The collection of ne’er do wells, clueless dolts, political hacks, and oh, let’s just be blunt and call them what they are — total Idiots — expands into an ever larger circle.

While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone — except their own horrific negligence.

This is financial incompetence writ on a scale far grander than anything seen for centuries.

As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role
reached the point of malfeasance long ago.  History is unlikely to be kind to the Maestro.

There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God’s sake, do not give us the worst of both worlds — do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill.

That’s not capitalism, its not socialism, its not regulation, and
its sure as hell isn’t what free markets are. Our language is
insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.

We have entered into a fit of Orwellian madness: The American
Capitalists, long the globe’s leading advocates for free markets, have
become near Socialists. Halfway around the world, the Chinese Communists
have picked up the baton, and are moving rapidly towards a form of Capitalism. Ironically, it is the once largest communist nations — the Chinese and the Russians — who holds much of Fannie and Freddie’s paper.

Hey comrades, who’s selling the rope to whom?

Perhaps the rescue of "Phony and Fraudy" are not so much a bail out of American homeowners as it is a desperate attempt to stay in the good graces of our friendly global bankers. We are the world’s largest debtor nation, and as such, we depend upon the kindness of strangers — be they Japanese or Europeans or Abu Dhabians — or even former communists.

Back in the States, something beyond cognitive dissonance is occurring — this is full blown case of dementia unfolding in the public sphere. When this era of excess and absurdity is treated by historians in the future, the question I expect to be asked most is not why many of these people weren’t jailed for their financial felonies. Rather, I expect them to wonder why so many of these folk weren’t placed in protective custody, and heavily medicated, for the only rational explanation for their statements and behaviors is that they have gone so far beyond the bend as to be completely and totally insane.

Massively over-leveraged companies? Blame short sellers.

Wildly under-capitalized financial firms? Blame rumors.

Heinously poor corporate management? Blame a Senator.

It is as if someone is running around Washington D.C. with a
ball-peen hammer, smacking senior government officials on their skulls. If you find the
standard finger pointing hard to fathom, perhaps blunt head trauma is a better explanations for the absurdities proferred.

Books will be written about this period of time, and our descendants will
wonder in awe as to how this was allowed to happen. Tulips got nothing on us! Its not just the
total dollar value of the losses that have exceeded all other global
fits of financial madness combined, but rather, how so many warning signs were
so blithely ignored by so many and for so long. What was wrong with these people,
the authors and historians will wonder. Did the antibiotics in the food
supply drive them mad? Did the High Fructose Corn Syrup compromise their ability to think? Some form of viral plague? Roid rage?
What else could have created such a mass delusion amongst not just the
populace, but their leadership and institutions?

Indy Mac goes belly up, having lost $900 million this year alone. Its shares fell 87% in 2007 and then its value dropped (on top of last year’s collapse) another 95% this year-to-date. The stock fell to 28 cents yesterday. Some estimates of the total bad loans made by this somewhere in the neighborhood of $30 billion dollars — and the Office of Thrift Supervision blames a senator who is investigating how much of the FDIC’s $53 Billion this is going to eat up, with Wall Street estimates ranging from 15% to 30%. The towering incompetence of OTS is incomprehendable, but it is their colossal gall that is truly stupefying.

From beyond the grave, Adam Smith does not know whether to weep or retch. 

>

Previously:
About Those Companies Brought Down by Rumors . . .  (July 11, 2008) 
http://bigpicture.typepad.com/comments/2008/07/about-those-com.html

5 Stages of Market Grief  (January 2008)   
http://bigpicture.typepad.com/comments/2008/01/5-stages-of-mar.html

Book Review: The Bush Boom (April 2008)   
http://bigpicture.typepad.com/comments/2008/04/review-the-bush.html

Sources:
SEC Moves to Curb Short-Selling
KARA SCANNELL and JENNY STRASBURG
July 16, 2008; Page A1
http://online.wsj.com/article/SB121614248005255151.html

SEC Enhances Investor Protections Against Naked Short Selling
Release 2008-143
July 15, 2008   
http://www.sec.gov/news/press/2008/2008-143.htm

