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WE THE PEOPLE (Have Had Enough)

STARVE THE BEAST!!!!!!!!

Posted by Karl Denninger

THE seminal question for this year – coming into the mid-term elections – is exactly that.

Have you had it?

Are you tired of being bent over the table with 29.9% credit card interest rates while these big banks borrow at zero from The Fed and use that money to speculate in the markets?

Are you tired of “too big to fail” – better stated as heads we (the banksters) win, tails you (the taxpayer) lose?

Are you enraged beyond words with the fact that this economic mess was not an accident – it was an intentional act of willful blindness and perhaps even fraud?

Do you feel helpless to do anything about the fact that Government has willfully and intentionally refused to both clean up the mess and prevent it from happening again due to the presence of huge lobbying interests in Washington DC – paid for by the very same banksters who nearly destroyed this nation?

Do you realize that we have fixed nothing – the bad loans are still there, they are still bad, that millions of Americans have lost their jobs, that the economy is not actually recovering (despite what they say) and that without resolving the actual problems odds are that within a few years, and perhaps within a few months, we will face another crash – this one likely bad enough to destroy our economy and perhaps our government?

Let’s look at the facts.

• The testimony being put before the FCIC – the investigatory panel charged with looking into how the housing and foreclosure mess came about, and how our economy was stripped clean by the vultures that infest the banking business in this nation is a matter of record.  I, and others, have been documenting this for more than two years.  READ THE MISSION STATEMENT AND TESTIMONY OF PEOPLE LIKE MIKE MAYO.
• THE FBI has been warning of an “epidemic” of mortgage fraud since 2004.  The banks knew this.  Indeed, in 2004 their lobbyists convinced The Bush Administration to SUE to prevent state regulators from protecting YOU, THE CONSUMER, from predatory and unfair loans.
• Since 2006 there have been published stories that stated income loans were laced through-and-through with fraud:
  

  One lender recently compared 100 stated-income loans with the borrowers’ tax returns and found that only 10 of the borrowers were telling the truth about their wages, according to Mortgage Asset Research Institute, a division of data firm ChoicePoint Inc.  (September 2006)

• The Wall Street and large commercial banks did not include these disclosures in their offering circulars for securitized debt. 

• Wall Street entities knew they were at risk but bought “protection” (CDS, or “credit default swaps”) from firms who they knew or should have known could not pay, including but not limited to AIG.  This “allowed” them to consider assets they knew or should have known were rife with fraud as “money good”.

• Wall Street and “big lender” loan programs in the housing market during the years 2000-2007 all “assumed” that house prices would rise forever at a rate higher than inflation.  The key point is that even if they had, which is mathematically impossible, it doesn’t change the fact that the borrower, that is you the citizen, still was going to lose their house when they reached the limit of their borrowing capacity.  The bank’s only concern was designing a program that they would be protected by – not whether it was suitable for you nor whether you would have (or continue to have) a home.

None of this was a “mistake” or an “accident”.  It was not an “unforseen event.”

Government agencies were aware of and sounded the alarm as early as 2004.  Brooksley Born, chair of a federal regulatory agency (the CFTC) raised hell on complex derivatives (“CDS” and similar instruments) in 1999.  She was attacked by everyone in the banking industry including Alan Greenspan and literally run out of town.  She was right.

The banking and Wall Street institutions, through a combination of the above, “made” billions of profits that never really existed.  They then paid that money – money that didn’t actually exist AND NEVER WOULD – out in bonuses, dividends and stock price appreciation.

Starting in 2007, it all came apart, first with two hedge funds at Bear Stearns, then Bear Stearns itself, then Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

In the fall of 2008 Ben Bernanke and Henry Paulson, Chairman of The Fed and Treasury Secretary (who had refused to heed the warnings of the FBI and others for the previous four years) corralled a bunch of Representatives and Senators in The Capitol.  We were told that the government “had to bail out the banks” to prevent the financial system from collapsing.  By anywhere from 100:1 to 300:1, the American People said “let ‘em burn.”  The government refused once again to listen, and together with The Federal Reserve propped up the banks instead of forcing them to eat their own cooking.  Rather than use the money appropriated to force these institutions through bankruptcy and shut them down, paying off the depositors that were insured, these failed institutions were instead mish-mashed together into even bigger financial companies and then given government backstops.

Nothing has been fixed.

The bad debt is still there.

Unemployment has skyrocketed, the banks have cranked up credit card interest rates to 29.9% and are feasting on zero interest Federal Reserve money which they use to speculate in the financial markets, paying out well over $100 billion in aggregate in bonuses for the last year.

We are told this is and was “necessary.”

I might accept that – if it came with the closing of all of these institutions.  Each and every one of them.  If it came with the permanent barring of every executive involved from ever serving as so much as a janitor in any financial institution – worldwide – ever again.  If it came with a full forensic audit of each and every one of these institutions and officials by the FBI, with every instance of fraud that was uncovered presented to a grand jury.

