And Another Round of Bonuses for Everyone!


Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

Excessive borrowing by banks was one of the major causes of the financial crisis, leading to catastrophic bank runs in 2008 at firms including Bear Stearns Cos. and Lehman Brothers. Since then, banks have become more sensitive about showing high levels of debt and risk, worried that their stocks and credit ratings could be punished.

So when are we going to experience the next crash?

And btw- if the Democrats do not act to rein in the abuses and enact a regulatory regime to stop this sort of stuff, they will OWN the next crash.

Hey Man, You Gotta Retain the Talent

I’m sure this will come as a major surprise:

When the Obama administration imposed restrictions on executive pay last year at some of the largest companies the government had bailed out, officials said they were aiming to set a new standard for compensation across corporate America that would discourage risky business practices.

But as firms begin to disclose last year’s bonuses ahead of annual shareholder meetings, it is becoming clear that companies across a wide range of industries are paying executives in ways that officials worry will not discourage the kind of excessive short-term risk-taking that led to the financial crisis.

The Treasury Department said it is not looking to limit the total pay executives receive. Kenneth R. Feinberg, President Obama’s special master for compensation, wants to change pay incentives, giving executives a greater stake in the long-term performance of their firms. That would mean, for example, smaller up-front cash salaries and fewer perks, more compensation in the form of company stock and a longer wait to receive it.

“I see no indication whatsoever that the business community is paying any attention to the administration’s suggestions,” said Nell Minow, co-founder of the Corporate Library, an independent corporate governance research firm. “On the contrary, I think pay is worse this year than it’s ever been.”

Long time readers will know my aversion to populism, and I think that is, to some extent, something Obama instinctively shares (for better or for worse). He just isn’t very good at demagoguing issues like this, and it isn’t something that comes naturally. He makes a stab at it every now and then, but overall, his performance in this regard is pretty weak. The only real effort at populism that stands out to me was when he told the banksters that it was him standing in between them and the pitchforks.

At any rate, before I start to ramble, this is a time when some populism from the Democrats is radically needed. One of the major recurring themes of the new Michael Lewis book, The Big Short, was that a lot of this was not so much caused by outright criminality, which would be easy for the American people to understand, but by a lot of groupthink and a system in which horrible short-term decisions are rewarded with great wealth. Basically, what Lewis is arguing is that the financial system is what it is because of the way incentives have been set up. In other words, greedy people behaved precisely as you would expect them to behave when you set the system up this way.

In short, this Washington Post piece about the big money boys and girls skirting the rules should surprise no one. They are going to keep doing what makes sense for them in the short run, because quite frankly, there is no incentive for them to change. And that is where the Democrats and this administration need to act.

Lewis On Sixty Minutes

Not sure if you are watching 60 Minutes, but they have Ken Michael Lewis on talking about the bubble collapse, and I am ready to kick babies I am so mad. When he pointed out that every single person who caused this mess walked away with tens of millions, I almost stroked out all over again.

Remember the real victims

It won’t surprise you that the New York Times thinks it’s important for Obama to start pardoning banksters:

A Wall Street Witch Hunt

I’m not saying Cohan doesn’t have a point about a wrongful prosecution here. I don’t know the case that well.

But it’s amazing to me how much we’re supposed to feel sorry when something bad happens to rich white people and how much we’re supposed to blame the victims — even the victims of hurricanes and earthquakes! — when the victims are not rich, white people.

The last word on Ford

For all the trashing of TNR I’ve done lately, I think Jon Chait’s article on Harold Ford is the best one I’ve seen so far:

Casting about for a champion, Wall Street’s eyes turned to Ford.

The Tennessee expatriate turned out to be the perfect man for the job. He already had a foothold in the city through his financial services committee connections, a $1.8 million East Hampton vacation home his father had purchased in 2003, and a lucrative part-time job at Merrill Lynch. Ford breakfasts regularly at the Regency and relaxes at upper-class redoubts like the Waverly Inn. “Ford started hearing about [the backlash] at cocktail parties,” reports Politico.


Ford’s candidacy is an epiphenomenon of Wall Street’s retreat into a fantasy world. In this alternate reality, the titans of finance are innocent victims of a freakish accident, the Democrats’ struggles result from their hostility to these victims, and the people are clamoring for a leader who will openly cater to their demands. The notion that Democratic primary voters in New York will embrace Ford may be more fantastical than the wildest investment scheme that predated the crash.

I was talking with a few bankster friends of mine a few weeks ago and the whining about the proposed bank tax was unbelievable. These assholes really and truly believe that they are the engines of our economy, that they are being treated badly, and that if they hold their breath long enough, they’ll get their way. I’m not for scapegoating anyone unfairly, but they really are living in an alternate universe.