SEC’s new red herring
Spreading false info is against the law, but is chasing down rumors the best use of an already overwhelmed SEC?
Roddy Boyd
Fortune, JULY 14, 2008: 2:22 PM EDT    
http://money.cnn.com/2008/07/14/news/boyd_sec.fortune/?postversion=2008071414

IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure
Ari Levy and David Mildenberg
Bloomberg, July 12 2008
http://www.bloomberg.com/apps/news?pid=20601010&sid=aAYLeK3YAie4&

How Chuck Schumer Caused the Second Largest Bank Failure in US History
Jerry Bowyer
CNBC.com, 12 Jul 2008
http://www.cnbc.com/id/25654303

~~~

Category: Credit, Derivatives, Federal Reserve, Politics, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

152 Responses to “Idiots Fiddle While Rome Burns”

  1. liz tool says:

    THANK YOU!!!! I just e-mailed this most excellent post to my sister. I needed someone else to articulate how I feel!!! You are a gem!!!

  2. DL says:

    The current financial situation is like a Sunday picnic in comparison with the real gorillas out there: Medicare and social security.

  3. Entrepreneur says:

    Barry – That was one fine rant, and I agree with every word!

  4. SteveC says:

    Steve Barry…add Jim Rogers to that list.

    The dustbin of history is littered with failed civilizations, and I hope the US isn’t next. A world led by Russia and China is not one I care to be a part of. (see Tom Friedman in today’s NYT).

  5. rj says:

    “But Chuck Schumer made an egregious error in leaking the news to the public.”

    THEY’RE PUBLIC COMPANIES! Are you saying their shareholders do not have a right to know the company’s finances?

  6. lux says:

    I love you Barry. :)

  7. Whammer says:

    75% of the total national debt has been amassed during the presidencies of Reagan, Bush, and Bush.

    When Reagan took office, total national debt was about 30% of GDP. When Bush leaves office, total national debt will be about 70% of GDP. That must be because we have invested it in infrastructure and the health, education, and well being of our population, right? Umm…no.

    “Reagan proved that deficits don’t matter.” — Dick Cheney

    When Clinton was president, the budget got balanced in his last year.

    But, you know, Bush cut taxes. So that’s good, right?

  8. Ritchie says:

    “50 years of the mental disorder known as liberalism. dmc.”

    Are you saying that the Bush administration just didn’t get enough time to turn things around?

  9. Steve Barry says:

    SteveC

    I thought about Rodgers, but he is known to be short F&F…plus he moved to China…don’t think I can trust him to be 100% impartial in trying to help the situation in the US.

  10. John H. Farr says:

    Barry, truer words were never spoken. I’m just a layman — no investments, idiotically poor, etc. — but I have to say I agree with the commenters above who make the point that what we have here is NOT capitalism or socialism but corporate fascism.

    Or is “corporate fascism” redundant?

  11. Steve Barry says:

    Just seen on CNBC…Dennis Kneale, Sue Herrera and Michelle Caruso-Cabrera all assuring us, no way, 100%, we cannot have another Great Depression.

  12. Jon H says:

    ” It is like a zen koan, clear, direct Truth that says Fractional Reserve does not work.”

    It probably worked fine until the finance whizzes started getting creative. Fractional Reserve is designed for a model where banks operate in a certain way. That’s not how they work anymore because they can use all manner of fancy instruments and arrangements to obfuscate things.

  13. Movie Guy says:

    Barry,

    Now I can go have that drink.

    You covered it. Nothing else to say except…

    Good afternoon and good luck.

    [Make that a double, Bob. I'm gonna need it.]

  14. Robert says:

    Good post. In free markets you must compete for your profits. When you fail, you go away. But not anymore. Both political parties have vested interests in keeping huge corporations in business while they talk about helping the little guy. Observe the way they’ve managed our food prices while regulating, directing and subsidizing our farming industry. Morons.

  15. Steve Barry says:

    They should subpoena Greenspan before the senate and make him speak in English this time.

  16. College Kid Ted says:

    Barry,
    Another great post from a fantastic blogger. Perhaps you would enjoy the movie “Idiocracy”. Sadly, it is a parody that may prove to be an all too accurate depiction of our country’s future.

    http://www.imdb.com/title/tt0387808/

  17. lunatic_fringe says:

    Careful Barry, any more rants like that and Charlie Gasparino may not be your friend anymore…

  18. Chuck Beef says:

    as far as regulators needing regulating,
    check out http://www.deepcapture.com

    PT Barnum nailed it. It is hard to imagine that this is all part of a master plan, if I only knew who has the authority and pull to orchestrate so much chaos.