But it has not.

Instead, firms like Countrywide Financial and Washington Mutual were absorbed into Bank of America and JP Morgan/Chase.  Those who were “too big to fail” not only were not dismantled, they were made bigger and more powerful.

Wall Street may effectively own Washington DC and the politicians but they do not own us.

WE THE PEOPLE ARE UNDER NO OBLIGATION TO ACCEPT THIS.

WE HAVE RIGHTS.

WE THE PEOPLE have the freedom to associate – or not.

WE THE PEOPLE have the right to demand legal tender in payment of debts owed us.

WE THE PEOPLE have the right to demand that these institutions eat their own cooking on each and every one of the loans they securitized and peddled during these years without fair and full disclosure to the buyers that these loans were rife with fraud.

WE THE PEOPLE have the right – and the ability – to take personal, lawful action with specific, lawful political and business-oriented goals, including permanent structural changes that will end “too big to fail” and “rip off the consumer on demand” policies, including the full reinstatement of Glass-Steagall which will END financial speculation and dealing in all of its forms by firms that have access to Federal Reserve credit and/or any sort of public backstop.

In the coming days and weeks I will outline specific, lawful actions that I hope each and every financial blogger, writer and columnist will take up and push as the key item for the remainder of this year and, if necessary, beyond – all with the intent of accomplishing these goals.

I invite all financial bloggers, mainstream media writing or broadcasting on the financial markets and products and interested politicians to contact me at “karl <at> starve-the-beast <dot> org” with the explicit purpose of joining an effort to formulate cogent and real, tangible yet lawful actions that can effect positive and necessary change.  Further posts to The Market Ticker will be made under the Category ”Starve The Beast” – so you can find them all in one place.

Make this message – this post – viral.  Send it to your associates.  Send it to the media.  Send it to politicians.  Get involved and do it now.

The opportunity is now and our responsibility is clear.  We either accept that responsibility and act or we are consenting to serial asset bubbles and ever-larger detonations, with the very real risk that the next one destroys our political and economic system both in the United States and beyond.

Treasury Department Releases Text of Letter from Secretary Geithner
to Hill Leadership on Administration’s Exit Strategy for TARP

WASHINGTON – The U.S. Department of the Treasury released the
text of identical letters sent today from Secretary Tim Geithner to
Speaker Nancy Pelosi and Senator Harry Reid outlining the
Administration’s exit strategy for the Troubled Asset Relief Program
(TARP) established by the Emergency Economic Stabilization Act of 2008
(EESA). The text of the letter to Speaker Pelosi follows.

December 9, 2009

The Honorable Nancy Pelosi
Speaker          
U.S. House of Representatives
Washington, DC 20515

Dear Madam Speaker:

I am writing to update you on the status of the Obama
Administration’s financial policies, including programs initiated under
the Troubled Asset Relief Program (TARP) established by the Emergency
Economic Stabilization Act of 2008 (EESA), the results they have
achieved, the challenges ahead, and our plan for exiting TARP.

These policies are working.  When the Obama Administration took
office, the financial system was extremely fragile and the economy was
contracting sharply.  The Administration’s financial and economic
policies have helped to shore up confidence in our financial system. 
Credit is starting to flow again to consumers and businesses, and the
economy is growing.  Further, private capital is replacing public
capital in our major institutions.

As a result of improved financial conditions and careful stewardship
of the program, losses on TARP investments are likely to be
significantly lower than previously expected.  We now expect a positive
return from the government’s investments in banks.  These banks will
soon have repaid nearly half of the TARP funds they received.  We also
expect to recover all but $42 billion of the $364 billion in TARP funds
disbursed in FY2009.  Further, we plan to use significantly less than
the full $700 billion in EESA authority.  As a result, we expect that
TARP will cost taxpayers at least $200 billion less than was projected
in the August Mid-Session Review of the President’s Budget.

But significant challenges remain.  Too many American families,
homeowners, and small businesses still face severe financial pressure. 
Although the economy is recovering, foreclosures are increasing, and
unemployment is unacceptably high.  Businesses are still cautious in
the face of uncertainty about the strength of the recovery, and many
small businesses face very difficult credit conditions.  Although bank
lending standards are starting to ease, many categories of bank lending
continue to contract.  This contraction has hit small businesses very
hard because they rely heavily on such lending, and do not have the
ability to substitute credit from securities issuance.  Commercial real
estate losses also weigh heavily on many small banks, impairing their
ability to extend new loans.

Further, the recovery of our financial system remains incomplete. 
And near-term shocks to that system could undermine the economic
recovery we have seen to date.

