Long ago, the mice had a general council to consider what measures they could take to outwit their common enemy, the Cat. Some said this, and some said that; but at last a young mouse got up and said he had a proposal to make, which he thought would meet the case. "You will all agree," said he, "that our chief danger consists in the sly and treacherous manner in which the enemy approaches us. Now, if we could receive some signal of her approach, we could easily escape from her. I venture, therefore, to propose that a small bell be procured, and attached by a ribbon round the neck of the Cat. By this means we should always know when she was about, and could easily retire while she was in the neighborhood."
This proposal met with general applause, until an old mouse got up and said: "That is all very well, but who is to bell the Cat?" The mice looked at one another and nobody spoke.
The moral: It is easy to propose impossible remedies.
In the present case, "the cat," as I'm sure we're all aware, is not simply one cat, but several. All FAT. The FAT cats who, as we've recently been made aware, but should have known all along, are running this country -- and by extension, the world. Their secret is now out. We know they are running things. And we know, in at least some cases, who they are and even where they live. We are the mice. And the Congressional Democrats, along with our newly elected President, can be understood as the council, brought together to see what measures can be taken to control the anti-social behavior of these FAT CATS before they devour us all. And a solution has been proposed, a solution suspiciously like the solution arrived at by Aesop's mice: "Why don't we hang some regulations on the behavior of these fat cats?" says our young President. And everyone says, "Yes, that sounds like a great idea." Only a wizened old mouse (docG, natch) rolls his eyes and declares: "That is all very well, but who is to regulate the Fat Cats? And how is this to be done?"
Yes, indeed, there's been all sorts of discussion of this matter of regulation and all sorts of things have been proposed. But when the all important question arises of who is going to do the regulating and how the regulating is going to be done, there has been an ominous silence.
So, it should come as no real surprise that the council convened to deal with the problem of controlling the problem posed by the Fat Cats is now declaring for the world to hear that there isn't really a problem at all, it was simply a big mistake. After all, what's good for the Fat Cats is good for the rest of us, right? Didn't we always know that?
Many of the ironies characterizing The Situation In Which We Now Find Ourselves (TSIWWNFO) emerge in a recent New York Times Op-Ed piece, by Wall Street cognoscenti Sandy B. Lewis and William D. Cohan, who insist that, all indications to the contrary, The Economy is Still at the Brink. Here are some highlights:
WHETHER at a fund-raising dinner for wealthy supporters in Beverly Hills, or at an Air Force base in Nevada, or at Charlie Rose’s table in New York City, President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible. “It’s safe to say we have stepped back from the brink, that there is some calm that didn’t exist before,” he told donors at the Beverly Hilton Hotel late last month. Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we’ve learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy. . .Lewis and Cohan then propose a series of especially tough questions for our new President. For example:
The storm is not over, not by a long shot. Huge structural flaws remain in the architecture of our financial system, and many of the fixes that the Obama administration has proposed will do little to address them and may make them worse. . .
Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated — so why then are we so desperately anxious to restore that model as the status quo? Nearly every new program emanating these days from the Treasury Department — the Term Asset-Backed Securities Loan Facility, the Public Private Investment Program, the “stress tests” of major banks — appears to have been designed to either paper over or to prop up a system that has clearly failed. . .Not that Lewis or Cohan have a much better handle on the fundamental problem than Mssrs. Bernanke, Geithner and Obama. They pride themselves in being Wall St. insiders, and what really gets their goat is the presence of "academics" like Bernanke and Geithner at the helm:
Why is so much effort being put into propping up those at the top of the economic pyramid — the money-center banks, the insurance companies, the hedge funds and so forth — when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?Confidence will return only when jobs can be found and mortgage payments are made. Even if Mr. Obama’s claim is true that his $780 billion stimulus package “saved or created” some 150,000 jobs, we seem a long way away from the point where those struggling to get by will feel like spending again. What happens when people buy a car once every 10 years instead of once every two or three, especially now that we taxpayers own such a big percentage of the American auto industry?
Why isn’t the Obama administration working night and day to give the public a vastly increased amount of detailed information about what happens in financial markets? . . .
Why is the government still complicit in making the system ever less transparent, even when it comes to what should clearly be considered public information? For instance, it took more than a year for the Federal Reserve to disclose that it had agreed to pay BlackRock — the huge money manager that is 45 percent owned by Bank of America — and others $71 million in a no-bid contract to manage the $30 billion of toxic assets that JPMorgan did not want when it bought Bear Stearns in March 2008. And that is only one of the five contracts BlackRock has with the government as a result of this crisis — the nature of the other contracts remains secret. . .
