Fed Intends to Hire Lobbyist in Campaign to Buttress Its Image – Bloomberg.com – Robert Schmidt – 5 June 09

The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said…Linda Robertson …headed the Washington lobbying office of Enron Corp…also an adviser to all three of the Clinton administration’s Treasury secretaries….Lawrence Summers, Robert Rubin and Lloyd Bentsen…”People have been asking whether the Fed is capable of getting its job done right,” said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. “Hiring a former lobbyist from Enron will surely make one wonder.”..

Threads and Leather Straps Bind a Business – New York Times – Adam B. Ellick – 27 April 09

… deep in the nation’s commercial capital, just next door to a mosque and the offices of a radical Islamic organization, in an unmarked house two Pakistani brothers have discovered a more liberal and lucrative use for the scourge: the $3 billion fetish and bondage industry in the West.

Their mom-and-pop-style garment business, AQTH, earns more than $1 million a year manufacturing 2,000 fetish and bondage products, including the Mistress Flogger, and exporting them to the United States and Europe….

It helps that the dozens of veiled and uneducated female laborers who assemble the handmade items – gag balls, lime-green corsets, thonged spanking skirts – have no idea what the items are used for. Even the owners’ wives, and their conservative Muslim mother, have not been informed.

“If our mom knew, she would disown us,” said Adnan, seated on a leopard-print fabric covering his desk chair…

Even customs officials were perplexed at how to tax the items, not quite sure what they were, they said.

Recently, when a curious employee inquired about the purpose of the sleep sack, a sleeping bag-like product used in certain kinds of bondage, she was told it was a body bag for the American military in Iraq…

Still, word of the business has at times escaped. Last year four “powerful guys” from a conservative Muslim group threatened to burn down the factory if it was not closed within a week. The brothers calmly explained that it was merely a business, and that the items were not used in Pakistan. The next day they bribed a local Islamic political organization to ensure their safety…

Then, they discovered a kind of straitjacket online. At first, they thought it was used for psychiatric patients, but it quickly led them to learn about the lucrative fetish industry.

Today, they sell their products to online and brick-and-mortar shops, and to individuals via eBay. Their market research, they said, showed that 70 percent of their customers were middle- to upper-class Americans, and a majority of them Democrats. The Netherlands and Germany account for the bulk of their European sales.

“We really believe that if you are persistent and hard working, there is an opportunity, in any harsh environment, even in an economically depressed environment like Pakistan,” Rizwan said.

A major perk, they say, is attending international fetish shows to see how their products hold up in action.

“I go to Sin City every year,” said Rizwan, referring to Las Vegas in a sheepish laugh. It’s all business, he said. “Clients know our country and culture, and they don’t invite us to participate. We’re a little bit shy.”

Geithner’s plan uses stress tests to force banks to sell assets to “public/private partnerships” directed by “private investors” whose incentives are to buy the best assets at the cheapest price. The taxpayers subsidize the pools with cheap financing and continue to subsidize the banks now stripped of any undervalued assets and left with the most toxic of their assets – and then even non-participants are required to mark-to-market to the depressed prices bid by the “private partners” who make large bonuses while the taxpayers foot the bill – sounds like a plan to me.

Geithner’s plan assumes that the big issues are a) a credit crunch and b) a liquidity crunch. The counter is that a) demand for credit is down since the economy is down and smaller banks are lending and b) the cause is an asset crunch, i.e. the bubble has collapsed, the emperor is naked, and we ain’t worth what we thought we were. If Geithner is correct, more money, more credit, liquid plumber works. If the asset collapsing arguments are correct, then Geithner is simply trying to re-inflate the bubble, zombie banks are funnels for government money going down the drain, and the patient is bleeding out faster than then they can pump plasma in.

The reality is both and more. The bubble has collapsed. The “assets” aren’t worth what everyone claimed they were worth and financial institutions, companies, and households have far less net worth than they thought they had. And the economy is slumping and creditworthy borrowers aren’t so creditworthy anymore. And yes – some assets overshot on the downside and are now undervalued. Surprise, surprise markets aren’t really efficient – who’d have thunk?

