Idiots Fiddle While Rome Burns

The collection of ne’er do wells, clueless dolts, political hacks, and oh, let’s just be blunt and call them what they are — total Idiots — expands into an ever larger circle.

While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone — except their own horrific negligence.

This is financial incompetence writ on a scale far grander than anything seen for centuries.

As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role
reached the point of malfeasance long ago.  History is unlikely to be kind to the Maestro.

There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God’s sake, do not give us the worst of both worlds — do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill.

That’s not capitalism, its not socialism, its not regulation, and
its sure as hell isn’t what free markets are. Our language is
insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.

We have entered into a fit of Orwellian madness: The American
Capitalists, long the globe’s leading advocates for free markets, have
become near Socialists. Halfway around the world, the Chinese Communists
have picked up the baton, and are moving rapidly towards a form of Capitalism. Ironically, it is the once largest communist nations — the Chinese and the Russians — who holds much of Fannie and Freddie’s paper.

Hey comrades, who’s selling the rope to whom?

Perhaps the rescue of "Phony and Fraudy" are not so much a bail out of American homeowners as it is a desperate attempt to stay in the good graces of our friendly global bankers. We are the world’s largest debtor nation, and as such, we depend upon the kindness of strangers — be they Japanese or Europeans or Abu Dhabians — or even former communists.

Back in the States, something beyond cognitive dissonance is occurring — this is full blown case of dementia unfolding in the public sphere. When this era of excess and absurdity is treated by historians in the future, the question I expect to be asked most is not why many of these people weren’t jailed for their financial felonies. Rather, I expect them to wonder why so many of these folk weren’t placed in protective custody, and heavily medicated, for the only rational explanation for their statements and behaviors is that they have gone so far beyond the bend as to be completely and totally insane.

Massively over-leveraged companies? Blame short sellers.

Wildly under-capitalized financial firms? Blame rumors.

Heinously poor corporate management? Blame a Senator.

It is as if someone is running around Washington D.C. with a
ball-peen hammer, smacking senior government officials on their skulls. If you find the
standard finger pointing hard to fathom, perhaps blunt head trauma is a better explanations for the absurdities proferred.

Books will be written about this period of time, and our descendants will
wonder in awe as to how this was allowed to happen. Tulips got nothing on us! Its not just the
total dollar value of the losses that have exceeded all other global
fits of financial madness combined, but rather, how so many warning signs were
so blithely ignored by so many and for so long. What was wrong with these people,
the authors and historians will wonder. Did the antibiotics in the food
supply drive them mad? Did the High Fructose Corn Syrup compromise their ability to think? Some form of viral plague? Roid rage?
What else could have created such a mass delusion amongst not just the
populace, but their leadership and institutions?

Indy Mac goes belly up, having lost $900 million this year alone. Its shares fell 87% in 2007 and then its value dropped (on top of last year’s collapse) another 95% this year-to-date. The stock fell to 28 cents yesterday. Some estimates of the total bad loans made by this somewhere in the neighborhood of $30 billion dollars — and the Office of Thrift Supervision blames a senator who is investigating how much of the FDIC’s $53 Billion this is going to eat up, with Wall Street estimates ranging from 15% to 30%. The towering incompetence of OTS is incomprehendable, but it is their colossal gall that is truly stupefying.

From beyond the grave, Adam Smith does not know whether to weep or retch. 

>

Previously:
About Those Companies Brought Down by Rumors . . .  (July 11, 2008) 
http://bigpicture.typepad.com/comments/2008/07/about-those-com.html

5 Stages of Market Grief  (January 2008)   
http://bigpicture.typepad.com/comments/2008/01/5-stages-of-mar.html

Book Review: The Bush Boom (April 2008)   
http://bigpicture.typepad.com/comments/2008/04/review-the-bush.html

Sources:
SEC Moves to Curb Short-Selling
KARA SCANNELL and JENNY STRASBURG
July 16, 2008; Page A1
http://online.wsj.com/article/SB121614248005255151.html

SEC Enhances Investor Protections Against Naked Short Selling
Release 2008-143
July 15, 2008   
http://www.sec.gov/news/press/2008/2008-143.htm

SEC’s new red herring
Spreading false info is against the law, but is chasing down rumors the best use of an already overwhelmed SEC?
Roddy Boyd
Fortune, JULY 14, 2008: 2:22 PM EDT    
http://money.cnn.com/2008/07/14/news/boyd_sec.fortune/?postversion=2008071414

IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure
Ari Levy and David Mildenberg
Bloomberg, July 12 2008
http://www.bloomberg.com/apps/news?pid=20601010&sid=aAYLeK3YAie4&

