Timothy Geithner, in his article in the Wall Street Journal, My Plan for Bad Bank Assets, writes, "No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk."
"We" borrowed too much? We? So, Geithner says it's all our fault. Well, I haven't borrowed anything. Have you? And that part about the financial system taking on risk. Is that what really happened?
Let's use "bank" as representative of Geithner's financial system. What is a bank? It's a bunch of people who work in a building somewhere. Consider what it is when they all go home at night. It's a building empty of people. It's full of inanimate objects that can't do anything. Nothing happens until those people come back in the next day. So, the people who supposedly work there are the bank and the bank is the people who supposedly work there.
Did the bank take any risks, as Geithner says they did? No, not at all. Since the people who work there are the bank, and since they are guaranteed millions of dollars a year by contract, no matter what happens, no matter what they do, there is no way that they can do anything that could be considered a risk. They're going to get theirs, the results be damned. No risk.
In fact, we now know that these financial institutions would have been much better off if these guys had not ever shown up for work, but just stayed home every day and took their contracted millions at the end of the year. If you can't get fired for doing things that causes your business to crash and burn, then surely doing nothing is much better, and not a cause for firing.
So, Geithner is wrong, these guys took no risks. They couldn't. It was impossible for them to do anything that would put their millions at risk.
Look at the title of the article, My Plan for Bad Bank Assets. Even Geithner, a financial wizard, doesn't know that there's no such thing as a bad asset. An asset is always good. It's something of value that can readily be converted for something else of value. What these banks have are not assets, they are liabilities.
I know, they call them assets and securities. They are no such thing. What is secure is beyond the possibility of loss. They lost their ass on these, so they weren't secure. What they really are, are pieces of paper that says someone owes you money that you loaned them. They are worthless in themselves, since they are actually a statement of a liability, money that you had and now don't have. It's gone. It may be returned, and just as likely, it may not. And the just as likely not part has come to pass, proving that these so-called assets and securities are actually liabilities, until such time as they are fully repaid. And they haven't been and they won't be.
Let's look at an article by Jeff Madrick, Director of policy research, Schwartz Center for Economic Policy Analysis, from the Huffington Post. Madrick writes, "First, the bonus system led to tragically bad decisions. There was no risk management on Wall Street. There was mostly excessive risk-taking."
Well, Mr. Madrick, the bonus system guaranteed bad decisions, for the customers but not for the financial wizards. There was no risk management because there was no risk. There was no excessive risk-taking because there was no risk. Just ask the financial wizards sitting fat and happy in their Connecticut and New Jersey mansions just how risky it was. They'll laugh it you. What risk? I got mine. No risk at all.
I don't know if Geithner believes his terminology or if he's just shoveling us another load of bullcrap. Calling assets bad, an impossibility, and calling liabilities securities is obfuscation. It's designed to paint a picture of the banks having something of value worth saving when they actually have less than nothing. That's called bankrupt.
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