Bailout Nation

by Barry Ritholtz

  4 Jeff Manning, “Chase Mortgage Memo Pushes ‘Cheats & Tricks,’ ” Oregonian , March 27, 2008, www.oregonlive.com/business/oregonian/index.ssf?/base/business/120658650589950.xml&coll=7.

  Chapter 11: Radical Deregulation, Nonfeasance

  1 Peter S. Goodman, “Taking Hard New Look at a Greenspan Legacy,” New York Times, October 9, 2008, www.nytimes.com/2008/10/09/business/economy/09greenspan.html.

  2 Ibid.

  3 Ibid.

  4 Ibid.

  5 Eric Lipton, “Gramm and the ‘Enron Loophole,’” New York Times, November 17, 2008, www.nytimes.com/2008/11/17/business/17grammside.html.

  6 “Blind Faith: How Deregulation and Enron’s Influence over Government Looted Billions from Americans,” Public Citizen, December 2001, www.tradewatch.org/cmep/energy_enviro_nuclear/electricity/Enron/articles. cfm?ID=7104.

  7 Lipton, “Gramm and the ‘Enron Loophole.’”

  8 “Levin Lauds Congressional Approval of Close ‘Enron Loophole’ Law,” press release, Office of Senator Carl Levin, May 15, 2008, http://levin.senate.gov/newsroom/release.cfm?id=297870.

  9 Frank Partnoy, “Stock Gambling on the Cheap,” New York Times, December 21, 2000, http://query.nytimes.com/gst/fullpage.html?res=9C06E6D81E39F932A15751C1A9669C8B63&sec=&spon=&pagewanted=2

  10 Lee A. Pickard, “SEC’s Old Capital Approach Was Tried—and True,” American Banker 173, no. 153 (August 8, 2008), 10, www.americanbanker.com/article.html?id=20080807ZAXGNH3Y&queryid=2110207978&.

  11 Alan Greenspan, “Consumer Finance,” remarks at the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C., April 8, 2005.

  12 Alan Greenspan, “Understanding Household Debt Obligations,” remarks at the Credit Union National Association 2004 Governmental Affairs Conference, Washington, D.C., February 23, 2004.

  13 Binyamin Appelbaum and Ellen Nakashima, “Banking Regulator Played Advocate over Enforcer,” Washington Post, November 23, 2008, www.washingtonpost.com/wp-dyn/content/article/2008/11/22/AR2008112202213.html?nav=rss_print&sid=ST2008112300238&s_pos=.

  14 “FBI Issues Mortgage Fraud Notice in Conjunction with Mortgage Bankers Association,” press release, March 8, 2007, www.fbi.gov/pressrel/pressrel07/mortgagefraud030807.htm.

  15 Terry Frieden, “FBI Warns of Mortgage Fraud ‘Epidemic’; Seeks to Head Off ‘Next S&L Crisis,’ ” CNN, September 17, 2004, www.cnn.com/2004/LAW/09/17/mortgage.fraud/.

  16 Greg Ip, “Did Greenspan Add to Subprime Woes? Gramlich Says Ex-Colleague Blocked Crackdown on Predatory Lenders Despite Growing Concerns,” Wall Street Journal, June 9, 2007, http://online.wsj.com/article/SB118134111823129555.html

  17 Ibid.

  18 Edmund L. Andrews, “In Reversal, Fed Approves Plan to Curb Risky Lending,” New York Times, December 19, 2007, www.nytimes.com/2007/12/19/business/19subprime.html.

  Chapter 12: Strange Connections, Unintended Consequences

  1 Frederic Bastiat, “What Is Seen and What Is Not Seen,” in Selected Es says on Political Economy, trans. Seymour Cain (Irvington-on-Hudson, NY: Foundation for Economic Education, 1995), www.econlib.org/library/Bastiat/basEss1.html.

  2 Boskin Commission, “Toward a More Accurate Measure of the Cost of Living: Final Report to the Senate Finance Committee from the Advisory Commission to Study the Consumer Price Index,” December 4, 1996, www.ssa.gov/history/reports/boskinrpt.html.

  3 Kim Yeon-hee, “South Korea’s KDB confirms talks with Lehman Ended,” Reuters, September 10, 2008, www.reuters.com/article/businessNews/idUSSEO18673220080910?feedType=RSS&feedName=businessNews

  4 Lee A. Pickard, “SEC’s Old Capital Approach Was Tried—and True,” American Banker 173, no. 153 (August 8, 2008), www.americanbanker.com/article.html?id=20080807ZAXGNH3Y&queryid=2110207978&.