How Chuck Schumer Caused the Second Largest Bank Failure in US History
Jerry Bowyer
CNBC.com, 12 Jul 2008
http://www.cnbc.com/id/25654303

~~~

What's been said:

Discussions found on the web:
  1. yoganmahew commented on Jul 16

    Great post Baz. It’s about time people started getting angry.

    But you think you got it bad? You wanna see the bubble that’s been blown here in Ireland. You want village idiots? We’ve got a parliament building full of them, falling over each other to come up with the most hare-brained scheme.

    We are skirting the line between tragedy and farce. We may have both at the same time.

    PS It’s ‘retch’ not ‘wretch’ 😉

  2. jmf commented on Jul 16

    Amen from Germany!

  3. Tony Shifflett commented on Jul 16

    Couldn’t agree more. Greenspan, like President Coolidge, got out just in time. History will not judge Greenspan well.

    This is gonna double the national debt.

  4. Jim Haygood commented on Jul 16

    I call this system “managed democratic socialism,” but pick any name you want. It’s a foul, squalid dog’s breakfast, and it ain’t working.

    “Books will be written about this period of time, and our descendants will wonder in awe as to how this was allowed to happen.” — Barry R.

    The Onion had a spoof yesterday about looking for the next unsustainable Bubble. But in all seriousness, once the dollar was completely delinked from gold on 15 Aug 1971, serial Bubbles are the only game in town.

    In the twilight years of Bretton Woods II, global reserves and the Fed’s custody account (which is part of those reserves) are growing at near 20% rates to recycle the U.S. trade deficit, as it spews paper dollars across the globe. Naturally, this has set off developing world inflation, as well as spectacular stock market Bubbles and crashes (India, China, etc.).

    Until Bretton Woods II finally flies apart, and the U.S. dollar is no longer a convertible currency, the only answer the authorities have is to create another Bubble. Think about it — if we could flip a switch and have 10% annual inflation in salaries and house prices for the next three years, the housing crisis would go away. Without admitting to it, this is exactly what they will attempt.

    Bottom line: until the prevailing fiat currency orthodoxy is repudiated (an extremely remote prospect), serial Bubbles will be the investment theme of the rest of our blighted Boomer lives. The definition of investment is identifying a Bubble, and speculating with extreme leverage till it pops. Then buy the next one. And watch your country sink into Third World status, as malinvestment systematically impoverishes it. You paid for it; you got it. Thank you, Alan Greenspan, toxic Pied Piper of ‘financial innovation’!

  5. nk commented on Jul 16

    Amen.

    Leardership is top down. This is the problem in a nutshell. If it is ok for the government to behave in this fashion, well then it surely is acceptable for corporate america, and it’s citizens. We reap what we sow.

    Where did this concept of spending beyond our means come take hold? What did people think will happen over a period of time. Why do schools not teach the devastating effects of the paying of compound interest? We now have not 1 but 2 generations to deprogram. And no one steps up to be accountable and take the blame. It is someone else’s fault, let’s hold hearing or file suit!

    Still the greatest nation on earth but, sad times indeed.

  6. Gregor commented on Jul 16

    Wow, you made my day!

  7. Mark E Hoffer commented on Jul 16

    BR,

    CNBC and Fox Business News are in desparate need of competition.

    as Wallstrip, and others, shows, there’s a Demand for Financial ‘Video’/IPTV.

    W$W w/ Louis Rukeyser is no longer with us, and Gens X&Y need more than YouTube for their N90s, and their well-being..

  8. Patrick commented on Jul 16

    The moral: Its a lot more cost-effective to regulate than it is to rescue.

    This situation is truly ridiculous. If an institution can be in practice “too big to fail,” then there needs to be regulation preventing it from crossing the threshold whereby the harsh consequences of failing in a free market are avoided through taxpayer largess simply because they are so bad. The government should protect a corporation’s ability to fail miserably, rather than protecting the market from its failure.

    In the absence of regulation and enforcement, and with our strong preference for economic and political stability we get, as Barry said, the worst of both ideologies: socialization of losses and an incentive for reckless capitalism. This is completely unsustainable.

    I don’t see how its possible for us to be any dumber.

  9. MK commented on Jul 16

    Best explanation i have ever read.
    Gratulations from Germany too.

  10. rodeo commented on Jul 16

    Hell of an inspired post, BR.

  11. Jim Haygood commented on Jul 16

    And by the way, according to Bloomberg, the consensus estimate for core CPI in today’s report is … wait for it … +0.2%. SAME AS IT ALWAYS WAS.

    Zombie statistics for zombie citizens.

  12. Roman commented on Jul 16

    Slightly OT:

    Although I agree that the policy makers have been idiots, I can’t help but recall your critique of the Efficient Market Hypothesis. You essentially stated that markets can behave irrationally at times and need policy makers to set them in the right direction. Yet, your argument is based on a huge fallacy. That policymakers will be more rational than the market. Something that is wrong about 90% of the time.

  13. austincompany commented on Jul 16

    I’m sure my next door neighbor would disagree – you see this was a wonderful time for him. He lived in the land of Oz (Southern California) and bought a small three bedroom home in the late 90’s for $300k. But then, in ’06, he sold this small home for $1.3 million and moved to Texas. He is now a millionaire – thanks to Alan, Ben and all his friends.

    Makes me sick – he isn’t a very good neighbor at that.

  14. blin commented on Jul 16

    Brilliant commentary Barry.

    Did you really write that piece?

    I have a feeling that your commentary will be picked up by the MSM. The truth is finally out.

    The rose colored glasses have finally been removed and it just ain’t rosy anymore.

  15. bluestatedon commented on Jul 16

    When you consider the vast amounts of profit made by the politically connected over the last 25 years, of which KBR and Halliburton are only the most obvious and recent examples, the old but still applicable term of crony capitalism comes to mind. Which in turn brings to mind one of my two favorite Presidents, Teddy Roosevelt, who dealt with the negative consequences of crony capitalism a century ago:

    “When they call the roll in the Senate, the Senators do not know whether to answer “Present” or “Not guilty.”

    “A man who has never gone to school may steal from a freight car; but if he has a university education, he may steal the whole railroad. ”

    “The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life.”

  16. zell commented on Jul 16

    “Bubble, bubble; toil and trouble.” A perfect witch’s brew. Go Barry!!

  17. John Thompson commented on Jul 16

    Looks like more government checks on the way. Hyper inflate until the dollar crashes even further? Is this all that can be done at this point, save dwindling assets?

    I guess what I’m saying is, why don’t we get any media on the dump Freddie, Fannie and asset values to save the dollar and restore regulation? Oh yeah, rich people run things. . . .

  18. Maldoror commented on Jul 16

    Fuckin’ A Right!

  19. jim commented on Jul 16

    So far only 200 low level people arrested in cunjuntion for this mess. Where is Mozilo, not one bad company but two. I think a couple of town square hangings would send a message also.

  20. EDF commented on Jul 16

    Well put. Thank you, Barry.

  21. Dervin commented on Jul 16

    Wow, what a post.

    In the But do you think there’s any way of protecting the stupid without bailing out the greedy?

  22. slognarth commented on Jul 16

    Hopefully you’ll get lucky and the future historians will miss this post. Unless maybe you can think of a better way out of this mess. Until then… continue the “I told you so banter.” Government has morons? Check. People who ignore warning signs of market bubbles are morons? Check. I don’t think anyone would argue with such insight. We get it. So now what? Unless I missed it, what’s your plan again? Should I start rounding up some historians?

  23. Renting in Mass commented on Jul 16

    Great post! Hopefully our descendants will find this blog and realize that we weren’t all blind to what was happening.

  24. cinefoz commented on Jul 16

    SarbOx did a radical job of cleaning up the absolute mess created by corporate thieves.
    Now, the US needs a law as broad and bold as SarbOx that will keep the financial community clean.

    Anyone who thinks that people with access to oceans of capital won’t and/or don’t manipulate the markets is an idiot or a thief who is trolling for gullible idiots. The oil markets and the price of oil are the result of fraudulent manipulation, I am sure. Rumor mongering short sellers are an interesting phenomena, until their success causes the US taxpayer to expend assets in order to clean up the mess they created and profited from.

    Perhaps one or more large investment banks will eventually, or maybe soon, be charged with violations of the RICO Act, being named as a corrupt enterprise. I suppose their defense will be that, if you look at the laws in a certain way, their manipulations were not only legal, they were embraced by Republicans who think that markets will and should regulate themselves.

    Just as free speech does not allow someone to yell ‘Fire’ in a crowded theater, free markets should not allow thieves to ruin the world economy. Since so many can and will steal anything they want if they have the resources to make it look legit, new laws are needed to stop the crooks and idiots who are making the investment markets take on the appearance of a criminal enterprise.

    The stock market is looking more and more like organized fraud every day now. Risk is being redefined as being able to figure out what the crooks will do next, and bet on their success or failure.

    Congress need stop introducing laws that plan to stop oil price manipulation and begin voting on them BEFORE the August recess begins. the DOJ need to speed up it’s investigations of crooked markets and announce a few indictments. Then, Congress needs to think about laws that prohibit investments that are too complicated for normal people to understand.

