Dean Baker on C-Span 2

by Dollars and Sense

Dean Baker was on C-Span 2 this weekend; you can view the segment online, here. Hat-tip to Joel H. Here's what the C-Span website said:

Plunder and Blunder:The Rise and Fall of the Bubble Economy

Author: Dean Baker

About the Program

Mr. Baker discusses the growth and "predictable" collapse of the housing and stock market bubbles and is critical of both the Reagan and Clinton administrations. He details the mistakes of Alan Greenspan and Clinton Treasury Secretary Robert Rubin. He offers suggestions for preventing additional financial crises and advocates massive government spending to combat the recession.

About the Author

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is a frequent guest on National Public Radio, Marketplace, CNN, CNBC and other news programs. Mr. Baker has authored several books, including "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" and "The United States Since 1980." He received his Ph.D in economics from the University of Michigan.

Labels: Alan Greenspan, Dean Baker, financial crisis, housing bubble, Robert Rubin

 

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2/24/2009 01:06:00 PM 0 comments

 

Citi Breakup in Sight (Reuters)

by Dollars and Sense

This just in from Reuters; Robert Rubin's departure from Citigroup appears to have been a prelude to this. The concept of a "bad bank" is intriguing—wouldn't that be a matter of interpretation, though?

Reuters updated the article (and ratcheted up the worry) while I was working on this post; here are the first few paragraphs of the milder version, with the first few paragraphs of the more dire one "Worries Over Citi Mount") afterwards, with a link.

By Dan Wilchins and Joseph A. Giannone

NEW YORK (Reuters) - Citigroup Inc agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth management unit on Tuesday, and is expected to make further asset sales to raise capital and to isolate toxic assets from the rest of the bank.

Citigroup, once the world's largest bank, may announce plans on January 22 to formally shed the "financial supermarket" approach once championed by former Chief Executive Sanford "Sandy" Weill, but which is now being disavowed by Chief Executive Vikram Pandit. It is expected the same day to post a big fourth-quarter loss.

Citigroup is planning to adopt the equivalent of a "good bank, bad bank" structure, in which it would slim down to a business model recalling the former Citicorp, a person familiar with the plan said.

The plan envisions focusing on corporate, investment and retail banking and keeping a slimmer trading business, while moving unwanted assets and businesses such as complex debt to a separate structure, the person said on condition of anonymity.

Citigroup's "bad bank" would have about $600 billion of assets, close to one-third of Citigroup's balance sheet, which could eventually be sold or spun off, the person said.

Here's the scarier Reuters post, updated a few minutes ago to reflect Citi's tumbling stock prices today:

Worries over Citigroup mount
NEW YORK (Reuters) - Citigroup Inc shares tumbled Wednesday as investors and analysts worried about whether the bank can be profitable and function effectively as it unravels its business model.

The bank on Wednesday said it will report fourth-quarter results on January 16, six days earlier than originally planned. It is expected to post a multibillion-dollar loss.

Rival JPMorgan Chase & Co also moved up its earnings release six days and is due to report on Thursday.

Once the world's largest bank, Citigroup is expected to shrink by about a third as it focuses on corporate, investment and retail banking and trims its trading operations, a person familiar with the plan said.

Citigroup will also put businesses and assets it no longer wants into a separate structure with an eye toward eventual sales, the person said.

The disposals will mark an about-face for Chief Executive Vikram Pandit, who had endorsed retaining large parts of the "financial supermarket" created by former CEO Sanford "Sandy" Weill, who created Citigroup in a 1998 merger.

A drumbeat of analysts and investors has questioned whether Citigroup or market developments will give Pandit, who became chief executive in December 2007, time to finish the job.

Citigroup has received two lifelines from the U.S. Treasury Department's Troubled Asset Relief Program, getting $25 billion in October and $20 billion in November. The second infusion involved an agreement by the government to share in some losses, in exchange for preferred stock and warrants.

On Tuesday, Citigroup announced plans to combine its Smith Barney brokerage and other businesses with Morgan Stanley's wealth management unit, bolstering capital.

Morgan Stanley will pay $2.7 billion to Citigroup and take a 51 percent stake in the joint venture, with the ability to buy all of it after five years.

"There is no other way to view this move, in our opinion, than as a way for Citigroup to raise cash prior to its fourth-quarter earnings release," Oppenheimer & Co analyst Meredith Whitney wrote. She said she expects further asset sales or spinoffs as Citigroup's balance sheet losses mount.

But in tight credit markets, Citigroup's ability to spin off assets may be limited, and the bank is still exposed to a deteriorating economy that is expected to cause credit losses, such as in credit cards, to soar further.

David Trone, an analyst at Fox-Pitt Kelton, said major asset sales are "not even feasible" in this environment. He said the only option is to split Citigroup into separate, publicly-traded companies.

"By overhyping Citi's intentions, all today's reports will do, in our view, is establish false expectations in the market," he wrote. "When the market realizes that management has no intention or no ability to find buyers in any event, we see Citi's stock falling in disappointment."

