Disastrous Performance By Treasury On Capitol Hill

By Simon Johnson

The campaign to convince people that Treasury is serious about banking reform – led sometimes by President Obama – suffered a major blow today on Capitol Hill.  In testimony to the Congressional Oversight Panel, Assistant Secretary for Financial Stability “and Counselor to the Secretary” Herb Allison said, “There is no too big to fail guarantee on the part of the U.S. government.”

This statement is so extraordinarily at odds with the facts that it takes your breath away. 

Should we laugh at the barefaced misrepresentation of what this administration has done (and the Bush team did) – or just dig out “Too Big To Fail” by Andrew Ross Sorkin and go through all the gruesome details again?  Should we cry for what this implies about Secretary Geithner’s commitment to real reform – if there is no issue with “too big to fail”, then why do you need any new laws that try to address this issue (e.g., such as the Volcker Rules, sent to Congress this week)?

The temptation is to shrug and ignore repeated such insults to our intelligence and implied injury to our pocketbooks.  But this would be a mistake. 

I want an answer to this question: Who authorized Mr. Allison to make this statement, and what were they thinking?

If Mr. Allison was free-lancing, we should discuss the consequences.  If Mr. Allison was sticking to his talking points, as seems likely, let us find out exactly who is responsible for sharing arrant and self-defeating nonsense with Congress.  The disrespect for our legislature and cynicism for mainstream opinion here is beyond what is tolerable or responsible.

The Obama administration has dealt itself another formidable blow.

46 responses to “Disastrous Performance By Treasury On Capitol Hill

  1. Someone should do a poll on when the Obama Administration jumped the shark. Multiple choice, with 5 or 6 answers running from “January 20, 2009″ through “today”.

  2. bob goodwin

    blame the credit crisis on the consumers? my god. While we are at it, lets cancel bankruptcy and open debtors prisons. That proved effective too.

  3. DakotabornKansan

    “As he rose like a rocket, he fell like a stick.”

  4. keep up the good work Simon. America is with you.

  5. What else should we expect from a pompous, pretentious, contemptious, inept tax cheat like little Timmy?

  6. We can vent all we want about the latest display of arrogance and hubris but as far as I can see, the only way to properly address the problem is . . .

    PUBLICLY FUNDED ELECTIONS.

    This is the issue that Ariana Huffington and others should be pushing. “Move your Money” addresses a symptom, not the cause.

  7. Wait, so now you’re criticizing Treasury for not explicitly saying that they would bail out the big banks? Get a grip buddy.

    Your intelligence needs to be insulted. Repeatedly.

  8. Show me an example, anytime or anywhere, in which the Repugnant party,the party of free enterprise, ever has realized that bad business practices, monolpolies and corrupt businesses are a danger to free enerprise

  9. The administration supported, nay encouraged, changing FASB’s mark to market rules? The banks STILL enjoy the benefit of that change (and probably will for some time). If they didn’t have that rule, many would be out of business.

    To my mind, that’s a bailout, and its POLICY.

    Simon criticizes Herb Allison’s remarks because they intentionally misrepresent the policy, pretending that the Fed and the FASB act without Government authorization or consent. If bailout (that is, taking extreme measures to protect the financial system) is not POLICY, then policy is to allow banks to defaud customers and investors by keeping two sets of books. Which is it?

  10. We still have the problem of big banks. They are dangerous to society, politically and economically.

    Publicly funded elections and anti-lobbying measures and cap of banks can create the level playing field from which all good things flow.

    “Big Four” is Now a Term on Wikipedia as of December 2009. It’s still a stub article, but it’s there. Help fill it out:

    http://en.wikipedia.org/wiki/Big_four_banks

    The big 4 banks together are a dangerous entity in society. Together, they pose danger to society, the economy, and politics. They each have past the size of a company that makes a company more efficient and have become giants that hold the strings to our country. They have gone into the territory of overpricing, dominating politics, and taking down the country without remorse when they fail.

    How are the big 4 banks dangerous? These big 4 banks have grown to infallible proportions. They have killed off any real competition and now anything they want, including the dangerous stuff, is deemed okay.

    Most likely, your wages haven’t gone up in the past 20 years, we have around 20% un(der)employment, millions of foreclosures, $700 billion of household debt, lack of individual political power, & our state and local budgets have been wiped out.