Why hasn’t President Obama insisted on public hearings over what happened during this financial crisis?Not a single top executive of a Wall Street securities firm responsible for causing the financial crisis has had the courage or the decency to step forward in front of the cameras and explain to the American people in his own words exactly how and why he allowed his firm to cause the crisis. Both Mr. Fuld and Alan Schwartz, the chief executive of Bear Stearns at the end, in their Congressional testimony blamed the proverbial once-in-a-century financial tsunami. Do they or any of their peers really think this is true?
The bit about "putting the fox in charge of the henhouse" says it all, as far as I am concerned. Bernanke and Geithner may well be clueless academics, but shrewd Wall Street "foxes" like these guys we need like a hole in the head.
Why has Mr. Obama surrounded himself largely with economic advisers who are theoreticians and academics — distinguished though they may be — but not those who have sat on a trading desk, made a market, managed a portfolio or set a spread?In our view, one of the ways out of this economic conundrum is to have experienced traders — not hothouse flowers — design incentives that will encourage the market to have buyers and sellers meet anew around the proper valuations of assets, not some artificial construct of a market propped up by a pliant Financial Accounting Standards Board or government-sponsored programs that appear to be virtually giving money away to hedge funds and private-equity firms so that they will buy assets they would not ordinarily buy. We’re not talking about putting the fox in charge of the henhouse, just putting people who know how markets function in the real world into the important seats in Washington.
Meanwhile, back at the henhouse, it seems as though things are really not so bad, so maybe the old cat (aka fox) might not need a bell after all. Here's what Philip Stephens of the Financial Times has to say, in an article called Crisis? What Crisis? The Market Confounds the Left:
Surely it was only yesterday that the west was engulfed by the crisis of capitalism? Markets buckled under the strains of the credit crunch. Portraits of Adam Smith made way for freshly-burnished busts of John Maynard Keynes. Popular rage against greedy bankers promised to restore politics to parties of the left.
Pace the doomsayers who predicted imminent Armageddon, liberal market capitalism has survived: somewhat humbled and, in the case of the financial services industry under much tighter official supervision, but recognisably much as it was. Governments have stepped in to prop up markets rather than to dismantle them. Nationalising the banks has been a means to an end rather than an end in itself. . .
. . . [P]redictions of a return to the 1930s have proved as misjudged as the reckless complacency of policymakers and economists during the boom years. This week banks started paying back some of the money they borrowed from taxpayers.
Yes, indeed, those banks that took billions from the US Treasury are now eager to pay it all back. And, yes, it seems as though they might actually be able to raise at least some of that money on their own. Whoda thunk it? Never mind that their lobbyists succeeded in getting new accounting rules put into place, rules that have enabled them to claim their "toxic assets" are actually worth just about whatever they want to say they're worth. And never mind that other sources of government largess, including billions in loan guarantees, plus a commitment from the Treasury and the Fed that they will not be permitted to go under regardless of the circumstances, i.e., regardless of how recklessly they continue to play their same old same old market games.
And if that weren't outrageous enough, here's another huge "revelation" regarding these same incredibly resilient institutions: the vaunted Public-Private Investment Program (PPIP), instituted by the government to take the burden of all those toxic "assets" off the books of the failing banks, is -- we are now being told -- not really necessary. The banks would rather not sell them after all. No need. Again, thanks to the same new bookkeeping rules. Since they need not be valued on a mark to market basis, they can be valued on a mark to madness basis -- which suits the bankers fine, since they are the ones who invented that same madness in the first place.
Just how mad that madness can get is neatly summarized in an article by Felix Salmon, of Reuters, Why the failed PPIP should prevent TARP repayments:
When the PPIP was introduced, everybody was scared about the amount of toxic assets on banks’ balance sheets. Don’t worry, said Tim Geithner: between the stress tests and the PPIP, we’re going to be able to put a price on all those toxic assets, work out what the banks’ losses are, and ensure that the banks have enough capital to absorb those losses.
The market loved this idea, and started going up rather than down, to the point at which people weren’t scared any more about the amount of toxic assets on banks’ balance sheets. And so it didn’t matter that the adverse scenario in the stress tests is looking positively sunny these days. And it didn’t matter that PPIP disappeared with a whimper, the toxic assets no more priced now than they were six months ago. So long as the stock markets are happy, what’s to worry about?
In other words, the market went up because investors were reassured that the PPIP plan was going to deal effectively with the problem posed by all those toxic assets. But since the market went up, boosting the value of the bank stocks, the bankers have decided they don't really need PPIP after all. And the investors no longer care, because, as the man says: "So long as the stock markets are happy, what’s to worry about?" Talk about a shell game!
What's important to the US economy, in other words, is not that we ever become truly solvent or that our economy ever really recovers or that we emerge from this catastrophe with any semblance of a social safety net, or decent employment opportunities, or a market for our goods, etc., etc., but that the compensation packages of the bankers and other masters of the financial universe be maintained at full value or better, no matter what. It is easy to propose impossible remedies. That's for sure. And when it comes to belling these particular Fat Cats, the remedy may well be just that: impossible.