Eight analysts who issued estimates in the last week forecast, on average, that Citigroup would report a fourth-quarter loss of $1.00 per share, according to Reuters Estimates.

In morning trading, Citigroup shares fell 82 cents, or 13.9 percent, to $5.08 on the New York Stock Exchange.

Read the rest of the article.

Labels: bank failures, banking system, Citibank, Citigroup, Robert Rubin

 

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1/14/2009 10:47:00 AM 0 comments

 

A Job Loss (at Citi) We Don't Mind

by Dollars and Sense

Just posted at Reuters. Hat-tip, again, to Larry P.

Robert Rubin quits Citigroup; Citi's shares drop

NEW YORK (Reuters) - Robert Rubin, the former U.S. Treasury Secretary, has resigned from Citigroup Inc, following months of criticism of his performance at the bank.

Rubin, 70, is stepping down immediately as senior counselor at New York-based Citigroup. He will remain a director until Citigroup's annual meeting later this year. Rubin joined the bank in 1999.

In a letter to Chief Executive Vikram Pandit, Rubin praised management for making the "tough decisions" to restore Citigroup to health. But he admitted to not having seen the recent deterioration in markets.

"My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today," Rubin wrote.

Read the rest of the article.

Labels: Citigroup, financial crisis, Robert Rubin

 

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1/09/2009 04:30:00 PM 0 comments

 

The High Priests of the Bubble Economy

by Dollars and Sense

Dean Baker via Yves Smith of Naked Capitalism; hat-tip to Ben Collins.

Dean Baker goes full bore after two deserving targets, Bob Rubin and Larry Summers, at TPM Cafe. Key excerpts:

Along with former Federal Reserve Board chairman Alan Greenspan, Rubin and Summers compose the high priesthood of the bubble economy. Their policy of one-sided financial deregulation is responsible for the current economic catastrophe.

It is important to separate Clinton-era mythology from the real economic record. In the mythology, Clinton's decision to raise taxes and cut spending led to an investment boom. This boom led to a surge in productivity growth. Soaring productivity growth led to the low unemployment of the late 1990s and wage gains for workers at all points along the wage distribution.

At the end of the administration, there was a huge surplus, and we set target dates for paying off the national debt. The moral of the myth is that all good things came from deficit reduction.

The reality was quite different. There was nothing resembling an investment boom until the dot-com bubble at the end of the decade funnelled vast sums of capital into crazy internet schemes. There was a surge in productivity growth beginning in 1995, but this preceded any substantial upturn in investment. Clinton had the good fortune to be sitting in the White House at the point where the economy finally enjoyed the long-predicted dividend from the information technology revolution.

Rather than investment driving growth during the Clinton boom, the main source of demand growth was consumption...

The other key part of the story is the high dollar policy initiated by Rubin when he took over as Treasury secretary...

A lowered dollar value will reduce the trade deficit, by making US exports cheaper to foreigners and imports more expensive for people living in the US. The falling dollar and lower trade deficit is supposed to be one of the main dividends of deficit reduction. In fact, the lower dollar and lower trade deficit were often touted by economists as the primary benefit of deficit reduction until they decided to change their story to fit the Clinton mythology.

The high dollar of the late 1990s reversed this logic. The dollar was pushed upward by a combination of Treasury cheerleading, worldwide financial instability beginning with the East Asian financial crisis and the irrational exuberance propelling the stock bubble, which also infected foreign investors.

In the short-run, the over-valued dollar led to cheap imports and lower inflation. It incidentally all also led to the loss of millions of manufacturing jobs, putting downward pressure on the wages of non-college educated workers.

Like the stock bubble, the high dollar is also unsustainable as a long-run policy. It led to a large and growing trade deficit. This deficit eventually forced a decline in the value of the dollar, although the process has been temporarily reversed by the current financial crisis.

Rather than handing George Bush a booming economy, Clinton handed over an economy that was propelled by an unsustainable stock bubble and distorted by a hugely over-valued dollar...

While the Bush administration must take responsibility for the current crisis (they have been in power the last eight years), the stage was set during the Clinton years. The Clinton team set the economy on the path of one-sided financial deregulation and bubble driven growth that brought us where we are today. (The deregulation was one-sided, because they did not take away the "too big to fail" security blanket of the Wall Street big boys.)

For this reason, it was very discouraging to see top Clinton administration officials standing centre stage at Obama's meeting on the economy. This is not change, and certainly not policies that we can believe in.

Labels: Dean Baker, financial crisis, housing bubble, larry Summers, Naked Capitalism, Robert Rubin, Yves Smith

 

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11/13/2008 12:26:00 PM 0 comments

 

Was Wall Street's Banking Crisis Predictable?

by Dollars and Sense

This is from former D&S collective member Bob Feldman:

If you check out back issues of D&S and books like The Trouble With Capitalism: An Enquiry Into The Causes of Global Economic Failure by Henry Shutt, Origins of the Crash by Roger Lowenstein and American Theocracy by Kevin Phillips, you can see that Wall Street's banking crisis and crash of 2008 was a predictable one.

