Bank Robs You: Chase's Hefty Profits Put Lie to Claim That Consumers Have to Spend More to End the Recession

It looks as if the Great Recession is now just great and no longer a recession, at least for the some of the giants. JPMorgan Chase reports third-quarter profits of $3.6 billion. The other big banks' 3Q reports will also roll in; hard to imagine they'll be any different.

Chase got $25 billion of TARP taxpayer money. And thanks to more infusions of public money through the Public Private Investment Program (PPIP), the taxpayers will subsidize the removal of toxic assets from the banks while in effect guaranteeing BlackRock and other money-manager firms from losing on the purchase deals.


Even sweeter: Treasury Secretary Tim Geithner's current closest aides earned millions last year working for Goldman Sachs and other Wall Street firms, Bloomberg reveals this morning. As New York Fed chief, Geithner was intimately involved in last year's bailout of those big firms.

You might think that a bailout of taxpayers is overdue, that Barack Obama's administration could at least stop subsidizing the big banks and stop guaranteeing the leveraged-buyout firms' purchase of toxic assets and instead help make some of those assets (your mortgages, and so on) less toxic.

Go back to what FDIC Sheila Bair said exactly one year ago in her plea that the government needed to focus on bailing out homeowners instead of the big banks.

This A.M.: Job Market 'Bleaker Than Ever'; Even Bears See Market Rally; Bull Dominates G-20

U.S. Job Seekers Exceed Openings by Record Ratio (NYT)

Hedge funds recovering, mergers and acquisitions are starting up again, the big banks are frantically trying to figure out how to spin their impending resumption of big bonuses. Meanwhile, "the job market is bleaker than ever in the current recession."

Trustee Plans to Sue Madoff Family Members for $198 Million (NYT)

Sharp Drop in Start-Ups Bodes Ill for Jobs, Growth Outlook (WSJ)

Higher Open Seen for Stocks (WSJ)

"U.S. stock futures are pointing toward a higher open, rebounding modestly from the market's worst week since early July."

No reform, just a cosmetic patch (Telegraph U.K., Liam Halligan)

A pox on the G-20, at which "the lack of questioning of the status quo was spectacular." Halligan notes: "Obama's oratory was typically impressive. The trouble is, it wasn't true. ... Nothing 'bold' was done to lessen systemic dangers or overhaul the global regulatory regime."

The Curious Case of the Nets' Ownership ((WSJ)

Russian oligarch's pending purchase of New Jersey Nyets continues an odd, tragicomic history of ownership of the franchise that once boasted Dr. J. Funny little story by Brad Parks notes that Bruce Ratner, who bought the team in 2004 for $300 million, wound up spending about $1.5 million per win.

Profits Poised to Surprise Again (WSJ)

Even bears are optimistic about impact on market. "One big reason for the market's continued strength is that expectations were so low for the economy and corporate earnings that the market was able to rise even on modestly good news."

`Black Swan' Author Taleb Asks Why Bernanke, Geithner Still Holding Posts (Bloomberg)

Nassim Taleb tells biz leaders in Hong Kong: "Bernanke, Geithner and Summers didn't see the crisis coming so why are they still there?"


Breaking the Banks -- Sheila Bair's Last Stand

FDIC Chair Sheila Bair was already marginalized by the Obama Administration — despite the curious fact that she's pursued a more progressive and people-friendly agenda than the yes-we-can president has. Compared with Obama's conservative aides Larry Summers and Tim Geithner, Bair's out in left field. And now, with her op-ed in the yesterday's Times ("The Case Against a Super-Regulator"), Bair just has to be headed for a permanent benching.

Why the American Prospect's Tim Fernholz calls Bair's op-ed "opaque" is opaque to me. Bair is pretty clear in her criticism of giving the Fed all-encompassing power. But where she really hits home is when she pins the blame for the Wall Street meltdown on the big banks. (No wonder the administration doesn't want her to have any hand in regulating the big banks.) Bair, a former aide to Bob Dole, comes straight out with it:

The principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the nonbank shadow financial system, and by using unregulated over-the-counter derivative contracts to develop volatile and potentially dangerous products.

That's the problem, all right, but Bair isn't just rehashing. Her fear is that a super-regulator would focus on just the biggest banks and that would mean even more consolidation in the banking industry.

For more on that specter, go back to David Cho's "Banks 'Too Big to Fail' Have Grown Even Bigger" in last Friday's Washington Post, and Felix Salmon's "The systemic threat posed by megabanks."