The real problem with Geithner’s plan: it focuses on Wall Street and money-center banks. It assumes that they are the economic heart and if we keep them pumping the blood will flow through to Main Street and homo economicus will eventually heal with the assistance of a few other government interventions. But perhaps it would be more efficent and effective to triage and go directly to the problems. Instead of pouring money into AIG so it can forward the funds to it’s counterparties – why not put it in bankruptcy – spin out the insurance and other functioning divisions and tell the counterparties to call the Treasury if AIG’s default was too much to bear? At least then we would have an inkling of where the money was going. Of course it would be quite an interesting political battle get such honesty through Congress!

In the meantime, Wall Street is already figuring out how to scam the system.

And of course – what if no one shows up at the auction?

Geithner Deals Wall Street a Can’t-Lose Hand- Bloomberg.com -  Margaret Carlson – 26 March 09

…To love Geithner’s plan, you have to embrace his philosophy that what’s good for Wall Street is good for America. Under it, bad banks and the bad bankers who run them will get bailed out, bonused up and bankrolled for another roll of the dice at the high-stakes table in what’s called the “legacy securities” program.

…This casino differs from those in Las Vegas in that the bank plays with Other People’s Money and if anyone loses, it’s on the house. And oh yes, dear taxpayer, we’re the house. Without even the momentary thrill of placing chips on the table, the taxpayer picks up the tab.

…Leveraging Other People’s Money got us in the trouble we’re in. A year from now, members of Congress besieged by angry constituents suckered again may lock and load anew trying to do something about the windfall that went to Wall Street while the economy remained frozen for Main Street.

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Private Public Partnership Details Emerging – Naked Capitalism – Yves Smith – 21 March 09

…If the money committed to this program is less than the book value of the assets the banks want to unload (or the banks are worried about that possibility), the banks have an incentive to try to ditch their worst dreck first…the banks, as in normal auctions, will presumably set a reserve price equal to the value of the assets on their books. If the price does not meet the reserve (and the level of the reserve is not disclosed to the bidders), there is no sale…A competitive bidding process will elicit a higher price which is BAD for taxpayers!…

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Reorganising the banks: Focus on the liabilities, not the assets – VOX - Jeremy Bulow & Paul Klemperer – 21 March 09

Fixing the banks is an absolute priority in G7 nations. Doing this by buying toxic assets is costly, inefficient, and risky. Governments should focus on which liabilities, rather than which assets, they need to support. This column proposes creating “bridge” banks as a way of re-establishing a healthy banking system.

Summary of the argument

1. We cannot efficiently value or transfer “toxic” assets – so a good plan cannot depend upon this.

2. The UK’s Special Resolution Regime, or one similar to that of the US FDIC, can cleanly split off the key banking functions into a new “bridge” bank, leaving liabilities behind in an “old” bank, thus also removing creditors’ bargaining power.

3. Creditors left behind in the old bank can be fairly compensated by giving them the equity in the new bank.

4. We can pick and choose which creditors we wish to “top up” beyond this level, but should not indiscriminately make all creditors completely whole as in recent bailouts.

5. Coordinating actions with other countries will reduce any risks.

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Good Bank vs. Bad Bank: Don’t touch the unsecured creditors! Clobber the tax payer instead. Not. – VOX – Willem Buiter – 14 March 09

Zombie banks need fixing. Good Bank and Bad Bank solutions are the leading contenders. This column reviews the implications for distributional, incentive, and financial stability effects. It argues that too-big-too-fail bank should immediately be taken into public ownership and restructured decisively through a mandatory debt-to-equity conversion or debt write-down. The Fed and Treasury have been captured by save-unsecured-creditors reasoning pushed by special interest groups.

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Geithner plan will rob American taxpayers: Stiglitz – Reuters – Susan Fenton and Deborah Kan – 24 March 09

The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak…”The Geithner plan is very badly flawed,”…offered “perverse incentives,” …”Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”….

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