“Management needs to be evaluated . Have they been doing a good job? Are there people who can do a better job? I think the review needs to go with both the management and the board as well, absolutely . . .

I think there will be an evaluation process. We’re requesting it as part of the capital plan.  So to the extent that it means oversight of adequacy of management and boards, I think that’s absolutely appropriate for regulators to do.”

-FDIC chief Sheila Bair, responding to the questions “Why are some of these other banks’ CEOs still there?”

>

The FDIC’s Sheila Bair continues to be the most interesting regulator in Washington. She appears fair minded by tough, and is unafraid to speak her mind.

Bloomberg:

“Bank chief executives will be replaced in the next couple of months as the U.S. scrutinizes financially troubled lenders, Federal Deposit Insurance Corp. Chairman Sheila Bair predicted.

“Management needs to be evaluated,” Bair said yesterday on Bloomberg Television’s “Political Capital with Al Hunt,” being broadcast this weekend. “Have they been doing a good job? Are there people who can do a better job?”

The FDIC released a statement several hours after the interview characterizing Bair’s comments. Bair said management changes “could happen” based on capital-raising plans submitted to the government. “She did not refer to CEOs specifically,” the agency said in an e-mailed statement. “Bair also did not suggest the federal government will remove the bank CEOs,” the statement said.”

When you run your firm into the ground, lose billions in company money, cost the taxpayers 100s of billions of dollars, is it really asking too much that you should be fired, and your phony bonuses based on phantom profits disgorged?

This is long overdue . . .

>

Source:
Bank Chiefs Will Be Replaced in Next Few Months, Bair Predicts
Alison Vekshin
Bloomberg, May 16 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayhAHRWdbDqw&

Category: Bailouts, Markets, Regulation

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.

87 Responses to “FDIC Bair: Bank Chiefs Need to Go”

  1. Bruce in Tn says:

    http://www.smartmoney.com/investing/economy/acclaimed-economist-says-the-recession-is-over/

    Acclaimed Economist Says Recession Is Over

    Couldn’t resist…Donald Luskin…I now have an idea who F411 might be…

  2. Bruce in Tn says:

    By the way, we have already peaked and started down and started back up again…

    http://briefing.com/Investor/Public/Calendars/EconomicReleases/claims.htm

  3. Bruce in Tn says:

    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/15/BUTN17K0TN.DTL&type=business

    Firing state employees won’t help revenue drop

    And awaiting the vote in California, I found this gem….wisdom beyond compare…I plan to write a rebuttal….”Firing state employees may help match income and outgo”

    …Sheesh…Barry, where do the Luskins and California reporters come from….?

  4. Transor Z says:

    There have been a number of very encouraging statements/developments in the last two weeks. Geithner “suggesting” computer-tracking of OTC derivatives being one, a steady drumbeat for CEO/board removal from several quarters being another. Some comments that the TBTF banks will be broken up within three years. Chrysler and GM bankruptcies are “positive” in the sense that they are events rooted in reality. Ken Lewis getting voted out as Chairman of BoA — a somewhat symbolic statement, yes, but positive.

    But I am most optimistic that we are starting to see rats point fingers at one another as lawsuits and investigations progress. A lot of conspiracy theories are going to unravel as would-be scapegoats start squawking to save their own hides.

    As more of a social/political/legal observer than a financial person, I am getting more optimistic daily that powerful people and institutions are going to start experiencing humiliating and painful consequences.

    Unfortunately, the economic fallout continues and many people here make persuasive cases that it’s going to get much worse.

  5. crabsofsteel says:

    “Are there people who can do a better job?”

    Yes, there is. John Thain.

  6. ZackAttack says:

    I think our analogue is 1930. Illusory green shoots, while the crisis was actually moving from financial instruments to the real economy.

  7. call me ahab says:

    nice little chart on S&P earnings (or lack thereof)-

    http://jessescrossroadscafe.blogspot.com/2009/05/better-than-expected-earnings.html

  8. Transor Z says:

    @Ahab: LOL

  9. “This is long overdue . . .”–BR

    x2

    one would think that this type of statement: “Management needs to be evaluated . Have they been doing a good job? Are there people who can do a better job? I think the review needs to go with both the management and the board as well, absolutely . . .” would have been part of a her speech, given upon Senate confirmation..
    ~~
    as an aside, there’s a person, well-known locally, who runs an FDIC-insured ‘Bank’. LSS: His Loan-Losses are still under 1.5%. The idea that these “Big Boys”–the ‘money-center’ managers– ‘didn’t see it coming’, is beyond preposterous..much like the timing of this ‘insight’ from Bair..

    pre·pos·ter·ous (pr-pstr-s)
    adj.
    Contrary to nature, reason, or common sense; absurd. See Synonyms at foolish.

    [From Latin praeposterus, inverted, unseasonable : prae-, pre- + posterus, coming behind (from post, behind; see apo- in Indo-European roots).]
    http://www.thefreedictionary.com/preposterous

  10. Cursive says:

    Yes, it will get much worse. I suppose the Luskins of the world could take Sheila Bair’s comments as a positive sign that a turnaround is in the offing. Not really. Clawback had an excellent post in the sobriety thread, one of the themes being that our policies are rewarding unproductive firms and unproductive sectors at the expense of productive ones. Unless we reverse course on the TBTF banks, we will have a zombie economy, not matter who is at the helm. Just yesterday, we had news that Yellow Trucking is seeking TARP funds. Sick. As a matter of accountability, I agree that the current management at the banks should go, but new management won’t be able to improve the banks performance. Allowing the unsuccessful to fail and capital to flow to productive enterprises is our way out of this debt bubble.

  11. Steve Barry says:

    @ahab

  12. call me ahab says:

    “Yellow Trucking is seeking TARP funds. Sick. ”

    and there’s a problem with that?- I mean- how will we get products from point A to point B- if not for a viable trucking industry- I suppose you want the Chinese doing it

  13. Steve Barry says:

    @ahab:

    Your chart points to how overvalued the S&P has become. Using as reported earnings, the S&P trades at 31 times earnings on a foward basis. The historical average for TRAILING earnings is about 15. This is the most reliable metric we have long term. The long term average for forward earnings is lower than 15, as earnings historically grow. In a depression, I thinkwe need to be below the long term average, no? The S&P is worth less than 400, maybe as low as 250 right now. The market rarely trades at fair value though. I just would not be long here.

  14. Steve Barry says:

    BTW, trailing as reported P/E on the S&P is 120 vs. the 15 long term avergage.

  15. call me ahab says:

    not long Steve- mostly cash- the quandary (for me )is the reflation game being played by the Fed- and how that may impact the markets- not sure how that will play out- but it’s not too unrealistic to believe an all out effort to create yet another bubble for the lemmings to chase

  16. Cursive says:

    @ ahab 9:56

    “I mean- how will we get products from point A to point B- if not for a viable trucking industry”

    If you want to move products from point A to point B, one sure way to prevent that from happening is to get the government involved. I enjoy things being moved from point A to point B. It’s not going to happen efficiently or effictively or, perhaps, not at all if Uncle Sam is managing it. This is the short road to serfdom. Any and all puns intended.

  17. Steve Barry says:

    @ahab:

    I find it hard to believe that this is not THE BIG ONE…I don’t think this is a false start to the end of serial bubble blowing…I doubt that they can blow another bubble so big to prevent this credit bubble from fully deflating.

  18. Neil C Denver says:

    To be fair to America, the entire management of the federal bureaucracy should be evaluated by external management consultants . . . and in all probability fired.

    Granted, the executive management in many of our largest financial institutions have no clue about the limits of leveraging and credit management. (Gucci shoes, dark blue pinstripe suits, suspenders, gaudy ties, and gold cuff links . . . does not a manager make).

    However, the billions of dollars lost in this decade by financial institutions pales in comparison to the trillions of dollars squandered annually by our federal ‘servants’.

  19. “This is the short road to serfdom.”

    http://mises.org/books/TRTS/
    –in pictures, for our visually-oriented friends..

    “Friedrich Hayek and his The Road to Serfdom have not been forgotten by the American people. Photos taken today at an anti-stimulus rally in Denver: (w/pics through link)
    http://hayekcenter.org/?p=273

    also, one of his lesser-known works:
    ht tp://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Hayek+constitution+of+liberty

    Cursive,

    nice point, too true..