  25. s.gates commented on Jul 16

    on the spot post:
    although, im trying to hate the “sins” and not the “sinners” but that precept just aint working right now.

    what a mess, oh the horror, the horror!

  26. John commented on Jul 16

    BR:
    What was that your Olberman moment? There’s no doubt a lax regulatory regime and other economic asinities by the administration combined with the cheap money policies of Greenspan’s fed are responsible for this mess. Unfortunately, pointing to the culprits who will likely never be brought to justice, doesn’t make the mess go away. In that sense it’s exactly like the situation in the middle east. Bernanke and Paulson have no alternative but to practice state “socialism” to mitigate this mess. In fact ideology is still stopping them from embracing it entirely and taking more aggressive and effective steps like the outright nationalisation of F/F and the proactive seizure of the shakiest banks on their hit lists. Paulson and Bernanke are responding in the best way they know how given the political realities of a totally incompetent president with zero cred and his army of ideological flickering luminaries in congress who are not going to sign off on any really dramatic measures to contain the crisis. So stop shooting the pianists. They are doing the best they can.

  27. Southside commented on Jul 16

    Slognarth,
    Its not really Barry’s position to have a plan, that’s for the people in charge such as Bernanke. He just calling them all on what has worked out miserably up to this time. Its commentary. If and when Barry decides to run for office, well, we can then demand a plan from him.
    Take it for what it is, an excellent commentary on the state of our economy. More people like Barry need to be speaking out, and doing it so eloquently.
    One of your best yet Barry.

  28. jkw commented on Jul 16

    It isn’t socialism, it’s fascism/corporatism. The very important difference is that in socialism, the government helps the people, while in fascism/corporatism, the government helps the corporations. The difference between fascism and corporatism is that in a fascist state, the government also restricts individual freedom, tortures/kills people they don’t like, and spies on their own citizens.

    Please do not give socialism a bad name by calling things socialism when they are not. Serial bubbles are an expected phenomenon in both fascism/corporatism and capitalism, but not in socialism. Moving more towards socialism is one of the few things the US could do right now to actually clean up the mess without making things worse.

  29. lurker commented on Jul 16

    Right on! Tru Dat! Thank Heaven you mentioned CRONY CAPITALISM. Anyone remember when we were so critical of Malaysia for the same, from our high horse???? From whom do you think they learned it????!

  30. jim commented on Jul 16

    You know back in the old days there would actually be some accountability for this mess, these CEO’s would be kicked down the street end up homeless or something. Now they get the golden chute. Until that goes away nothing changes.

  31. wally commented on Jul 16

    Writing before you had that first cup of coffee, I see.
    Actually, I feel as you do. I wonder if the looting will stop when we get a new administration in 2009 or if it will stop becasue they run out of money to loot first?
    Really, there are not words to express the disgust, but yours do come close.

  32. ReturnFreeRisk commented on Jul 16

    I could not have said it better. Barry, there is a great need for people who understand the situation and can articulate it like you do.

  33. HCF commented on Jul 16

    Why don’t the blame-mongers kill two birds with one stone?

    Just start calling short-sellers “financial terrorists.” They could even tap their phones w/o cause and then do a pre-emptive strike…

  34. MeanGene commented on Jul 16

    Wonder how many traders watched the Bernanke-Paulson-Cox testimony yesterday and had the same hallucinogenic experience I did. I mean, it was like far out.

    The psychedelic part when Paulson was explaining his idea for saving Fannie Mae and Freddie Mac. He wants a blank check, to spend an undetermined amount, at an undetermined time, under an undetermined set of circumstances. If he gets it, he’s pretty sure he’ll never need to use it.
    But he needs it to save an institution that’s doing just fine and doesn’t need any help at all. And if he does need to use it, he would consult with the people he’s trying to save, or maybe not. He was clear that they might not even recognize that they need to be saved.
    Paulson would also consult with the movers and shakers in congress, if he has time, and it’s convenient.
    And there can’t be any limitations on the action taken, or the evil speculators would know the limits and have no fear about destroying those same institutions that are fine and don’t really need any help. The idea there seems to be that if the evil speculators know you only have a squirt gun in you pants, they would not be afraid, and would wreak havoc and otherwise victimize poor Fannie and Freddie. But if they believed he had a bazooka in his pants, then they would cower in fear. That’s a whole phallic image I myself fear to even contemplate.

    And by the way, let’s ban shorting those institutions that are explicitly not backed by the government, just in case the government would have to back their share price and debt.

    Cox announced the plan to keep the evil shorts at bay. I think he wants to make it illegal to naked short those two stocks. My impression has been that’s it’s always been against the rule to short if you didn’t have the ability to deliver the stock. So apparently what the real plan is… wait for it, to enforce the existing rules on naked shorts, but only for prime brokers and the GSEs. I mean, that’s far out man!

    All this talk about naked shorts, and bazookas in your pants, a human unit just has to wonder what these guys are feeding their heads.

    When the men on the chessboard
    Get up and tell you where to go
    And you’ve just had some kind of mushroom
    And your mind is moving low.
    Go ask Hank
    I think he’ll know.
    When logic and proportion
    Have fallen softly dead,
    And the White Knight is talking backwards
    And the Red Queen’s “off with her head!”
    Remember what the dormouse said:
    “Feed your head.”

  35. BobC commented on Jul 16

    Now that was a nice rant. Nicely sums up what I’ve been thinking.

    Sadly, all I can do is tie my lifeline to the mast and ride out the storm. If the ship goes down, maybe I can grab on to a piece of flotsam.

  36. Chief Tomahawk commented on Jul 16

    Damn, BR!

    You make me want to build an arc and head for The Galapagos…

    Got to do a little Bush bashing…

    He was the guy who strode to the lectern and told the U.S. we were in imminent danger post-9/11 and had to go on the offensive. Yet this financial crisis has grown and developed and he hasn’t brought to the nation the severity of the problem. Why such an absence of leadership?!? He ran with the statement “We will LEAD!” Also “We’ll bring dignity & honor back to the White House”. Instead what we’ll have to remember him by is his flysuit on the deck of an aircraft carrier under the banner “Mission Accomplished”.

  37. HR commented on Jul 16

    This is why I read you every day. I think there’s a cultural component to this too — the WH under Clinton and Bush encouraged the belief that $$ come to Americans because they have moved beyond being merely workers — we are an investor nation (remember day traders?) and a nation of intellectual workers — and thus we can all live in BIG houses with brushed steel appliances and granite countertops. Work and working and sweat was something that illegal immigrants and women in Singapore and India did. We reaped the benefits of being an EVOLVED country. Housing prices and Qualcomm stock was our reward for being Americans, and we were going to spend it on flat-screen teevees and BIG cars and tiled bathrooms (built by guatemalans) if it killed us. And it has.

  38. michael schumacher commented on Jul 16

    “do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill. ”

    How about a rant on those banks that compounded the mistakes by leveraging their portfolios (in many cases more than 30:1) with all of that debt.???

    I do not disagree with the essence of the post but please dig a little deeper and you’ll see why the bailout crowd is so adamant about continuing the mistakes.

    It’s not just about the home loans and you know it….

    Ciao
    MS

  39. s0mebody commented on Jul 16

    I say wind down Fannie and Freddie. Don’t bail them out, and let the market price in the risk of default. Rates go up and housing prices plunge. People lose “money” but the dollar bottoms and has value. The banks actually have a job again lending to consumers for homes at a rate of interest they make money on.

    Option 2, “the Paulson plan” gives the GSEs a blank check. The dollar prices in the unlimited power of Paulson’s plan by never strengthening appreciably because the hyperinflation risk always exists. And the housing market never reaches a market clearing price again. If the government is always willing to underwrite a loan up to $750,000 for a house, underwriting will be lax and money will be loose. Since defaulted loans never have a negative impact on anyone but a blank check company, the dollar slides…

  40. cinefoz commented on Jul 16

    I wrote this above, but it is so profound that I decided to repeat it:

    The stock market is looking more and more like organized fraud every day now. Risk is being redefined as being able to figure out what the crooks will do next, and bet on their success or failure.

  41. Jeff commented on Jul 16

    Does anyone (I mean ANYONE) take Jerry Bowyer seriously? Good grief. If they do, they deserve everything they get.

  42. Anders commented on Jul 16

    “Ideological idiocy” – you’re wrong. There is no ideology that advocates the creation of financial bubbles, yet it keeps happening over and over again throughout history.

    It’s pointless to ask a banker to lend responsibly, if he getting a huge bonus for doing the opposite.

    It’s pointless to ask Greenspan/Bernanke to fight inflation or to regulate the banks, because they got the job by promising to support growth with easy money.

    Its pointless to expect congress to balance a budget, or fix social security because they got elected by promising to spend money freely.

    Bubbles are created because short term thinking is they way to rise in any organization. It’s simply POLITICS AS USUAL.

