Audit Notes: Volcker Pans Geithner, BP Bust, Single-Scoop Recession

Obama administration advisor Paul Volcker says the Obama administration’s resolution authority won’t work to unwind too big to fail banks that get into trouble.

Shahien Nasiripour is good to flag this story:

(Obama’s) top economic adviser, Lawrence Summers, has said that ending Too Big To Fail is the administration’s “central objective” in reforming the financial system, and that resolution authority is the “most crucial” part of that plan.

But on Monday, during a discussion on CNBC, Volcker, the head of Obama’s Economic Recovery Advisory Board, said the proposed authority is a “workable proposition for anything short of these biggest banks.”

Nasiripour points out that a former FDIC head who was interviewed with Volcker also said the resolution authority wouldn’t work.

Again, the administration and Wall Street are making this harder than it is: If you’re too big to fail, you’re too big. Make them smaller.

— Andrew Ross Sorkin pointed out last week that Wall Street was circling the wounded BP, plotting possible bankruptcy structures that would protect it from cleanup costs in the Gulf.

Bloomberg reports today that a bankruptcy would be “unlikely” to protect BP from having to pay for the cleanup. It points to a recent environmental bankruptcy, where the company had to pay all claims in full:

In last year’s settlement of the largest-ever U.S. environmental bankruptcy, all claims were paid in full by the debtor, mining company Asarco LLC, said Gregory Evans, a lawyer at Milbank Tweed Hadley & McCloy LLP in Los Angeles.

Asarco paid $1.8 billion in restoration and cleanup costs for water, land and air pollution at 100 sites across the U.S. under the auspices of the U.S. Bankruptcy Court in Corpus Christi, Texas.

Good to know.

— Yves Smith, like me, is not on board with all this talk about a double-dip recession.

For one thing, the NBER hasn’t ever called the end to the first (current) recession. For another, just because you have positive GDP growth for a few quarters doesn’t mean the economy is okay:

Both presuppose that we had a recovery underway, the real sort, not the type that is mainly the artifact of inventory restocking, halting and sometimes covert stimulus, (like hiring unprecedented numbers of Census workers, cash for clunkers and home purchase tax credits to induce consumers to accelerate investments) and a weaker dollar than has since gone in the reverse direction.

While employment is a lagging indicator, you need to have a realistic prospect of meaningful hiring to talk of recovery.


It would be nice for this to be over, but the history of severe financial crisis is that that recovery is longer in the making than in a normal recession, and tends to be weak in the absence of cleaning up bank balance sheets. Yet the aggressive “green shoots” boosterism and other forms of cheerleading by the officialdom plus optimistic interpretations of data were persuasive for a while.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.