Muwabi Economic Forum

Enough is Enough

It’s been about a year since the bailout parade truly began following the collapse of Lehman Bros and the domino effect that followed. I remember these events vividly as Paulson and Bernanke held these secret meetings to determine the financial system’s fate. After Lehman’s collapse, Paulson proposed the first version of TARP to a disgusted public. The response was truly remarkable as the public mobilized, expressing their disapproval of the legislation, and effectively killed the bill. I voiced my own excitement at its failure in Bailout Voted Down!!!. Unfortunately, Team Bailout prevailed and successfully guided this bill through Congress and started a process which has spiraled out of control since. One might have expected angrier public reaction but fear and a “trust in the experts” tempered the gut feelings of most Americans. A year later, how is America feeling?

I think this one best sums the consensus…

**Note: I don’t advocate people not paying perfectly legitimate debts. I think the woman from this clip will regret her actions after receiving all the late fees, collection calls, lower credit, and eventual recovery lawsuits. As long as she fails to pay, she deserves everything that is coming. I also don’t advocate 30% interest rates but still don’t see this as an excuse not to pay. The purpose of this is to illustrate a growing resentment from Main Street and a positive trend towards doing something about it. Making videos like these are important to spreading the word and mobilizing an angry populace.**

Great video and hopefully more will follow. The woman from this video should be happy to learn indictments are looking like a real possibility for those involved in the Bank of America- Merrill Lynch merger. Stay tuned for more on this story.

Protests have been nothing new, as the Tea Party protests have been successful throughout the country…

Tea Partiers Call Movement Better Organized Than GOP

They claim to be a grassroots movement, but critics call them astro-turf. In either case, the Tea Party movement is quickly shaking off its “greenness” to become a force that some coalition members contend is more effective than the Republican Party.

“This movement has done more to give conservatives a voice than the GOP has in the past eight years,” said Dana Loesch, a conservative radio talk show host and member of the Nationwide Tea Party Coalition. “Republicans have been following the Tea Party’s lead since February.”

“I think it’s fair to say this is not a Republican-sponsored movement,” said Brendan Steinhauser,an organizer who described supporters as “conservatives, independents, and libertarians” concerned over the “size and scope of the government.”

Tea Partiers got their start last fall as a disorganized bunch of disaffected voters who were furious about the Bush administration’s Wall Street bailout. Then, Steinhauser said, these opponents of excessive government spending were pushed over the edge by President Obama’s call for a $787 billion stimulus.

Using a dozen social networking sites to mobilize constituents opposed to big-government spending, the movement took root in February after a group of individuals used Twitter to react to CNBC on-air editor Rick Santelli’s “rant,” in which he accused the government of “promoting bad behavior” in regard to the Homeowners Affordability and Stability Plan, and raised the idea of a “Chicago Tea Party.”

Muwabi is a strong supporter of these protests and is happy to see the level of enthusiasm and participation throughout the country. I linked this article specifically because it references how this particular movement has been more representative and effective than the Republican party on this issue. The GOP has been largely ineffective at mobilizing the public (outside their core base) despite having a golden opportunity for a true message of change. I expect the movement to eventually take over the Republican party or offer a legitimate chance of a third party development.

Not only is the general public participating in the protesting… the media is even beginning to ask questions and take a sarcastic tone. (let me stress the word beginning)…

Dear Chairman Bernanke

Dear Esteemed Chairman and Savior of the World Economy:

On behalf of your many Chinese friends and all of the Chinese people, we wish to congratulate you on your recent reappointment as Chairman of the American Federal Reserve. We could not be more pleased to know that the man who saved the value of our Fannie Mae mortgage-backed securities last year will be the Great Monetary Helmsman for another four years.

We also note with satisfaction, and admiration, your many recent assurances, via the Wall Street Journal and various eloquent speeches, that you and the Fed have no intention of permitting a revival of dollar inflation. This is a source of great reassurance to the Chinese people, not to mention the bureaucracy in Beijing that made the decision to invest $1 trillion or more in dollar-denominated securities.

This is good stuff… but the WSJ didn’t stop there!…

The Fed Can’t Monitor ‘Systemic Risk’

Using the financial crisis as a pretext, the Obama administration is determined to enact massive financial regulatory reforms this year. But the centerpiece of its proposal—putting the Fed in charge of regulating or monitoring systemic risk—is a serious error.