  43. Stav commented on Jul 16

    Clean it up, keep the indignant emotion in it and send it to the Times. A great piece like this need broad readership.

  44. Robert B commented on Jul 16

    Don’t sugar coat it, tell us what you really think! 😉

    Well, maybe you did “sugar-coat” it a little. It’s hard to place into words the utter outrage and helplessness that we all feel over this lending fiasco. It all boils down to:
    How could you make such loans without making any effort to ensure that you could be repaid?
    How could you throw out 100 years of proven lending standards?

  45. InvestmentBanker commented on Jul 16

    Well Said! It seems that you also agree with this guy:

    “If once [the people] become inattentive to the public affairs, you and I, and Congress and Assemblies, Judges and Governors, shall all become wolves. It seems to be the law of our general nature, in spite of individual exceptions.” –Thomas Jefferson to Edward Carrington, 1787. ME 6:58

  46. Anonymouse commented on Jul 16

    Ever wonder how Rome fell? Was it that the Visigoths were so strong or Rome merely lost the will to fight back?

    This is bad and is going to get worse, but so long as it stays an economic crisis, I believe we’ll get through it in the end. The thought that really scares me is that we may be the Wiemar republic of the 21st century. That if the pain becomes truly widespread we might start casting about for someone to blame and it’s not going to be multimillionaire CEOs. I think saying “It can’t happen here” is right up there with “This time it’s different” in terms of hubris.

  47. ceo commented on Jul 16

    Barry,
    Great one. Did this get kicked out before coffee or after?

  48. MM commented on Jul 16

    We have to be bullish otherwise it will be politcally incorrect and will be blamed by Larry and Dennis! I am not going to wave my white-flag! Be optimistic! Think long-term! And we saw the capitualation last week!

  49. H Salmon commented on Jul 16

    Well said.

    I am so surprised that it was not a great idea to put the banks in charge of the banking industry, the oil companies in charge of the oil industry, the loggers in charge of our environment, etc.

    The truly scary thing is the rumor that Bernanke just ordered a huge banner that says “Mission Accomplished”. He will display it on the next day that all indexes finish in the green.

    I feel like I am in the alternate reality (Earth 2?) from those old Superman comic books.

  50. Tony commented on Jul 16

    What was wrong with these people, the authors and historians will wonder. Did the antibiotics in the food supply drive them mad? Did the High Fructose Corn Syrup compromise their ability to think? Some form of viral plague? Roid rage? What else could have created such a mass delusion amongst not just the populace, but their leadership and institutions?

    It’s the Prozac, dude. Do you know how many people are on SSRI’s of one sort or another? Ask your money manager, accountant, neighbor, Congressman, etc. which one he/she is on. We have become a nation comfortably numb.

  51. JH commented on Jul 16

    Great post. The proper term for this mess is “fascism”. The textbook definition was on fully display in CONgress yesterday.

    JH

  52. Ivo commented on Jul 16

    Barry,

    I have been waiting for so long to read such a truth-revealing post!!!

    Keep up the good work

  53. John commented on Jul 16

    s0mebody:

    “People lose “money” but the dollar bottoms and has value.”

    Where do you get the idea that a major recession brought about by a systemic financial failure and housing collapse does no harm to the dollar. It would bottom alright, but at around 2.50Euro.

  54. dmc commented on Jul 16

    “Where did this concept of spending beyond our means come take hold? What did people think will happen over a period of time. Why do schools not teach the devastating effects of the paying of compound interest?”

    50 years of the mental disorder known as liberalism. dmc.

  55. JH commented on Jul 16

    Great post. The proper term for this mess is “fascism”. The textbook definition was on fully display in CONgress yesterday.

    JH

  56. MM commented on Jul 16

    And one more thing, the reliable benckmark VIX did spike above 30 yesterday, surely we see the worst had been through, another good reason to buy. Cheers and have fun!

  57. rj commented on Jul 16

    “Paulson and Bernanke are responding in the best way they know how given the political realities of a totally incompetent president with zero cred and his army of ideological flickering luminaries in congress who are not going to sign off on any really dramatic measures to contain the crisis.”

    Exhibit A in the growing public perception that democracy is a failure.

    “These people are idiots…yet we voted them in.”

    “Democracy is the theory that the common man knows what he wants and deserves to get it well and hard.” – H.L. Mencken

  58. surferdude commented on Jul 16

    right on brother barry…”The towering incompetence of OTS is incomprehendable, but it is their colossal gall that is truly stupefying.”
    however, i think instead of singling out OTS, all of the banking regulators need to be called out for their dereliction of duties. they were asleep while the greatest real estate exposure ever was being put on the balance sheet. they ignored warnings from a minority of analysts/economists that started as early as 2003 on the looming disaster. even worse, they proactively silenced the voices issuing the warnings and continued cheerleading for the industry.
    sadly, none of them have been questioned let alone held accountable for their malfeasance. IMB failed without being under formal enforcement action. moreover, the fdic sat back and agreed with the ots; they did exercise their back-up exam authority, did not disagree with the rating assigned by ots, and they allowed IMB to pay the best rate for its deposit insurance.
    look at how the fdic is running the IMB bridge bank. talk about a way to destroy franchise value. bair wants to experiment with her idea that every mortgage loan should be modified. also, she placed the fdic coo in as the ceo of the bridge bank. exactly what experience does this person have running such a large thrift with this type of exposure? normally, the fdic hires competent, professional management to run the bridge. i guess by placing a sycophant in the position is the only way bair gets to run her experiment. by these moves, it looks like the high end of the loss estimate will be hit.

  59. Alfred commented on Jul 16

    Barry, this deserves the Pulitzer! You absolutely hit the nail on the hat. I hope you bring that up next time when you are on LK’s show.

  60. Average Joe commented on Jul 16

    Great work. Can we get rid of Ben and put you in charge?

  61. Average Joe commented on Jul 16

    Great work. Can we get rid of Ben and put you in charge?

  62. Average Joe commented on Jul 16

    Great work. Can we get rid of Ben and put you in charge?

  63. larster commented on Jul 16

    Great rant! Spot on, I must say. I’d like to see McCain read this, undedrstand it (his biggest challenge, I’m afraid) and then spout off that Islamofacism is our biggest threat. We’re selling our conuntry via the bond market. We don’t need no friggin’ war.

  64. Ed Miller commented on Jul 16

    Thank you. Thank you. Thank you.

    Your best comments ever in my opinion. I was so excited about emailing a link to others I almost forgot to comment here.

    The current corruption is the greatest challenge we will face in this generation, and the public must start taking actions that force changes to occur before the taxpayers are already on the hook for all the damage. If it was only possible to awake the media before it is too late.

  65. Melancholy Korean commented on Jul 16

    Great stuff, Barry. All we want is our leaders to tell us the truth. And if they can’t do it, then we want someone else to man up and do it.

    The citizens of this great country can handle it. We can handle it! And we are willing to help and to do our part. But for the love of God, tell us the truth. No more BS. Let’s start from there.

  66. sanderson commented on Jul 16

    This is admirably the best reading I’ve tasted in a long time, deserving the ears of so many. Truly, ‘The Big Picture’.

  67. Peter Davis commented on Jul 16

    Finally a genuine, pissed off rant about the Greek comedy that is now unfolding before our eyes. These guys – Bernanke, Paulson, Bush, Congress and all of the banking top execs – represent incompetence, ignorance and, in many cases, flat-out corruption. They are now running our country into the ground for the simple reason that they have no idea of what personal responsibility is. Instead, they want to continue to ignore the underlying problems while vainly and stupidly hoping they’ll just go away. Anything to prolong the Eternal Bubble, right?

    I really think this is just sickening. I know a guy who actually thinks Sen. Schumer caused the failure of IndyMac. That opinion is just so stupid that there are no words to form a justifiable response. This guy actually believes that all the market has to do is to see Bernanke’s point of view (whatever the hell that is) and then all will be fine. Seriously, what an ass clown. Again, I just do not have the words.

    The Fed, Treasury and Congress are now throwing the kitchen sink at this market. Soon, they will begin emptying the pantry, the laundry room, the garage and the neighbor’s attic. At which point, our country will be totally broke.

    I agree. What the hell happened to capitalism, and why the hell do we continue to bail out reckless, PRIVATE companies who have only endangered the economy? So they can do it again? So they can all walk away with their million-dollar bonuses? It is just flat-out disgusting.

    One other interesting tidbit: last week, Paulson and Bernanke testified in front of Congress that Fannie and Freddie were well-capitalized. Except that Paulson had been planning a rescue since the beginning of June. Which means that he knew they were not adequately capitalize and effectively lied to Congress about it. Where the hell are the reprecussions? Why is nobody calling him out for deliberately obfuscating what he knew to be the truth? Then this a-hole has the audacity to ask Congress for a blank check? The sheer incompetence of these jerks is just beyond comprehension. I am so angry I really may have to go steal candy from a little kid.

  68. Jim Walker commented on Jul 16

    Short sellers – The witch-hunt begins