    We have Greece’s debt turned into a money-making insurance policy by a Big 4 and a Big 6. Bankster’s blog explains Greece: “It’s “like selling a car with bad brakes and then taking out an insurance policy on the driver.” Greece is “too-big-to-fail”. Goldman Sachs helped get more debt, and then sold “insurance policies” on Greece’s debt, betting on it going bust.

    http://banksterusa.org/content/how-goldman-wins-no-matter-what

  11. Brock Sampson

    This looks it might be taken out of context to me. It’s sorta like if Tiger Woods would say “I didn’t have a ‘cheat with waitresses’ policy, but it kept ‘just happening.'” Probably Allison meant the same thing, that there’s no explicit policy like that written down anywhere.

  12. The Wall Street Journal article only points to this empty assertion with no context or no indication to what it was in response to. It then goes on to Elizabeth Warren’s statements which seem to contradict Mr. Allison’s (and makes sense) but then it moves on. It does not indicate what response Congress members had to Mr. Allison’s comments or how Mr. Allison was able to defend his remarks, or explain the existence of TARP.

    Is there a full transcript of the hearing available somewhere so we don’t have to rely on the one or two paragraphs that some Wall Street Journal columnist thought was relevant?

  13. Was Asst Secy Allison lying? No, not in the bureaucracy of any large scale organization. First, the TBTF drama of September 2008 and later was very obviously ad hoc. Saving the life in the emergency situation. That is not policy. Even more to the point is that there was very obvious mass disconnection and counter positions that would not have been there had a policy been in place.

    Ok , what about Obama? Practicality dictated that Obama’s minions continue the policy or they would have been left with a total catastrophe while they were still neophytes about the underlying details.

    A policy would not even have been deliberate withdrawing of support at Treasury along with an attack on the Federal Reserve policy of buying non monetary securities as happened in the spring of 2009.

    The problem is that there is no coordinated policy in existence by proper coordinated authority run by the head of state. The creation and implementation of policy is the province of the head of state or company in any bureaucratic organization.

    What we have is the opposite of policy considerations. Helter Skelter politics.

    What we really have is a state and corporate bureaucracy that is uncontrollable and beyond effective policy that is aided by a totally anarchic legislative authority be it Congress or a Board of Directors.

    We do have legislative policy in the US, if nought else, the policies enacted by the Full Employment Act of 1946 , as amended. Executive policy, where the rubber hits the road, simply functions way below what is acceptable performance.

  14. Just sticking with post-election items, I nominate the day he appointed Summers and Geithner, or the day he named Emanuel, whichever came first (I don’t remember).

    Each of those was a clear, intentional signal to Wall St that the incoming administration was in the bag for the banks just as much as the prior ones. (Although via Rubin they of course already knew that, though it wasn’t yet official.)

  15. Mr. Allison said:

    “Assistant Secretary for Financial Stability “and Counselor to the Secretary” Herb Allison said, “There is no too big to fail guarantee on the part of the U.S. government.”

    Mark Twain wrote;

    “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.”

    (1835 – 1910)

  16. 03/04/10 at 12:33pm

    “Elizabeth Warren, who chairs the five-member Congressional Oversight Panel, said it was clear that financial markets do assume the guarantee exists, pointing to a recent ratings agency report that specifically noted the government’s role in backing Citigroup.”

    http://www.benzinga.com/158174/treasury’s-herb-allison-needs-a-truth-enema

  17. “I felt that I was entitled to temptations around me.”

    Tiger Woods

  18. I tried to publish comments 6 times in a row, and none of them appeared. I am baffled…

  19. Well said. I was waiting for the appointments to see where his head really was despite all the change and hope rhetoric. I read “The Shock Doctrine…” by Naomi Klein back in 2007 and it is all we needed to know re: Obama’s buddies.

  20. Well, people with bad faith can get to the point where most of their remaining capital is bad faith itself.

    Without impugning that any contemporary individual is as bad as the leader of Germany prior to WWII, let me point out that this individual was mentioning all the time in his pre-war discourses that he was a man of “peace”. And defending the self determination of minorities (German speaking ones, as in the Sudeten land or various parts of Poland, etc.). The worst is that he came to believe what he was saying and so did most other colleagues. They were all struck with disbelief when France and Britain declared war. They had lost any notion of what they had been doing for years.

    Drunk on their own propaganda, those Germans had not even seen they had gone too far, and they were sure the democracies were weak.

    As government keeps on giving to unfettered finance, it does not see that it is going too far, and many think that “We The PEOPLE” is weak and irrelevant. Someday, they will be proven wrong.