    The answer imo is financial education. The variable no-one seems to address is that people with a mind, not just acting on whim, would not jeapordize themselves regardless of ‘expert’ attny, R/E Agent, broker opinions and input.

    Methinks people over a certain age are too far gone already, so need to start training the young in fiscal responsibility to shape the future generations using our public education system in order to reach (almost) everyone.

    For fixing the current problem, I assure you there are the conspiracy theorists arming themselves for option-armageddon (hellfire blood in the streets and other such nonsense), the miserable who will throw their hands in the air…
    A revolution is in order, but only in the sense that apathy of our citizens is diminished. In short, it should be a crime not to vote, and a crime for not having a standardized measure and available tracking system and accountability for those elected (BAN ADVERTISING FOR POLITICIANS!)

    People vote based on an opinion of an opinion based on little fact.

    We need our citzenry up to par if our country is to have any chance to survive.

  19. Barry,

    It’s time for somebody to write a new Wizard of Oz. My own suggestions at:

    http://www.belowthecrowd.com/archive/2008/07/a_call_for_a_ne.html

  20. Liz says:

    Great post. Well done. Thank you.

  21. me says:

    Wait:

    > do not allow banks the freedom to
    > make horrific but preventable
    > mistakes (i.e., only lending money
    > to those who can pay it back)

    What?

  22. donna says:

    All empires end the same way, only the details change. ;^)

  23. T-Man says:

    Barry, your juvenile crack about the regulation of IndyMac demonstrates that you simply have no idea what you’re talking about. No bank can survive a run on its deposits – not IndyMac, not Bank of America, not even the Bank of Barry (i.e., the one whose vault is filled not with cash but with hot air).

    IndyMac’s failure came about for two reasons – one, their business model froze when after August 2007 neither they nor their competitors were any longer able to sell non-GSE mortgage loans on the secondary market. Second, “Schumer’s Run” smothered the institution’s transition plan to become a GSE lender. This plan might well have not worked – but the publicity-seeking senior Senator from New York certainly made sure that it couldn’t. Was it a coincidence that the banking agencies first heard about his letter from the reporters he leaked it to? (Or was it leaked to short sellers first, and then to the Wall Street Journal?)

    Pray tell how many years you have worked inside a bank or a regulator, giving you the authority to pontificate on the “towering incompetence” of banking agencies. I’ll bet it’s a lot fewer than me (check where this message comes from).

    I have occasionally read your blog for its occasional interesting insights – but now I realize that your gems don’t stem from any real knowledge, but simply validate the notion that even a blind squirrel occasionally finds an acorn.

    ~~~

    BR: Never let the facts get in the way of your own foolishness:

    The FDIC, which is seeking a buyer for IndyMac, estimated the cost of the bank’s failure to its $53 billion insurance fund at between $4 billion and $8 billion. That’s how much in bad loans IndyMac had on its books beyond its capital.

    “IndyMac is a company that was pretty much 100 percent invested in mortgage assets . . . and it had no capital” said Adam Compton, co-head of global financial stock research at RCM in San Francisco, which manages about $150 billion.

    IndyMac was founded in 1985 by David Loeb and Angelo Mozilo

    http://uk.reuters.com/articlePrint?articleId=UKWA000014120080713

  24. Now-defunct IndyMac Bancorp Inc. is under investigation by the FBI for possible fraud in connection with home loans made to risky borrowers, The Associated Press has learned.

    It was not immediately clear how long the FBI’s probe of the bank has been ongoing.

    The investigation is focused on the company — which was taken over last Friday by the FDIC — and not individuals who ran it, a law enforcement official said Wednesday. The official spoke on the condition of anonymity because he was not authorized to speak publicly about the investigation.

    IndyMac Bank’s assets were seized by federal regulators after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

    The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

    The Office of Thrift Supervision said it transferred IndyMac’s operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.

    FDIC spokesman David Barr could not immediately be reached for comment Wednesday.

    Shortly after the FDIC took over operations, Barr said most depositors were given immediate access to up to $100,000 in their accounts and 50 percent of any money beyond that threshold. Depositors with joint accounts or retirement accounts could immediately withdraw greater sums.