  20. Cursive says:

    @ SB 10:14

    I, too, think it is inevitable, but even BR said recently on TechTicker that he sees a trading range of 750 to 950 (if memory serves). Are you expecting a series of quick, sharp drops or a slow bleed down? Or a combination of both?

  21. bruerr says:

    The FDIC’s Sheila Bair is plain spoken and does have a modest personality that serves to her credit; under spoken in a positive way. But come on, the idea that board of directors or management officers should have been replaced, this should have happened when it was learned that many of the top NY banks were undercapitalized and or worse, badly run.

    U.S. Code Title 12, Chapter 16, § 1831 o Prompt Corrective Action (f)(2)(F) Improving management, doing 1 or more of the following: (i) New election of directors Ordering a new election for the institution’s board of directors. (ii) Dismissing directors or senior executive officers Requiring the institution to dismiss from office any director or senior executive officer who had held office for more than 180 days immediately before the institution became undercapitalized. …

    Bair is acting demur, for batting 1 for 12 in this crisis. Granted she is the best batter on the team, but her team has undermined so many laws, the ones they let go, represent substantial omission: The type of omission that when taken in concert with other omissions and over acts, evinces intent is to misrepresent or deceive others, that the FDIC charter or mission (and a lawful duty) to protect the people: To uphold the law in such manner as would serve to protect Americans and their government from exploitation and abuse.

    To keep wrongful acting persons in seats of authority at these firms and to also, pay them bonus or allow them to pass rewards onto lower and mid-level managers is seriously flawed. Now that all the money has been routed around and the Fed’s off balance sheet transactions have been tucked away in some far away drawer (far from public scrutiny), who does Bair think she is kidding by now, moving for change in management?

    There is still hanky panky going on and covering up. Demur Sheila, is merely giving pretense that she is well intentioned, or above it, but the time for being well intentioned was before the money was sloshed around. She is playing her part on a team.

    Places where the entire team did not step up to the plate; in other words, omitted to uphold and enforce law they were pledged and swore to uphold:

    1)
    U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (b)(2)(B)(i) and (d)(1)(A). Capital distributions (dividends) and share buy back programs restricted.

    2)
    U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (i)(1) and (i)(2)(D) restrict the activities of any critically undercapitalized insured depository institution; and at a minimum, prohibit any such institution from doing any of the following: Making any material change in accounting methods.

    3)
    U.S. Code Title 12, Chapter 16, § 1831 o Prompt Corrective Action (i)(1) and (i)(2)(F) restrict the activities of any critically undercapitalized insured depository institution; and at a minimum (emphasis added), prohibit any such institution from doing any of the following … (F) Paying excessive compensation or bonuses.

    4)
    U.S. Code Title 12, Chapter 16, § 1831o. Prompt Corrective Action (i)(1) and (i)(2)(B) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and (emphasis added) … at a minimum, prohibit any such institution from doing any of the following: Extending credit for any highly leveraged transaction.

  22. bruerr,

    nice Fact set, well put.

    and, w/this: “who does Bair think she is kidding by now, moving for change in management?

    There is still hanky panky going on and covering up. Demur Sheila, is merely giving pretense that she is well intentioned, or above it, but the time for being well intentioned was before the money was sloshed around. She is playing her part on a team.”

    the other thing that was going through my mind– 44′s Central Casting/Screenwriters should sell this type–Bair’s too late, by half, ‘insight’–of Theater, to Children and Slaves..
    http://www.thefreedictionary.com/theater
    def. #3

  23. theseeker says:

    @brueer: Looks like they ignored just about every law on the books with regard to this situation. Almost unbelievable! I don’t seem to have trouble believing anything these people do anymore.

  24. FromLori says:

    Forgot the most important…

    The bulls rejoiced that the “Stress Tests” didn’t pronounce a bunch of banks dead, never mind that we knew that wouldn’t happen anyway (can you imagine the panic if even one bank was pronounced insolvent?)

    But government hasn’t stopped lying. Not for a second. Indeed, they’re lying even more than usual these days, with the following ditty being particularly interesting:

    The bill also makes changes to the FDIC’s insurance program requested by Chairwoman Sheila Bair, including expanding the agency’s borrowing authority from the Treasury to as much as $500 billion through 2010. The FDIC’s federal credit line was permanently increased to $100 billion from $30 billion, and the agency’s coverage on individual bank accounts was raised to $250,000 from $100,000.

    Bair has asked Congress for an increase in its borrowing authority from the Treasury to protect the agency’s reserves, drained by 29 bank failures this year. The agency has estimated that additional bank failures may cost the deposit insurance fund $65 billion through 2013.

    Oh really?

    Well let me see if I can do the math. The FDIC credit line was already increased from $30 billion to $100 billion. They started with $50 billion, and managed to blow something like $17 billion on IndyMac alone, with some significant part of that being due to the OTS being involved in a scheme to fraudulently shift the date of deposit receipts, thereby keeping regulatory intervention out of there until the losses had mounted materially. That is, it was government malfeasance that was the proximate cause of the loss.

    I’m not real sure how much the FDIC has left of the $50 billion, but let’s be impolite and say they might have squandered $30 billion of it. After all, we’ve seen lots of 50 cent recoveries (on the dollar) in recent bank closures, which is a strong indictment of the regulatory system (The entire purpose of excess capital requirements is to catch the bank before it goes under zero in asset to liability ratios, thereby making the loss nil. Obviously that is not happening, ergo, the losses.)

    But if Bair thinks she might lose $65 billion through 2013, four years hence, and yet she intends to raise premiums on banks, and the FDIC can already borrow $100 billion, why do they need the ability to borrow $500 billion?

    Specifically, what is it you’re not telling us Ms. Bair?

    I’ll tell you what I think it is – its right here:

    http://market-ticker.org/archives/1016-Why-We-Are-Absolutely-Screwed.html

  25. Cursive says:

    @bruerr 10:46

    Nice analysis. Love the “Demur Sheila” tag. Yes, I think she is posturing. Once Timmay gets the boot, she could be the one. Of course, we’ll be treated to Timmay as a CNBC guest analyst and the prerequisite million dollar book deal.

  26. bruerr says:

    Few more important places where Bair and the entire team did not step up to the plate; in other words, omitted to uphold and enforce law they were pledged and swore to uphold:

    TITLE 12 – BANKS AND BANKING
    CHAPTER 16 – FEDERAL DEPOSIT INSURANCE CORPORATION
    § 1831 o. Prompt Corrective Action

    http://www.law.cornell.edu/uscode/uscode12/usc_sup_01_12_10_16.html
    http://www.law.cornell.edu/uscode/uscode12/usc_sec_12_00001831—o000-.html

    5) U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(C) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and (emphasis added) … at a minimum, prohibit any such institution from doing any of the following: (C) Amending the institution’s charter or bylaws …

    6) U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(E) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and … at a minimum, prohibit any such institution from doing any of the following: (E) Engaging in any covered transaction (as defined in section 371c (b) of this title).

    7) U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(A) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and

    It should be noted, FDIC is not chartered to enter into highly leveraged transactions, nor is it chartered to prop up the derivatives market, nor the obligations bank managers have signed their firms into, relating derivatives market (that was not wholly established in the 1980s when the above law became law.

    Many are concerned Tim Geithner is trying to put Americans and Federal government in the middle of partnership arrangements inviting private investors to buy assets or bundles of mortgages with backing of the U.S. government, guaranteeing their investment. These will result in banks extending credit for, highly leveraged investment transactions, requiring Americans (via their government) to be in liable partnership with private firms. In other words, this will result in direct violation of the standing law, meant to protect Americans and their government (from just such arrangements). http://www.treas.gov/press/releases/tg65.htm

    In the PPIP program to give incentive to private investors to partner with government, Geithner is seeking to violate the established law at U.S. Code Title 12, Chapter 16, § 1831o. Prompt Corrective Action (i)(1) and (i)(2)(B) … Extending credit for any highly leveraged transaction.

    .

  27. drollere says:

    the problem with bair’s posture is that it endorses cherry picking by regulators. this is a magnitude worse than bad regulation.

    if law is consistently applied and turns out to have bad effects, then the law can be held up to the evidence and changed. in general, state motor vehicle codes are laws of this type. if the law is inconsistently applied through enforcement discretion, especially when enforcement discretion is politically compliant (e.g., the bush era SEC), then it is impossible to evaluate the law or the regulation rationally. and when policy is generated whole cloth out of “emergency powers” (as at the bernanke FED), we disappear into a black hole of unlearning.

