‘TARP At Least Had Some Strings Attached’

Wall Street Banks Earned Billions In Profits Off $7.7 Trillion In Secret Fed Loans Made During The Financial Crisis.

Mistakes Obama Has Made

Mistakes Obama has made: Timothy Geithner.

What Comes After Capitalism? Don’t Say Socialism

Does the word postcapitalism look odd to you? It should, because you hardly ever see it. We have a blank spot in our vision of the future. Perhaps we think that history has somehow gone away. In fact, history is with us now more than ever, because we are at a crux in the human story. Choosing not to study a successor system to capitalism is an example of another kind of denial, an ostrich failure on the part of the field of economics and of business schools, I think, but it’s really all of us together, a social aporia or fear. We have persistently ignored and devalued the future—as if our actions are not creating that future for our children, as if things never change. But everything evolves. With a catastrophe bearing down on us, we need to evolve at nearly revolutionary speed. So some study of what could improve and replace our society’s current structure and systems is in order. If we don’t take such steps, the consequences will be intolerable. On the other hand, successfully dealing with this situation could lead to a sustainable civilization that would be truly exciting in its human potential.

What comes after capitalism? Kim Stanley Robinson has a report on the future, while David Harvey investigates what comes right before what comes after capitalism.

No Longer Super Sweet

Ladies and gentlemen, Toothpaste for Dinner.

More on AIG

The company claims any failure by the government to [back all of AIG’s obligations] would have catastrophic consequences. This claim is exaggerated. Serious consideration should be given to forcing AIG’s partners in derivative transactions — which are mainly buyers of credit default swaps from the company — to take a substantial haircut.

More on AIG: “AIG Still Isn’t Too Big to Fail,” by Harvard Law’s Lucian Bebchuck. Via Josh Marshall, who provocatively writes:

These are derivatives, in many cases high-stakes bets on underlying assets the purchasers did not themselves own. So, you insure your house for fire damage. And I insure it too, even though it’s not my house. Your house burns down and you get the policy payout to rebuild your house. But I just want my money because a deal’s a deal. I have no problem with old-fashioned gambling. And if people want to play with their money this way, I’ve got no problem with that. But if the casino itself goes bust, don’t come to me and talk about having moral claim on your winnings that I need to cover.

AIG: Numbers Don’t Lie:

Let’s start off with xkcd’s lesson in how numbers lie.

As I’ve been saying both up top and in the comments the significance of this AIG bonus outrage is being badly overblown. The bonuses are a nice red-meat issue for the media circus but they’re basically a rounding error with regard to the scale of the bailout as a whole. Nate Silver is basically right here precisely because, as the cliche goes, “hard facts make bad law”—though his comparison to the Terry Schaivo case flounders at the fact that this silly thing the Congress is doing has wide popular support. (Nate and Josh Marshall both have more on the possible unintended consequences of this poorly thought-out new tax.)

As I’ve been trying to argue, the only relevant consideration regarding the bonuses is whether they were legal contracts, negotiated in the proper way and not predicated on fraudulent accounting or other illegal activity. Andrew Cuomo and Eric Holder should be investigating the bonuses, in other words, not Barney Frank. If they were legal, and their terms were met, pay them out; if they were fraudulent or predicated on fraud, arrest people.

What angers me about this situation is the widespread assumption that of course the bonuses are legal (just ill-advised), just like of course everything AIG did was legal but ill-advised. See, for instance, Ezra Klein on Madoff:

Madoff knew his investment scheme was a fraud. Wall Street should have known their investment schemes were a fraud.

Give me a break. Plenty of people on Wall Street knew their investment schemes were fraudulent. Those people are crooks, not dupes, and criminal prosecutions are the way we find out who they are.

(EDITED TO ADD: You can draw a distinction between AIG and Madoff, but it’s the distinction between two separate categories of crime, not between the guilty and the innocent.)

Repeating what I wrote in answer to Shankar’s question “Criminal Prosecution for what?” last night:

Well, that’s the job of state and federal prosecutors to determine. But there’s plenty of reason to think that (say) underwriting billions trillions of dollars in insurance obligations you know you have no capacity to pay out on is an abrogation of your fiduciary obligations — just for starters. Fraud and dishonest account methods were rampant in the banking industry, which has strict rules about this sort of thing that plainly weren’t followed. It’s not *just* stupid — in many cases it was stupid and illegal. Or so it seems to me.

…To add the obvious disclaimer, I’m not a lawyer, much less a prosecutor. But the treatment of the issue in the media tends to frustrate me on this point. Generally speaking the operative assumption seems to be “Oops, and they all got away with it” — that what they did was obviously legal, just slimy, and so we’re all just going to have to swallow our anger and move on. I don’t know that it *was* legal in all cases, and if CEOs and CFOs broke the law in chasing these bogus returns then DOJ and state AGs absolutely need to get involved. It’s a much higher priority for me than retributive taxation of contracts that are obscene (but probably legal) in an industry where the payment of obscene salaries is already (and still) an unchallenged norm. The bonuses are peanuts compared to the amount of money that’s already vanished.

Who Could Have Predicted?

Who could have predicted that putting the people who caused the problem in charge of fixing the problem would go so wrong? Say goodnight, Timothy.

Meanwhile, the situation at AIG may be much, much worse than anyone is admitting, while Kos and Josh Marshall are making sense: the real issues remain immediate triage of the economy, long-term systemic reform, and criminal prosecution of the widespread malfeasance throughout the financial sector. The bonuses suck, but they’re really secondary. Let’s not lose focus.