  5 “Free Market Society,” transcript of a discussion between David Gergen and Thomas Friedman, NewsHour, PBS, February 13, 1996, www.pbs.org/ newshour /gergen/friedman.html.

  6 Paul S. Atkins, “Improving Financial Markets,” remarks to the Vanderbilt University Financial Markets Research Center Conference on Securitization, Nashville, Tennessee, April 17, 2008, www.sec.gov/news/speech/2008/spch041708psa.htm.

  7 Gretchen Morgenson, “Debt Watchdogs: Tamed or Caught Napping?” New York Times, December 6, 2008, www.nytimes.com/2008/12/07/business/07rating.html?pagewanted=1&hp.

  Chapter 13: Moral Hazard: Why Bailouts Cause Future Problems

  1 Alan Greenspan, letter to Senator Alphonse D’Amato, October 20, 1998, cited in When Genius Failed: The Rise and Fall of Long-Term Capital Management, by Roger Lowenstein (New York: Random House, 2000).

  2 Allard E. Dembe and Leslie I. Boden, “Moral Hazard: A Question of Morality?” New Solutions 10, no. 3 (2000), 257-279.

  3 E. S. Browning, “Fed Treads Moral Hazard,” Wall Street Journal, August 13, 2007, http://online.wsj.com/article/SB118696170827295489.html

  4 Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management (New York: Random House, 2000).

  5 “Questions about the $700 Billion Emergency Economic Stabilization Funds: The First Report of the Congressional Oversight Panel for Economic Stabilization,” December 10, 2008, www.house.gov/apps/list/hearing/financialsvcs_dem/cop121008.pdf.

  Chapter 14: 2008: Suicide by Democracy

  1 Dawn Kopecki, “Fannie, Freddie ‘Insolvent’ after Losses, Poole Says,” Bloomberg, July 10, 2008, www.bloomberg.com/apps/news?pid=20601087&sid=as4DEc5UFopA.

  2 “Barney Frank on Bailouts, Welfare,” 60 Minutes, CBS, December 14, 2008, www.cbsnews.com/stories/2008/12/11/60minutes/main4663945.shtml.

  Chapter 15: The Fall of Bear Stearns

  1 Kate Kelly, “Lost Opportunities Haunt Final Days of Bear Stearns,” Wall Street Journal, May 27, 2008, http://online.wsj.com/article/SB121184521826521301.html

  2 Kate Kelly, “Bear CEO’s Handling of Crisis Raises Issues,” Wall Street Journal, November 1, 2007, http://online.wsj.com/article/SB119387369474078336.html

  3 Gregory Zuckerman, “Hedge Funds, Once a Windfall, Contribute to Bear’s Downfall,” Wall Street Journal, March 17, 2008, http://online.wsj.com/article/SB120571237393540313.html

  4 David Einhorn, remarks at the Ira Sohn Investment Research Conference, May 21, 2008, www.tilsonfunds.com/EinhornIraSohn08.pdf.

  5 Yalman Onaran and John Helyar, “Fuld Sought Buffett Offer He Refused as Lehman Sank,” Bloomberg, November 10, 2008, www.bloomberg.com/apps/news?pid=newsarchive&sid=aMQJV3iJ5M8c.

  6 Andrew Ackerman, “Court to Decide Fate of Lehman Contracts,” Bond Buyer, December 15, 2008, www.bondbuyer.com/article.html?id=200812124023AG07.

  7 Yalman Onaran, “Fed Aided Bear Stearns as Firm Faced Chapter 11, Bernanke Says,” Bloomberg, April 2, 2008, www.bloomberg.com/apps/news?pid=20601087&refer=worldwide&sid=a7coicThgaEE.

  Chapter 16: Dot-Com Penis Envy

  1 Mike Sunnucks and Chris Casacchia, “CEO Pay: What Those Involved in the Financial Meltdown Made,” San Francisco Business Times, September 23, 2008, (The Puget Sound Business Journal contributed to this story) http://www.bizjournals.com/eastbay/stories/2008/09/22/daily37.html.

