Posted by Steve Markowitz on July 28, 2012
During the late summer of 2008, the financial markets were unraveling. Lehman Brothers failed, which precipitated general panic in the markets and the potential failure of other large financial institutions. When the panic hit jumbo worldwide insurer AIG based out of New York, the government blinked with an over hundred billion dollar bailout. This bailout was justified with the logic that should AIG fail, it would wreck havoc on the entire world’ s financial markets. Thus, we had the concept of “too big to fail”.
It is impossible in hindsight to determine if AIG were allowed to fail we would have had the threatened financial Armageddon. However, it is inarguable that the AIG bailout, as well as that of other firms, benefited some individuals and corporations at the expense of others. Since the bailouts, we have had the weakest recovery from a recession of modern times. It is likely that the bailouts and ongoing poor shape of the economy are connected.
The panic and financial markets’ turmoil played huge roles in the election of Barack Obama to the presidency, as well as giving Democrats large majorities in both houses of Congress. With the mandate, Democrats set out to implement changes in our financial system that would purportedly eliminate future financial crisis. The result was the infamous Dodd–Frank Bill with far-reaching implications to the financial world.
Ex-Citigroup CEO, Sandy Weil, was responsible for making Citigroup a large mega bank through mergers and acquisitions. This week Weil came out against allowing these large banks to continue in their current state and recommended that they be broken up, separating their brokerage businesses from regular commercial banking functions. In explaining his position Weil indicated that this back to the future approach would eliminate future risk to taxpayers of bailouts since no bank would be then too big to fail.
After Sandy Weil went public with his position, CNBC reporter Maria Bartiromo interviewed Congressman Barney Frank, Democrat from Massachusetts who was one of the co-authors of the Dodd-Frank Bill. She correctly raised weaknesses of the Bill including the fact that more than two years after its passage, important rules relating to the Bill are yet to be written. Instead of addressing the Bartiromo’s questions, Frank became defensive and obnoxious, as evidenced in the video.
Barney Frank is the same Congressman that refused to place more controls on Fannie Mae and Freddie Mac during the bubble years. He was famously quoted then saying that these government-backed corporations were financially solid and needed no further government oversight. After the bubble popped these corporations needed billions in taxpayer bailouts and will likely require more. Add to this Frank’s performance in the video below and it is easy to understand why Washington’s interference in the economy typically makes bad situations worse.
Posted in Banks, Barney Frank | Tagged: AIG, Bailouts, Barney Frank, Citigroup, Dodd-Frank, Maria Bartiromo, Sandy Weil, Too Big to Fail | Leave a Comment »
Posted by Steve Markowitz on November 22, 2011
Federal Deposit Insurance Corporation (FDIC) released a report on U.S. banks earnings that indicates overall profit levels are the highest they have been in four years. While the government may trumpet this as a sign that their interventions and bailouts have succeeded, a broader look says otherwise. Here are some of the figures released:
- The banking industry earned $35 billion in the last quarter, up from $24 billion in last year’s Q3.
- The FDIC currently considers about 11% of U.S. banks as financially problematic, marginally down for the same period last year.
- The very large banks made the bulk of the earnings increase.
- These very large banks accounted for about $30 billion of the industry’s $35 billion in earnings for the third quarter.
The FDIC’s fugues are telling and indicate that the very large banks like Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, the very banks bailed out by the U.S. taxpayers, are now making most of the banking profits. In addition, these banks are not making the profits by lending money in the quantity needed, but rather by taking nearly interest free money from the government and then loaning that money back to the government at a huge profit. Ludicrous.
It has become evident through hindsight that the bailouts of the large banks benefited the banks themselves, not the overall economy. A question remaining is whether the bailouts were the result of mistaken policy or the government’s purposeful attempt to assist fellow elitists in the banking industry.
Posted in Bailouts, Banks | Tagged: Bank of America, Banks, Citigroup, FDIC, Federal Deposit Insurance, JPMorgan Chase, Profits, Wells Fargo | Leave a Comment »
Posted by Steve Markowitz on October 12, 2009
The Obama Administration has extensively used what is referred to as “Czars” to help manage various aspects of the government. The advantage for the President of the Czars is that they do not have to be approved by Congress or report to congressional committees. This is a convenient way for the President to appoint people into positions of power without having congressional oversight.
One of the positions amongst the approximately three dozen Czars that Obama has appointed is the “Pay Czar”. Currently, this position is held by Kenneth Feinberg whose job is to oversee the compensation packages for the most highly paid executives at seven firms. These companies are AIG, Bank of America, Citigroup, General Motors, GMAC Financial, Chrysler, and Chrysler Financial, firms that received government bailout money.
The fact that compensation needs to monitored for high paid executives at companies that that would have failed without the government bailouts indicates the lunacy of our current economy. Had the government not given these companies money we would not be arguing how much to pay their executives. That would have been monitored by the most efficient mechanism available; the market controlled by supply and demand. These failed companies would have either gone out of business or would have cut the pay of all employees, including the executives, until they again become successful. Read the rest of this entry »
Posted in Compensation, Czars | Tagged: AIG, Bank of America, Chrysler, Citigroup, Compensation, Czars, General Motors, GM, GMAC, Kenneth Feinberg, Obama, Pay Czar | 2 Comments »