    During today’s Senate hearing Mr Bernanke was asked about uptick rules and how to tackle short-sellers. Little wonder that the Sith (sorry, politicians), are getting animated about short sellers and their ability to manipulate stock prices through rumours and innuendos. After all, that bastion of market supervision, the SEC, has just announced an investigation into market manipulation by short sellers. Thankfully, Mr Bernanke’s economics was too good to be drawn into condemnation of the only people that have seen that the emperor is as naked as the day he was born (although much uglier).

    We have just finished reading David Einhorn’s book on his short-selling experience of Allied Capital (Fooling Some of the People All of the Time). We hasten to add that Greenlight Capital is not a client and that we do not know David Einhorn. However, his documented account of the shortcomings of SEC oversight into the companies that it is responsible for makes for compelling reading. The SEC’s totally ineffective oversight of investment banks and broker dealers – one of the reasons we are all in this mess – was demonstrated by the collapse of Bear Stearns.

    Just like the Big Lie, the guilty often react to their capture (in this instance, in the spotlight) by going on the attack. Instead of investigating short sellers the US Congress would be much better served by investigating the Securities Exchange Commission and the other clowns that it has had in charge of regulation and supervision in this country. Short sellers could not have made up rumours that were anywhere near as appalling as the reality. In fact, the only proper supervision of flawed business models in the US marketplace has been undertaken by the very people that are now being accused of manipulating the market. But politicians would rather back up incompetent bureaucrats than admit that market self-policing is working. That is the nature of the Sith. It is also why P/E multiples in the US and elsewhere are just way too high at present. When the regulation hawks have finished with this process economic growth and corporate earnings will be below the trend mean for a decade.

  69. SR commented on Jul 16

    As viewed from the past…From Mark Twain

    “All you need in this life is ignorance and confidence; then success is sure.”

    -and-

    “Always acknowledge a fault. This will throw those in authority off their guard and give you an opportunity to commit more. ”

  70. Jeff Spofford commented on Jul 16

    Lets look at the bright side: Atleast my kids will have really cool “I grew up during the Second Great Depression” stories like my grandparents did!

  71. OkieLawyer commented on Jul 16

    It is difficult to get a man to understand
    something when his salary depends upon his
    not understanding it.

    – Upton Sinclair

  72. Scott commented on Jul 16

    Banana Republic style crony capitalism is what a lot of it is, with Einhorn’s privatized gains, socialized losses a big part of it.

    From the get go, for the last eight years, from Iraq run for the benefit of the rebuilding companies—remember how other nations were excluded from the bidding, and how more recently the oil contracts were handed out on a no-bid basis?—to the market, it’s all of a piece. Programs to benefit and protect the wealthy and connected, at the expense, or with zero consideration for, the common good and long term health of the nation.

    It’s enough to turn me into a liberal.

  73. Steve Barry commented on Jul 16

    Barry,

    Your writing about it may help…but you can do more too. Two days ago I challenged the board to come up with a panel of real experts for a summit to try and help. Of course, it was met with near crickets. You could host a panel on your blog or help set one up and moderate it…I proposed Roubini, Volcker, Shiller, Bogle. Let’s go before they really screw things up.

  74. malabar commented on Jul 16

    Barry, this is not incompetence or stupidity. These folks are not idiots either.

    Dude, this is the key feature of the system called Crony Capitalism. This is kleptocracy at its finest.

    Think about it. Between the executives of the financial firms and our political leaders in DC they have looted the American people’s treasury in broad daylight. Middle class Americans whose wages have been stagnant for years get to pay for all these billionaires yachts, jets and Hamptons homes.

    What a great system for the Crony Capitalists!

  75. optimzmo commented on Jul 16

    Anyone acting surprised now has had there had up their butts for years.

    The Republicans stated goal upon taking over control of the federal govt. was to “make it so small it could be drowned in a bathtub”.

    They are ruining all our institutions because they believe it is best for their class – the rich and super-rich.

    I have been saying for years on political blogs that this will end in bloodshed.

  76. Michael Blomquist commented on Jul 16

    We have legislation that should have stopped this epic crisis many years ago. The problem is a lack of enforcement! There are undeniable connections to the Bush administration (executive branch)and this crisis.

    As the evidence continues to surface this crisis appears to have been orchestrated versus recklessness.

    http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

    I have contacted the fraud divisions of numerous FBI offices and they were all told NOT to investigate fraud for housing. Fraud for profit was acceptable, but only a fraction of the fraud recently perpetrated.

    Bush and Co are hard core gangsters and should be treated accordingly.

    It is time to wake up and demand action!

    No jail…NO BAIL.

  77. TM commented on Jul 16

    Thanks Barry, great post.
    Now, honestly, how do build and ark (IE save my wealth) during this coming mess.

  78. TM commented on Jul 16

    Thanks Barry, great post.
    Now, honestly, how do build and ark (IE save my wealth) during this coming mess.

  79. dukeb commented on Jul 16

    Beautiful! Just when I was questioning my visits here, too. I don’t care whether I agree with your posts or not, as much as I care that you write them with a strong voice. Bravo.

  80. Becky commented on Jul 16

    YAY BARRY!!! You speak for so many of us!!

    Next time you get air time on TV, please mention these points!

  81. constantnormal commented on Jul 16

    A MAGNIFICENT RANT !!!

    … would that I could put words to paper/pixels like this …

  82. Justin commented on Jul 16

    Well said, Barry. This really should be an op-ed somewhere.

  83. JoJo commented on Jul 16

    “nk:
    Leardership is top down. This is the problem in a nutshell. If it is ok for the government to behave in this fashion, well then it surely is acceptable for corporate america, and it’s citizens. We reap what we sow.”

    Actually in a democracy it starts from the bottom – that is “the people”. Those who put these clowns into power for the past 7 years are very much to blame (yes, the Democrats are culpable but the end responsibility lies with the Bush administration).

  84. Martin Qualters commented on Jul 16

    Great post. Now how about one on the outright fraud perpetrated by the so- called monolines and those who “securitized” the crappy mortgages. They knew what they were doing. Martin

  85. Tomas Liubinas commented on Jul 16

    I would call it a political stall. This is a peak of populism, when nobody can do anything. No moving forward. No thinking forward. It began not yesterday, but a few decades ago. Simply everyone get used to delusional good living. Oh, I am sure that a lot of people had seen it coming in years, but election is today so you had to guarantee a good living today, so let’s borrow from the future. And borrow more and more. Do you expect any action today? No. Any “official” warnings? No. Nobody is going to move a finger about it. Because media and marketing power is stronger than logical thinking. Nobody want’s to hear bad news. Logically thinkg population is clearly the minority today. It is nature’s way to teach us a lesson. It will change by everyone watching the collapse and starting to move the ass because you are hungry and not to afford more and more fancy imports. Is it a time to exchange my euro loan to usd or should I wait a couple of months?

    Greetings from Lithuania
    http://tomas.liubinas.com/

  86. mhm commented on Jul 16

    The “print as much money as needed” plan from Paulson is not idiotic. It is like a zen koan, clear, direct Truth that says Fractional Reserve does not work.

  87. Francois commented on Jul 16

    Very nice post.

    Expect Freedom Watch, Rush Limbaugh and all these brain-dead asshats to take aim at you. But you’re a grownup and I’m sure writing this blog has given you a rather thick skin by now.

    Give’em Hell Barry!

    P.S. Don’t be surprised if one of Obama’s advisor pay you a visit soon.

    LOL!

    (just kidding man!)

  88. anon commented on Jul 16

    2% interest rates; pdcf; unregulated futures markets; no-naked-shorting allowed being enforced…those are the symptoms of a very strong lobby.

  89. oddlots commented on Jul 16

    Hey Barry,

    I think if we combined your rant with these three we might have a sort of “super rant” which might work kinda like the Monty Python “Funniest Joke in the World.”

    For a reminder: http://tiny.cc/9zON1

    1) Roubini does a good job of pointing out that a housing bubble is not just any bubble, but a bubble in the most un-productive, self-destructive sense: “the existence of GSEs….is a major part of the overall U.S. subsidization of housing capital that will eventually lead to the bankruptcy of the U.S. economy. For the last 70 years investment in housing – the most unproductive form of accumulation of capital – has been heavily subsidized in 100 different ways in the U.S…. The reality is that the U.S. has invested too much – especially in the last eight years – in building its stock of wasteful housing capital (whose effect on the productivity of labor is zero)…” From: http://tiny.cc/fxUSG

    2) Buiter in the FT: “There are many forms of socialism. The version practiced in the US is the most deceitful one I know. An honest, courageous socialist government would say: this is a worthwhile social purpose (financing home ownership, helping my friends on Wall Street); therefore I am going to subsidize it; and here are the additional taxes (or cuts in other public spending) to finance it. Instead the dishonest, spineless socialist policy makers in successive Democratic and Republican admininstrations have systematically tried to hide both the subsidies and size and distribution of the incremental fiscal burden associated with the provision of these subsidies, behind an endless array of opaque arrangements and institutions. Off-balance-sheet vehicles and