  2 “Bailout Should Cut the Cords of Golden Parachutes,” The Patriot Ledger, Sep 23, 2008, http://www.patriotledger.com/business/x804155672/OUR-OPINION-Bailout-should-cut-the-chords-of-golden-parachutes

  3 Steve Lohr, “In Bailout Furor, Wall Street Pay Becomes a Target,” New York Times, September 23, 2008, http://www.nytimes.com/2008/09/24/business/24pay.html.

  Chapter 17: Year of the Bailout, Part I: The Notorious AIG

  1 “AIG Ranks No. 1 in Financial Sector Capitalization,” Insurance Journal , December 4, 2000, www.insurancejournal.com/news/national/2000/12/04/11570.htm.

  2 Robert O’Harrow Jr. and Brady Dennis, “The Beautiful Machine,” Washington Post, December 29, 2008, www.washingtonpost.com/wp-dyn/content/article/2008/12/28/AR2008122801916.html?sid=ST2009013000235.

  3 Robert O’Harrow Jr. and Brady Dennis, “Downgrades and Downfall,” Wa
shington Post, December 31, 2008, www.washingtonpost.com/wp-dyn/content/article/2008/12/30/AR2008123003431.html.

  4 Gretchen Morgenson, “Behind Insurer’s Crisis, Blind Eye to a Web of Risk,” New York Times, September 27, 2008, www.nytimes.com/2008/09/28/business/28melt.html?pagewanted=all.

  5 Michael de la Merced and Gretchen Morgenson, “A.I.G. Allowed to Borrow Money from Subsidiaries,” New York Times, September 14, 2008, www.nytimes. com/2008/09/15/business/15aig.html

  6 Brady Dennis and Robert O’Harrow Jr., “A Crack in the System,” Washington Post, December 30, 2008, www.washingtonpost.com/wp-dyn/content/article/2008/12/29/AR2008122902670.html.

  7 Ibid.

  8 Mary Williams Walsh, “Tracking Firm Says Bets Placed on Lehman Have Been Quietly Settled,” New York Times, October 22, 2008, www.nytimes.com/2008/10/23/business/23lehman.html.

  9 “Fusion IQ’s Ritholtz Expects More Writedowns at AIG: Video,” Bloomberg, August 6, 2008, www.bloomberg.com/apps/news?pid=newsarchive&sid=avZEKuMTaGME.

  10 Shannon D. Harrington, “AIG, Lehman, Merrill Lead Rise in Financial-Company Bond Risk,” Bloomberg, September 12, 2008, www.bloomberg.com/apps/news?pid=20601087&sid=avRzVWkrgoyE&.

  11 Ibid.

  12 De la Merced and Morgenson, “A.I.G. Allowed.”

  13 Aaron Task, “Bernanke: Mad as Hell about AIG, But Bailouts Averting ‘Disaster, ’ ” Yahoo!, March 3, 2009, http://bit.ly/QEK9O.

  14 Ibid.

  15 Ibid.

  Chapter 18: The Year of the Bailout, Part II: Too Big to Succeed?

  1 William Safire, “Essay: Don’t Bank on It,” New York Times, April 16, 1998, www.nytimes.com/1998/04/16/opinion/essay-don-t-bank-on-it.html.

  2 Time line of Citibank history, Citibank North America web site, www.citigroup.com/citi/corporate/history/citibank.htm.

  3 Ibid.

  4 Time line of major events since Citigroup and Travelers merged in 1998, Citibank North America web site, www.citigroup.com/citi/corporate/history/citigroup.htm.

  5 “History of the Eighties—Lessons for the Future: Continental Illinois and ‘Too Big to Fail,’” Division of Research and Statistics, Federal Deposit Insurance Corporation, December 1997, www.fdic.gov/bank/historical/history/235_258.pdf.

  6 Jonathan Fuerbringer, “Talking Deals: Citicorp Strategy on Glass-Steagall,” New York Times, March 23, 1989, http://query.nytimes.com/gst/fullpage.html?res=950DE2D81F39F930A15750C0A96F948260

  7 Robert Kuttner, “Friendly Takeover,” American Prospect, March 18, 2007, www.prospect.org/cs/articles?articleId=12573.

  8 Ibid.; see also “Rubin Calls for Modernization through Reform of Glass -Steagall Act,” Journal of Accountancy, May 1, 1995, www.allbusiness.com/government/business-regulations/500983-1.html; Ken Brown and David Enrich, “Rubin, under Fire, Defends His Role at Citi,” Wall Street Journal, November 29, 2008, http://online.wsj.com/article/SB122791795940965645.html

  9 Stephen Labaton, “Congress Passes Wide-Ranging Bill Easing Bank Laws,” New York Times, November 5, 1999, www.nytimes.com/1999/11/05/business/congress-passes-wide-ranging-bill-easing-bank-laws.html.