    @bruerr, for example, what exactly is (4) a “highly leveraged transaction”? 10:1? 20:1? 30:1? 25:1? and leverage against what assessment of derivative created risk? the problem there is the law, or lack of it, not the enforcement discretion.

    it is laughable to hear financial experts defend the importance of highly complex derivative definitions and procedures, as beneficial, and hear the same experts rail against any kind of regulation, as harmful. surely people smart enough to crater the world financial system can write regulations that keep everyone driving safely. but the essential is perspicuous and unambiguous law, consistently applied across all political administrations.

  28. cgasho1 says:

    IS ANYONE TRULY SERIOUS ABOUT CRIMINAL INVESTIGATIONS. What say you BR….?

  29. per·spic·u·ous (pr-spky-s)
    adj.
    Clearly expressed or presented; easy to understand.

    ——————————————————————————–

    [From Latin perspicuus, from perspicere, to see through; see perspicacious

  30. Transor Z says:

    @bruerr:

    I’ll be the black hat.

    The Stress Test results provide the fig leaf to cover up any alleged omissions. Note that capital standards are primarily (1) leverage limit; and (2) risk-based capital requirement. The leverage levels (25-1) and adverse scenario metrics (unemployment, GDP growth) applied to the banks’ risk portfolios, notably MBS, were considered as part of the analysis.

    Some banks were found to be undercapitalized and as part of prompt corrective action, the Executive is fulfilling its duty by requiring them to take immediate action and present capitalization plans within 30 days of report release and take full corrective steps within 60 days thereafter.

    This is fully consistent with the requirements of 1831o (e)(2):

    (2) Capital restoration plan required

    (A) In general

    Any undercapitalized insured depository institution shall
    submit an acceptable capital restoration plan to the appropriate
    Federal banking agency within the time allowed by the agency. . . .

    (B) Contents of plan

    The capital restoration plan shall–
    (i) specify–
    (I) the steps the insured depository institution
    will take to become adequately capitalized;
    (II) the levels of capital to be attained during
    each year in which the plan will be in effect;
    (III) how the institution will comply with the
    restrictions or requirements then in effect under this
    section; and
    (IV) the types and levels of activities in which the
    institution will engage; and

    (ii) contain such other information as the appropriate
    Federal banking agency may require.

    Pardon me for a second [bwahahahahahahahah!]

    bruerr, as you clearly understand, there’s “knowledge” that banks were undercapitalized in ’08 and then there’s legal knowledge that they were undercapitalized. The latter did not take place until the stress tests were completed and reviewed in May of ’09.

    Stress tests performed. Determinations made. Plans demanded. Asses covered.

  31. Cursive says:

    @ FromLori

    I missed that from Denniger. One of his best blogs. Thanks for the link.

    On Stress Tests:

    Steve Liesman gave us the “money quote” this morning on CNBC: None of these banks would survive at 11 or 12% unemployment.

    On Wall Street Chicanery and Rubes (relating to secondary offerings by banks):

    I’ll bet $10,000 that not one of these so-called “independent, chinese-walled research departments” gets indicted this time around but they are doing the same damn thing they were in the 90s, running the secondaries and pocketing the fees.

    On the PPT:

    Bernanke bought another $7 billion in Treasuries, effectively jacking the equity markets again. Guess who he bought those Ts from? You got it – the “primary dealers” – people like Goldman. You don’t think they bought index futures with the money, do you? Or maybe financial stocks? Naw, they’d never trade – that is, speculate – with public funds would they? This problem, by the way, is the reason we had Glass-Steagall – to prevent not only speculation by banks that the government needed to be safe and sound but also to prevent various forms of circle-jerk games like this.

  32. Transor,

    w/this: “bruerr, as you clearly understand, there’s “knowledge” that banks were undercapitalized in ‘08 and then there’s legal knowledge that they were undercapitalized. The latter did not take place until the stress tests were completed and reviewed in May of ‘09.”

    that type of hair-splitting excuses the, obvious, “Regulatory Malpractice/Non-feasance”

    peep like to focus on “private-sector” Pirates, it’s convienent.

    prob. is: they had assistance.

    that’s OK, if we deny the Police State we’re becoming, we don’t have to think about being Ruled by Thugs.
    ~~

    did you catch that Game, last night? it was Awwesome, yon’ Home Team won their Away Game, in extra-innings!~

  33. Cursive says:

    @ bruerr 11:07 AM

    Thanks for research. I’m attempting to get an audience with my junior senator, David Vitter, who sits on the Banking Committee. Our posts will be an invaluable resource if/when I get his attention.

  34. call me ahab says:

    Headline:

    “Navajos Largely Unscathed by Recession”

    excerpt:

    “And with half of the Navajo Nation’s work force unemployed long before this latest recession hit, there’s not much fear the job situation could get much worse on the reservation.

    “They’re freaking out out there, but to us, we’ve always had 50 percent unemployment,” said John C. Whiterock, a Navajo youth pastor. “To us, that’s just part of life.”

    unbelievably- this is a real article- LMAO

    http://finance.yahoo.com/news/Navajos-largely-unscathed-by-apf-15270473.html?sec=topStories&pos=2&asset=&ccode=

  35. DL says:

    If a company asks for – and receives – TARP money, then the CEO should be fired automatically.

    But if a company is FORCED to take government money, then the government should not have a say in who gets hired or fired.

  36. bruerr says:

    theseeker @ 10:56 am

    Hank Paulson boasted of having a “bazooka” as one of his tools, and after that Mr. Bernanke began to parrot the broker, also using this language in his discussions with the media, Congress and Fed Board speeches members.

    All they have done is aim Hank’s bazooka, toward important laws, blasting away its foundation and charter, which was to protect Americans from abuse of unruly bankers (as learned from study of Banking and Loan era, behavior related to that time).

    Paulson and company, have indulged in misrepresenting their bazooka as a tool, or “tools available” to them, when in fact (and in evidence), it is a series of unlawful misdealings – verging on criminal negligence in upholding important provisions of the law meant to protect Americas from unruly types (ie: unlawful profiteering at FDIC expense).

    They may be able to bend the will of Washington to serve their objectives, but many omissions or overt violations, stacked on top of each others, evinces their intent was to undermine the law: To act in a manner as to flaunt the law.

    No person or agency is above the law. You cannot abuse laws or destroy laws to meet the objectives of unruly NY bankers. You cannot shoot bazookas at our U.S. Code, to make yourselves appear more prosperous and noble. If you or I did that, or a terrorist cell, the FBI and Homeland Security would have be all over by now.

    As for Paulson, on down to Bair … All hard work, should have been in upholding the law – not in undermining it.

    On point, they are batting 1 for 12 and patting themselves on the back. They even have the media patting them on the back (for violating many important laws). How bizarre is it that the media (who are also suppose to protect us from abuse) does not ask them important probing questions, on points of law?

    Hoping that changes soon. Gosh man, tired of praying on bended knee. Where the are our Patriots? When do the patriots arrive? We need some good, sensible people to save us from lunacy. Whoever thought those in charge could lack all manner of common sense (paying out bonuses and dividends to people who caused the problem – keeping them in place – making material changes in accounting method, after they got capital in flows ) ? Perhaps a band of lunatics, or even 12 monkeys from the ward, could have done as good a job?

  37. matt says:

    The older I get, the more skeptical I become. Here are the first things that came to mind when I read theis post:
    1. Who will replace them? I think more good old boys from Connecticut, Bawston, or New Yawk. Here’s how you tell, if it happens. If they make over $10 million per year, they are cronies. There are tons of people in this country who have the skills and experience of whatever crony replacement comes in that will do the job for less than 10 million. If the new hires make more than that, that means the board didn’t do due diligence and look in the competitive job market (and they should be fired too).
    2. Which companies should have their management shaken up? Surely not Goldman, right? How would regulators decide which executives should topple? Seems like an exercise that is vulnerable to the regulatory capture. The politically well connected executives keep their jobs and the other fail.
    3. Do regulators have any standing to interfere with the contractual employment between corporations and employees? Are we going to have to piss on some more expressed laws? Are we at the point where we don’t need laws anymore–whatever is popular at the time goes ((90% tax on AIG bonuses))?