Exit Strategy for TARP

Our exit strategy for TARP balances the mandate of EESA to address
these challenges with the need to exercise fiscal discipline and reduce
the burden on current and future taxpayers.  There are four broad
elements to our strategy.

First, we will continue terminating and winding down many of the
government programs put in place last fall.  In September, Treasury
ended its Money Market Fund Guarantee Program, which guaranteed at its
peak over $3 trillion of assets.  The program incurred no losses, and
generated $1.2 billion in fees.  The Capital Purchase Program, through
which the majority of TARP investments in banks have been made, is
effectively closed.  Before this Administration took office, nearly
$240 billion in TARP funds had been committed to banks.  Since January
20, we have committed about $7 billion to banks, much of which went to
small institutions.  Major U.S. banks subject to the “stress test”
conducted last spring have raised over $110 billion in high-quality
capital from the private sector.  And banks will soon have repaid $116
billion of TARP funds

Second, we will limit new commitments in 2010 to three areas.

• We will continue to mitigate foreclosure for responsible American
  homeowners as we take the steps necessary to stabilize our housing
  market.
• We recently launched initiatives to provide capital to small
  and community banks, which are important sources of credit for small
  businesses.  We are also reserving funds for additional efforts to
  facilitate small business lending.
• Finally, we may increase our commitment to the Term
  Asset-Backed Securities Loan Facility (TALF), which is improving
  securitization markets that facilitate consumer and small business
  loans, as well as commercial mortgage loans.  We expect that increasing
  our commitment to TALF would not result in additional cost to taxpayers.

Beyond these limited new commitments, we will not use remaining EESA
funds unless necessary to respond to an immediate and substantial
threat to the economy stemming from financial instability.  As a nation
we must maintain capacity to respond to such a threat.  Banks are still
experiencing significant new credit losses, and the pace of bank
failures, which tend to lag economic cycles, remains elevated.  At the
same time, many of the Federal Reserve and FDIC programs that have
complemented TARP investments are ending.  This creates a financial
environment in which new shocks could have an outsized effect –
especially if an adequate financial stability reserve is not
maintained.  As we wind down many of the government programs launched
initially to address the crisis, it is imperative that we maintain this
capacity to respond if financial conditions worsen and threaten our
economy.  However, before using EESA funds to respond to new financial
threats, I would consult with the President and Chairman of the Federal
Reserve Board and submit written notification to the Congress.  This
capacity will bolster confidence and improve financial stability,
thereby decreasing the probability that it will need to be used.  This
is the third element of our exit strategy.

In order to accomplish these goals, pursuant to Section 120(b) of
EESA, I certify that I am hereby extending the authority provided under
the Act to October 3, 2010.  This extension is necessary to assist
American families and stabilize financial markets because it will,
among other things, enable us to continue to implement programs that
address housing markets and the needs of small businesses, and to
maintain the capacity to respond to unforeseen threats, as described
above.

While we are extending the $700 billion program, we do not expect to
deploy more than $550 billion.  We also expect up to $175 billion in
repayments by the end of next year, and substantial additional
repayments thereafter.  The combination of the reduced scale of TARP
commitments and substantial repayments should allow us to commit
significant resources to pay down the federal debt over time and slow
its growth rate.

Even with this extension, we expect that TARP will cost taxpayers at
least $200 billion less than was projected in the August Mid-Session
Review of the President’s Budget, including $25 billion in potential
costs from new TARP commitments in 2010.  We expect that the vast
majority of these potential costs would come from mitigating
foreclosure for responsible American homeowners as we take the steps
necessary to stabilize our housing market.

The final element to our exit strategy is how we manage equity
investments acquired through EESA while protecting taxpayers.  We will
continue to manage those investments in a commercial manner and seek to
dispose of them as soon as practicable.  We will exercise our voting
rights only on core issues such as election of directors, and we will
not interfere in the day-to-day management of individual companies.  In
addition, as the steward of taxpayers’ funds, Treasury will continue to
manage investments in a manner that ensures accountability,
transparency and oversight.  And we will work with recipients of EESA
funds and their supervisors to accelerate repayment where appropriate. 
We want to see the capital base of our financial system return to
private hands as quickly as possible, while preserving financial
stability and promoting economic recovery.

History suggests that exiting prematurely from policies designed to
contain a financial crisis can significantly prolong an economic
downturn.  We must not waver in our resolve to ensure the stability of
the financial system and to support the nascent recovery that the
Administration and the Congress have worked so hard to achieve. 
Improvements in the financial performance of EESA programs put us in a
better position to address the economic and financial challenges many
Americans still face.  I look forward to continuing to work with you to
achieve these
goals.                                                               

Sincerely,

Timothy F. Geithner

Identical copy of this letter sent to:
            The Honorable Harry Reid

cc:       The Honorable Barney Frank
           The Honorable Spencer Bachus
           The Honorable David Obey
           The Honorable Jerry Lewis