Lonesome Tree in Sandhills

Sunday, March 8, 2009

Short & Simple Story of the Credit Crisis

TV news anchors are STILL trying to figure out who is to blame for the credit crisis!  Media artist - Jonathan Jarvis - came to their rescue with a visualized explanation. Check out  Crisis of Credit Visualized (video in sidebar).

Jonathan's goal of giving form to a complex situation like the credit crisis is to quickly supply the essence of the situation to those unfamiliar and uninitiated. This project was completed as part of his thesis work in the Media Design Program, a graduate studio at the Art Center College of Design in Pasadena, California.  Explore more Jonathan Jarvis new media.


Healthy banks are revolting?  Yes, & with good reason!  Regional branch banks & community banks are rebelling against added FDIC costs, curbs on pay and business practices imposed on recipients of TARP capital after public outrage over bonuses and perks at the biggest lenders. 

I fault the News Media for not differentiating healthy banks from big unhealthy banks, causing a TARP stigma that has decimated stock prices of healthy banks & brought pressure to cut dividends, pay and perks. Healthy banks are applying to return TARP funds & urging Congress to change FDIC assessments so formulas are weighted by bank size to shift the cost burden to the largest banks that caused this train wreck.

Why should healthy banks have to help clean up the mess made by Wall Street banks?  8300 regional branch banks and community banks did NOT "securitize" collateral nor indulge in other unscrupulous behavior like hire fly-by-night mortgage loan originators.  These healthy banks adhered to high standards, maintaining healthy balance sheets & capital reserves. 

Adding insult to injury, the 8,300 banks also face increased FDIC fees plus an "emergency charge" to raise $27 billion this year to replenish FDIC's funding accounts. The FDIC took over 25 banks in 2008 & another 16 banks this year, most with less than $1 billion in assets.  Independent Community Bankers of America, representing 5,000 locally-owned community banks, expects that even half the proposed "emergency" charge means a 10-20% drop in 2009 earnings.

I wholeheartedly agree with Paul Volcker, former Chair of the Federal Reserve (1979-1987), who has recommended separating commercial banks from investment banks & insurance companies.

Congress should reinstate holding company provisions in the Glass-Steagall Act of 1933 that were repealed by the Gramm-Leach-Bliley Act of 1999.  Obviously such provisions are needed to maintain scrupulous oversight of our banking system.

Holding Conservatives Accountable - Part II

UPDATE: Conservatives dumped "socialist" now for "fascist" now. Someone finally convinced them Social Security and Medicare is "a good thing" for the economy and THEM (thanks Martha). They still don't bet it! The large majority in Congress is indicative of "fascism" if they don't adopt the conservative platform lock, stock and barrel. Folks, this is why the United States is a REPUBLIC, not a fascist union.  The rumor Conservatives hijacked the GOP is true!  But where are the OLD Republicans?  Could we please have our Grand Old Party back?

Conservatives are on the stump claiming the "house is burning down" while Pres. Obama ignores The Banking Crisis - by focusing on putting ARRA funds in the hands of state & city leaders to jump-start their infrastructure projects. Such short memories!

Are Conservatives still drinking the Kool-Aid? Did they forget a year ago in March the GOP's Gang of Three, led by Treasurer Henry Paulsen, started bailing out the BIG investment banks beginning with $29 BILLION to Bear Stearns? Okay, so they didn't bail out Lehman with $84 BILLION, but they rushed to save an even bigger fire - AIG.

Apparently Conservatives drank too much Kool-Aid to recall last summer at all!! When bailing out the largest and most incompetent bankers didn't break the log-jam of credit, GOP's Gang of Three worked furiously to get Congress to adopt TARP. Finally in October they forced 10 largest banks to take $250 BILLION & used another $200 BILLION to shore up other weak banks that also let greed run away with their common sense. Mere weeks after the election, the Gang of Three had the Federal Reserve create TALF using $200 BILLION to prop up asset-backed securities collateralized by student, auto, credit card, and SBA loans. Should've fixed those banks, right? Wrong!

Conservatives let the country down. Where were Conservatives when Nouriel Roubini, NYU Prof. of Economics, warned the IMF back in 2006 that our country was heading into a huge crisis? Prof. Roubini, a highly regarded economist, laid out projections of a housing bust, an oil shock, abrupt halt in credit, imploding investment banks, crashing markets & sharply declining consumer confidence - all leading to a very deep recession. ["Dr. Doom" by Prof. Steven Mihm - NYTimes 8-17-08]

Speaking of incompetence! The oh-so-smart members of the Conservative Media didn't sound the alarm when they could have used Prof. Roubini's warnings to pressure Bush|Cheney to to stop predatory lending in its tracks, putting out the first small credit fires and stop the bankers' Ponzi game early - before it burned down the house?

The Guardian on the Prescient Prof. Roubini: 25 People at the Heart of the Meltdown (1-26-09): "He remains a pessimist. He predicted last week that losses in the US financial system could hit $3.6tn before the credit crunch ends - which, he said, means the entire US banking system is in effect bankrupt. After last year's bail-outs and nationalisations, he famously described George Bush, Henry Paulson and Ben Bernanke as "a troika of Bolsheviks who turned the USA into the United Socialist State Republic of America."

Conservative Talking Heads still don't 'get' it, which frankly gives Conservative Media a bad name! They espouse free market solutions (just cut taxes) UNTIL free markets burn down the barn with out-of-control greed. Then they DEMAND that a new LIBERAL President use the government to fix the problem. Well, this old gal is no fool!

President Obama is no fool either - he gets it. Those bankers played a stealth game trading CDO/CDS like baseball cards and are still buried in that humongous stinking pile of debt of their own making. The President is correctly focused on bringing business to the 8300 leaner banks that kept their balance sheets healthy!

Holding Conservatives Accountable - Part I

Apparently Conservatives in the media were in the dark back in 2006-2007 when big banks went out of control - gorging on greed. What did Conservative reporters for National Journal, American Spectator or Fox News & other Conservative columnists know & when did they know it? Do we hold them accountable for their stupidity or their silence?

Conservative commentators & writers like George Will, Pat Buchanan, Rush Limbaugh, Stuart Taylor, Charles Krauthammer & many others - 'true believers' in the GOP spending & regulatory policies - were focused on keeping the GOP in power... while rich bankers got richer. Rush began sounding the alarm only when the GOP Gang of Three started up the firetrucks to save Bear Stearns. THE BANKING CRISIS was addressed by Bush|Cheney last year AFTER the barns began burning down... & after they got THEIR horses out first of course.

The very same Conservatives now want us to believe that Pres. Obama hasn't done enough in 6 weeks to save the banks from burning to the ground. NOW they ramp up anxiety?! They love to beat that drum now keying off Stuart Taylor from The National Journal, "The house is burning down. It's no time to be watering the grass." ["Obama's Left Turn: Centrists fear that the president's budget reveals his liberal leanings." by Stuart Taylor, National Journal Magazine (Mar. 7, 2009)]

Conservatives want to think THEY have all the answers. DO THEY? Hold them accountable for their silence when the fires began to burn back in 2006-2007! If they didn't know then, why didn't they? Why should we think they have all the answers now?