  10 “The S&L Crisis: A Chrono-Bibliography,” FDIC web site, www.fdic.gov/bank/historical/s&l/.

  11 Eric Dash and Julie Creswell, “Citigroup Saw No Red Flags Even as It Made Bolder Bets,” New York Times, November 22, 2008, www.nytimes.com/2008/11/23/business/23citi.html; see also Eric Dash, “Citigroup Acknowledges Poor Risk Management,” New York Times, October 16, 2007, www.nytimes.com/2007/10/16/business/16citi.html.

  12 Dash and Creswell, “Citigroup Saw No Red Flags.”

  13 Shannon D. Harrington and Elizabeth Hester, “Citigroup Rescues SIVs with $58 Billion Debt Bailout,” Bloomberg, December 14, 2007, www.bloomberg. com/apps/news?pid=20601087&refer=home&sid=aS0Dm.iV5BCIsee also “Citigroup Cuts SIV Size by $15 Billion,” Reuters, December 11, 2007, www.reuters.com/article/ousiv/idUSL1111435920071211 George White, “Citigroup Finishes Winding Down SIVs,” The Deal, November 19, 2008, www.thedeal.com/dealscape/2008/11/citigroup_finishes_winding_dow.php; “Citi Finalizes SIV Wind-Down by Agreeing to Purchase All Remaining Assets,” Citigroup press release, November 19, 2008, www.citigroup.com/citi/press/2008/081119a.htm.

  14 Hugo Dixon and Robert Cyran, “Vikram Pandit Scores a Great Deal for Citigroup,” New York Times, December 2, 2008, www.nytimes.com/2008/12/03/business/economy/03views.html.

  15 Barry Ritholtz, “Actual Merrill CDO Sale: 5.47 Percent on the Dollar,” The Big Picture, July 29, 2008, http://bigpicture.typepad.com/comments/2008/07/merrill-writedo.html.

  16 “Visa History,” Visa web site, http://corporate.visa.com/av/about_visa/corp_history.jsp.

  17 “The Making of the Bank of America,” Fortune, September 5, 2005, http://money.cnn.com/magazines/fortune/fortune_archive/2005/09/05/8271409/index.htm.

  18 Barry Ritholtz, “Citi & BofA Ain’t No Continental Illinois Bank,” The Big Picture, February 24, 2009, www.ritholtz.com/blog/2009/02/citi-bofa-aint-continental-illinois-bank/.

  19 “Bylaws, Board of Directors,” Federal Reserve Bank of New York, December 20, 2007, www.newyorkfed.org/aboutthefed/ny_bylaws.html.

  20 “Fact Sheet: Proposed Treasury Authority to Purchase Troubled Assets,” U.S. Treasury press release, September 20, 2008, www.treas.gov/press/releases/hp1150.htm; see also “Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers,” September 7, 2008, http://treasury.gov/press/releases/hp1129.htm.

  21 “Paulson TARP proposal,” U.S. Treasury press release, September 20, 2008.

  22 Alex Johnson, “Bush Signs $700 Billion Financial Bailout Bill,” MSNBC.com, October 3, 2008, www.msnbc.msn.com/id/26987291/.

  23 Ibid.

  24 Mark Landler and Eric Dash, “Drama Behind a $250 Billion Banking Deal,” New York Times, October 14, 2008, www.nytimes.com/2008/10/15/business/economy/15bailout.html.

  25 Ibid.

  26 Peter S. Goodman and Gretchen Morgenson, “Saying Yes, WaMu Built Empire on Shaky Loans,” New York Times, December 27, 2008, www.nytimes.com/2008/12/28/business/28wamu.html; see also Greg Morcroft, “J.P. Morgan Pondering Buyout of Washington Mutual,” January 11, 2008, www.marketwatch.com/news/story/jp-morgan-pondering-buyout-Washington/story.aspx?guid=percent7B89CA2071-2631-42C6-8936-22E745A3B6DA percent7D.

