The Audacity Of Dopes

Image credit: Official Presidential portrait (left), DetroitDerek (right)

Over at FireDogLake, emptywheel explained the latest boning the banks and the Obama Administration have given us:

The WSJ confirms what we've all probably suspected: the creditors that are forcing Chrysler into bankruptcy are the same banks that have been surviving only with the help of the federal government. And of course, they are refusing to offer the same generosity to Chrysler.

Banks that loaned Chrysler LLC $6.8 billion are resisting government pressure to swap more than $5 billion of that for stock to slash the car maker's debt, according to people familiar with the matter, hindering Chrysler's effort to restructure outside of bankruptcy court.

Bailed Out Bank, JP Morgan, Dooming Chrysler

Like the Congress that decided it would be just too much to ask banks that are being bailed out by the taxpayers to stop paying ridiculous compensation to the fools who ran those banks into the ground, the Obama Administration has turned a deaf ear to the excesses of these people. It's not terribly surprising to anyone who's been paying attention, of course - Obama's had a rather long history of association with these bankers. Treasury Secretary Tim Geithner is one of them, as is economic adviser Larry Summers, as Masaccio observes:

In the run-up to the election, I pointed out that the enormous amounts of money the President raised from ordinary people could well mean that we might have an administration attuned to the problems of ordinary people. Well, I was wrong.

Larry Summers was paid $5.2mn by the hedge fund that employed him, D.E. Shaw, according to the Wall Street Journal. That isn’t all the cash showered on him either. Here are some of his $2.77mn in speaking fees: JP Morgan ($67.5K), Skagen Funds ($180K), Citigroup ($99K), Goldman Sachs ($202.5K), Lehman Bros. ($67.5K), CEO 100 ($45K), Price Waterhouse Coopers ($67.5K), State Street Corporation ($112.5K) McKinsey and Co. ($135K), Merrill Lynch ($45K, donated to charity).

Summers Feeds at Hedge Fund Trough

Most of those financial institutions that Summers worked for are the ones being bailed out right now. Summers, and Geithner, are part of the problem, as former bank regulator William Black explained last night on Bill Moyers Journal:

BILL MOYERS: But I can point you to statements by Larry Summers, who was then Bill Clinton's Secretary of the Treasury, or the other Clinton Secretary of the Treasury, Rubin. I can point you to suspects in both parties, right?

WILLIAM K. BLACK: There were two really big things, under the Clinton administration. One, they got rid of the law that came out of the real-world disasters of the Great Depression. We learned a lot of things in the Great Depression. And one is we had to separate what's called commercial banking from investment banking. That's the Glass-Steagall law. But we thought we were much smarter, supposedly. So we got rid of that law, and that was bipartisan. And the other thing is we passed a law, because there was a very good regulator, Brooksley Born, that everybody should know about and probably doesn't. She tried to do the right thing to regulate one of these exotic derivatives that you're talking about. We call them C.D.F.S. And [Larry] Summers, [Robert] Rubin, and Phil Gramm came together to say not only will we block this particular regulation. We will pass a law that says you can't regulate. And it's this type of derivative that is most involved in the AIG scandal. AIG all by itself, cost the same as the entire Savings and Loan debacle.

BILL MOYERS: What did AIG contribute? What did they do wrong?

WILLIAM K. BLACK: They made bad loans. Their type of loan was to sell a guarantee, right? And they charged a lot of fees up front. So, they booked a lot of income. Paid enormous bonuses. The bonuses we're thinking about now, they're much smaller than these bonuses that were also the product of accounting fraud. And they got very, very rich. But, of course, then they had guaranteed this toxic waste. These liars' loans. Well, we've just gone through why those toxic waste, those liars' loans, are going to have enormous losses. And so, you have to pay the guarantee on those enormous losses. And you go bankrupt. Except that you don't in the modern world, because you've come to the United States, and the taxpayers play the fool. Under Secretary Geithner and under Secretary Paulson before him... we took $5 billion dollars, for example, in U.S. taxpayer money. And sent it to a huge Swiss Bank called UBS. At the same time that that bank was defrauding the taxpayers of America. And we were bringing a criminal case against them. We eventually get them to pay a $780 million fine, but wait, we gave them $5 billion. So, the taxpayers of America paid the fine of a Swiss Bank. And why are we bailing out somebody who that is defrauding us?

Transcript: April 3, 2009 (William Black)

[emphasis added]

Tellingly, Black and Moyers went on to show that, even though it was his job, Tim Geithner didn't think that he was supposed to regulate banks as president of the Federal Reserve Bank of New York. Here is the Federal Reserve's mission statement, as it appears on its own website:

Today, the Federal Reserve's duties fall into four general areas:

• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates


• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers


• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets


• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

Federal Reserve Bank: Mission

[emphasis added]

In short, the very people who helped create this mess in the first place are the ones President Obama is relying on to clean it up. To say this makes no sense is an understatement of epic proportions. Prof. Black's assertion that this is one big Ponzi scheme is certainly a credible one. I recommend that anyone interested in that assertion read that transcript, and also read this chat he had with FireDogLake a couple of weeks ago.