The problem is the Fed itself can create systemic risk. Many scholars, for example, have argued that by keeping interest rates too low for too long the Fed created the housing bubble that gave us the current mortgage meltdown, financial crisis and recession.

Regardless of whether one believes this analysis, it is not difficult to see that a Fed focused on preventing deflation in the wake of the dot-com bubble’s collapse in the early 2000s might ignore the sharp rise in housing prices that later gave us a bubble.

There is also the so-called Greenspan put. That’s a term that refers to investors taking greater risks than they otherwise would because they believed the Fed would protect them by flooding the financial system with liquidity in the event of a downturn. If there really was a Greenspan put, it has now been supplanted by a “Bernanke put.”

Blogs have been echoing this sentiment for months but it’s nice to see it work its way into a mainstream publication.

Finally, Barry Ritholtz at the Big Picture makes a great point about how the current administration is making a big mistake in its policy agenda…

Tactical Error: Health Care vs Finance Regulatory Reform

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

This was an enormous miscalculation.

I’m not sure who to blame, but the leading suspects (in order) are Larry Summers, Rahm Emmanuel, Tim Geithner, and (perhaps) David Axelrod. Instead of a populist clean up of The Street (ala Eliot Spitzer circa 2,000), Obama advisors allowed a smoldering resentment to take hold and build amongst the electorate. The massive taxpayer wealth transfer to inept, corrupt, incompetent bankers has created huge resentment amongst the populace — regardless of political affiliation.

There was widespread popular support for a full reform of finance. What the White House should have pursued was: 1) Reinstatement of Glass Steagall; 2) Repeal the Commodity Futures Modernization Act; 3) Overturning SEC Bear Stearn exemption allowing 5 biggest firms to leverage up far beyond 12 to one; 4) Regulating the non bank sub-prime lenders; 5) Continuing high risk trades to be compensated regardless of profitibility; 6)  Mandating (and enforcing) lending standards, etc.

All of this could have been accomplished in the first 6 months of the Obama administration. The consumer protection stuff could have been tossed in as well, though it was not the cause of the collapse.

What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

Well said Barry!

In the next year, I expect the Fed’s activities to be exposed through Bloomberg’s inquiries or a full audit, and the recovery efforts to prove ineffective in dealing with unemployment, credit access, and and deflation. If we’re already seeing signs of public outrage, what can we expect when the evidence mounts higher and higher? To say the least, it will be interesting to witness.

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4 Responses to “Enough is Enough”

  • Jae says:

    Not sure where you are going with this Muwabi. If you are now supporting a debtor revolt encouraging non payment of personal debts then something happened to you over night. I don’t believe this woman’s video and suspect there is another side of this story (there always is). She’s got no job, no assets, but has no problem making her monthly payments…come on, something does not smell right here. I have a personal theory that there is a growing number of debtors that are purposely defaulting in anticipation of a govt. bailout. She’s right though, the courts will be clogged with these deadbeats…….the more the better as she sees it. I hope you do not support that. Maybe you got sucked into BHO’s message last night though…. “the danger of too much government is matched by the perils of too little; that without the leavening hand of wise policy, markets can crash, monopolies can stifle competition, and the vulnerable can be exploited.” This woman and her ilk are neither vulnerable nor exploited but are pure opportunists and waiting for some govt. “wise policy” in the form of a personal bailout. My outrage is that there is a growing number of Americans that are looking for any way to avoid paying perfectly legitimate debts.

    Finally, I know you have jumped on the evil BOA CEO bandwagon lead by the state controlled media and can’t wait for the political show trials to begin. As I see it though, their alleged improper actions were the direct result of the extorting “leavening hand of wise govt. policies”…….putting a gun to the head of the evil CEO’s. Here is a general rule I have…..if Olberman and Madow are leading a bandwagon….it’s a bandwagon I don’t want to join.

