CNBC International, where they seem to be more emotionally stable, interviews David Karsbol from Saxo Bank of Denmark. He says that bank plan will likely work but mainly by trading zombie banks for zombie taxpayers.
Karsbol argues that this will be a boon for the financial sector but not necessarily for the broader stock market because of the excessive strain it puts on the country’s broader finances.
From TPM Reader AC …
Josh, I am wholly out of my comfort zone in discussing the economy, but I’ve been following the arguments here, on Krugman’s blog, and over at Kevin Drum’s blog. Doesn’t the request by the administration for more powers to take over banks after they have shored-up some fear among the Wall Street crowd strike you as part of a bigger plan? Part of the problem, as I understand it, is that no one knows what these banks are holding. We soon will under Geithner’s plan, and hopefully, before the dust settles, we’ll have “forward looking” legislation in place that will serve to fix the very problems we’re facing now once we know what the banks have got. All without the incredible market turmoil that would occur if the administration started marching through a take-over powers bill without easing fears on Wall Street first.
I think this is an optimistic take, but by no means impossible. And I am curious to know more about the thinking behind the ‘ask’ now for the powers that could have allowed us to handle this situation much differently last fall.
TPM Reader PH is optimistic too …
I totally agree with AC about what the administration is doing. To use the explosive metaphor that is so popular now, the very FIRST thing that has to happen is to make the bomber feel less isolated, more comfortable. Offer a cigarette, a cup of coffee (OK i’ve seen too many movies) anything to get the attention off the switch in the other hand. Meanwhile, the SWAT team… well, you get the idea. I think President Obama has already shown that he is not going to be shy, and that he does not lack confidence, so indecisiveness and “going along with the status quo” are contrary to what we should expect from him. He has repeatedly said the system needs to be changed and most importantly re-regulated, but the first step is defusing the bomb, even if that means letting the bombers get away. For Now.
As we noted this morning, Goldman Sachs is now saying they’ve had enough of federal government oversight of their business. So they’re going to pay the TARP money back as soon as next month. The problem is that TARP money was only the start of the government aid Goldman got since last fall. There are loan guarantees, more than ten billion in additional dollars funneled through AIG. Zack Roth adds it all up here.
This leaves aside the more speculative question of whether Goldman could have survived without the federal government’s other aid to the financial sector in general.
FedEx to Congress: If you want us to keep buying American planes, keep those pesky unions off our backs.
If Goldman can so easily pay back the $10 billion in TARP money, does that mean they didn’t need the $13 billion we gave them in AIG bailout money all that badly?
More generally, if Goldman can use taxpayer largesse to get out of under the TARP restrictions, won’t that leave them nicely poised to cherry pick hotshots from the remaining banks that are?
Also, is Goldman having second thoughts about changing its status last year from an investment bank to a bank holding company, with all the benefits that brought during its hour of need?
Late Update: Just to follow up, this does sound like … well, maybe the ultimate regulatory arbitrage power-play, though not in the sense in which that term has been meant before. Quoting the Sorkin piece from this morning: “Paying back the TARP money would probably give Goldman Sachs a bigger lead over its rivals. With a Yankees-like payroll, it will continue to be able to steal the best talent from weaker firms that still have TARP money and are subject to restrictions on pay and the like.” So, as one reader points out, the point is precisely for Goldman to get out of under TARP — that’s clear — but also for everyone else to stay in, creating a completely lopsided playing field on the hiring front.
Rep. Boehner still lying about the scoring of the House GOP’s alternative stimulus bill.
Here’s our run-down from back when they started with this bamboozlement.
Shorter Michael Barone: Banking crisis shows financial sector is over-regulated.
TPM Reader AR looks at the bright side …
Maybe I’m crazy, but if Goldman says that they can’t run their business with our money, and that in fact they can run it without it (which they certainly couldn’t 5 months ago), then doesn’t it mean that this whole thing might actually be working? I mean, the best case scenario from the beginning had to have been that the banks were able to repay all of the TARP funds and still operate, no? Sure, Goldman got money from AIG, but the reality is that the trades they made with AIG were actually evidence of recognition of the riskiness of their CDO and CDS bets. At any rate, if Goldman wants to give us our money back, and continue operating, that doesn’y preclude us from passing tighter regulations, and if TARP turns out to be a $700B bridge loan instead of a $700B expenditure, I don’t see how that’s anything but good.
As far as it goes I would say this is right. To the extent that the banks can pay us back our money and go back to being banks, great. And I’d leave it to more knowledgeable to decide just where we draw the line. But as a general matter my concern is that we still have a financial and banking sector that is on the brink and a lot of treatment — of whatever sort — left to go. To the extent that Goldman hops out of the TARP club and starts gaming the regulatory gradient separating it from the rest of these peer institutions and mucking up what we’re trying to do, that’s really not change we can believe in. And to the degree which Goldman is still benefiting from a heap of federal largesse, I think we have a strong claim to nixing their gambit.
Again, where one draws the line, their relative health vs. the other banks and even the health of the other banks themselves, those are all questions i’ll leave to others to hear more on. And so I’ll reserve judgment.
Late Update: TPM Reader CS says the banks just can’t win with me. Hold the TARP money and it’s one criticism, give it back and it’s another. Fair enough. I can see some merit in that. But globally, I think we’re still dealing with a financial sector that has brought the world economy to the brink of catastrophe. And not just that they’re the location of the crisis, but largely the cause — a significant difference. So as the con law folks would say, I think all their actions are deserving of strict scrutiny.