    off-budget financing were the bread and butter of the US federal government long before they became popular in Wall Street and the City of London.” From: http://tiny.cc/PTnTR

    3) And my favourite, Michael Hudson in Counterpunch: “Given a choice between more affordable housing and better public service on the one hand, or “wealth creation” in the form of higher-priced housing (along with its higher carrying charges), Americans have voted overwhelmingly for the latter – that is, for housing so priced it forces buyers deeply into debt, paying bankers.”

  90. Scott commented on Jul 16

    This may be a small point (though I think not). The Chinese are STILL communists, and the Russians are at best Fascist (by the traditional definition). Calling both former communists is, in a sense, defining our reliance on them for capital as rosier than it is. Not to say you were being rosy.

    Oh, and yeah, that’s a secondary email address, Barry 😉

  91. RPB commented on Jul 16

    I’m sure leaking a document to the public that sparked a bank run was a proper method. During the depression people who did that were publicly strung up and had charges brought against them. IndyMac was running itself into the ground, that was their fault. But Chuck Schumer made an egregious error in leaking the news to the public. He wasn’t the guy who called 911. . . he was the guy that poured gasoline onto the fire.

  92. Matthew Rafat commented on Jul 16

    Barry is mad as hell and he isn’t going to take this anymore–bravo! What a great post. Nice to see some emotion from a normally suave, collected analyst (Kudlow and Co better watch out).

  93. SteveC commented on Jul 16

    Tremendous post, Barry. I’m not sure you had for breakfast this morning that inspired this, but please keep it up. You hit the assclowns right between the eyes.

  94. Francois commented on Jul 16

    “Does anyone (I mean ANYONE) take Jerry Bowyer seriously? Good grief. If they do, they deserve everything they get.”

    For anyone wondering why is the First Amendment under constant assault, well, wonder no more: just read Jerry Bowyer.

    For anyone wondering if there is a crisis in American Media, well, wonder no more: just look…Jerry Bowyer is there.

    No one with more that one functioning brain cell can take this fuckhead seriously.

    Which makes me wonder about the number of remaining brain cells in function in the Land of the F(r)ee.

  95. liz tool commented on Jul 16

    THANK YOU!!!! I just e-mailed this most excellent post to my sister. I needed someone else to articulate how I feel!!! You are a gem!!!

  96. DL commented on Jul 16

    The current financial situation is like a Sunday picnic in comparison with the real gorillas out there: Medicare and social security.

  97. Entrepreneur commented on Jul 16

    Barry – That was one fine rant, and I agree with every word!

  98. SteveC commented on Jul 16

    Steve Barry…add Jim Rogers to that list.

    The dustbin of history is littered with failed civilizations, and I hope the US isn’t next. A world led by Russia and China is not one I care to be a part of. (see Tom Friedman in today’s NYT).

  99. rj commented on Jul 16

    “But Chuck Schumer made an egregious error in leaking the news to the public.”

    THEY’RE PUBLIC COMPANIES! Are you saying their shareholders do not have a right to know the company’s finances?

  100. lux commented on Jul 16

    I love you Barry. 🙂

  101. Whammer commented on Jul 16

    75% of the total national debt has been amassed during the presidencies of Reagan, Bush, and Bush.

    When Reagan took office, total national debt was about 30% of GDP. When Bush leaves office, total national debt will be about 70% of GDP. That must be because we have invested it in infrastructure and the health, education, and well being of our population, right? Umm…no.

    “Reagan proved that deficits don’t matter.” — Dick Cheney

    When Clinton was president, the budget got balanced in his last year.

    But, you know, Bush cut taxes. So that’s good, right?

  102. Ritchie commented on Jul 16

    “50 years of the mental disorder known as liberalism. dmc.”

    Are you saying that the Bush administration just didn’t get enough time to turn things around?

  103. Steve Barry commented on Jul 16

    SteveC

    I thought about Rodgers, but he is known to be short F&F…plus he moved to China…don’t think I can trust him to be 100% impartial in trying to help the situation in the US.

  104. John H. Farr commented on Jul 16

    Barry, truer words were never spoken. I’m just a layman — no investments, idiotically poor, etc. — but I have to say I agree with the commenters above who make the point that what we have here is NOT capitalism or socialism but corporate fascism.

    Or is “corporate fascism” redundant?

  105. Steve Barry commented on Jul 16

    Just seen on CNBC…Dennis Kneale, Sue Herrera and Michelle Caruso-Cabrera all assuring us, no way, 100%, we cannot have another Great Depression.

  106. Jon H commented on Jul 16

    ” It is like a zen koan, clear, direct Truth that says Fractional Reserve does not work.”

    It probably worked fine until the finance whizzes started getting creative. Fractional Reserve is designed for a model where banks operate in a certain way. That’s not how they work anymore because they can use all manner of fancy instruments and arrangements to obfuscate things.

  107. Movie Guy commented on Jul 16

    Barry,

    Now I can go have that drink.

    You covered it. Nothing else to say except…

    Good afternoon and good luck.

    [Make that a double, Bob. I’m gonna need it.]

  108. Robert commented on Jul 16

    Good post. In free markets you must compete for your profits. When you fail, you go away. But not anymore. Both political parties have vested interests in keeping huge corporations in business while they talk about helping the little guy. Observe the way they’ve managed our food prices while regulating, directing and subsidizing our farming industry. Morons.

  109. Steve Barry commented on Jul 16

    They should subpoena Greenspan before the senate and make him speak in English this time.

  110. College Kid Ted commented on Jul 16

    Barry,
    Another great post from a fantastic blogger. Perhaps you would enjoy the movie “Idiocracy”. Sadly, it is a parody that may prove to be an all too accurate depiction of our country’s future.

    http://www.imdb.com/title/tt0387808/

  111. lunatic_fringe commented on Jul 16

    Careful Barry, any more rants like that and Charlie Gasparino may not be your friend anymore…

  112. Chuck Beef commented on Jul 16

    as far as regulators needing regulating,
    check out http://www.deepcapture.com

    PT Barnum nailed it. It is hard to imagine that this is all part of a master plan, if I only knew who has the authority and pull to orchestrate so much chaos.

    The answer imo is financial education. The variable no-one seems to address is that people with a mind, not just acting on whim, would not jeapordize themselves regardless of ‘expert’ attny, R/E Agent, broker opinions and input.

    Methinks people over a certain age are too far gone already, so need to start training the young in fiscal responsibility to shape the future generations using our public education system in order to reach (almost) everyone.

    For fixing the current problem, I assure you there are the conspiracy theorists arming themselves for option-armageddon (hellfire blood in the streets and other such nonsense), the miserable who will throw their hands in the air…
    A revolution is in order, but only in the sense that apathy of our citizens is diminished. In short, it should be a crime not to vote, and a crime for not having a standardized measure and available tracking system and accountability for those elected (BAN ADVERTISING FOR POLITICIANS!)

    People vote based on an opinion of an opinion based on little fact.

    We need our citzenry up to par if our country is to have any chance to survive.

  113. Liz commented on Jul 16

    Great post. Well done. Thank you.

  114. me commented on Jul 16

    Wait:

    > do not allow banks the freedom to
    > make horrific but preventable
    > mistakes (i.e., only lending money
    > to those who can pay it back)

    What?

  115. donna commented on Jul 16

    All empires end the same way, only the details change. ;^)

  116. T-Man commented on Jul 16

    Barry, your juvenile crack about the regulation of IndyMac demonstrates that you simply have no idea what you’re talking about. No bank can survive a run on its deposits – not IndyMac, not Bank of America, not even the Bank of Barry (i.e., the one whose vault is filled not with cash but with hot air).

    IndyMac’s failure came about for two reasons – one, their business model froze when after August 2007 neither they nor their competitors were any longer able to sell non-GSE mortgage loans on the secondary market. Second, “Schumer’s Run” smothered the institution’s transition plan to become a GSE lender. This plan might well have not worked – but the publicity-seeking senior Senator from New York certainly made sure that it couldn’t. Was it a coincidence that the banking agencies first heard about his letter from the reporters he leaked it to? (Or was it leaked to short sellers first, and then to the Wall Street Journal?)

    Pray tell how many years you have worked inside a bank or a regulator, giving you the authority to pontificate on the “towering incompetence” of banking agencies. I’ll bet it’s a lot fewer than me (check where this message comes from).

    I have occasionally read your blog for its occasional interesting insights – but now I realize that your gems don’t stem from any real knowledge, but simply validate the notion that even a blind squirrel occasionally finds an acorn.

    ~~~

    BR: Never let the facts get in the way of your own foolishness:

    The FDIC, which is seeking a buyer for IndyMac, estimated the cost of the bank’s failure to its $53 billion insurance fund at between $4 billion and $8 billion. That’s how much in bad loans IndyMac had on its books beyond its capital.

    “IndyMac is a company that was pretty much 100 percent invested in mortgage assets . . . and it had no capital” said Adam Compton, co-head of global financial stock research at RCM in San Francisco, which manages about $150 billion.

    IndyMac was founded in 1985 by David Loeb and Angelo Mozilo

    http://uk.reuters.com/articlePrint?articleId=UKWA000014120080713

  117. LARA JAKES JORDAN commented on Jul 16

