Anyone who is not serious about fixing Too-big-to-fail and thinking about the implications of big banks and their size is not serious about reform. Just plain not serious.

Surprise: Hedge Fund Managers made a killing last year with help of Treasury. Shows that big investors perceive Wall St. as a game of people’s lives, the sneaky win the money and the outcome for regular people is inconsequential. April 1 joke is always on us.

Top from left: David Tepper, George Soros, James Simons, John Paulson, Steve Cohen; Bottom from left: Carl Icahn,

At least the notion of TBTF is gaining traction and the word on the street is that more insider people are going to attack size. “Speeches by central bankers tend to be dry affairs. For this reason alone, remarks by Andrew Haldane, the Bank of England’s executive director in charge of financial stability, deserve attention. In a discussion about bank size, he made reference to the limits of Facebook friendship and the structure of Al Qaeda. Rhetorical flourishes aside, Mr. Haldane delivered a serious message: regulators are thinking increasingly radical thoughts about tackling big banks.”

Geithner says “it’s “deeply unfair” that some financial institutions that got taxpayer-paid bailouts are emerging in better shape from the recession than millions of ordinary Americans.” Well, we have a sense that he might push harder now that health care is over in Congress. He should have some leverage to go after size and if he doesn’t, he’s not being sincere about fixing the disparity.

Here’s another win, NYFed is going to reveal where the bailout billions went.

To know who else is not serious about the interests of a safe/fair/prosperous economy, look at who is in bed with Wall Street. This is a great article that chronicles Wall Street’s “best hope” (Clinton and Obama have chummed up with them in the past too):

Republicans are stepping up their campaign to win donations from Wall Street, trying to capitalize on an increasing sense of regret among executives at big financial institutions for backing Democrats in 2008.

In discussions with Wall Street executives, Republicans are striving to make the case that they are banks’ best hope of preventing President Barack Obama and congressional Democrats from cracking down on Wall Street.

GOP strategists hope to benefit from the reaction to the White House’s populist rhetoric and proposals, which range from sharp critiques of bonuses to a tax on big Wall Street banks, caps on executive pay and curbs on business practices deemed too risky. [Wall Street Journal, 2/4/10; emphasis added]

Bonuses, Government, and the Economy

On February 4, 2010, in The Public, by Joe Costello

I can see, I can see when our hands our tied
I was a victim when you lied
You who smile back legislated
You who made me stupid hatred
You who used your money taking
You who tax and persecute
You who guarded all the loot
You who buried me alive
I will survive
Attack, Attack Attack
Public Image Ltd.

Well, as you may have heard its bonus season on Wall Street and your money provided to bailout every last one of them is flying out the door. Best

is the $100 million for AIG, a company which in just over a year saw $185 billion of your tax dollars go through it. I guess its hard work keeping track of all that money. BofA, which remains on the Fed’s low interest and other public largess life support is giving out $4.4 billion. As the economy tanked in 2009, it was good year on Wall Street.

Now we have two cases of looting here, the first is of the taxpayer and the second is of shareholders in public companies. The latter has become an increasing problem as boards have become window dressing and the executives look to see how much money they can squeeze out. Thorstein Veblen, an essential thinker on political economy, spoke of this developing problem, of a rogue executive bureaucracy a hundred years ago, it is now fully manifest.

Meanwhile in the real economy, as 4th quarter results come in, the economy remains flat, all the reason more for those bonuses right? Just like the reasoning for Mr. Bernanke’s re-appointment, it could be worse.

Finally, coming soon to a government near you, IMF austerity. In the past, this has been saved for the developing world, let’s see how it works with the Greeks.

cross-posted from Archein: “bonuses, government, and the economy”

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What Too-big-to-fail Means for Compensation

On February 1, 2010, in Background and Research, by Tiffiniy Cheng

These are great visuals from WSJ, and Econompic Data did a fantastic job boiling down for us:

from WSJ: “executives, traders and money managers at 38 top financial firms can expect to earn nearly 18% more than they did last year, and slightly more than they did in the record year of 2007.”

from ED: “the lack of competition among the largest banks has caused compensation within the industry to become even more concentrated.”