Of course Clinton Administration Treasury Secretary, Robert Rubin (who's apparently been advising the 2008 Democratic Party presidential candidate on how to solve the current crisis), played a big role in pushing for more U.S. banking industry deregulation in the 1990s. As Roger Lowenstein observed in his 2004 book, Origins of the Crash:

"In the spring of 1998, when...the Commodity Futures Trading Commission proposed a study...to revisit the question of whether to regulate derivatives, Greenspan, along with Rubin, quashed the idea...

"The Greenspan-Rubin duo pushed deregulation on numerous fronts. Glass-Steagall, the Depression-era law that separated banking, insurance, and underwriting was erased at the particular urging of Rubin...After burying Glass-Steagall, Rubin left the government to become a senior official at Citicorp--a financial superconglomerate made possible only by Glass-Steagall's repeal..."

Coincidentally, under the recent bipartisan corporate welfare bailout plan that both the Republican and the Democratic presidential candidates endorsed, $25 billion of U.S. Treasury tax dollars is to be invested in Citicorp stock. And, coincidentally, the fourth-largest source of 2008 campaign contributions ($499,598) for even the Democratic Obama presidential campaign came from executives of Rubin's failing Citicorp firm.

Labels: Bob Feldman, financial crisis, Henry Shutt, Kevin Phillips, Robert Rubin, Roger Lowenstein

 

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10/29/2008 10:34:00 AM 0 comments

 

The Committee To Screw the World

by Dollars and Sense

Excellent article from the Washington Post on the deregulatory atmosphere that enabled the formation of the overlapping super-bubbles in derivatives, credit default insurance, and all the other gizmos we've come to know and love (and will pay handsomely for):

What Went Wrong

How did the world's markets come to the brink of collapse? Some say regulators failed. Others claim deregulation left them handcuffed. Who's right? Both are. This is the story of how Washington didn't catch up to Wall Street.

By Anthony Faiola, Ellen Nakashima and Jill DrewWashington Post Staff WritersWednesday, October 15, 2008; A01

A decade ago, long before the financial calamity now sweeping the world, the federal government's economic brain trust heard a clarion warning and declared in unison: You're wrong.

The meeting of the President's Working Group on Financial Markets on an April day in 1998 brought together Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert E. Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr. -- all Wall Street legends, all opponents to varying degrees of tighter regulation of the financial system that had earned them wealth and power.

Their adversary, although also a member of the Working Group, did not belong to their club. Brooksley E. Born, the 57-year-old head of the Commodity Futures Trading Commission, had earned a reputation as a steely, formidable litigator at a high-powered Washington law firm. She had grown used to being the only woman in a room full of men. She didn't like to be pushed around.

Read the rest of the article.

Labels: Alan Greenspan, Brooksley Born, Commodity Futures Trading Commission, financial crisis, Lawrence Summers, Robert Rubin

 

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10/17/2008 03:02:00 PM 0 comments

 

Obama Tilt Toward Rubinomics

by Dollars and Sense

This is from Bloomberg.com; hat-tip to Doug Henwood of Left Business Observer.

Obama Tilt Toward Rubinomics Stirs Warning From Organized Labor

By Kristin Jensen and Matthew Benjamin

Aug. 18 (Bloomberg) -- AFL-CIO Secretary-Treasurer Richard Trumka delivers a slap at former Treasury Secretary Robert Rubin in a slide show exhorting union members to back Democrat Barack Obama for president.

Blaming unfettered global trade and inadequate government regulation for lost manufacturing jobs and a staggering economy, Trumka's presentation cautions that "it will do us little good if, when the next Democrat moves into the White House, Wall Street takes command of our country's economic policy."

Trumka leaves no doubt that the rebuke is aimed at Rubin, Wall Street's most prominent Democrat. It's "hard to tell the difference" between Rubin and Republican Treasury Secretary Henry Paulson, the presentation says. Trumka's critique reflects the concern among organized-labor officials that Rubin and like- minded Democrats may win the behind-the-scenes battle to shape Obama's economic thinking.

"I'm hearing Rubin's name more and more associated with the campaign's economic policy," says James Torrey, a top Obama fundraiser and chief executive officer of New York-based Torrey Associates LLC, a hedge-fund investor.

Rubin, who became chairman of Citigroup Inc.'s executive committee after leaving President Bill Clinton's Cabinet, represents policy priorities that would favor free trade and more emphasis on deficit-cutting budget discipline if Obama beats Republican John McCain on Nov. 4. Meanwhile, Trumka and his boss, AFL-CIO President John Sweeney, are pushing trade policies that would protect U.S. industries, universal health care, and spending on highway construction and other projects that would create union jobs.

Read the rest of the article.

Labels: Doug Henwood, labor, Left Business Observer, Richard Trumka, Robert Rubin

 

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8/18/2008 10:30:00 AM 0 comments