Progressive outlets keep wailing at Obama with suggestions to do this and that. They haven't realized that the Obama economic crew (especially Summers and Geithner) is hardly an improvement over Henry Paulson. Bair has at least been consistent. She started shouting into the wind last October against Paulson's bailout plan with her cries for social welfare over corporate welfare:

"Why there's been such a political focus on making sure we're not unduly helping borrowers but then we're providing all this massive assistance at the institutional level, I don't understand it. It's been a frustration for me."

Top 3 Signs the Economy is Still in Deep Trouble

Don't get too giddy about the Dow's upward climb. Here are three signs that the economy is still hurting really bad:

1: Tim Geithner still can't sell his house, despite all this supposed good news about the housing market.

2: Radio Shack seems to be doing well, but nobody gives a shit. The least sexy electronics outlet reported quarterly earnings that beat estimates. No one cares, however, that the homely chain is cutting costs: Its share price is falling.

3: Still plagued by bad marketing moves, GM is rumored to be replacing its Saturn model with the Uranus. Without mentioning that rumor, AdAge's Al Ries hammers GM — the company you bailed out — for picking Bob Lutz as its new advertising and marketing czar, saying it "shows no respect for marketing." MLive notes that Lutz "crapped all over" GM's new ad campaigns (especially a Buick TV commercial) and then dashed off to the Caribbean for a vacation.

De-bugging Wall Street: The Obama plan and the lobbyists for and against it

No one can deliver bad news like the smooth, articulate Barack Obama. He's so adept and quick that he can kill a fly during an interview, so classy that he even picks up the dead fly afterwards instead of just letting it lie there.

But back to the bad news: It depends on who's listening. The public (or at least some of them) may embrace the president's fairly grand plan to overhaul the financial system as good news — Obama's so charismatic that we'll just have to overlook the bland and often ridiculous spin his team puts on things. The White House's creepily over-friendly blog post about the plan is called "New Foundation, New Stability."

The plan's details are public, everyone's writing about it, it will be hashed and rehashed. Commenters and the public will take seriously every part of Obama's plans for this War on Error, whether each morsel has a chance in hell of becoming law. But most of the work to implement it will take place during arm-twisting sessions on Capitol Hill that no one will see — other than the lobbyists and the pols whose arms they're twisting.

The banking industry is well-armed, with battalions of lobbyists and plenty of money to spend on politicians. The lobbyists are the only people who are sure to read all 89 pages of Obama's plan.

They'll be relieved to find that there's no mention of "Glass-Steagall" in it, which means that Wall Street's bankers won't have to completely undo everything. But the words "Consumer Financial Protection Agency" are sure to excite the industry lobbyists, who will assault the very idea like so many woodpeckers on a telephone pole.

The plan's final draft is here. Note that it's ensconced on

For my money, I turn to someone I quote so often that I might as well be on his payroll: Simon Johnson, one of the stars of last night's "Breaking the Bank" on Frontline. In "Regulatory Reform For Finance: Three Views," Johnson breaks down the politco-economic drama. Who's behind the Obama reform package? First possibility: Tim Geithner and Larry Summers (I dub them two of "Obama's Four Worst Hires") have seen "the error of their ways" and are now "radical reformers." Johnson dismisses that theory out of hand as "not widely held." The second possibility: G and S "want a minimal degree of reform with a great deal of window dressing." Johnson calls that the consensus view.

Even worse than the second possibility is the third:

Geithner-Summers have exercised an effective veto over measures that would have constrained large firms directly, but they are not at this time strong enough to prevent sensible consumer protection measures from also going forward.

Johnson calls that third view "more interesting" and, like the second view, also controversial. And he sets up the battle, noting the possible influence of Cass Sunstein, chief of Obama's Office of Information and Regulatory Affairs — even though Sunstein hasn't officially taken the job yet because some senators are upset with his stance in favor of animal-rights regulations:

In this view, someone (Cass Sunstein?) and his/her allies have managed - at least so far - to promote the idea of a consumer protection agency focused on financial products. The details are not yet clear enough to see how what will emerge, and we also don't yet know how vigorously Treasury will defend this idea against the financial sector lobbies. But at least this is something new and potentially powerful in all the right ways.

Sunstein, of course, is known for the idea of a Nudge - pushing consumers ever so gently towards better decisions. It's a fine principle to guide thinking, but lobbies, opponents within the administration, and members of congress with their own agenda will not be moved through gentle means.

