Paulson/Bernanke to Banks: "Your firms need to agree"

The documents-chasers at Judicial Watch have unearthed some late-Bush-era memos and e-mail strings showing, among other things, just how non-existent was the nine major U.S. banks' choice when Uncle Sam came knocking on the door last fall. From some Hank Paulson/Ben Bernanke talking points [pdf] for that fateful meeting:

We plan to announce the program tomorrow--and--that your nine firms will be the initial participants…. This is a combined program (bank liability guarantee and capital purchase). Your firms need to agree to both. We don't believe it is tenable to opt out because doing so would leave you vulnerable and exposed. If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance.

This is always worth remembering whenever some politician or commentator gets on a high horse about such and such "ungrateful" bank engaging or threatening to engage in unapproved behavior, whether in employee perks or in the course of doing business with, say, auto companies. Comments Judicial Watch:

"These documents show our government exercising unrestrained power over the private sector. Despite promises of transparency, the Obama administration tried to cover up the very existence of these smoking-gun documents. And the cover-up continues, as the Obama administration protects Timothy Geithner by withholding a key document about his role in this infamous bankers meeting," stated Judicial Watch President Tom Fitton.

There's also a telling e-mail string [pdf] about efforts to get both major presidential campaigns on board. This bit in particular, about efforts to engage McCain econ guy Douglas Holtz-Eakin, makes one pine for an alternative history in which the Republican Party in 2008 offered a clear alternative to open-ended bailouts:

I briefed H-E. He seemed to know most already; said he had succeeded in backing down the 'they are nationalizing the banks' crowd…for now.

Nice to be reminded how the GOP establishment thought of its own members' principled objections to a dubious and never-popular policy.

Link via Powerline via the Volokh Conspiracy.

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Comments

[jsh]

My prediction: the left will continue to say the banks ran to Big Mommy Govt for help of their own free will.

[Xeones]

Yo, fuck Hank Paulson and Ben Bernanke.

[John Thacker]

Nice to be reminded how the GOP establishment thought of its own members' principled objections to a dubious and never-popular policy.

Indeed. Though that "establishment" included establishment economists, sadly.

Some other comments of Holtz-Eakin seemed to say that McCain's initial gut reaction was to oppose TARP, but that H-E and other establishment guys convinced him that the apocalypse was imminent unless it passed. I guess McCain's temperament is less about impulsive gut reactions and more about listening to all the establishment experts and trusting their opinion.

Strange, though, that that quality, so beloved hypothetically before the election and in Obama, doesn't necessarily lead to libertarian-favored policies. If you wanted politicians to oppose TARP, you needed them to make decisions on populist gut instincts, not on reasoned and dispassionate listening to all the experts. (Since "all the experts" always boils down to "all the establishment experts" in Washington reality.)

And remember that when the GOP House voted against even a portion of it, there were op-eds castigating them for ignoring the "consensus of economists" and being "anti-intellectual populists." (One of which was even favorably linked by Reason, though I don't think the linker really picked up on what it was saying, thinking that the author must have been talking only about other policies, like immigration.)

[jsh]

Blindly going along with Establishment Washington merely proves what a maverick McCain is. 🙂

[Paul]

Where are the reliable commenters eyerolling about how "the banks weren't forced to take this money"?

[Xeones]

Blindly going along with Establishment Washington merely proves what a maverick McCain is.

Well, if nobody expected him to do it, then yeah.

[Pro Libertate]

"The only thing we have to fear is fear itself." How massively ironic that FDR was right about this, though not in the way he intended. When have our rights or the concept of limited government been most threatened? When power-hungry people have tried to scare us into accepting the unacceptable.

The banks were in a hopeless position, by the way. They're regulated by the federal government. If they'd dared to say no, their next regulatory exam would've been gruesome to behold, I'm sure.

[Xeones]

How awesome would it be to shove Paulson's head up Bernanke's ass, and Bernanke's head up Paulson's ass, and just watch them roll right off of a cliff together? We could call it the Inverse Ouroboros Lock.

[Episiarch]

McCain might be president today if he had opposed the bailout. Whoops.

[jsh]

McCain might be president today if he had opposed the bailout.

But then we'd be nuking Iran. Pick your poison.

[Episiarch]

I didn't state any preference on my part; I was merely making an observation.

[robc]

jsh,

But then we'd be nuking Iran. Pick your poison.

Hmmmm...choices:
1. Screwed up America, Okay Iran.
2. Screwed up Iran, Okay America.

Yeah, actually, that was a pretty easy choice.

McCain might be president today if he had opposed the bailout. Whoops.

I said at the time that McCain gave up his last chance to be president. The desperation hail mary was to fight against TARP. He chose the FB dive instead.

[Episiarch]

rob, you really shouldn't use football terms. Don't you know that violent ground acquisition games such as football are crypto-fascist metaphors for nuclear war?