“the increase in compensation (and risk) is now concentrated among only these top banks. Bonuses at these “big four” banks are up a whopping 25% since 2007 (all other firms are down 18% since that time) and 40% since 2006 (whereas all other firms are down 2%).”

“For all the talk and supposed intervention, nothing has changed (actually, with these banks even more “too big too fail”, things may actually be worse).”

by Donny Shaw and Tiffiniy Cheng

Brown University President Ruth J. Simmons has spent her career serving students in higher education. She has also spent the past decade serving on the Board of Wall Street bank-holding company Goldman Sachs. If she truly cares about helping people obtain an education, it makes sense that she should step down from the board immediately.

We came across this information on Sourcewatch’s page for Goldman Sachs here. It popped right out because she is known to be a really down-to-earth, funny, extremely smart, “tough on what’s broken” leader (a good friend went to Smith and another good friend went to Brown and Simmon’s positive presence is contagious). Her service on the board of a company that has engaged in possibly illegal, and definitely immoral and unethical behavior, and which embodies the most ruthless form of capitalism’s legal outer limits casts suspicion over her role as a leader in educating students to solve the world’s problem.

Goldman Sachs’ fraudulent financial speculating was at the core of inflating and bursting the housing bubble that created the financial crisis of 2008. the results: university endowments and state education funds have dried up resulting in higher fees and tuitions for students, fewer loans are available and job markets for graduates is almost non-existent. Add to that the fact that young people will ultimately be on the hook for paying back the billions in bailouts and loan guarantees that the government paid out to the banks, and you can start to see how Goldman Sachs has hamstrung the generation that Simmons is supposed to be looking out for in academia.

Goldman Sachs’s business model; involves inflating financial bubbles and then popping them at a profit. In the years leading up to the burst of the housing bubble, Goldman was bundling and selling subprime mortgage-backed securities and creating other more exotic financial products more often and more quickly than the other big investment banks, and with a more sinister intent. Unlike the other banks that were doing it, and were actually buying them from Goldman, Goldman knew that the securities they were selling were essentially worthless and that the meltdown of the entire market was imminent. That led them to broker deals in which the buyers of their securities were also insurers agreeing to pay Goldman huge sums when the value of the securities collapsed. In essence, Goldman was betting against the junk they were dealing in.

They gamed the system by taking a lot of their sketchiest transactions offshore to places like the Cayman islands where the rating agencies were more lenient. That allowed them to secure top-notch AAA ratings for securities that in the U.S. would have been rated much lower. These inaccurate ratings, coupled with Goldman confidence in dealing in the exotic securities led a lot of the less connected and less sinister investment banks to take the raw deal.

Goldman ended up walking away with record profits. And to top it all off, after the Wall Street bailout law took effect they changed their status from investment bank to bank-holding company so they could get some taxpayer bailout money and have access to the trillions in loan guarantees coming from the Fed. Goldman lobbied to allow themselves and 4 other investment banks to lower requirements on how much they need to hold in reserves to cushion investments in the market from a ratio of 12:1 to 40:1

Goldman Sachs also received $10 billion in TARP bailout funds and paid out $4.8 billion in bonuses in 2009 while earning only $2.3 billion.

Brown University has been a bastion of activism against the exploitation of corporations, for example of sweatshop laborers in the sweatshop reform movement. Ruth herself has lectured on inequities on racial issues and the existence of slavery in Rhode Island. How can Ruth Simmons serve on a board of one of the most ruthless “banks” on the planet who work to profit on the inflation of bubbles in poor and minority communities?

Journalist Matt Taibbi has called Goldman Sachs “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” If Simmons cares about making the world a better place through education, she should end her ties with Goldman Sachs.