    See, the free market has a solution to this problem. If you do a lousy job, and your company fails, you lose your job by default (pun intended). There are no conflicts of interest to contend. There is no need for deliberations about fairness.

  38. “Where the are our Patriots? When do the patriots arrive?”–bruerr, above

    Thomas Paine quotes:
    Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it.

    Age after age has passed away, for no other purpose than to behold their wretchedness.

    Of more worth is one honest man to society and in the sight of God, than all the crowned ruffians that ever lived.

    What we obtain too cheap, we esteem too lightly. Heaven knows how to put a proper price upon its goods; and it would be strange indeed, if so celestial an article as Freedom should not be highly rated.

    The American constitutions were to liberty, what a grammar is to language: they define its parts of speech and practically construct them into syntax.

    A constitution is not the act of a government, but of a people constituting a government; and government without a constitution is power without a right. All power exercised over a nation, must have some beginning. It must be either delegated, or assumed. There are not other sources. All delegated power is trust, and all assumed power is usurpation. Time does not alter the nature and quality of either.

    It has been thought a considerable advance towards establishing the principles of Freedom, to say, that government is a compact between those who govern and those that are governed: but this cannot be true, because it is putting the effect before the cause; for as man must have existed before governments existed, there necessarily was a time when governments did not exist, and consequently there could originally exist no governors to form such a compact with. The fact therefore must be, that the individuals themselves, each in his own personal and sovereign right, entered into a compact with each other to produce a government: and this is the only mode in which governments have a right to arise, and the only principle on which they have a right to exist.

    I have always strenuously supported the right of every man to his own opinion, however different that opinion might be to mine. He who denies another this right makes a slave of himself to his present opinion, because he precludes himself the right of changing it.
    ~~

    Wow, did you See that XYZ? up 22%! that’s Smokin’~

  39. bruerr says:

    Transor Z @ 11:26 am

    “…Some banks were found to be undercapitalized and as part of prompt corrective action, the Executive is fulfilling its duty by requiring them to take immediate action and present capitalization plans within 30 days of report release and take full corrective steps within 60 days thereafter….”

    Transor,
    30, 60 and 90 days expired at the end of November 2008. And if not then, the clock began ticking the moment Paulson passed funds or deals were struck with top bank CEOs (Oct 13). http://www.judicialwatch.org/files/documents/2009/Treasury-ParticipationCommitment.pdf

    October 13 is the day the Vikram Pandit of Citigroup, Jamie Dimon of JP Morgan, Richard Kovacevich of Wells Fargo, John Thain of Merrill Lynch, John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs, Robert Kelly of Bank of New York, and Ronald Logue of State Street Bank. … signed on with Paulson; signed their firms to be receivers of TARP funds.

    30 days expired Nov 13, 2008
    60 days, expired Dec 13, 2008
    90 days expired on Jan 14, 2009

    If you watch Sheila and Paulson and Bernanke in countless interviews, they knew of the problems in early and mid 2008 (well before October); or some instances knew in late 2007. Such that by the time October 13, 2008 rolled around and they were pressuring Congress for some “right now” action, they should have had their decrees and stress test terms ready to distribute.

    Paulson should have been making such presentations when called before congress.

    When sending out the funds, would have also been a good time to distribute directives and evince intent to uphold important laws meant to protect Americans from being taken advantage of.

    Even if you give them 30 days to get their act together, directives and decrees should have been sent out at the latest by November 13; to wit, 30-60 and 90 day expiration notices would have been delivered by February 13-14, 2009.

    There would not have been this media sensationalism in April/May of how well “stress test” went or is going. For the mandates would have been fulfilled “Promptly” and with greater sense of fortitude; purpose.

  40. “Where the are our Patriots? When do the patriots arrive?”–bruerr, above

    Thomas Paine quotes:
    But if you say, you can still pass the violations over, then I ask, hath your house been burnt? Hath your property been destroyed before your face? Are your wife and children destitute of a bed to lie on, or bread to live on? Have you lost a parent or a child by their hands, and yourself the ruined and wretched survivor? If you have not, then you are not a judge of those who have. But if you have, and can still shake hands with the murderers, then you are unworthy of the name of husband, father, friend, or lover, and whatever may be your rank or title in life, you have the heart of a coward and the spirit of a sycophant.

    The supposed quietude of a good man allures the ruffian; while on the other hand, arms like laws, discourage and keep the invader and the plunderer in awe, and preserve order in the world as well as property. The same balance would be preserved were all the world destitute of arms, for all would be alike; but since some will not, others dare not lay them aside… Horrid mischief would ensue were one half the world deprived of the use of them…

    Freedom had been hunted round the globe; reason was considered as rebellion; and the slavery of fear had made men afraid to think. But such is the irresistible nature of truth, that all it asks, and all it wants, is the liberty of appearing.

    Truth never envelops itself in mystery, and the mystery in which it is at any time enveloped is the work of its antagonist, and never of itself.

    Society is produced by our wants, and government by our wickedness.
    http://quotes.liberty-tree.ca/quotes_by/thomas+paine

    bruerr,

    you Know, we’d rather our Quotes from Bloomberg–it’s waay Cooler~!~ While we’re on the way ‘to the Cooler’..
    ref. http://www.tv.com/hogan-s-heroes/show/1449/summary.html

  41. Stuart says:

    Little to disagree with Bair’s assertions about bank mgnt needs to go but not without holding them accountable. It’s not enough to call out the thief and simply let loose on the street, where are the prosecutions for blatant purposeful fraud. Still, skeptical her assertions will gain ground as the bankers have a plant in the Treasury Dept it seems to cover their back.

  42. Transor Z says:

    Mark, are you thinking of Thursday’s game maybe? The Red Sox lost in 12. Last night they lost to Seattle in 9. They’ve lost a couple of tight games in a row now. I only stay up for West Coast games during the playoffs nowadays. Or are you making fun of small talk during a time of crisis?

    I don’t have a problem with the “hair-splitting” definition, as you put it, of legal knowledge. And neither would you if you came to me for legal help because one of your employees was suing your business for sexual harrassment, claiming you (the owner) knew all about the behavior in question and looked the other way the whole time — for months, say. The timing of your “knowledge” of the alleged behavior and the extent of that “knowledge” (complaints, emails, overheard remarks, rumors, etc.) would be important.

    Here’s one up your alley, Mark. I posted this song the other night, hadn’t thought of it in years:
    http://www.youtube.com/watch?v=-q3sP1ZyYHw

  43. call me ahab says:

    where are the Patriots?

    I understand the indignation- but people are only too willing to accept the well spun ‘stress test”- the fact that the market rallied on this overtly bogus assessment is testament enough that “we want to be lied to”- and-

    any true patriot would be readily ridiculed by the MSM- with well placed barbs by “uber cool” cynics who are all the rage these days- for people with forceful opinions and rightful indignation-

    -prepare to be pilloried as a buffoon- and out of touch “old schooler”- any true patriot may not whither-but followers may be hard to come by-

    http://www.devilgraphics.com/new-england-patriots/AACS031.jpg

  44. bruerr says:

    |
    |

    Purpose of Above Laws – Mission Statement:
    12 USC 1831 o Prompt Corrective Action

    (a) Resolving problems to protect Deposit Insurance Fund

    (1) Purpose: The purpose of this section is to resolve the problems of insured depository institutions at the least possible long-term loss to the Deposit Insurance Fund. (IE: Least expense to tax payers).

    (2) Prompt corrective action required: Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall* carry out the purpose of this section by taking PROMPT CORRECTIVE ACTIONS (emphasis added) to resolve the problems of insured depository institutions.
    - – - -
    *The term ‘shall’ is used to denote a mandate. A mandate is to denote a required action.

    “Prompt corrective action” underscores duty and privilege.
    @ duty to protect Americans from enemies foreign and domestic.
    @ privilege to serve as good stewards for the benefit of Americans.