  27 Binyamin Appelbaum, “After Change in Tax Law, Wells Fargo Swoops In,” Washington Post, October 4, 2008, A01, http://www.washingtonpost.com/wp-dyn/content/article/2008/10/03/AR2008100301042.html?sub=AR.

  28 Landler and Dash, “Drama.”

  29 Mark Pittman, Bob Ivry, and Alison Fitzgerald, “Fed Defies Transparency Aim in Refusal to Disclose,” Bloomberg, November 10, 2009, www.bloomberg.com/apps/news?pid=20601087&sid=ahdVHk_Ccoeg&.

  30 Mark Pittman, “Bloomberg Sues Fed to Force Disclosure of Collateral (Update 1),” Bloomberg, November 7, 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKr.oY2YKc2g.

  31 John Carney, “TARP Trouble: GAO Report Rips Internal Controls, Bank Monitoring,” Yahoo! Tech Ticker, December 3, 2008, http://finance.yahoo.com/tech-ticker/article/138232/TARP-Trouble:-GAO-Report-Rips -Internal-Controls,-Bank-Monitoring.

  32 Amit R. Paley, “A Quiet Windfall for U.S. Banks: With Attention on Bailout Debate, Treasury Made Change to Tax Policy,” Washington Post, November 10, 2008, A01, www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155_pf.html.

  33 Albert Bozzo, “Obama’s Toxic-Asset Plan: End-Run around Congress?” CNBC.com, March 25, 2009, www.cnbc.com/id/29863145.

  34 Felix Salmon, “How to Conjure Up $500 Billion,” New York Times, March 26, 2009, www.nytimes.com/2009/03/27/opinion/27salmon.html.

  35 Alan Greenspan, “The Fed Didn’t Cause the Housing Bubble: Any New Regulations Should Help Direct Savings toward Productive Investments,” Wall Street Journal, March 11, 2009, http://online.wsj.com/article/SB123672965066989281.html

  Chapter 19: Casting Blame

  1 Joseph Stiglitz, “T
he Economic Crisis: Capitalist Fools,” Vanity Fair, January 2009, www.vanityfair.com/magazine/2009/01/stiglitz200901.

  2 Edmund L. Andrews, “Greenspan Concedes Error on Regulation,” New York Times, October 23, 2008, www.nytimes.com/2008/10/24/business/economy/24panel.html.

  3 Benjamin Disraeli, Sybil, Book IV, Chapter V.

  4 Eric Lipton and Stephen Lebaton, “A Deregulator Looks Back, Unswayed,” New York Times, November 16, 2008, www.nytimes.com/2008/11/17/business/economy/17gramm.html.

  5 Ken Brown and David Enrich, “Rubin, Under Fire, Defends His Role at Citi,” Wall Street Journal, November 29, 2008, http://online.wsj.com/article/SB122791795940965645.html

  6 Jonathan Fuerbringer, “Talking Deals: Citicorp Strategy on Glass-Steagall,” New York Times, March 23, 1989, http://query.nytimes.com/gst/fullpage.html?res=950DE2D81F39F930A15750C0A96F948260

  7 Alan Katz and Ian Katz, “Greenspan Slept as Off-Books Debt Escaped Scrutiny,” Bloomberg, October 20, 2008, www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aYJZOB_gZi0I.

  8 Matt Apuzzo, “US Diluted Loan Rules before Crash,” Associated Press, December 1, 2008, www.google.com/hostednews/ap/article/ ALeqM5hTDPY8hFtJLxsv8i1Q7OvoRrlYrQD94PQ0JO0

  9 Ibid.

  10 Eric Stein, “Turmoil in the U.S. Credit Markets: The Genesis of the Current Economic Crisis,” testimony before the Senate Committee on Banking, Housing, and Urban Affairs, October 16, 2008, www.responsiblelending.org/policy/testimony/turmoil-in-the-u-s-credit-markets-the-genesis-of-the-current-economic-crisis.htm.

  11 Ibid.

  12 “Confronting Economic Meltdown,” New America Foundation, www.newamerica.net/events/2008/confronting_economic_meltdown.

  13 Jason Niss, “Harvey Pitt: Accounts Angel Who Supped with the Devil,” UK Independent , August 11, 2002, www.independent.co.uk/news/business/analysis-and-features/harvey-pitt-accounts-angel-who-supped-with-the-devil-639450.html.