    PA

    http://patriceayme.wordpress.com/

    [I had to use the euphemism “leader of Germany”, because it seems that naming the individual by his name is blocked automatically. A strange idea, because in the precise religion that this individual persecuted the name of God was that whose name shall not be pronouced…]

  21. He was always one with Wall Street!

  22. Given Allison’s testimony, THE FASB MUST IMMEDIATELY RESTORE MARK-TO-MARKET ACCOUNTING.

    The logic behind suspending MtM was that bailout POLICY made realizing the loses irrelevant. If there is no such policy, then the FASB and FASB Board Members and Bank Boards are simply conspiring to defraud the FDIC, non-FDIC insured customers and investors.

    The MtM suspension and bailout/govt support was only supposed to be temporary anyway – until the market settled down and prices stablized. It has been in effect for a year now, the banks are so healthy that they have repaid TARP and given big bonuses, and everyone is hailing the (faux) “recovery” – so its time, by any measure to end, the MtM suspension.

  23. ditto

  24. Thank you for the observations.

    Important and useful.

  25. Sherparick1

    Sprechen Sie Deutcsh Patricia? Your whole post is a non-sequiter. If you are interested in what really happen in Germany, I suggest reading Shirer’s “The Rise and Fall of 3rd Reich” and Amahed’s “Lords of Finance” First, the groups in the United States most like the ultra-nationalists party of Germany are the Tea Party types and Cheneyites. They have the “thug” factor downn including the joyful adoption of the method of the Gestapo. No, our President is more like Streseman and Bruening, democratic and liberal men who were dominated by the ideas of zombie (also known as neo-classical) economics and who nailing the working and middle classes to the 21st century equivalent of a cross of gold and in doing so created the situation where a clever ideologue could rise on his philosphy of “blood and iron.”

  26. Persistence is the mother of success

  27. Could we please leave Mr Limbaugh out of this…Please..

  28. Allison stated a fact.

    If a TBTF entity called the Treasury tomorrow and announced they were a day from bankruptcy, there is no guarantee they would be bailed out.

    Would it smart to bail them out? Why, let’s allow Simon Johnson to blow the call.

  29. Maybe he meant that the policy has not literally be made a part of the CFR. Maybe this signals a change of heart at Treasury. Maybe pigs will fly and camels pass through the eyes of needles. Mirage, the latest adminstration dictum. Help me, I am holding a lantern in the dark and looking for an honest man. None found so far inside the Capital Beltway.

  30. the bailout planning and 95% of the bailouts rest with that former chairman of goldman slacks, what’s his name.

  31. He thinks he’s a young Paul Newman.

  32. A recent article over the ‘coup':

    The Financial Coup d’Etat: Consolidation of America’s Economic Elite

    http://www.globalresearch.ca/index.php?context=va&aid=17742

  33. Some of the commentators above would do well to check the proceedings: after Allison’s denial, panel member Atkins specified his question, saying: “I meant *implicit* guarantee”.

    Simon is – I think – rightly lamenting that, unsurprisingly, Treasury / Allison simply refuses to publicly acknowledge the obvious: that prior conduct by Treasury has *proven* the existence of an implicit guarantee. A guarantee that constitutes the comfortable basis for reckless behaviour by financial operatives.

    This refusal is not surprising, because the powers that be simply do not want to admit their mistakes.

  34. Will Dr. Goebbels please pick up the white courtesy phone?

  35. Shark jump candidate #1: August 2008, when Obama backed off filibustering FISA “reform” (retroactive immuninity for the telcos)

    Shark jump candidate #2: October 2008, when Obama whipped for TARP.

    Everything was already perfectly obvious, to those who were paying attention, by inaugural day, when it was obvious who was going to be “sharing” the sacrifice and who wasn’t.

  36. … to be then followed by the Twightlight Zone interlude :-)

  37. House of Representatives Speaker PELOSI, Nancy announced yesterday that Congress would pass the Healthcare legislation by this year’s EASTER, . Today’s book recommendation is “Free Lunch” by JOHNSTON, David C.:

    So we may expect something along the same lines for financial banking reform – the ”Big versus Risk’ debate…………………

  38. Reckless behavior? So I can go down to my local mortgage originator and get a no-doc jumbo, no money down, interest only mortgage and that originator will be able to sell that piece of garbage to a Wall Street firm that will securitize it into a AAA bond, etc., just like it was being done in 2007?

  39. BRUCE E. WOYCH

    we will spend the next three years arguing about big banks while the activity of the big banking problens goes on unabated. One big distraction conmcentrated on one segment of the economy rather than taking the economy’s health and kepping it in perspective.