[hmm]

Who's surprised? How else to you get so many large egos to do just what you want? Threaten them.

[JB]

What's the difference between the US government and the mafia?

Scale.

Every government employee is now a member of the mob. I wonder how they sleep at night.

[Citizen Nothing]

"Every government employee is now a member of the mob."

Untrue. Government employees have a much better pension plan.

[George Carlin]

In football the object is for the quarterback, also known as the field general, to be on target with his aerial assault, riddling the defense by hitting his receivers with deadly accuracy in spite of the blitz, even if he has to use shotgun. With short bullet passes and long bombs, he marches his troops into enemy territory, balancing this aerial assault with a sustained ground attack that punches holes in the forward wall of the enemy's defensive line.

In baseball the object is to go home! And to be safe! - I hope I'll be safe at home!

[J sub D]

Where are the reliable commenters eyerolling about how "the banks weren't forced to take this money"?

Let me try. Hank Paulson and Ben Bernanke weren't armed at the meetings. The banks could easily have said no and fucked themselves, their company and their shareholders.

See? Completely voluntary.

[gmatts]

"If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance."

I got pulled into a drug checkpoint following a concert some years ago. A cop, holding a leash with a dog attached to it, asked to search the car. He also stated that if we said no, he would just let the dog sniff around in the car.

[sage]

Link via Powerline via the Volokh Conspiracy.

You sure Kevin Bacon wasn't involved also?

[shrike]

3-month LIBOR was at 5% and headed upwards. The meltdown was in full throttle.

Paulson was the only member of the Bushies who understood the situation and thankfully he acted.

Put in context, LTMC posed a systemic threat in 1998. The Lehman/AIG failure would have crashed the system.

No room for conspiracy theories now - this was real.

[shrike]

LTCM rather.

[robc]

The Lehman/AIG failure would have crashed the system.

You say that as if it is a bad thing.

[jsh]

The Lehman/AIG failure would have crashed the system.

Does that, even if assumed true for the sake of argument, justify lying about what happened at the meeting?

[Warty]

He chose the FB dive instead.

Any Browns fans reading this will immediately remember Mo Carthon. "Fullback option pass! They'll never think of it! I'm a genius!!"

[The Angry Optimist]

never thought you'd see a liberal like shrike go to bat for corporatist, statist arm-twisting bordering on bank nationalization.

good work, young padawan. you'll be a Republican soon.

[Pro Libertate]

No, it wouldn't have. The idea that our financial system is that fragile is crazy. Most of the bad assets are still out there, but we're able to continue functioning despite that. The money the government threw at this did little to change anything of substance, other than to make the balance sheets look a little better.

Until the Paulson/Bush panic mongering, we were dealing with the problems in the financial markets. Sure, some companies would've failed, but their assets would've been picked up by the ones that didn't, or they would've reorganized in bankruptcy. And smaller institutions would've gotten the opportunity to step into larger roles in the economy. Unthinking panic is rarely the right response to a problem.

[jsh]

I'm waiting for RCD, fresh from the "Thank God the govt is hiding evidence about torture" thread, to come in and complain about the govt not being fully candid about the hard evidence concerning what actually happened when its something he opposes instead of something he supports.

[The Angry Optimist]

Warty, for you:

Mo Carthon's Playbook

[BakedPenguin]

Untrue. Government employees have a much better pension plan.

Also, mob members can be fired. Well, gotten rid of.

[The Angry Optimist]

So, "the Lehman/AIG failure would have crashed the system", so the solution was...let Lehman crash?

Color me mystified.

[shrike]

Does that, even if assumed true for the sake of argument, justify lying about what happened at the meeting?

The whole thing was a fiasco. They never bought troubled assets, they took a SWAG on the amount, Paulson was dictatorial and wanted no oversight, blah blah blah. He was in panic mode.

Citi would take down the whole system alone - they have a $20 billion market cap and owe $45 billion in TARP. They're insolvent.

Maybe the system will unravel. I'm just saying they prevented it (at least for now).

[jsh]

I'm just saying they prevented it (at least for now).

Does that justify covering up the details of the meetings where it happened?

[Warty]

TAO, do you hang out on the OBR forum? I remember MY PLAYEBOUKE being there in the '06 season. Frye run!!!!!!

[The Angry Optimist]

oh, no, man...I'm a Washington fan. I think my dad (who is a Browns fan) sent that to me a long time ago.

3rd AND TEN NO WINSLOW!

[bloodstar]

Frakking Democrats forcing the Republican President to Do their evil Fascist Liberal plot to turn the country Communist Socialist Stalinist. I bet they had Democrats running the banks to make sure they screwed up.

(you know, I have no idea why I'm even writing this, but really, someone is going to blame the Liberals for this)

*sigh*

[J sub D]

shrike -

The depression would have been worse without FDRs new deal.