Why does Obama continue to rely on these people? I think the answer lies in an article Naomi Klein wrote last year just after the Presidential primary was over:

Obama’s love of markets and his desire for “change” are not inherently incompatible. “The market has gotten out of balance,” he says, and it most certainly has. Many trace this profound imbalance back to the ideas of Milton Friedman, who launched a counterrevolution against the New Deal from his perch at the University of Chicago economics department. And here there are more problems, because Obama–who taught law at the University of Chicago for a decade–is thoroughly embedded in the mind-set known as the Chicago School.

He chose as his chief economic adviser Austan Goolsbee, a University of Chicago economist on the left side of a spectrum that stops at the center-right. Goolsbee, unlike his more Friedmanite colleagues, sees inequality as a problem. His primary solution, however, is more education--a line you can also get from Alan Greenspan. In their hometown, Goolsbee has been eager to link Obama to the Chicago School. "If you look at his platform, at his advisers, at his temperament, the guy's got a healthy respect for markets," he told Chicago magazine. "It's in the ethos of the [University of Chicago], which is something different from saying he is laissez-faire."

Another of Obama's Chicago fans is 39-year-old billionaire Kenneth Griffin, CEO of the hedge fund Citadel Investment Group. Griffin, who gave the maximum allowable donation to Obama, is something of a poster boy for an unbalanced economy. He got married at Versailles and had the after-party at Marie Antoinette's vacation spot (Cirque du Soleil performed)--and he is one of the staunchest opponents of closing the hedge-fund tax loophole. While Obama talks about toughening trade rules with China, Griffin has been bending the few barriers that do exist. Despite sanctions prohibiting the sale of police equipment to China, Citadel has been pouring money into controversial China-based security companies that are putting the local population under unprecedented levels of surveillance.

Obama's Chicago Boys

The Chicago School, of course, is the economic point of view perhaps best represented by Milton Friedman. Paul Krugman summed up Prof. Friedman's, and the Chicago School's, effect on public policy this way:

Friedman's laissez-faire absolutism contributed to an intellectual climate in which faith in markets and disdain for government often trumps the evidence. Developing countries rushed to open up their capital markets, despite warnings that this might expose them to financial crises; then, when the crises duly arrived, many observers blamed the countries' governments, not the instability of international capital flows. Electricity deregulation proceeded despite clear warnings that monopoly power might be a problem; in fact, even as the California electricity crisis was happening, most commentators dismissed concerns about price-rigging as wild conspiracy theories. Conservatives continue to insist that the free market is the answer to the health care crisis, in the teeth of overwhelming evidence to the contrary.

Who Was Milton Friedman?

If you get the time, the Krugman's complete review of that Friedman book is also well worth a read. It's an interesting view of the history of economics in the last seventy years, and certainly the warnings inherent in what Prof. Krugman wrote at that time are becoming increasingly valid.

President Obama has clearly embraced these notions about free markets, as his continued support of Geithner demonstrates. He seems to think that there's nothing wrong that can't be fixed by a new coat of paint. As long as this continues to be his opinion, he will continue to rely on the same dopes who broke the economy in the first place to fix it. As a consequence, we will make little or no progress in fixing the economy.

And I'll be finding more closed factories to put next to Obama's picture.

UPDATE: As you'll note, I wrote that Larry Summers "worked for" the companies that paid him all that money. Officially, many of those sums are speaking fees. PZ Myers makes a good point in that regard:

[W]hat does a $135,000 speech sound like? I come from an academic background, where we fairly routinely bring in scientists to give lectures and spend a day talking with colleagues, and it's fairly dense stuff, with lots of information. We generally pay travel costs (of course) and an honorarium of a few hundred to a thousand dollars. It's very good value for the money. There are popular heavy-hitters like Richard Dawkins who can get $10,000 for a talk, but even there they may waive the fee, as we saw in Oklahoma, and even so, they can pack an auditorium with thousands of people who want to hear what they have to say.

Would thousands of people line up to buy tickets to hear Larry Summers speak? Does he really have the kind of significant information to transmit that would be worth a hundred thousand dollars for an hour of time? If so, I'd like to know more about these kinds of valuable speeches, because I'd love to pay off my entire mortgage with an afternoon's work.

Putting The Foxes In Charge

So, I'll stick by my description. Larry Summers worked for these people. I don't know what he did, but it sure wasn't just by speaking.

UPDATE 2 (Apr. 5): Glenn Greenwald doesn't seem to think that Larry Summers is worth $135k a speaking engagement, either:

That's $135,000 paid by Goldman Sachs to Summers -- for a one-day visit. And the payment was made at a time -- in April, 2008 -- when everyone assumed that the next President would either be Barack Obama or Hillary Clinton and that Larry Summers would therefore become exactly what he now is: the most influential financial official in the U.S. Government (and the $45,000 Merrill Lynch payment came 8 days after Obama's election). Goldman would not be able to make a one-day $135,000 payment to Summers now that he is Obama's top economics adviser, but doing so a few months beforehand was obviously something about which neither parties felt any compunction. It's basically an advanced bribe. And it's paying off in spades.

Larry Summers, Tim Geithner and Wall Street's ownership of government

Call it an advance fee.