    Now-defunct IndyMac Bancorp Inc. is under investigation by the FBI for possible fraud in connection with home loans made to risky borrowers, The Associated Press has learned.

    It was not immediately clear how long the FBI’s probe of the bank has been ongoing.

    The investigation is focused on the company — which was taken over last Friday by the FDIC — and not individuals who ran it, a law enforcement official said Wednesday. The official spoke on the condition of anonymity because he was not authorized to speak publicly about the investigation.

    IndyMac Bank’s assets were seized by federal regulators after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

    The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

    The Office of Thrift Supervision said it transferred IndyMac’s operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.

    FDIC spokesman David Barr could not immediately be reached for comment Wednesday.

    Shortly after the FDIC took over operations, Barr said most depositors were given immediate access to up to $100,000 in their accounts and 50 percent of any money beyond that threshold. Depositors with joint accounts or retirement accounts could immediately withdraw greater sums.

    Depositors were given receivership certificates for any money they couldn’t immediately withdraw and may be able to receive some of that money after the bank’s assets are sold off.

    Early this week, hundreds of worried IndyMac customers lined up out of the bank’s headquarters branch in Pasadena, Calif., demanding to withdraw as much money as they could or get answers about the fate of their funds.

    Over the last year, and faced with a cratering housing market, the FBI has opened a wide-ranging probe of companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors.

    Countrywide Financial Corp., the nation’s largest mortgage lender, is also under scrutiny.
    Additionally, two former Bears Stearns managers were indicted last month on conspiracy and securities and wire fraud charges alleging they lied to investors in a hedge fund that tanked last year as the subprime market collapsed. Those charges marked the first criminal charges to arise on Wall Street from the subprime mortgage debacle.

    In all, the FBI is now investigating 21 companies tied to the subprime mortgage crisis, up from 19 last month. Authorities are looking into at least 1,400 mortgage fraud cases nationwide, and more than 400 real estate industry players have been indicted since March.

    FBI Director Robert Mueller has said the investigations focus on accounting fraud, insider trading, and failure to disclose the value of mortgage-related securities and other investments. Losses homeowners and other borrowers are estimated at over $1 billion

  118. denriddy commented on Jul 16

    Weird: there’s so many more of us than there are of the barking mad idiots in power. So why are they still in power?

  119. VJ commented on Jul 16

    Whammer,

    When Clinton was president, the budget got balanced in his last year.

    FEDERAL BUDGET SURPLUSES:

    1998 – $69B
    1999 – $126B
    2000 – $236B
    .

  120. leftback commented on Jul 16

    Top rant, Bazza. I think it’s a dead heat between you and this week’s Roubini piece. Contrasting styles -same message.

    Thanks for being all over it the last two weeks of bizarre action. Imagine how fucked in the head everyone would be if we all were just listening to MSM.

  121. Rob Weigand commented on Jul 16

    You’re right, it’s not capitalism or socialism, but it’s the same Republican BS-ism over and over again. When markets are on the rise they scream bloody murder defending free markets — even though it’s their excessive practices that are juicing the returns. Then they screw everything up soooo bad that they say, again and again (S&L crisis, LT Cap Mngt, now Bear/Freddie/Fannie), “oh well, this time the crisis is so severe we have to have government intervention — just this ONE time . . . ” How about we have some wealth confiscation to help pay all these taxpayer bailout bills?? Any bank executive whose bank has a shaky balance sheet should have his/her salary CONFISCATED — they used implicit government bailouts for personal profit. NO MAS!

  122. Rockitz commented on Jul 16

    Don’t candy-coat it, BR. Tell us how you really feel.

    This situation makes me puke too. It’s like the Ivy League business schools have specifically trained their graduates how to bilk the taxpayer out of everything they have and their enablers (and benefactors) in government are helping them every step of the way.

    Think the WSJ would print this as an editorial?

  123. michael schumacher commented on Jul 16

    steve barry-

    You might want to ask why Rodgers moved away from here. That says more than anything to me. Sure he talks his book (like everyone else does on TV) but he did something about his specific situation rather than complain about it and ask for a bailout…like so many of his peers. Gross is the biggest offender however that does not mean you should ignore him.

    I’ve read your posts here…..you should have seen the forest through the trees on that. EVERYONE talks book-standard practice- hear what they say…..most important IMO.

    Ciao
    MS

    Ciao
    MS

  124. me commented on Jul 16

    There’s nothing “social” about this mess. It doesn’t benefit the general good, it’s malignant.

    It’s simply failed privatization.

  125. Matt Marino commented on Jul 16

    Barry:

    Your excellent rant belongs right up there with the rants of Dennis Miller.

    Unfortunately, Idiots should be insulted to be classified with, “…the collection of ne’er do wells, clueless dolts, political hacks,…”

    As many of my coaches through life shared that wonderful, warm, whimsical saying, “Everyone has a$$holes and they all stink!”, we are left with really big a$$holes who have been elected to LEAD and instead have become blame shifters. My italian grandfather had a saying for useless people, “They are as useless as tits on a bull!” My little Italian grandmother, also had a saying about lazy and worthless people, “They work to squeaze farts out of the shirt tails!” So our leaders are Tits on a Bull, and shirt tail fart squeezers. That is what it has come down to.

    I, along with so many others want our country back. I will be using the power of my vote to kick out all incumbents from both the state of AZ and the Federal government. The Declaration of Independance gives me that right.

    It is all about competition and it is time to remove the Government from the equation. It is the capitalistic market place where all good things come about.

    Tony Clark, now a San Diego Padre, who formerly played for the AZ Diamondbacks the previous 3 years, had a very good and succinct saying. It became the mantra for the Diamondbacks and us fans as they won the NL Western Division of 2007. “‘Anybody, Anytime!'”

    Thanks for the Vine, BR.

  126. Clyde commented on Jul 16

    Prediction: Democratic landslide in the fall, GOP will lose more seats than they did after Watergate.

  127. Bruce commented on Jul 16

    Barry,

    Why don’t we file an injunction against these FED actions on the grounds that if carried out, the nation is likely to be bankrupt??? It would certainly be a novel idea…

    Bruce in Tennessee

  128. Stuart commented on Jul 16

    Amen in spades BR. The political and financial elite are simply looking out for their own trying to ensure none of their buts ends on a spit. What’s going on can best be described by the classic socioeconomic descriptive term: FUBAR.

  129. Duff commented on Jul 17

    Barry You Said….
    As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role reached the point of malfeasance long ago. History is unlikely to be kind to the Maestro.

    Believe me I don’t trust Fox news:
    but i thought you might find what
    Greenspan said back in April 7,2005..
    I cut and pasted below…

    The truth is :
    http://www.foxnews.com/story/0,2933,152686,00.html

    Greenspan Seeks Check on Mortgage Giants

    Thursday , April 07, 2005

    FC1
    ADVERTISEMENT

    WASHINGTON —
    Created by Congress (search) to buy mortgages from lenders, Fannie Mae and Freddie Mac aim to keep more money in the credit flow pipeline that home buyers use.

    But after a series of concerns over financial management, tighter regulation and portfolio limits of the two mortgage giants are needed, Federal Reserve Chairman Alan Greenspan (search) told a congressional panel on Wednesday.

    Soundness is a concern to congressional members because Fannie Mae (search) says its debts are almost $11 billion greater than it had earlier reported and because 40 percent of the nation’s local banks have 100 percent of their primary reserves in notes from Fannie and Freddie.

    Greenspan said any crisis with the two mortgage companies — known as Government-Sponsored Enterprises — could have a disastrous spillover effect on the banking system.

    “If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis,” he said in testimony to the Senate Banking, Housing and Urban Affairs Committee.

    Fannie and Freddie have vastly increased their control of the residential mortgages, jumping from about $750 billion worth to almost $4 trillion in just a few years. That’s about 45 percent of the total market, a percentage that is too high in Greenspan’s view and too great a risk for the whole banking system.

    “We put at risk our ability to preserve safe and sound financial markets in the Unites States — a key ingredient of support for homeownership,” Greenspan said.

    Concerns about the security of the companies grew with the accounting problems that led to the firing of top executives, including former Clinton budget director Franklin Raines.

    “I think a lot of us are disappointed with the breakdown that we’ve seen in accounting of these two major housing institutions and have serious concerns,” said Sen. Jon Corzine, D-N.J.

    Sen. Chuck Hagel, R-Neb., has proposed legislation to set up a regulatory agency with the power to compel the companies to sell off any assets that don’t lend credibility to their mission of making homeownership more widely available.

    “Given the frequency of major accounting and management problems at both Fannie Mae and Freddie Mac over the past two years, Congress must act to ensure that the [companies] are adequately regulated and do not pose any systemic risk to our economy,” Hagel said.

    But one Democratic senator, while conceding problems are evident, charged that reform efforts are really an attempt to destroy the two institutions.