Poverty would be ubiquitous if Johnson hadnt declared war on it.

Black people wouldn't be able to attend colleges without affirmative action.

The commies would have taken over all of Asia if we hadn't fought in Vietnam.

Without the FDA, people would be dying in the streets by the millions from unsafe medicines and tainted food.

I'm just saying they prevented it (at least for now).

Prove any of the above staements wrong.

[The Angry Optimist]

how about this for your whackaloon conspiracy theory of the day?

When the CC "Bill of Rights" passes, and CC Companies do the rational thing and start dropping high-risk clients because they can't charge them the market rate for hisk-risk lending, well, guess who those high-risk customers are? Guess where they live?

And, you watch and just see if the Administration and Congress don't cram regulations down the the throats of the CC Companies forcing them to loan that high-risk clientele money without charging them the appropriate interest rates.

Oh, and then there will be CC Company meltdown in 20 years, and everyone will blame the CC Companies and accuse everyone who blames the CC BoRights of racism.

[robc]

(you know, I have no idea why I'm even writing this, but really, someone is going to blame the Liberals for this)

I havent heard one oppose it yet.

[jsh]

Oh, and then there will be CC Company meltdown in 20 years, and everyone will blame the CC Companies and accuse everyone who blames the CC BoRights of racism.

As liberalism can't fail, surely bad news must be the cause of some racist non-liberal. Get with the program.

[P Brooks]

Paulson was the only member of the Bushies who understood the situation and thankfully he acted.

Wheeeee!

[Hazel Meade]

TAO:
Here's another great summary of the subprime meltdown I ran across at ALDaily.

link

Gets into some really old history og government-pushed "homeownership" programs dating back to pre-depression era policies.

Basically, we've gone through the same housing-bubble phenomenon as a result of government pushing homeownership 3-4 times since the 1920s.

[Hazel Meade]

Sure, some companies would've failed, but their assets would've been picked up by the ones that didn't, or they would've reorganized in bankruptcy. And smaller institutions would've gotten the opportunity to step into larger roles in the economy. Unthinking panic is rarely the right response to a problem.

Exactly, and the ironic thing is that by allowing these institutions to fail it would have been a great wealth-equalizing event, of the kind that leftists claim never happens under capitalism.

They keep insisting that wealth only becomes more concentrated in the hands of smaller and smaller groups of people. Then along comes an event where the rich people have made really bad investments and lost all their money, and guess what? It's the socialists who bail them out!

Allowing the big banks to fail and the smaller banks to grow and take over would have caused a seismic upheaval in social mobility. An entirely new class of "rich" would have emerged. The "old money" getting wiped out, and "new money" coming in to replace it.

[The Angry Optimist]

Hazel - thanks for that. I am amazed at the short-term memory our institutions have. Talking about the meltdown among liberals is usually a mix of astonishment and historical ignorance, as if pushing homeownership were something new, forgetting where Fannie Mae and Freddie Mac came from and what their names mean in the first place.

Anywho, just wait and see about this Credit Card thing...when the CC BoRights comes down and CC Companies act as they should, the Ds are going to make another powergrab and nationalize those as well.

Watch.

[Pro Libertate]

Government pushes home ownership, pushes cheap and easy access to credit, pushes creditors not to price credit too high for borrowers, regardless of whether their risk class demands high rates (or not making the loans at all), attacks any lending patterns that might have any kind of discriminatory impact, regardless of whether those patterns are strictly based on economic criteria.

This is the world we live in. And there are those out there who want the customers with good credit to subsidize (i.e., pay higher interest rates to offset) customers with poor credit.

[prolefeed]

If you wanted politicians to oppose TARP, you needed them to make decisions on populist gut instincts, not on reasoned and dispassionate listening to all the experts.

Or said politicians could just read the Constitution and see that TARP wasn't an enumerated power; or said politicians could simply have examined the unintended but thoroughly foreseeable consequences and said, "Hell, no, this is gonna be a clusterfuck."

I think the populist gut instinct crowd mostly voted FOR the bailouts.

[endpoint]

Perhaps the public at large and the less cynical within the institutions are forgetful or naive but the moneyed interests played this with total recall. As far as thinking that the memory is short-term, "old money" surely did not forget.

[James Anderson Merritt]

I suspect some similar strong-arming was at the foundation of the recent "Town Hall Summit" on Health Care reform. The Administration's story is that all the recalcitrant stakeholders and players of yesteryear are now eager to participate in talks and push reform forward. But I think their newly-found spirit of cooperation might have been inspired by the ease with which Obama dispatched the CEO of GM. The health care industry is already highly regulated by the Feds and they knew Obama had them by the short hairs at the outset.

