Testimony Reveals Need for Thorough Investigation of AIG Deals

William Black calls for a deeper investigation of the conflicts of interest that shaped the AIG bailout.

The truly extraordinary disclosures were that Paulson, Bernanke, and Geithner all purported to have had no involvement in one of the most expensive decisions in history — the decision to pay 100 cents on the dollar to the least deserving of recipients (and who, if Geithner’s testimony were to be believed, did not need to receive that largess) — and the unprincipled and indefensible decision to try to get AIG to cover up that fact and the beneficiaries of that largess. Indeed, Bernanke testified…

State of the Union Part II: Euphemisms, oxymorons and internal contradictions

Will Obama abandon myths about deficits and social spending? Or is Wall Street still in charge?

The State of the Union address is in danger of purveying the usual euphemisms. I expect Obama to brag that he has overseen a recovery. But a jobless recovery? What has recovered are stock market averages and Wall Street bonuses, not disposable personal income or discretionary spending after paying debt service.

There is a dream that what can be “recovered” is something so idyllic as to be mythical: a Bubble Economy enabling people to make money without actually working, by borrowing and riding the tide of…

Predatory Lending and Lender Liability

Henry Liu explains why predatory lenders should be forced to pay the price for their bad loans.

Ron Paul, Republican congressman from Texas, told Federal Reserve Chairman Bernanke in a hearing that the Federal Reserve is a “predatory lender.”  But he did not mention that by law, predatory lenders forfeit any right of collection.

In the United States, although predatory lending is not defined by federal law, and various states define abusive lending differently, it usually involves practices that strip equity away from a homeowner, or equity from a company, or condemn the debtor into perpetual indenture. Predatory or abusive lending practices can…

3 Reasons to Fear Bernanke’s Reappointment

Wall Street will remain in charge if Bernanke is reappointed, argues L. Randall Wray.

There is a lot of speculation over the reappointment of Ben Bernanke to continue to head the Fed, with the Obama Administration pushing hard. Of course, Wall Street is also calling in its favors. It looks like a done deal. The Administration has probably got the 60 votes required in the Senate to remove the hold, and the 51 votes needed for confirmation.

Does it matter? Well, on one level, this is a reward for incompetence — something that is never a good idea. Chairman Bernanke never saw…

Bill Black demands release of AIG emails–calls them ‘black box’ of financial crisis

This morning, Roosevelt Institute Braintruster William K. Black talked to Bloomberg’s Amy Liu about Timothy Geithner, Ben Bernanke, and the growing scandal over AIG emails. Black, along with Eliot Spitzer and Frank Partnoy, has been calling for the release of AIG emails on New Deal 2.0 for weeks. As they put in in last Friday’s post, the emails released to Darrell Issa spanning 5 months are just a glimpse (see “Tip of the Iceberg”) of what will be revealed if 10 years of documents are released to the public. In December, the three wrote an op-ed for the NYT insisting that the public…

Anti-Regulators: The Federal Reserve’s War Against Effective Regulation

Roosevelt Institute Braintruster William Black warns that the Fed’s failed leadership on regulation could lead us over another financial cliff–more catastrophic than the last.

The first decade of this century proved how essential effective regulators are to prevent economic catastrophe and epidemics of fraud. The most severe failure was at the Federal Reserve. The Fed’s failure was the most harmful because it had unique authority to prevent the fraud epidemic and the resulting economic crisis. The Fed refused to exercise that authority despite knowing of the fraud epidemic and potential for crisis.

The Fed’s failures were legion, but five are worthy of particular…

Fire Geithner Now!

Randall Wray on why President Obama needs a new economic team, starting with Tim Geithner.

There is a growing consensus that it is time for President Obama to fire Treasury Secretary Timothy Geithner. While he is at it, he needs to clean house by firing Larry Summers, by banning Robert Rubin from Washington, and by appointing a replacement for Chairman Bernanke. It is time for a fresh start.

Geithner is facing renewed scrutiny due to his questionable actions while at the NYFed. As reported on Bloomberg and in the NYT, secret emails show that the NYFed under Geithner’s command prohibited AIG from…

Bernanke’s Apology Doesn’t Cut It

Bernanke’s attempts to defend himself against critics is unconvincing, argues L. Randall Wray.

As discussed in Part 1 here, some of the policymakers responsible for this calamity have started to apologize. On January 3, Chairman Bernanke admitted that rather than using rate hikes back in 2004 to deflate the housing bubble, the Fed should have used “[s]tronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management”.

There appear to be at least three reasons for Bernanke’s admission that the Fed did not do its job. First, and most obviously, Bernanke is up for reappointment (his term expires January 31)-and…

Mea Culpa Time: Rubin and Bernanke apologize (sort of)

Why does Rubin have the ear of the Prez when his economic song is out of tune? Roosevelt Institute Braintruster L. Randall Wray investigates.

Alan Greenspan has already apologized for the damage he wrought, admitting the crisis reveals that his approach to economics is fundamentally flawed.  Apparently it is now time for mea culpas from the rest of the team most responsible for creating this mess: Rubin, Summers, and Bernanke. Rubin and Bernanke just provided theirs — albeit somewhat half-heartedly, a bit more Tiger Woods than David Letterman. Don’t hold your breath for an apology from Summers, who never owns up…

When Will Ben’s Bubble Burst?

Financial bubbles are certainly interesting phenomena, though it’s very difficult to predict when they will pop. For the last two and half decades, the American financial system was systematically deregulated and we faced various bubbles. Each one progressively larger, each popping met pretty much the same way, increasing debt through the largess of the Fed and blowing up a new bubble in a larger sector. The popping of the securitization, derivatives, and real estate bubbles led Chairman Bernanke to vigorously blow the largest bubble yet. This bubble grows across global currency and other financial markets. When it pops and what…