Elizabfinaneth Warren Quotes
I don’t know what the President is thinking … his angry words at Wall Street, at their recklessness, and their dangerous incentives in compensation, about how they do their business in ways utterly divorced from what’s actually good for the economy—that he can’t just say that sort of thing, and then dump money into their laps and be credible.
The President, like most Americans, was outraged at the immoral, insensitive, and incompetent behavior of the financial industry in the Meltdown of 2008. However, the President learned how dependent the economy of the entire country was dependent on having solvent banks and how vulnerable the entire nation was to major failures of the investment and regular banks. So he was faced with very poor options. The government could have nationalized the banks, but that would produce an economic system which in the long run would not be very sound. Of the banks could be allowed to fail or risk failure in which case the entire population would suffer. Or he could lend money to the banks to stabilize and strengthen them while the bank executives were paying themselves huge bonuses even though they performed so poorly. He chose the latter and Warren was typical of criticism he received from many of his supporters. Even though the banks had broken the law and forged documents and committed perjury in tens of thousands of mortgage foreclosures, the President, as a practical matter, could not even prosecute the bank officials who were responsible because there were thousands of bank and other company officials who had committed the same crime. The guilty included almost every senior officer of the major banks, and jailing all these people was deemed impractical. So, to recover the economy, justice and fairness suffered.
Elizabeth Warren, Special Assistant to the President (Democrat), Democratic Candidate for Massachusetts Senator, Quoted in New York Times Book Review, October 2, 2011
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This warning was a decade before the Meltdown of 2008, but was not heeded by any of the politicians. As a result a number of the companies that made all those risky decisions assumed that if something went terribly wrong the government would not let them fail. Unfortunately, they were right and the taxpayers spent billions to prevent companies from failing. After the meltdown all the politicians vowed to end the too big to fail concept, but while some improvements were made, the Congress could not come to agreement, and the markets and a number of companies think that they are still too big to fail. This is particularly true for Defense Contractors where the government has and probably will in the future, protect irresponsible companies from failure if they are the only company that makes needed weapons and other equipment.
Sovereign credit substitution is where the government, one way or another, assumes and guarantees the debts of private corporations. This is an elegant way of saying: “taxpayer bailouts”
High level financial industry executives were earnings millions of dollars even if the company did poorly. In many cases annual bonuses were paid even after the firm lost money and in some cases after the firm had to be sold to stave off bankruptcy. The worst thing in 2009 and 2010 was when some of the banks paid million dollar and more bonuses while the company was getting bailout money from the taxpayers to prevent their bankruptcy.
The result was regulation of the banks and the creation of the SEC to regulate the stock market, However, over the years, the regulations were not able to keep up with the sophisticated development of new forms of investments and financial instruments and the financial industry were able to speculate with other people’s money in ways that FDR and his reformers never imagined. Finally, even the regulation that did exist was weakened by the policies of the George W. Bush administration and the combination brought about the Great Recession of 2008 where the profits from excess speculation were privatized and the losses, socialized with the taxpayer and the American worker bearing the brunt while most of the speculators were bailed out and made more money than ever. The Obama administration tried to reform the situation, but was unable to put an end to the legal speculation with other people’s money or of having institutions that were “too big to fail.”
She was the only major Federal Official who did not support the bailouts of the banks and their bondholders and shareholders. Not one of her insured bank depositors lost their insured funds in the financial crisis. She protected them all but would not protect the banks themselves. Other officials did that and the following year the bank executives took the bailout money and paid themselves and others in the bank huge bonuses when the banks lost billions.
Moody’s and Standard & Poors, the 2 largest credit rating agencies, gave A ratings to securities that had packaged terrible F-rated, toxic, subprime mortgages, and gotten the credit ratings agencies to rate them as A on the theory that the risk was diversified. Each new security like this that a bank put out was submitted informally to one of the credit rating agencies to “discuss”. If the agency “concluded” that they could give it an A rating, they received a very large fee. If not, the bank would not officially submit the security and not pay anything. That almost never happened with these packages of subprime mortgages.
Geithner, the Treasury Secretary immediately after the Meltdown of 2008, facing complete collapse of our financial system, among other ameliorations, advocated and implemented many subsidies to bail out the banks most of whom had been greedy, foolish and often dishonest. He even allowed banks to use taxpayer money to pay bonuses to Bank executives who had brought the bank to ruin being a cause of the crisis. However, the banks not only survived but recovered and made huge profits while many of the taxpayers whose funds were used to help the banks were still struggling to make ends meet and it was they who received little, if any, government assistant.
Credit default swaps were in large part responsible for the melt down of the economy of 2008 and the Great Recession thereafter. A credit default swap was one of the favorite derivatives that became popular. Is an insurance policy that a company will pay off its bonds and not go bankrupt. It is a cross between an insurance mechanism and a stock exchange type security mechanism, and through heavy lobbying, escaped any kind of regulation. It cost a company no money to write a credit default swap, and they were paid to do so. As long as business and the economy was good, it was a terrific business but there was no way of ever knowing how much risk they were taking. So companies who wrote credit default swaps did not have to have the money to pay to back them up. When that happened in 2008, even the largest insurance company in the world collapsed because of the risk of having to pay the credit default swap and the U. S. Government had to take over the insurance company. In 2010, the Obama administration passed a financial reform bill that began to regulate credit default swaps. Buffet, the American who had made the most money in financial securities, realized the great danger not only to the company, but to the entire national economy. Most of the rest of the financial institutions, could make large amounts of money without have to have much capital as long as things went well. So credit default swaps began to exceed the other financial instruments in activity. Neither the Federal Reserve or the other government regulatory agencies chose to regulate these risky instruments nor even to require that they be publicly disclosed -- See {637987}, {637986} and {637992}.
In the Meltdown of 2008, the American Auto Companies were in dire straights and faced bankruptcy with no certainty that the industry could stay alive., They were running out of money and President Obama decided to make loans, take stock and control and force modernizing on the industry. As a result, and with some Toyota mismanagement, the companies returned to profitability and paid back their government loans early and as a result the bailout had not cost the taxpayers any money. Creditors however were outraged that the lost their preferred advantage had their been a bankruptcy.
In the Great Recession thousands of bank executives of the banks that received government bailouts committed fraud and perjury providing false information under oath and foreclosing on mortgages illegally. There were so many bank felons that the Justice Department decided not to prosecute any of them and let the Banks pay relatively small fines instead. Then the banks paid the crooked employees bonuses. Paul was one of the few members of Congress who favored prosecution of all the guilty bankers regardless of the number.