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  • admin says:

    Very good point… I agree I didn’t clarify my point on this one. I’ve added the following note to this post:

    **Note: I don’t advocate people not paying perfectly legitimate debts. I think the woman from this clip will regret her actions after receiving all the late fees, collection calls, lower credit, and eventual recovery lawsuits. As long as she fails to pay, she deserves everything that is coming. I also don’t advocate 30% interest rates but still don’t see this as an excuse not to pay. The purpose of this is to illustrate a growing resentment from Main Street and a positive trend towards doing something about it. Making videos like these are important to spreading the word and mobilizing an angry populace.**

    The overall theme of the post was geared toward providing numerous examples of a fed-up public. I expect this to become popular throughout the web. Perhaps some are anticipating a government bailout, but I think the larger trend is a country sick of debts. This is why the consumer is de-leveraging and savings more. It represents a positive trend that Americans are finally learning their lesson. Who knows what crazy tricks the Bailout Team have up their sleeves but hopefully anyone hoping for a personal debt bailout is met with significant disappointment.

    Finally, on to the “evil BOA CEO bandwagon”. I’ve said numerous times how I don’t blame Ken Lewis for taking Merrill Lynch with government loss guarantees. It may take some time, but they’ll eventually emerge stronger than ever. Where I find fault is not disclosing the agreement to shareholders, taking Merrill under government threat, and the Merrill bonus fiasco. If any of his conduct is criminal, I hope he and all involved parties are prosecuted (and it appears some might be). I’ve also stated numerous times how I believe Paulson and Bernanke were complicit in this arrangement and may also be guilty of defrauding BOA shareholders. I think their actions are much worse and deserve strict accountability. I hope more than two ridiculous commentators are hoping criminal acts are prosecuted, no matter who perpetrated the crimes. If no criminal acts are found, that’s fine but I still will criticize the arrangement as unfair.

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  • Jae says:

    Say……. I can only read the top half of her T-Shirt but do you think that “I Love” (heart shape) T-Shirt she is wearing in the video says “I Love to Screw My Creditors”?

    What exactly don’t you like about a 30% interest rate Danny? I suspect if investors would have demanded a higher risk premium for all that CMO garbage we would not be in the mess we are in. Remember, risk needs to priced appropriately…..if the number is 30%, well that is the number. If you don’t like it, don’t borrow.

    Count me in as one of the fed-up public….I’m fed-up with a lot things though.

    If any BOA exec goes to jail, then Bernanke should be his cell mate. I’m a lot less concerned about a trumped up BOA show trial then the almost daily violations of the constitution by the BHO administration. Can you go to jail for violating the constitution? Talk about something that is criminal.

    Finally……..be careful dismissing my Olberman/Madow rule as simply the ranting of an angry middle aged man…in the long run, you want to be on the other side of these two.

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  • admin says:

    I think it says “I love Ken Lewis”… if you notice she kept referencing the late Ken Lay of Enron (by mistake or not?). Perhaps this was all a misunderstanding from BOA and her true hostility was years of lingering frustration at being an Enron shareholder in 2001.

    30% is acceptable in your opinion? From BOA’s perspective, fine that’s the price of risk like you say. 30% makes them truly sound like a loanshark though. Especially when this is a repricing and not a loan origination… a better business strategy from them would simply be to reduce her credit limit. This is exactly what will be covered in the new credit card legislation. She already has a balance, which she is making minimum payments each month. If she continues using this credit card, her new charges will be 30% interest while any new payments are applied to the lowest interest rates on her existing balance. Let’s assume she was responsible and decided to pay the entire balance but needed short term relief from charging daily expenses. You’re telling me she should automatically get 30% on any new charges? That’s usury at its finest. It’d be incredibly stupid if she borrowed at these rates but it’s also an abusive practice from BOA. I expect much of this to be resolved by the time the credit card legislation goes into effect next year.

    On your Bernanke cell-mate point, yes I agree. I’m still waiting for you to lump Mr Paulson in that group. I feel like I’m partially successful in turning you against Bernanke but Paulson definitely needs to be added to the list. Geithner is too easy to target… his personal presentation does it enough as you could see from today’s post. Paulson must require a little more work.

    Yes, I am on the opposite side of Olberman/Madow 99% of the time I suspect. I’ve never seen either program in full (I think I have seen about 5 minutes of each show when I accidentally landed on that station. Then my remote’s battery must’ve gone out or I probably would’ve corrected the mistake within seconds. Must be a conspiracy of the state controlled cable providers! Although I could definitely substitute Hannity or Beck in any of the statements I made above).

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