    **

    When applying the weightier provisions of the above law, it seeks to apply lessons learned after years of research and investigating the Savings and Loan problems. The weightier provisions of this law (often referred to as “shall” or “shall not” to denote mandates and distinguish mandates from ethical guides presented as “may” and “may not”) were made into law, to protect American people from financial tomfoolery, fraud, lunacy, incompetence, bad investment mistakes, bad faith actors, youthful experiments, guile and chicanery – emitting from large and small corporate financial firms. These many failures and short comings which manifest during the Savings and Loan era, were uniquely problematic because the FDIC was to guarantee depositor funds at such institutions that were being poorly managed.

    When American regulators finished dealing with the Savings and Loan scandal, they came together to draft a list of laws to deal with abuses, fraud, dereliction and indulgence, emitting from banks, specifically, to thwart cascading of offenses, if such things should manifest in the future. They did this with benefit of hindsight. They had the lessons learned from that experience and the laws have been in place since the 1980s.

  45. clawback says:

    @bruerr

    Yeeessss! Thank you! I was going to post something along those lines myself, but you know far more about the relevant laws than I do.

    This argument about Sec 12 of the US code has been made by Chris Whalen a number of times. I think he’s even made this case before Congress (not totally sure about that). But Whalen has argued that even though FDIC can’t take over a BHC the way it can a regular bank, they could use the powers (and obligations) you outline above to force a restructuring by threatening to take over the subsidiary banks. As I understand it, the BOD would be given a choice between resigning or facing a legal and regulatory battle in which they are almost guaranteed to lose big time. The BOD could then be replaced with directors committed to a voluntary restructuring (of the debt), thereby avoiding, possibly, the need for a disruptive BK or outright receivership.

    Here’s snippet of Whalen’s prescription for how to do this with Citi:

    “One of the reasons that the Obama Administration provides for not taking action on C and other insolvent money center banks is that regulators lack the legal authority to act against a bank holding company (BHC) vs. the federally insured subsidiary banks. But this is not true. Federal regulators do have the power to compel management and board changes within BHCs. And they have two very powerful threats to use against officers and directors who do not take the “suggestion.”

    First, the Fed and other regulators have the power to issue judicial orders and, more important, to commence enforcement actions against the officers and directors of a BHC. If you have never been the target of an enforcement litigation under Section 12 of the US Code, suffice to say that this makes civil litigation look tame. There is a rebuttable presumption of guilt and very serious civil penalties, including being barred for life as an office and director of a US financial institution. And by the way, the judges generally defer to the regulators. ”

    http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=354

  46. DL says:

    Steve Barry @ 9:57

    Robert Prechter is in your camp, predicting a drop in the S&P of as much as 80%:

    http://www.bloomberg.com/apps/news?pid=20601103&sid=aKYrBQ3gr6Q4&refer=news

  47. clawback says:

    BTW, I have a Howard Beale moment every time I hear Sheila or Bubbles (Bernanke) saying they just didn’t have the proper legal authority to do their job. This is demonstrably BS. They’ve been playing fast and loose with the law since Bear, maybe before. If they wanted to save the taxpayers by restructuring these suckers, they could have done it — it’s not like these people really care about the niceties of law and the Constitution.

    Moreover, as bruerr has pointed out, they weren’t talking this “we didn’t have the authority” bit in October or November. Remember, the old line was that we couldn’t do a BK or receivership or restructuring because of “systemic risk.” Now the line is… Well, we would have liked to have killed AIG, but we just didn’t have the authority because ….yada , yada, yada. They could have turned AIG into a bank if they had wanted to — just like they did with Goldman and GMAC. Hell, they could have declared Joe Cassano an enemy combatant and done it that way. Again, our rulers do not care about “the law” unless it suits them. In this case, as in all others, they have done what suited them.

    Like many of you, I’m Fed Up with the way the law has been broken time and again to save the very rich and well-connected. If we had critical mass, I would be willing to do things I would have never imagined doing just a few months ago. I also suspect there’s alot more of us “patriots” out there than we individually realize. I’ve been sharpening my pitchfork since September. I’d like to hear from others who are thinking about what to do going forward to stop these crimes and to claw back everything that was taken by fraud. I am serious.

  48. Steve Barry says:

    @DL:

    Not surprising about Prechter, because while I don’t much believe in his wave predictions, his book “Conquer The Crash” is an absolute must read for its explanation of the Fed and deflationary debt crashes…tip: we are in the biggest one ever right now.

  49. Transor Z says:

    @bruerr:
    TARP was an emergency congressionally approved measure to address a liquidity crisis, not a solvency crisis. It in no way was a determination of undercapitalization as defined in 1831o. No such determination was made prior to the Stress Tests.

  50. call me ahab says:

    Steve-

    I don’t follow the wave theory- but-

    Prechter has a great track record on his predictions- including his most recent was to get out of shorts a couple weeks prior to the March rally-

    the complete ramifications of a total unwinding- what say ye- end game? lower standard of living sounds like a sure thing- also- asset classes- in the long run- I’m thinking that home prices also have further to go- but what of commodities and other hard assets

  51. clawback says:

    @Transor Z

    Isn’t that the point, that the insolvency was known already, or should have been known, but the warning signs were deliberately ignored?

    I don’t think it will happen (too arcane for Congress to understand or make political hay out of), but there should be hearings on why the authorities appear — appear — to have been asleep at the wheel. The Charlie Rose interview with Neel Kashkari reveals (yet again?) that Paulson and Bernanke knew as early as Jan 2008 that a major bailout would be coming and that September was just an opportune time — both in terms of institutional failures and insofar as Congress was about to close up shop.

    I swear, it’s really hard to keep up with all the fraud, all the broken laws, all the screwed up policy prescriptions and all the money we stand to lose as taxpayers. Makes you tired sometimes.

  52. Onlooker from Troy says:

    @cursive

    “Steve Liesman gave us the “money quote” this morning on CNBC: None of these banks would survive at 11 or 12% unemployment. ”

    Uh oh. That’s gonna be a problem. But hoocoodanode?

  53. Steve Barry says:

    The greatest comment in “Conquer The Crash (2002)”:

    “for many people, the single biggest financial shock and surprise over the next decade will be the revelation that the Fed has never really known what on earth it was doing. The spectacle of US officials in recent weeks lecturing Japan on how to contain deflation will be revealed as the grossest hubris.”

    The guy is better than Nostradamus….then there is this:

    ” Credit expansion schemes have always ended in bust. The credit expansion scheme fostered by worldwide central banking is the greatest ever. The bust, however long it takes, will be commensurate. If my outlook is correct, the deflationary crash that lies ahead will be even bigger than the two largest episodes of the past 200 years.”

  54. DL says:

    Steve Barry @ 2:29

    First Greenspan blew a bubble in response to LTCM in 1998. Then he blew a bigger bubble following the “.com” crash. Now Bernanke is blowing a bubble which is FAR greater than that. So yes, the next bubble collapse should be even more spectacular.

  55. SB,

    w/this: “” Credit expansion schemes have always ended in bust. The credit expansion scheme fostered by worldwide central banking is the greatest ever. The bust, however long it takes, will be commensurate. If my outlook is correct, the deflationary crash that lies ahead will be even bigger than the two largest episodes of the past 200 years.”

    seems he’s going w/ c. 1802-, which two is he referring to?

    one’s a given, the other?

  56. Transor Z says:

    Just to make sure people understand that 12 U.S.C. 1831 o is for depository institutions. So the IBs (Bear Stearns, Lehman Bros) fell outside of that legislation/FDIC purview.

    @clawback:
    the insolvency was known already, or should have been known

    Define:

    1. “The insolvency” – actual insolvency or potential insolvency?

    2. Known – Known in what sense exactly? Audits? Filings? Articles in the blogosphere?

    Section 1831 o outlines a procedure. Again — I’m playing the black hat here, but I actually believe what I’m saying — you can’t just leapfrog over the requirement of establishing undercapitalization BEFORE proceeding to the next steps that bruerr cites above. Yes, all of those powerful remedies are there and no one doubts the FDIC/USG power over banks.

    The catch-22 here — and believe me, I get where people here are coming from — is that the USG’s ability to “know,” i.e., gather information and process it, was limited by deregulation. Leverage limits were raised, that’s a fact. Deregulation is a fact. Both of those were legal and much of it had the congressional stamp of approval.

    So when people say “Paulson knew” this or “Bair knew” that — just remember that when you enter legalese land and try to apply ordinary meanings to statutory language you’re going to run into problems. For an example, think Bill Clinton’s famous “It depends what your definition of ‘is’ is.” :)

  57. Transor,

    while this: “just remember that when you enter legalese land and try to apply ordinary meanings to statutory language you’re going to run into problems.” is, no doubt, True.