Critic: Obama's overhaul is really no overhaul at all; banks still practice their own Ponzi scheme

Today's big news on President Barack Obama's overhaul of the financial system shouldn't stir too much hope.

Not that an overhaul isn't needed at least for the banks' sake, if not for ours. (Several banks just officially veered into junk territory in a major S&P downgrading.)

Obama's plan calls for plenty of new regulation of the banking industry but pretty much leaves the industry itself intact, so expect more junk behavior. Forget about a new Glass-Steagall ActGeorge Soros, for one, says that would be "impractical." So the big banks will still be able to make reckless investments outside their primary areas.

Nomi Prins (author of It Takes a Pillage) says:

As Treasury Secretary Tim Geithner talks tough about financial regulation, the banks are paying back federal subsidies with other federal subsidies -- classic definition of a Ponzi scheme.

"The 'sweeping overhaul' of the financial system detailed by Geithner on behalf of the Obama administration does not overhaul the system at all. True, items like enhanced issuer accountability and restrictions for securitized products, greater leverage constraints and relegating certain derivatives to exchanges, are useful alterations. But, giving the Fed a bigger role, creating a 'council of regulators' to oversee the existing oversight bodies and allowing the biggest Wall Street players to maintain their status, leaves the system intact.

Obama's Four Worst Hires

The competition's stiff, because inevitably a new president will wind up appointing a number of stiffs to important jobs. But here are four losers who currently lead the list of President Barack Obama's worst hires:

Larry Summers: Head of Obama's National Economic Council, Summers was a key figure during the Clinton Era in the dismantling of the Glass-Steagall Act. A stalwart friend of big banks, the former Harvard prexy is said to be very smart. So are a lot of schnooks.

Steve Rattner: Head of Obama's auto task force, the investment banker gets this appraisal from a fresh Wall Street Journal story: "No one has played a more central or contentious role in the auto bailout." Rattner's also an investor in Cerberus, the hedge fund that used to operate Chrysler. Not much of a conflict of interest there. Rattner's also the founder of Quadrangle, one of the hedge funds caught up in the pension-fund scandal.

Tim Roemer: Obama's new ambassador to India is a raving anti-environmentalist cloaked as a "moderate Democrat." He's a "distinguished scholar" at the Mercatus Center, the most hardline and notorious anti-environmentalist and anti-regulation agitprop mill in D.C. Mercatus was the Bush White House's chief engineer in rolling back health, safety, and other regulations — kind of the Anti-EPA, if you will.

Tim Geithner: The Treasury Secretary was head of the New York Fed during last year's meltdown and somewhat astoundingly was hired by Obama. No Republican president could have appointed a Treasury secretary friendlier to Wall Street's investment bankers than Geithner. Check out Geithner's inner circle and you have to wonder how he wound up in Obama's.

California pleads for a bailout, but Geithner keeps walking

Now that GMAC is all lined up at the trough to snarf down another bailout, you might be whining — especially if you live in dead-ass broke California — what's it going to take to get a bailout in my state, an act of Congress?

According to Treasury Secretary Tim Geithner, that's exactly what it'll take. McClatchy's Rob Hotakainen reports:

[Geithner] said Thursday that it will require an act of Congress to have the federal government guarantee emergency loans for California, complicating the state's efforts to find a way to pay its bills.

Geithner told a House panel that federal law would not allow the Obama administration to act on its own. That's a blow to backers who had hoped to get quick approval from the Treasury Department, bypassing a fight in Congress.

Geithner has cut all kinds of deals with all kinds of banks without having to jump through too many hoops on Capitol Hill. And it's not as if California could even hope to have hoops to jump through for a payoff at the end of such an exercise. California's own Jerry Lewis (not the comedian but the member of House Appropriations) is quoted as saying:

"It's hard for me to quite imagine my colleague from Wisconsin or one of my friends from Kansas ... to say, 'Sure, we'll back your bonds, and we'll pay part of the price, indeed, because we know, we're absolutely certain you're going to reduce your spending patterns and thereby get your economy in order.'"

So as it now stands, California, whose economy is bigger than those of most countries, can't get a bailout of even a fraction of the size of the bailout money that's been given to, for instance, AIG.

The invisible hand: Barack Obama's power trip against the SEC -- or is it the bankers' power trip?

