charge of our Treasury department who is so cheap that he lied on his tax returns so he could be reimbursed for sending his children to summer camp yet expects taxpayers to give their money away to banks.
@19
And exactly how much value does a first year ANYWHERE add such that they would feel entitled to ANY comp above and beyond their salary? Maybe first year associates need to be screened a little better moving forward as to attitude. The bullshit they they represent some sort of “talent” is crap.
Im pretty sure 19 was being as sarcastic as possible.
I truly hope Wall St never recovers from this. They are some of the most overpaid, unskilled workers in the US. They push people’s money around and feel like they deserve “models and bottles”
MDs should make $500k, Associates should make $150k, and Analysts should make $75k.
THOUGH EXPERIMENT-
Imagine a giant meteor came out of space and slammed into manhattan. The entire city is vaporized, along with westchester, most of north NJ, and southern CT. Absolutely nothing is left; everyone is dead. The rest of the country, is more or less physically unaffected. (No drastic climate change, or anything like that.)
Do you think the rest of the country would be able to move forward? Would the rest of the USA return to some sort of hunter/gather civilzation? Would people be starving to death?
Now think of how many times worse the above scenario would be than the bankruptcy of a major money center bank (citi, boa, etc) or even all of them.
Do you still think a major bank bankruptcy would be armageddon?
Fine, EP, the economy isn’t all pizza and blowjobs at the moment, but no matter how bad it is, it could be worse. I think we’ve all gotten a little soft with our bottle service and Manolo shoes, and we really can’t comprehend that we could all be living in Hoovervilles if there hadn’t been a bailout.
Did you really expect the *government* to come in with a magic bullet that was going to solve the credit crisis in a few months without any pain? Wake up.
What the government should have done is to guarantee counterparty risk on all outstanding OTC trades made up until a specific date. That’s all. Problem solved.
@25
Well, they didn’t so what is your next bright idea?
EP and bess, I am a long time reader.
Today we are soft launching The Daily Bail…a bailout news, opinion & analysis site. In more detail we are a news aggregation source for all stories related in any way to the institutionally dysfunctional, painfully inept and completely counter-productive taxpayer bailout of failed people, ideas, businesses, pensions, municipalities, states and ultimately, we fear, of our federal government.
The site is not complete but is fully functional and so we have decided to soft launch now.
For those interested, click the URL next to my name or go to ‘www.thedailybail.squarespace.com’
In a few days we will lose the ‘.squarespace’ tag.
Thanks again for allowing us to post this and I hope dealbreaker readers will take the time to stop by.
dailybail
@20 From what I have read the past year, JP Morgan was in the best shape, out of all the major banks.
As far as “receiving billions from taxpayers”, they didn’t have a choice, they were among the banks that were forced to take bail-out money.
@20 From what I have read the past year, JP Morgan was in the best shape, out of all the major banks.
As far as “receiving billions from taxpayers”, they didn’t have a choice, they were among the banks that were forced to take bail-out money.
Re: 28 & 29
Apologies for the double post. Lesson learned in regards to using the comment system.
It’s going to be hard getting that bag of money back.
Amero here we come!!!!
They were “forced” to take money from taxpayers that they could use for anything they wanted – now that is horrible. It’s just not fair – they didn’t want to take money from taxpayers but they had to because the government made them.
The government doesn’t know what these banks have done, what they’re not telling people, none of them have been audited by outsiders – it’s all a scam, nothing but a way to steal money from taxpayers with approval from congress.
When a bank says “ok. ok. if you insist, I’ll take the money” that’s just an attempt to signal to markets that that it’s financially solid.
The government made most banks take money to avoid signaling which banks were truly in trouble.
that fell apart within weeks because Shitty Bank couldn’t hold its mud.