    I think you’re too quick to overlook the poor construction of these various Statutes.

    but, feel free to play w/ the semantics, it’s, almost, as much fun as Individual Liberty with an Honest Government.

  58. bruerr says:

    Transor Z @ 1:22 pm

    “TARP was an emergency congressionally approved measure to address a liquidity crisis, not a solvency crisis. It in no way was a determination of undercapitalization as defined in 1831o. No such determination was made prior to the Stress Tests.”

    Transor,
    TARP was not authorized by the greater American public. The records of how many letters each congressperson and senator received prior to approving “Emergency Stabilization Act,” has not be subpoena yet nor has it been well followed by media firms who are largely owned by NY based firms.

    Full review of each congress person and senators mail and fax machine receipts and email records, will show a preponderance of evidence, which is substantial enough in itself, to defeat TARP.

    The passaged of TARP was done under duress and pressure of voting parties to join with the banking elite of NY, in their design to bend Washington to serve their interests, without support of the voting public.

    Where the public has the right to vote on such matters as allowing NY banks to pass debt obligation they are liable for paying, under business and contract law, and when also given case law (PER CAPITALIST HISTORY OF THE UNITED STATES), there will be NO money given to banks, period. Such that the American people were bracing for this result, and were taking measures to live it out until the market settled who was insolvent and who would be tossed out into bankruptcy court, such that the stronger banks could survive and take leadership.

    Americans and capitalists who live and prosper in many states, were ready to usher new leadership in the banking industry.

    All records of congresspersons and senators and all representatives of the people, will show this to be true. Fortunately for the American people, these records are not hoarded over by a Vice President who claims as his legal position, is not part of the President’s cabinet and therefore is not subject to the same disclosure and record keeping laws; and @ cah cah I am above the law @ – which all vice presidents before have submitted themselves to live under.

    You are close to the administration?

    Why do not you tell your officers to stand up for capitalism in the time when capitalism needs defender? Am I a proliteriate, that I would have to come where you should be standing and defend capitalism?

    Okay then, subpoena the records.

  59. Steve Barry says:

    @MEH:

    The two deflations he referred to were 1835-1842 and the GD.

  60. clawback says:

    Steve Barry,

    Just read some of Conquer the Crash — wow! He had almost everything pegged exactly right (at least of what I read). That he understood things so well back then — as had, to varying degrees, people like Ron Paul, Peter Schiff, Mike Stathis, Michael Panzner … — just goes to show how little most academic economists really understand about debt or how when debt accumulates faster than real growth it ends badly. I should mention Steve Keen over in Australia as well. Surely there were others. Todd Harrison seemed to know at least by early 2008.

  61. clawback says:

    Transor Z,

    No, I understand that Sec 12 is for banks, not IB’s. My comments were primarily concerned with BAC, C, et al., and would only apply to Goldman, et al. after their conversion. Absolutely. If you had a chance to look at Chris Whalen’s article, he argues that the FDIC could resolve C by going after the subsidiary banks — or at least threaten to do so. The idea was to use this power to coerce a change in the BOD and to effect a voluntary resolution. If you have insights into his analysis, it would be helpful to hear those.

    My biggest problem is that if FDIC didn’t know about the state of these banks, they should have made better attempts to know. I understand their are procedures to determine when the course of action outlined above comes into effect, but there seems to have been a deliberate attempt to NOT do that. This would be especially true after Sept 15. At that point, FDIC should have swung into high gear on seeing who needed to be resolved — TARP or no TARP. Instead, the plan was to bail them out, prop them up, guarantee their debt (by FDIC!), and send them on their merry way at taxpayer expense. At some point it becomes clear that the leadership at FDIC, the Fed, and the Treasury were either 1). incompetent or 2). deliberately playing games. Either they had no clue what was going on (we know for a fact that Paulson and Bernanke DID know), or they decided — for whatever reason — to look the other way, buy time, hope for the best, etc. Now, the law may give them some cover after the fact, but it won’t cover the truth if the truth comes out. We know what Clinton did, regardless of what the meaning of “is” is.

    This reminds me of the Downing St. Memos. Remember those? They came to light in 2005. They were the meeting minutes and notes taken down in 2002 at meetings between Blair and his ministers. Basically, it made clear that Bush had planned on invading Iraq long before the official decision was made and that the evidence and “the facts are being fixed around the policy [of invading]“. Now, these memos don’t absolutely prove that Bush had been lying to the American publilc about his intentions. But it certainly warrants further investigation, to say the least. The American media demurred. The situation here is very similar. We couldn’t hang Paulson and Bernanke today, based on what evidence is publicly available right now, but there’s lots of smoke suggesting fire.

    In any case, your arguments are ones they would likely make themselves (or their lawyers would make) if these matters were ever investigated. There’s no guarantee that these arguments would be bullet-proof.

  62. SB,

    thanks. w/the 1835-42 episode, at least We got rid of the Central Bank (II). til’ 1913, anyways.

    People would do well to understand the tremendous Growth the Economy enjoyed, when it was Freed from paying Interest, to a Private Cartel, for its Circulating Media.

    Interestingly, St. FDR took the other tack, and stripped the American People of their, Constitutionally Mandated, Money–the last vestiges, of which, disappeared, much like Kennedy, himself, with the 1964 Kennedy Half-Dollar.

    In an earlier, far more Sophisticated, Time, People well understood: “Coins don’t Lie.”
    http://www.constitution.org/uslaw/coinage1792.txt

  63. Transor Z says:

    @clawback 5:20 pm:

    Really nice comment. I agree with almost all of your points. I’ll look at the Chris Whalen article and try to post a reaction to it on this thread later — probably much later tonight, unfortunately.

    I’m more inclined to think that the Paulson/Bernanke response was more a product of mindset than either of the choices you outlined. Your point about the increased FDIC guarantee as part of the TARP period response is well taken though.

    But where the Paulson/Bernanke team is likely to avoid some serious repercussions is in the scale of the event last fall. Systemic breakdowns/legitimate global emergencies mean you follow a whole ‘nother protocol not covered by section 1831 o — at least that is what they might argue.

  64. bruerr says:

    Transor Z @ 1:22 pm

    “TARP was an emergency congressionally approved measure to address a liquidity crisis, not a solvency crisis. It in no way was a determination of undercapitalization as defined in 1831o. No such determination was made prior to the Stress Tests.”

    With regard to regulating “Troubled Banks,” the above cited law shall be sufficient until another law is supplanted as being superior – 4 regulating over trouble banks or banks with “toxic assets” or otherwise “troubled assets” in need of emergency economic measures.

    U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(C) … Restricting activities of critically undercapitalized institutions … at a minimum, prohibit any such institution from doing any of the following: (C) Amending the institution’s charter or bylaws …

    U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(E) … Restricting activities of critically undercapitalized institutions: … at a minimum, prohibit any such institution from doing any of the following: (E) Engaging in any covered transaction (as defined in section 371c (b) of this title).

    U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (i)(1) and (i)(2)(D) restrict the activities of any critically undercapitalized insured depository institution; and at a minimum, prohibit any such institution from doing any of the following: (D) Making any material change in accounting methods.

    Where there is a false or pretentious need or sudden need for a supposed “emergency” economic act, let the above law be sufficient until another law is brought front, that would otherwise serve to protect the American people from being taken advantage of.

    In absence of such a law, when dealing with “troubled assets” or “toxic assets” per se, Prompt Corrective Action is warranted and is deemed to be sufficient and superior to any Act proposed, reviewed, or otherwise intent to undermine the above law, as the above law serves with due diligence to protect the interests of Americans and to also protect their government from being taken advantage of at the end of a Presidential term or between terms, or at any other time as when a President might be focused or have an obsessive visual preoccupation with foreign policy and might otherwise neglect economic policy.

    The above reference law does have sufficient provisions for protecting the American people. Especially against acts which do not stipulate how “emergency” funds are to be observed and parsed out, or especially in such instances where the act defies common sense actions, such as stopping the payment of dividends at “troubled” firms, and not allowing pass through of bonuses that are over the amount of 2 million dollars to actors who may have been party to freezing assets that did not need to be frozen except to pressure a congressional group.

    |

  65. bruerr says:

    The freezing of credit, by a self-regulated circle of intelligent bankers, could serve (providing middle management would be well compensated for their part), to force actions or induce participation.