    Depositors were given receivership certificates for any money they couldn’t immediately withdraw and may be able to receive some of that money after the bank’s assets are sold off.

    Early this week, hundreds of worried IndyMac customers lined up out of the bank’s headquarters branch in Pasadena, Calif., demanding to withdraw as much money as they could or get answers about the fate of their funds.

    Over the last year, and faced with a cratering housing market, the FBI has opened a wide-ranging probe of companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors.

    Countrywide Financial Corp., the nation’s largest mortgage lender, is also under scrutiny.
    Additionally, two former Bears Stearns managers were indicted last month on conspiracy and securities and wire fraud charges alleging they lied to investors in a hedge fund that tanked last year as the subprime market collapsed. Those charges marked the first criminal charges to arise on Wall Street from the subprime mortgage debacle.

    In all, the FBI is now investigating 21 companies tied to the subprime mortgage crisis, up from 19 last month. Authorities are looking into at least 1,400 mortgage fraud cases nationwide, and more than 400 real estate industry players have been indicted since March.

    FBI Director Robert Mueller has said the investigations focus on accounting fraud, insider trading, and failure to disclose the value of mortgage-related securities and other investments. Losses homeowners and other borrowers are estimated at over $1 billion

  25. denriddy says:

    Weird: there’s so many more of us than there are of the barking mad idiots in power. So why are they still in power?

  26. VJ says:

    Whammer,

    When Clinton was president, the budget got balanced in his last year.

    FEDERAL BUDGET SURPLUSES:

    1998 – $69B
    1999 – $126B
    2000 – $236B
    .

  27. leftback says:

    Top rant, Bazza. I think it’s a dead heat between you and this week’s Roubini piece. Contrasting styles -same message.

    Thanks for being all over it the last two weeks of bizarre action. Imagine how fucked in the head everyone would be if we all were just listening to MSM.

  28. Rob Weigand says:

    You’re right, it’s not capitalism or socialism, but it’s the same Republican BS-ism over and over again. When markets are on the rise they scream bloody murder defending free markets — even though it’s their excessive practices that are juicing the returns. Then they screw everything up soooo bad that they say, again and again (S&L crisis, LT Cap Mngt, now Bear/Freddie/Fannie), “oh well, this time the crisis is so severe we have to have government intervention — just this ONE time . . . ” How about we have some wealth confiscation to help pay all these taxpayer bailout bills?? Any bank executive whose bank has a shaky balance sheet should have his/her salary CONFISCATED — they used implicit government bailouts for personal profit. NO MAS!

  29. Rockitz says:

    Don’t candy-coat it, BR. Tell us how you really feel.

    This situation makes me puke too. It’s like the Ivy League business schools have specifically trained their graduates how to bilk the taxpayer out of everything they have and their enablers (and benefactors) in government are helping them every step of the way.

    Think the WSJ would print this as an editorial?

  30. michael schumacher says:

    steve barry-

    You might want to ask why Rodgers moved away from here. That says more than anything to me. Sure he talks his book (like everyone else does on TV) but he did something about his specific situation rather than complain about it and ask for a bailout…like so many of his peers. Gross is the biggest offender however that does not mean you should ignore him.

    I’ve read your posts here…..you should have seen the forest through the trees on that. EVERYONE talks book-standard practice- hear what they say…..most important IMO.

    Ciao
    MS

    Ciao
    MS

  31. me says:

    There’s nothing “social” about this mess. It doesn’t benefit the general good, it’s malignant.

    It’s simply failed privatization.

  32. Matt Marino says:

    Barry:

    Your excellent rant belongs right up there with the rants of Dennis Miller.

    Unfortunately, Idiots should be insulted to be classified with, “…the collection of ne’er do wells, clueless dolts, political hacks,…”

    As many of my coaches through life shared that wonderful, warm, whimsical saying, “Everyone has a$$holes and they all stink!”, we are left with really big a$$holes who have been elected to LEAD and instead have become blame shifters. My italian grandfather had a saying for useless people, “They are as useless as tits on a bull!” My little Italian grandmother, also had a saying about lazy and worthless people, “They work to squeaze farts out of the shirt tails!” So our leaders are Tits on a Bull, and shirt tail fart squeezers. That is what it has come down to.

