The Gramm, Leach, Bliley Act of 1999 gutted Glass-Steagall and included many of the misnamed “Community Redevelopment Act” provisions that semi- legitimized many of the lending insanities we saw earlier this decade. GLBA also cleared the way to create the financial conglomerates (“supermarkets” as Citi’s Sandy Weill called them) that are “TOO BIG TO FAIL”. Guess who was Treasury Secretary then? Larry Summers, our current head of Obama’s Council of Economic Advisors. A WordPress blogger, Commonsense, reminds us of the financial criminal history that necessitated Glass-Steagall in the first place.
Only eight senators would vote against the measure — lionized by its proponents, including senior staff in the Clinton administration and many now staffing President Obama, as the most important breakthrough in the worlds of finance and politics in decades. “It was more like a tidal wave in 1999,” the North Dakota Democrat recalled of that vote in an interview with the Huffington Post. “You’ve seen the roll call. We didn’t really have to deal with push back because they had such a strong, strong body of support for what they call modernization that the vote was never in doubt… The title of the bill was ‘The Financial Modernization Act.’ And so if you don’t want to modernize, I guess you’re considered hopelessly old fashioned.”
And the Oxdown Gazette further explains that GLBA is being extended under Tax Dodge Timmy and Heli Ben’s Public-Private Investment Initiative (PPIP) as an even greater fraud than GLBA:
The Obama Administration’s position is that if you set up this speculative looting scheme to occur in broad daylight, and claim it will unclog bank lending, it’s okay. And private investors who take advantage of the looting scheme should be regarded as “the good guys,” as Christina Romer suggested, while (non-elected) “officials” who concocted this scheme must be retained no matter what the public outrage. Has the Obama Administration really sunk to this? What possible excuses do they have?
1. The program would remove $500 billion to $1 trillion in toxic assets from the bank’s balance sheets, supposedly “unclogging” the credit system?
Okay, but so would just buying the assets outright without the private partnership subterfuge and subsidies to private investors.
2. The private participation allows them to bid to create a market. Cut the crap. Bidding may create a “market” but subsidized, risk-shielding bids do not create efficient prices.
3. The private participant bids improve the prices. More crap. Subsidized bids (or shifting risks of losses) may serve to increase bid prices (probably a goal here), but what is the public interest in that? And even if the point is to pay more for the assets to help reach the banks’ reserve prices, then just pay it. It’s a bad idea, and we don’t need sweetheart private deals to achieve it.
4. The partnerships will help leverage private investment dollars to help purchase the assets. Yes, and do so very inefficiently, by unjustly enriching the private investors, whose contribution is trivial.
5. The partnership avoids the problem in the original Paulson proposal of not knowing how much to pay for assets. How? If there are auctions, the banks will set reserve prices below which they will not sell. Either the auctions fail to meet those prices, or the subsidies will increase to close the gap been offers and bids. The incentives/subsidies will drive the prices and we still won’t know what the “correct” price should have been.
6. We need private equity participation because it has expertise in evaluating banks assets. More gibberish. The first thing we need is due diligence by our government. Go through the assets (or a set of them), check their histories and find out what’s in them. If you need more experts, hire them without the scam.