    “Fannie and Freddie have a problem,” said Sen. Charles Schumer, D-N.Y. “Instead of fixing the problem, ideologues want to take advantage of that, and they’ve been chafing at the bit for a long time to undo Fannie and Freddie.”

    But Sen. Jim Bunning, R-Ky., said without some sort of reform in the mortgage industry business, the rest of the financial system is in jeopardy.

    “To those outside this committee who have shown they don’t want a bill, all I can say is be careful what you wish for.”

  130. Whammer commented on Jul 17

    VJ

    FEDERAL BUDGET SURPLUSES:

    1998 – $69B
    1999 – $126B
    2000 – $236B

    Thanks. There is some controversy about how the SS surplus was handled during the late ’90s, so I didn’t want to play into the wingnuts hands.

    The right-wing rhetoric on the Clinton administration strives to discredit the budget accomplishments during his term. That is dishonest crap, not a surprise considering the source.

  131. Dutch commented on Jul 17

    Still does not deal with the heart of the matter which is fractional reserve banking and the Federal Reserve Act of 1913. We are asleep at the switch? yes we are. But it started with my Granddad back at the turn of the last century. The end result, historically, is inevitable. No fiat curency survives. Paper aways goes to zero. ESPECIALLY if is money by decree.

  132. Francois commented on Jul 17

    “Just seen on CNBC…Dennis Kneale, Sue Herrera and Michelle Caruso-Cabrera all assuring us, no way, 100%, we cannot have another Great Depression.”

    Excellent contrarian indicator, isn’t it?

  133. superubero commented on Jul 17

    thank you Barry! I feel strangely relieved by this post … like i just told an incompetent poorly matched lover that “this just isn’t working out”

    very cathartic …

    let’s ‘dump’ these incompetent buffoons and get on with the business of making this country whole again

    let the age of quality begin! and by that i mean 3rd party independent verifying standards organizations

  134. Donald Last commented on Jul 17

    Magnificent stuff. As a Brit I care a great deal about America and I just hope and pray that this anger seeps into the consciousness of the general populace. The unctuous vanity and falsity of these rogues and fools in the Washington and Wall Street establishment is sickening. Perhaps we should take a leaf out of the Karachi book – just stone them.

  135. VJ commented on Jul 17

    Whammer,

    There is some controversy about how the SS surplus was handled during the late ’90s, so I didn’t want to play into the wingnuts hands.

    Well, technically, the Clinton administration didn’t count the trust funds against the federal budget as the previous Reagan/Poppy Bush administrations had, and reported it as only a $1.9B surplus in 1999 and a $86.4B surplus in 2000, but since the current administration went ‘right’ back to utilizing the trust funds to mask the budget deficits, the only fair manner to contrast the numbers is with the yearly surpluses I posted previously.
    .

  136. Bud Hovell commented on Jul 17

    The assumption all these players are incompetent is naive. They are merely greedy.

    As long as the vast majority of these reptiles end up keeping their homes in the Hamptons (in the case of financial engineers) and their rich political perks for simply showing up occasionally (in the case of political engineers), it is we who are incompetent, not they.

    Worse, we’ve now overturned the one ultimate penalty available to the public for rewarding this kind of criminal behavior with its just deserts.

    Until we bring the gallows back to the public square and put it to work on a regular basis, it’s unlikely toothless laws and feckless “regulators” will serve as much of a warning against persistent institutional fraud and embezzlement conducted by a permanently embedded criminal subculture which now stretches seamlessly from DC to Wall Street.

    Corrupt institutions can never be reformed — only replaced.

    Hang the bastards, and hang them high.

  137. williambanzai7 commented on Jul 17

    You are absolutely right about all of this. It is self serving hypocracy by the financial/political elite. I believe that driving force that allows something like this is technological advances empowering the further exploitation of mass stupidity. In this instance advances in financial innovation combined with loose leverage and Greenspinism.

  138. Whitespiral commented on Jul 18

    Barry,

    That post just reminded me why yours is the only financial blog I frequent.

  139. Max Thrax commented on Jul 18

    Great post. You’re forgetting the role of the corporate media in all of this, and their rolling over for the most corrupt/incompetent Administration in US history.

  140. GaryW commented on Jul 18

    Barry:
    Thanks for sharing your wrath!
    Someone recently said ‘the gains are being privatized while the losses are being socialized’. No one asks ‘who’s going to pay for this?’ If we ran our personal or business books like the government (Federal, State, and Local), we’d be bankrupt!
    Thus, our precarious financial position: Massive growing debt, large trade deficit while we export manufacturing and jobs, weak dollar, and a collapsing financial system.
    Then corporate boardrooms give millions in golden parachutes for incompetence!
    Shareholders and constituents need to throw the bums out of the boardroom and political office. If not, welcome to the Banana Republic…

  141. Russ Winter commented on Jul 18

    Great rant, but think we need to give more credence to the organized criminality and corruption behind all this. Idiots hardly, these Boyz are dumb like foxes.

  142. CathyG commented on Jul 21

    “That’s not capitalism, its not socialism, its not regulation, and its sure as hell isn’t what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual.”

    When it happened in Russia it was called kleptocracy – rule by thieves.

    The individuals and institutions – governmental and corporate – who have engineered this cluster eff have imperiled the economic sovereignty of my country. If it looks like treason and quacks like treason, I’m calling it treason.

  143. David Kotok commented on Jul 21

    IndyMac was a hybrid savings institution spun off from the now defunct Countrywide, that specialized in the origination, servicing, and securitization of Alt-A (low-documentation) mortgage loans. It grew very rapidly, doubling in size between March 2005 and December 2007 from $16.8 billion to $32.5 billion.4 Its funding in rough order of importance consisted primarily of Federal Home Loan Bank (FHLB) advances and insured and uninsured deposits. The advances were a particularly important source of funding, accounting for between 32% to 45% of its total liabilities.5

    IndyMac’s reported capital declined over the period from its peak of $2.7 billion in June of 2007 to $1.8 billion at the end of March 2008. Uninsured deposits began to run off in mid-2007, long before Senator Schumer’s letter. In fact, the bank actively replaced slight declines in FHLB advances and a drop in uninsured deposits with insured deposits, and particularly with fully insured brokered deposits under $100K. At about the same time, the bank’s stock price began to plummet, dropping from a high of about $35 per share in June to about $3 just prior to the Schumer letter. Additionally, earnings also turned negative in the fall of 2007. These factors all pointed to a very troubled institution whose situation was continuing to worsen.

    Despite the OTS examination in January and subsequent actions by the institution to change its strategy, its capital position continued to decline and earnings deteriorated. In the face of this, OTS director Lockhart maintained that IndyMac was adequately capitalized and the institution touted that fact in its SEC filing. In fact, in the bank’s March 31, 2008 10Q it stated that tangible and Tier 1 core capital stood at 5.74%, well above the regulatory requirements for the bank to be classified as well-capitalized. Risk-Based Tier 1 capital was 9% and Total Risk-Based capital was at 10.26%. Given that it was supposedly adequately capitalized and was done in by a liquidity problem as some $1.3 billion of deposits ran off, it stretches credibility that the bank’s failure would lead the FDIC to estimate that it could stand to lose between $4 and $8 billion.6

    How could losses of this magnitude accumulate in just a matter of a few days due to a supposed run of $1.3 billion? The answer, of course, is that they didn’t.

    The bank was likely to have been deeply economically insolvent, which was masked by faulty accounting according to current rules and regulatory standards. Clearly, the bank’s active bidding for brokered deposits and reliance upon funding from the FHLB amounted to a big gamble – financed by other government entities – that it might weather the storm. Keep in mind that IndyMac had, at closing, about $10.1 billion in FHLB advances and perhaps even Federal Reserve discount window borrowings as well. Any such borrowings would be over-collateralized with high-quality assets – in this case the collateral was largely mortgage-backed securities. Such claims stand ahead of insured deposits or the FDIC in the liquidation. This means that much of the best collateral that could have been used to backstop the FDIC or shared to reduce losses to uninsured claimants was instead siphoned off by other agencies. Indeed, the FDIC initial estimates are that uninsured depositors may receive fifty cents on the dollar of uninsured deposits.

    What emerges from even a partially informed and quick analysis of the available evidence and data is the suggestion that (a) the institution was in deep trouble long before it was closed; (b) the OTS appeared to be late to the party, despite market signals; (c) OTS actions were ineffective when measured against the intent of FDICIA; and (d) the institution engaged in moral hazard behavior by pumping up its brokered deposits that were 100% insured and borrowing from the FHLB, and possibly the Federal Reserve. The bottom line is that the FDIC is left to clean up the mess and the costs associated with regulatory ineptitude, and the moral hazard behavior will be paid for collectively by the banking system through higher FDIC premiums on the surviving banks.

  144. autboy commented on Jul 25

    Age without honor. And a dwindling number of people even capable – much less interested – in reacting with outrage.

    Great post, Barry.

  145. Mike commented on Jul 25

    The real problem is that we don’t have a media that reports the news when the fire is being started.

    They just report that the house burned down.

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