    Could also serve a view of intelligently run investment firms, who had an eye on acquiring a competing firm or two firms. That by freezing credit in a circle of unregulated banks, could serve to bring assets of a competing firm, into the lap of the firm that saught to acquire those assets in an overnight transfer.

    Could also serve to force a fire sale type atmosphere for parsing assets of a firm.

    Very clever, but illegal all the same.

    |
    |

    So therefore – any “trouble” or “toxic” asset, needs first be subject to U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action, and no fop come to the side with a hip bump, nor with arrogance or insulance to imply the American people do not warrant protection the above law supplies.

    None shall come to the side of that law and seek to push down its specific protective measures – suppress or undermine important provisions in the law nor push it off its stated objective:

    |
    |

    Purpose of Above Laws – Mission Statement:
    12 USC 1831 o Prompt Corrective Action

    (a) Resolving problems to protect Deposit Insurance Fund

    (1) Purpose: The purpose of this section is to resolve the problems of insured depository institutions at the least possible long-term loss to the Deposit Insurance Fund. (IE: Least expense to tax payers).

    (2) Prompt corrective action required: Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall* carry out the purpose of this section by taking PROMPT CORRECTIVE ACTIONS (emphasis added) to resolve the problems of insured depository institutions.

    |

    None come to imply the Office of Treasury and all officers serving, have NO legally binding mission or oath otherwise, toward preserving basic ideas and common sense which would otherwise protect Americans.

    Nobles Oblige!!!

    Americans merit some measure of courtesy in this matter, since having benefit of hindsight and there, observing the abuses of the 1980s; dealing – specifically – with unruly banks or Savings and Loan issues.

    |

  66. bruerr says:

    U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(A) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; AND (emphasis added) at a minimum, prohibit any such institution from doing any of the following … (A) Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate Federal banking agency. …

  67. Cursive says:

    The level of intellectual discourse on this thread alone is why I am addicted to this site. Many thanks to bruerr, Transor Z, Onlooker, clawback and, or course, DL, SB and MEH.

    @ clawback 1:16

    I am fed up as well. I hope to avoid what seems more and more likely every day. I was posting last week about how this crisis will manifest itself going forward. Once more people become aware of what has transpired, the opportunity for massive civil unrest and Watts-level violence seems a high probablility. As I wrote last week, though, as an American, I am one of the luckiest group of people ever. Many who were much greater than me gave up their lives or the fortunes, or both, so that I could enjoy all that this great country offers. I am calling my representatives and my senators to express my concerns and to hopefully influence their opinions. They don’t immediately call back, but you’d be surprised what a little persistence can do as long as you are calm and rational. I talk to my colleagues and friends about this any time the opportunity presents itself. I’m not giving up, I’ll never give up.

  68. clawback says:

    @Cursive:

    One of the things I never thought I’d do, but am doing now is writing my congressmen. I’ve only gotten form letters in response. Maybe I should be more persistent. Regular Big Picture readers ;-) typically know alot more about these issues than their congressmen. My rep, for example, is honest as far as I can tell, but knows little about finance or markets (natch — he sits on the Financial Services Committee), and so he’s been easy prey for people like Paulson and Summers. I remember back in March he was asking Geithner about naked CDS as if he had just discovered their existence. My goodness.

    I’ll keep sharpening the tines on my pitchfork, but maybe a useful project would be to organize some face-to-face meetings between Congressmen and constituents (like many of us) who can articulate solutions to our problems that favor the taxpayer over the well-connected elite. It still might be an uphill battle, but they’ve most of them probably never even heard of some of the ideas that appear regularly on financial blogs like this one. Maybe we could just pay to have someone like Karl Denninger or BR (!) go around the country meeting with congressmen on our behalf. I don’t know, actually something like that might work under the auspices of some kind of taxpayer’s/concerned citizens group or something…

  69. Pat G. says:

    “When you run your firm into the ground, lose billions in company money, cost the taxpayers 100s of billions of dollars, is it really asking too much that you should be fired,”

    Well sure. What happens if we lose this “talent pool” as it has oft been described? LOL Actually, if any of them had any morals or a conscience they would resign. But as long as their incompetency is backed by the full faith of the U.S. government (us) why should they? I personally would have never forced TARP money on any company. On the other hand, had any company applied for it I would have demanded the resignation of the CEO and CFO as a precondition of approval.

  70. Cursive says:

    @ clawback 8:10

    Sorry, I had unexpected company. I’m glad to hear of others who write and call their representatives. One of our problems is that so many people have dropped out of the political system. Too many people think it is not worth their time. I don’t let my determination weaken because of the inaction of others, I do only what I know to do. I remember reading in my grade school history book that one-third of the American colonists were patriots, one-third supported Britian and one-third were neutral. So, you don’t need a majority to change things for the better.

  71. bman says:

    Neil C Denver Says:

    “To be fair to America, the entire management of the federal bureaucracy should be evaluated by external management consultants . . . and in all probability fired.”

    External Management Consultants, those are the kinds of jokers that have ruined our economy, our industry and our nation. The idea that you can hire a pack of people who know nothing about your business let them loose in your workplace and let them make recommendations about how you should run your business based on some plan that worked somewhere else, is just assenine. Ok I’ll admit, sometimes a perspective from someone who is not grown in your environment is useful. The problem is rather then figure it out themselves, management hires a posse of workplace destabilizers, pays em lots of money, and they tell get told to fire everyone who’s not wearing a suit. This is how our industry got sent offshore. This is how our local offices got downsized, this is how our economy got trashed. Neil thanks for your insight, but first just tell me where are we going to find these ‘External Management Consultants’ to overhaul our national government, China? Hope you don’t mind if we think about that for a while.

    In the meantime, you have my permission to fire any External Management Consultants at your firm.
    You can explain to them that the economy is in the tank and for some reason you can’t afford to pay them.

  72. [...] Wonder what the severance package will look like for the “banker of the year”. [...]

  73. FromLori says:

    - The Federal Deposit Insurance Corp disputed on Friday a report that said Chairman Sheila Bair believes some U.S. bank chief executives will be replaced in the next couple of months as regulators assess lenders’ financial strength.

    The FDIC said the Bloomberg News report, which cited a television interview to be broadcast this weekend, was “misleading.”

    “Chairman Bair said that management changes could happen based on the capital plans that an institution must submit to the government,” the FDIC said in a statement. “She did not refer to CEOs specifically and the comment was in the context of capital plans submitted by the institutions. Chairman Bair also did not suggest the federal government will remove the bank CEOs.”

    Last week, regulators told 10 of the largest U.S. banks to raise a combined $74.6 billion of capital to help withstand a potentially deep recession.

    The banks that were told by the government to raise more capital must submit capital recovery plans to the government, which must include a review of their management and boards to determine if they have appropriate skill sets.

    The FDIC also submitted a copy of the interview transcript.

    http://moneynews.newsmax.com/financenews/bair/2009/05/15/214811.html

  74. bruerr says:

    Transor Z @ May 16, 11:26am:

    “… Some banks were found to be undercapitalized and as part of prompt corrective action, the Executive is fulfilling its duty by requiring them to take immediate action and present capitalization plans…”

    “This is fully consistent with the requirements of 1831o (e)(2):
    (2) Capital restoration plan required
    (A) In general
    Any undercapitalized insured depository institution shall
    submit an acceptable capital restoration plan to the appropriate
    Federal banking agency within the time allowed by the agency. . . .
    (B) Contents of plan:
    The capital restoration plan shall–
    (i) specify–
    (I) the steps the insured depository institution
    will take to become adequately capitalized…”

    “Some banks were found to be undercapitalized and as part of prompt corrective action, the Executive is fulfilling its duty by requiring them to take immediate action and present capitalization plans…”

    Tranzor,
    if this were true, other firms were entitled to the same procedural laws and protections under this law. “The Executive” should also apply this law, evenly, to give other firms like WaMu, Bear Stearns and Lehman that they may have a chance to acquire capital, and also present capitalization plans, before they were secreted off over successive weekends, or a 3 out of 5 weekend strtech – allowing competing firms to glean* what assets they wanted, before dumping the toxic parts on Uncle Sam (United States), and the rest of Americans to shoulder.