    I, along with so many others want our country back. I will be using the power of my vote to kick out all incumbents from both the state of AZ and the Federal government. The Declaration of Independance gives me that right.

    It is all about competition and it is time to remove the Government from the equation. It is the capitalistic market place where all good things come about.

    Tony Clark, now a San Diego Padre, who formerly played for the AZ Diamondbacks the previous 3 years, had a very good and succinct saying. It became the mantra for the Diamondbacks and us fans as they won the NL Western Division of 2007. “‘Anybody, Anytime!’”

    Thanks for the Vine, BR.

  33. Clyde says:

    Prediction: Democratic landslide in the fall, GOP will lose more seats than they did after Watergate.

  34. Bruce says:

    Barry,

    Why don’t we file an injunction against these FED actions on the grounds that if carried out, the nation is likely to be bankrupt??? It would certainly be a novel idea…

    Bruce in Tennessee

  35. Stuart says:

    Amen in spades BR. The political and financial elite are simply looking out for their own trying to ensure none of their buts ends on a spit. What’s going on can best be described by the classic socioeconomic descriptive term: FUBAR.

  36. Duff says:

    Barry You Said….
    As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role reached the point of malfeasance long ago. History is unlikely to be kind to the Maestro.

    Believe me I don’t trust Fox news:
    but i thought you might find what
    Greenspan said back in April 7,2005..
    I cut and pasted below…

    The truth is :
    http://www.foxnews.com/story/0,2933,152686,00.html

    Greenspan Seeks Check on Mortgage Giants

    Thursday , April 07, 2005

    FC1
    ADVERTISEMENT

    WASHINGTON —
    Created by Congress (search) to buy mortgages from lenders, Fannie Mae and Freddie Mac aim to keep more money in the credit flow pipeline that home buyers use.

    But after a series of concerns over financial management, tighter regulation and portfolio limits of the two mortgage giants are needed, Federal Reserve Chairman Alan Greenspan (search) told a congressional panel on Wednesday.

    Soundness is a concern to congressional members because Fannie Mae (search) says its debts are almost $11 billion greater than it had earlier reported and because 40 percent of the nation’s local banks have 100 percent of their primary reserves in notes from Fannie and Freddie.

    Greenspan said any crisis with the two mortgage companies — known as Government-Sponsored Enterprises — could have a disastrous spillover effect on the banking system.

    “If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis,” he said in testimony to the Senate Banking, Housing and Urban Affairs Committee.

    Fannie and Freddie have vastly increased their control of the residential mortgages, jumping from about $750 billion worth to almost $4 trillion in just a few years. That’s about 45 percent of the total market, a percentage that is too high in Greenspan’s view and too great a risk for the whole banking system.

    “We put at risk our ability to preserve safe and sound financial markets in the Unites States — a key ingredient of support for homeownership,” Greenspan said.

    Concerns about the security of the companies grew with the accounting problems that led to the firing of top executives, including former Clinton budget director Franklin Raines.

    “I think a lot of us are disappointed with the breakdown that we’ve seen in accounting of these two major housing institutions and have serious concerns,” said Sen. Jon Corzine, D-N.J.

    Sen. Chuck Hagel, R-Neb., has proposed legislation to set up a regulatory agency with the power to compel the companies to sell off any assets that don’t lend credibility to their mission of making homeownership more widely available.

    “Given the frequency of major accounting and management problems at both Fannie Mae and Freddie Mac over the past two years, Congress must act to ensure that the [companies] are adequately regulated and do not pose any systemic risk to our economy,” Hagel said.

    But one Democratic senator, while conceding problems are evident, charged that reform efforts are really an attempt to destroy the two institutions.

    “Fannie and Freddie have a problem,” said Sen. Charles Schumer, D-N.Y. “Instead of fixing the problem, ideologues want to take advantage of that, and they’ve been chafing at the bit for a long time to undo Fannie and Freddie.”

    But Sen. Jim Bunning, R-Ky., said without some sort of reform in the mortgage industry business, the rest of the financial system is in jeopardy.

    “To those outside this committee who have shown they don’t want a bill, all I can say is be careful what you wish for.”

  37. Whammer says:

    VJ

    FEDERAL BUDGET SURPLUSES:

    1998 – $69B
    1999 – $126B
    2000 – $236B