Again: gangster tactics in evidence. Makes one long for Richard Belzer's President character from "The Groove Tube." http://www.youtube.com/watch?v=OgTzlXdviWk

[P Brooks]

And there are those out there who want the customers with good credit to subsidize (i.e., pay higher interest rates to offset) customers with poor credit.

Yes; an "inversion" of the yield curve (so to speak). For fairness [drink!].

[TrickyVic]

""""""Where are the reliable commenters eyerolling about how "the banks weren't forced to take this money"?"""

If that true, then no bank could have said no and they ALL took the bailout money, right?

http://abcnews.go.com/Business/CEOProfiles/wireStory?id=6760996

[alan]

never thought you'd see a liberal like shrike go to bat for corporatist, statist arm-twisting bordering on bank nationalization.

good work, young padawan. you'll be a Republican soon.

I've never heard one who didn't sound like a corporatist shill, or whose rhetoric in economic matters was anything more than an euphemistic dodge to justify the existence of one cartel or another.

The theme of general welfare versus specific interest consistently runs through these threads with the same players on the same sides.

Shrike is wrong about Paulson&Co. saving the world. If anything these toadies have gotten in the way of the markets making necessary adjustments, there for prolonging the pain, and did so on the basis of Paulson freaking out after seeing a very limited data set (see the stability of stats in the capital goods markets before FreakOutDay occurred, and you'll note not all economic sectors were as unhealthy then as they are now, A.F.O.D).

Of course, if Paulson and the Bush Administration did not freak out, all of this would be blamed on Cowboy Capitalism. Oh, it hasn't stopped them from doing so? Well, not like you can accuse them of having a shred of honesty.

I think calling these guys 'liberals' is a misuse of the word, however. For the ones not on the take and who mouth the rhetoric without any specific benefit, the best discription I can think of would be -- Causality Challenged.

[ZEUS]

700 BILLION DOLLAR BAILOUT, CMKX/CMKM SCANDAL.

CMKX-CMKM- At the time of cmkm's revocation, CMKM had 703,518,875,000 shares of common stock validly issued and outstanding.
Then a 700 billion dollar bailout.

My Fellow Americans and Global Investment Community.

The case of the greatest "counterfeit shares." fraud in the UNITED STATES is in my opinion CMKX.

CMKX DIAMONDS, THE LARGEST NAKED SHORTED STOCK IN THE HISTORY OF THE UNITED STATES/WORLD" Trillions of stock shares traded and changed hands UNTIL CMKX revoked itself and had every stock holder pull stock certifcates out of brokerages out of street name and into Investors name to safely hold in their possesion. CMKX is also the LARGEST STOCK CERTIFICATE PULL IN THE HISTORY OF THE UNITED STATES"
I Hope the the SEC did not create a regulational rule during this period the above action was commited to absolve them from liability of cmkx "counterfeit shares." from this compnay or anyother company that used this tactic to steal from all markets. This naked shorting fraud rule be passed without a second to lose.
Naked shorts in the United States: "counterfeit shares."
Naked short selling is a case of short selling the shares without first arranging a borrow. The Securities Exchange Act of 1934 stipulates a settlement period up to three business days before a stock needs to be delivered, generally referred to as "T+3 delivery".
If the stock is illiquid or simply has a small number of outstanding shares, finding the borrow can be difficult to arrange. In these cases the trader normally arranges for the borrow before making the trade, to ensure delivery. In the case when a borrow cannot be arranged within that time period and the shares cannot be given to the buyer, the trade is considered to have "failed to deliver". The SEC states that "Naked short selling is not necessarily a violation of the federal securities laws or the Commission's rules," and clarifies that in some circumstances, it can contribute to market liquidity.
Naked shorting to drive down share prices violates US law. In recent years, a number of companies have been accused of using naked shorts in order to make profits at the expense of share prices. To do this, the trader simply enters a naked short with no intention of ever delivering the shares. A large enough short sale could cause the price to fall, as is the case with any stock being sold, so as long as the trade is large enough to move the share price, the short is likely to be profitable. Normally this would be risky if the price did move back up for other reasons, the trader would be driving the price up with every purchase, a condition known as a "short squeeze". But as long as the buyer turns around and shorts it back into the market, the price continues dropping, making the trades profitable even though no one actually holds any of the shares.

Why has everyone tried to COVER UP NAKED SHORTING, is it because all the Wall Street banks have naked shorts in Level 3, and hidden in derivatives where there are Trillions of fake shares?
The illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.
Naked shorting is illegal because it allows manipulators a chance to force stock prices down without regard for normal stock supply/demand patterns.
This Rule must be passed and not covered up. As it looks today on Wall street the word is out on naked shorting and must be stopped , and all who profited from stealing trillions be put in jail.
Thank you.

[FYCL]

Banks were driving US and the world to a hell. Fools always refuse any treatment. So Someone had absolutely to impose them a solution! In this way, Paulson and Bernanke had done it!