    When considering other financial companies, the Executive’s actions are … NOT … fully consistent . . . with the requirements of 1831o (e)(2).

    .

  75. bruerr says:

    Transor Z @ May 16, 11:26am:

    “… Some banks were found to be undercapitalized and as part of prompt corrective action, the Executive is fulfilling its duty by requiring them to take immediate action and present capitalization plans…”

    “This is fully consistent with the requirements of 1831o (e)(2):
    (2) Capital restoration plan required
    (A) In general
    Any undercapitalized insured depository institution shall
    submit an acceptable capital restoration plan to the appropriate
    Federal banking agency within the time allowed by the agency. . . .
    (B) Contents of plan:
    The capital restoration plan shall–
    (i) specify–
    (I) the steps the insured depository institution
    will take to become adequately capitalized…”

    “Some banks were found to be undercapitalized and as part of prompt corrective action, the Executive is fulfilling its duty by requiring them to take immediate action and present capitalization plans…”

    Tranzor,
    if this were true, other firms were entitled to the same procedural laws and protections under this law. “The Executive” should also apply this law, evenly, to give other firms like WaMu, Bear Stearns and Lehman that they may have a chance to acquire capital, and also present capitalization plans, before they were secreted off over successive weekends, or a 3 out of 5 weekend strtech – allowing competing firms to glean* what assets they wanted, before dumping the toxic parts on Uncle Sam (United States), and the rest of Americans to shoulder.

    When considering other financial companies, the Executive’s actions are … NOT … fully consistent . . . with the requirements of 1831o (e)(2).

    .

    .

  76. bruerr says:

    .

    @Luscious number of Omissions:

    An embarrassing surplus of omissions, evinces fraud.

    Keep in mind, these companies thought well of themselves and in some instances had positively established themselves in developing markets. They were taking actions to increase their cash flows.

    To some extent, they did have large cash in-flows and revenue (coveted cash in-flows and revenue streams).

    .
    .

  77. bruerr says:

    *Glean = harvest as plump grapes

  78. bruerr says:

    Transor Z @ May 16, 2009, 4:03pm

    “Section 1831 o outlines a procedure. “

    Tranzor, you CANNOT say the executive “is fulfilling its duty,” when also, considering many omissions, an abundance of omissions, in applying the same duty to firms deprived of the same (obliging) procedure.

    Not only is Paulson guilty of a luscious indulgence of omission, he is guilty of helping favored firms, acquire desired assets (@ desired property/locations, talent, presence in foreign markets, cash flow, incoming revenue streams), and then parsing out the toxic parts to dump on commoners.

    To borrow your black hat for a second, some shareholders could effectively debate the idea that: Paulson is not a Treasury officer acting to protect Americans. Nor was he at any time in 2008 serving the interests of common Americans. Paulson was merely a stock broker – with his eye on large U.S. fund, FDIC fund, and cash flow and revenue streams he can give to his friends at JP Morgan and Morgan Stanley; who might also parse out some of the assets in fire sale type exchanges, to his firm or subsidiaries of his firm or “clients’ of his former firm.

    Paulson wearing two hats too: When he is wearing your black hat, he is flaunting the law, a stock broker who summarily violates US Code; having his hands in, and access to large funds and many assets, pulling levers furiously, with the idea that he will pay the fine later if caught.

    When he puts on the white hat, he is using the Treasury Office as his dial out office, or call centre.
    http://www.judicialwatch.org/files/documents/2009/TreasuryDocsPart1.pdf

  79. bruerr says:

    http://www.judicialwatch.org/files/documents/2009/TreasuryDocsPart1.pdf

    Notice his staff at Secretary of Treasury were largely clueless on October 12 and 13, 2008; in the dark with what was going on. There is the stock broker again wearing the black hat. Puts his white hat on to peak out the door of his office, checks with his assistance, wants to make sure the press his handled properly.

  80. bruerr says:

    Now at case law: A lot of U.S. History in Case Law.

    Lets see if we can summarily put down contract law and debtor law, in September and October – skirt the judicial branch of oversight altogether, answer only to the president and crush contract law with the legendary “Hammer.”

    *insert Texas-style-chuckle and pictures of the fabulous four having coffee with the President on the morn when a large bank with a brokerage arm is annexed by one of the friendly banks with a brokerage arm – one of them thats too big to fail. Insert second Texas-style chuckle.*

    Then in December with it comes time to paying over 38 billion to middle managers and mid-level executives at Merrill Lynch, invoke contract law as a basis for paying out these wow-wow bonuses.

    *See if you can get the cow hand, ta, tip his hat.*

  81. bruerr says:

    .

    Yeeeehaawwww!
    http://en.wikipedia.org/wiki/Neil_Bush

    .

    *What happens when regulators do not punish actors who sign their firms into debt obligations, and after benefitting from capital infusions that debt incursion allowed those firms to enjoy, seek to offload that debt onto the common, care of FDIC:

    What happens is that they are free to repeat the offence in 28 years cycles; give or take 4 years.

    What happens is that your father might hold a fund raiser for u and invite a lot of Anglo Saxons to laugh at the government with you, and marvel at how easily you pulled in some large funds.

    .

  82. bruerr says:

    .

    *observed 12 monkeys from the ward, running the country – skirting the law, flaunting it –

    occasional orangutan throwing dung on the judicial branch as they pass

    leaving the office in disarray,

    by-passing all law that would

    otherwise serve to protect Americans

    and their government from

    indulgence and abuse.

    Acting like they are entitled to do so –

    + pass through large bonus to others.

    Paying bonuses to good actors and bad actors, so that it is difficult to sort out who the bad actors are.

    Insert poison pill – when you target good actors, they complain more righteously, while bad actors continue to escape scrutiny.*

    *insert Texas-style chuckle*

    Paulson in white hat: “I answer only to the President.”

    “I serve at the pleasure of the President.”

    Black hat: *Texas-style back slapping*

    “Good Job Hanky. Hanky Pank … hahahahh”

    .

  83. bruerr says:

    Tranzor Z, FYI, Executor is NOT fulfilling any duty, executor is only giving pretense of fulfilling duty. There is a difference.

    You see in August, September, October and November oops-type efforts to crush contract law as concerns debt obligations and offloading your firms debt onto others.

    Then rebuilt contract law in December, just in time to invoke it as a basis for paying out large bonuses.

    See how that works? Black hat: hammer and crush the law in four or five months on your way out of office – and then in the final month or two, rebuild it and invoke the law as a basis for white hat: paying bonuses.

    If you listen to the press, which they apparently own, you would almost be lead to believe that there is NO law ever written which would protect our government from being exploited by opportunists or lunatics.

    .

  84. bruerr says:

    .

    Lebensraum: summarily violating law as a way to make debt disappear and expand ‘private’ asset base and acquisition. Make special pay available to certain actors.

    Fog of Lebensraum: Study which allows for quiet control of media and radio outlets as a means to better steer your objectives over a large number of nationalities and races, or to get a large number of people to act against good conscience and common sense.

    Simply pretend there is no law top officers are required to observe.

    When laws get in the way, simply roll out lesser charges to imply law and duty is being observed. Then roll out someone like Warren Buffet or Abby Cohen to exclaim we are in rally mode and deals are so plentiful, they feel like a mosquito in a nudist colony.

    That we should all pinch ourselves to contain our glee.

    Its a rally didnt you know, and the market is never manipulated by anyone. …. Especially at such times as the Fed cannot account for trillions in off balance sheet transactions since Paulson came into Treasury. I mean left office, I mean, came back. But not officially back. Just officially returns in the media when it appears the team might need coddling.

    .

  85. Transor Z says:

    @ Clawback:

    I did some research and Chris Whalen appears to be substantially correct in saying that FDIC can assert a good deal of leverage against Bank Holding Companies — provided, of course, that there is actually an undercapitalized bank underneath the BHC umbrella.

    A key mechanism is 12 U.S.C. § 1831o(e)(2)(C)(ii), which is easily understood by its plain language:

    Any company controlling an undercapitalized bank must
    guarantee the performance of the bank’s capital plan.

    That’s guarantee — i.e., cut a big check if the depository institution don’t perform on it’s capitalization plan and meet obligations to FDIC.