Geithner: There's a lot of power in his hands, and more's on the way.

Barack Obama's power trip against the SEC would give the banks that melted down Wall Street even more clout than they already had and still have.

You can see the giant handprints of Treasury Secretary Tim Geithner (a former top Fed official) and his coterie of banking industry advisers ("Geithner's inner circle jerks") all over this plan to strip the SEC of some of its regulatory power and give it to what he describes as a "retooled" Fed.

The SEC has its problems, as whistleblower Harry Markopolos so bluntly pointed out, but the Fed has a radically different setup — the banks themselves have a formal say in who serves on the regional Feds. Geithner himself had to formally pass muster with the banks when he became chair of the New York branch of the Fed, the job he held before becoming Treasury secretary.

Geithner was close enough a pal of Wall Street's banks to be heavily courted to run Citigroup by its former CEO Sandy Weill and to have advocated ways to reduce the amount of capital required to run a bank (the opposite of his current policy). See "Geithner, Member and Overseer of Finance Club," a good New York Times piece from last month, for details.)

It's one thing to have the Fed focus on the flow of money; it's another thing altogether to have it also step in as a regulator of the banks. In general, you could argue that the banks would be regulating themselves.

More on the Fed from Eliot Spitzer here ("Fed Dread"). The ex-governor has always had a lot to say about financial issues — other than how much to pay prostitutes. And a good Seeking Alpha piece, "The Bernanke Fed's Bogus Transparency," points out the Fed's built-in secrecy — the SEC may have its problems but at least it doesn't operate that way. As the Seeking Alpha piece says about the Fed:

Federal Reserve Chairman Ben Bernanke talks a lot about transparency at the Federal Reserve, yet Bloomberg News had to file a lawsuit against Bernanke's Fed for details about its lending programs. Bernanke fought long and hard against revealing American International Group's (AIG) counterparties and how much they received after the government took a 79.9% slice of the insurance giant last September.

A more benign view of the Fed is available here, but for a better overall look, check out Arohan's "Get Ready for a Changing Regulatory Environment," which gives some good background on both the SEC and Fed.

Resistance from the SEC is futile, but it's already fierce: Obama's new SEC chair, Mary Schapiro, has already gone public with her disagreement with her boss, as the Wall Street Journal reports this morning ("SEC Objects to Idea of Losing Some Oversight Power").

Obama's plan may face "big hurdles," but the SEC's resistance is likely to be futile because it has been at least a good enough regulator to not have many allies on Capitol Hill or in the banking industry.

A bull market on life support

Late last week, Treasury Secretary Tim Geithner told reporters, "There is reassurance in clarity."

Yes, Chairman Mao, that's true. But sometimes there's reassurance when there's no clarity. As long as there's reassurance, who cares where it came from?

If you took a stress test like the ones the banks just took, you could have dropped dead on the treadmill and the government still would have declared you healthy.

But the tests, which supposedly made many banks testy and pissed off at the government, seem to have worked for now ("How the Stress Tests Stopped the Market Bleeding"), even though we know that they were little more than a game.

Mark Gongloff carries the medical metaphor a step further in this morning's Wall Street Journal by noting that "for all the excitement about improving financial markets, most are still on some form of government life support."

As for the stress tests, well, there was as much voodoo as traditional medicine in play there. See Saturday's WSJ piece "Banks Won Concessions on Tests" for confirmation of earlier suspicions ("Cheaters always win: Citi, BofA already flunked 'stress' tests; they're just doing them over," May 5, "Spinning out of control on the banks' stress tests," May 7, and "Banks get passing grades -- at least in how they spun the stress tests," May 8).

One of the best spinners is Howard Atkins, chief financial officer at Wells Fargo, who was quoted over the weekend by the Financial Times (U.K.) as saying, "Left to our own devices, we are hopeful we would be allowed to start paying back [TARP] soon."

Since when has Wells Fargo been left to its own devices — except when it came to doing over its stress test?

The bank's been sucking the government's teat for so long. Last October 29 (as I pointed out last month), Atkins proudly announced, ""The combination of the market capital and the capital investment from the government will enable us to finance the Wachovia acquisition."

And Wachovia, as it turned out, was responsible for a huge chunk of the bank's record $3 billion profit during the first quarter of 2009. Atkins said last month that Wachovia accounted for 40 percent of that record-breaking revenue.

Yet Wells Fargo whines about the stress tests. Hey, relax, we're still taking care of you.