    If the economy were simply a business than why is the foundation constricted; production strangled; prices rising (cost of living is up but people simply don’t buy “…ASYMMETRICAL INFLATION” IS A new phenomena in economic reality.

    If one wanted to dispearse money quickly into production it should be from the ground up. The very first place there could be some productive relief ACROSS THE BOARD would be on ground travel commercial transportaion. THE TRUCKING INDUSTRY serves every sector of the economy and the entire aggregate of both market and chain feeding lines of business. The cost of shipping effects everyone.
    The big banks own government, and the American people
    are simply not coordinated enough to force the Federal government to act tough against people more powerful then themselves.

    The American people can demand subsidy to their mainland bloodlines in the form of supporting the trucking industry. Support a gas subsidy for trucking that would put them out of debt and out of the hostile path of the big banks that are banking on their failure. Take actio. Call your representatives and demand support. Call the teamsters and let them know you are supporting them.

  40. Obama was always the most corporate and right-leaning of the major Democratic candidates. It was only his skin color that allowed so many liberals to delude themselves to the contrary. (He’s black, he must be liberal!) So Obama isn’t continuously shooting himself in the foot-he is governing as exactly who he is: a DINO. (Unfortunately at this point, you can argue the entire Party is Democrat in Name Only.)

  41. BRUCE E. WOYCH

    POLITICS IS “SELL OUT” BY OTHER TERMS. WE NEED A COALITION OF UNIONS ACROSS AMERICA TO START COMMUNICATING AND STANDING TOUGH. THE ONLY DIFFERENCE BETWEEN NOW AND 1929 IS THAT WEALTHY SPECULATORS JUMPED OUT OF SKYSCRAPERS (OR SO THEY SAY)IN THOSE DAYS. IF THE BANKSTERS KEEP UP THIS TOTAL RAPE OF THE AMERICAN ECONOMY MAYBE IN THIS ERA THEY SHOULD BE HELPED OUT THOSE SAME WINDOWS

  42. BRUCE E. WOYCH

    TARP MONEY FOR FUEL: TRUCK THE BANKS!

    I GREW UP IN A TRUCKING WORLD AND THINK IT IS THE TRUE HEARTLAND OF AMERICA. FROM WHAT I HAVE SEEN THE REAL TROUBLE STARTED WITH FUEL PRICES AGAINST THE TRUCKING INDUSTRY. THE ECONOMY IS BEING SUCKED DRY BY PAPER CORPORATIONS AND BANKS AND THEY ARE THRIVING ON LITERALLY SELLING US ALL OUT AND DOUBLE DEALING AGAINST DEFAULT.

    WITHOUT REPEATING WHAT WE ALL KNOW IS GOING ON IN BIG FINANCE SLEEPING WITH BIG GOVERNMENT; ISN’T IT TIME THAT A GROUNDSWELL BE CREATED NOT JUST IN SELF DEFENSE BUT IN COMMON SENSE!!!

    WHAT WE NEED ARE FUEL SUBSIDIES FOR COMMERCIAL TRUCKING TRANSPORT. THIS WOULD EFFECT EVERY SINGLE PERSON IN THIS COUNTRY AND EVERY SECTOR OF THE ECONOMY. THE “COST” BASED RELIEF WOULD FREE UP THE LIQUIDITY THAT IS NOW CONSTRICTED AT THE PRODUCTION LEVELS OF OUR ASSET BASED ECONOMY. ONE SIMPLE STROKE WOULD DISTRIBUTE A FOUNDATION SUPPORT TO EVERYTHING THAT HAS A TRANSPORTATION COST IN THIS COUNTRY (ALLOWING FOR GREATER PROFITS AS WELL FROM THOSE ITEMS THAT WE DO EXPORT). EVERYONE BENEFITS AS LONG AS A SOLID CAP IS KEPT ON THE GREEDY SIDE OF THE PETRODOLLAR AS WELL.

  43. Politics is the Art of the Possible. Another major bailout of a failed private sector financial institution in inconceivable politically so why be surprised? The same is true in UK and Europe. Note I said “private sector”. Public sector like sovereigns, Freddie Mac etc is another matter. In fact wiser politicians would probably like a major private sector failure to happen soon so as to help focus some of their intransigent (aka corrupted) colleagues to face reality and lose their seats. Creative destruction is plan B (at last).

  44. “As he rose like a rocket, he fell like a stick.” The best image yet. Twirling, flailing, crunch. The night of Obama’s election victory speech, my 16 year old son looked at the massive crowd and said, “How do you think they’ll feel in 4 years?” “…disappointed.” Another wasted vote.

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