    Thanks. There is some controversy about how the SS surplus was handled during the late ’90s, so I didn’t want to play into the wingnuts hands.

    The right-wing rhetoric on the Clinton administration strives to discredit the budget accomplishments during his term. That is dishonest crap, not a surprise considering the source.

  38. Dutch says:

    Still does not deal with the heart of the matter which is fractional reserve banking and the Federal Reserve Act of 1913. We are asleep at the switch? yes we are. But it started with my Granddad back at the turn of the last century. The end result, historically, is inevitable. No fiat curency survives. Paper aways goes to zero. ESPECIALLY if is money by decree.

  39. Francois says:

    “Just seen on CNBC…Dennis Kneale, Sue Herrera and Michelle Caruso-Cabrera all assuring us, no way, 100%, we cannot have another Great Depression.”

    Excellent contrarian indicator, isn’t it?

  40. superubero says:

    thank you Barry! I feel strangely relieved by this post … like i just told an incompetent poorly matched lover that “this just isn’t working out”

    very cathartic …

    let’s ‘dump’ these incompetent buffoons and get on with the business of making this country whole again

    let the age of quality begin! and by that i mean 3rd party independent verifying standards organizations

  41. Donald Last says:

    Magnificent stuff. As a Brit I care a great deal about America and I just hope and pray that this anger seeps into the consciousness of the general populace. The unctuous vanity and falsity of these rogues and fools in the Washington and Wall Street establishment is sickening. Perhaps we should take a leaf out of the Karachi book – just stone them.

  42. VJ says:

    Whammer,

    There is some controversy about how the SS surplus was handled during the late ’90s, so I didn’t want to play into the wingnuts hands.

    Well, technically, the Clinton administration didn’t count the trust funds against the federal budget as the previous Reagan/Poppy Bush administrations had, and reported it as only a $1.9B surplus in 1999 and a $86.4B surplus in 2000, but since the current administration went ‘right’ back to utilizing the trust funds to mask the budget deficits, the only fair manner to contrast the numbers is with the yearly surpluses I posted previously.
    .

  43. Bud Hovell says:

    The assumption all these players are incompetent is naive. They are merely greedy.

    As long as the vast majority of these reptiles end up keeping their homes in the Hamptons (in the case of financial engineers) and their rich political perks for simply showing up occasionally (in the case of political engineers), it is we who are incompetent, not they.

    Worse, we’ve now overturned the one ultimate penalty available to the public for rewarding this kind of criminal behavior with its just deserts.

    Until we bring the gallows back to the public square and put it to work on a regular basis, it’s unlikely toothless laws and feckless “regulators” will serve as much of a warning against persistent institutional fraud and embezzlement conducted by a permanently embedded criminal subculture which now stretches seamlessly from DC to Wall Street.

    Corrupt institutions can never be reformed — only replaced.

    Hang the bastards, and hang them high.

  44. williambanzai7 says:

    You are absolutely right about all of this. It is self serving hypocracy by the financial/political elite. I believe that driving force that allows something like this is technological advances empowering the further exploitation of mass stupidity. In this instance advances in financial innovation combined with loose leverage and Greenspinism.

  45. Whitespiral says:

    Barry,

    That post just reminded me why yours is the only financial blog I frequent.

  46. Max Thrax says:

    Great post. You’re forgetting the role of the corporate media in all of this, and their rolling over for the most corrupt/incompetent Administration in US history.

  47. GaryW says:

    Barry:
    Thanks for sharing your wrath!
    Someone recently said ‘the gains are being privatized while the losses are being socialized’. No one asks ‘who’s going to pay for this?’ If we ran our personal or business books like the government (Federal, State, and Local), we’d be bankrupt!
    Thus, our precarious financial position: Massive growing debt, large trade deficit while we export manufacturing and jobs, weak dollar, and a collapsing financial system.
    Then corporate boardrooms give millions in golden parachutes for incompetence!
    Shareholders and constituents need to throw the bums out of the boardroom and political office. If not, welcome to the Banana Republic…

  48. Russ Winter says:

    Great rant, but think we need to give more credence to the organized criminality and corruption behind all this. Idiots hardly, these Boyz are dumb like foxes.

  49. CathyG says:

    “That’s not capitalism, its not socialism, its not regulation, and its sure as hell isn’t what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual.”

    When it happened in Russia it was called kleptocracy – rule by thieves.

    The individuals and institutions – governmental and corporate – who have engineered this cluster eff have imperiled the economic sovereignty of my country. If it looks like treason and quacks like treason, I’m calling it treason.

  50. David Kotok says:

    IndyMac was a hybrid savings institution spun off from the now defunct Countrywide, that specialized in the origination, servicing, and securitization of Alt-A (low-documentation) mortgage loans. It grew very rapidly, doubling in size between March 2005 and December 2007 from $16.8 billion to $32.5 billion.4 Its funding in rough order of importance consisted primarily of Federal Home Loan Bank (FHLB) advances and insured and uninsured deposits. The advances were a particularly important source of funding, accounting for between 32% to 45% of its total liabilities.5

    IndyMac’s reported capital declined over the period from its peak of $2.7 billion in June of 2007 to $1.8 billion at the end of March 2008. Uninsured deposits began to run off in mid-2007, long before Senator Schumer’s letter. In fact, the bank actively replaced slight declines in FHLB advances and a drop in uninsured deposits with insured deposits, and particularly with fully insured brokered deposits under $100K. At about the same time, the bank’s stock price began to plummet, dropping from a high of about $35 per share in June to about $3 just prior to the Schumer letter. Additionally, earnings also turned negative in the fall of 2007. These factors all pointed to a very troubled institution whose situation was continuing to worsen.

    Despite the OTS examination in January and subsequent actions by the institution to change its strategy, its capital position continued to decline and earnings deteriorated. In the face of this, OTS director Lockhart maintained that IndyMac was adequately capitalized and the institution touted that fact in its SEC filing. In fact, in the bank’s March 31, 2008 10Q it stated that tangible and Tier 1 core capital stood at 5.74%, well above the regulatory requirements for the bank to be classified as well-capitalized. Risk-Based Tier 1 capital was 9% and Total Risk-Based capital was at 10.26%. Given that it was supposedly adequately capitalized and was done in by a liquidity problem as some $1.3 billion of deposits ran off, it stretches credibility that the bank’s failure would lead the FDIC to estimate that it could stand to lose between $4 and $8 billion.6

    How could losses of this magnitude accumulate in just a matter of a few days due to a supposed run of $1.3 billion? The answer, of course, is that they didn’t.

    The bank was likely to have been deeply economically insolvent, which was masked by faulty accounting according to current rules and regulatory standards. Clearly, the bank’s active bidding for brokered deposits and reliance upon funding from the FHLB amounted to a big gamble – financed by other government entities – that it might weather the storm. Keep in mind that IndyMac had, at closing, about $10.1 billion in FHLB advances and perhaps even Federal Reserve discount window borrowings as well. Any such borrowings would be over-collateralized with high-quality assets – in this case the collateral was largely mortgage-backed securities. Such claims stand ahead of insured deposits or the FDIC in the liquidation. This means that much of the best collateral that could have been used to backstop the FDIC or shared to reduce losses to uninsured claimants was instead siphoned off by other agencies. Indeed, the FDIC initial estimates are that uninsured depositors may receive fifty cents on the dollar of uninsured deposits.

    What emerges from even a partially informed and quick analysis of the available evidence and data is the suggestion that (a) the institution was in deep trouble long before it was closed; (b) the OTS appeared to be late to the party, despite market signals; (c) OTS actions were ineffective when measured against the intent of FDICIA; and (d) the institution engaged in moral hazard behavior by pumping up its brokered deposits that were 100% insured and borrowing from the FHLB, and possibly the Federal Reserve. The bottom line is that the FDIC is left to clean up the mess and the costs associated with regulatory ineptitude, and the moral hazard behavior will be paid for collectively by the banking system through higher FDIC premiums on the surviving banks.

  51. autboy says:

    Age without honor. And a dwindling number of people even capable – much less interested – in reacting with outrage.

    Great post, Barry.

  52. Mike says:

    The real problem is that we don’t have a media that reports the news when the fire is being started.

    They just report that the house burned down.