Real Capitalists Nationalize
Sorry, zombie banks. The laws of the market dictate that we should own your ass.
The titans of Wall Street may not have done a bang-up job of running the American financial sector over the past few years, but would a bunch of politicians in Washington, DC, do any better? We're probably about to find out—and to understand how we got here, and why it suddenly doesn't seem like such a bad idea, you've got to start at the beginning. The very beginning.
In America, it's the stock market that gets all the headlines. If you're sentient enough to fog a mirror, you know that stocks have dropped by half in the past 18 months. It's been a disaster for 401(k)s and pension funds across the country.
But the fact is that this is a sideshow.
-
Geithner Introduces Bailout 2.0 With Convincing Words, But Few Details
-
Nationalization Revisited
NATIONALIZATION REVISITED....Steve Waldman takes issue today with my contention that Sweden didn't actually nationalize very much of its banking industry during its credit crisis of the early 90s, and his rebuttal is worth a read. In the end, though, it...
-
Where Credit Is Due: A Timeline of the Mortgage Crisis
A field guide to the loan sharks and politicos who got us into the predatory lending mess
The total size of the US equities market—the value of every single share of stock traded on US exchanges—is about $10 trillion. The size of the US credit market is more than $30 trillion. What's more, credit is more important than equities. As the saying goes, credit is like oxygen: You don't realize how much you need it until it's gone. When credit dries up—as it has recently—the economy grinds to a halt.
But why has credit dried up? Let's back up again. The main providers of credit are banks, and the amount of money they can lend depends on two things: their capital stock and their capital ratios. Say that you and some friends decide to start a bank and you pitch in $1 billion to get things rolling. That's your capital. And say that your bank makes a profit of $1 billion for nine years in a row. Your capital is now $10 billion.
The amount you can loan out depends on your capital ratio, a number that's set in the US by the Securities and Exchange Commission. If you're required to have, say, a 5 percent capital reserve, that means your loan portfolio can be as high as 20 times your capital. That's $200 billion—and if you fudge things a bit, say through the creative use of off-balance-sheet vehicles, maybe you can loan out as much as $300 billion. If the average return on your loan portfolio is 5 percent, that means you're making about $15 billion per year with only $10 billion of your own money at stake. Not bad.
But then a crash comes. Homeowners start defaulting on their loans, and you have to write off the losses. That cuts into your capital; plus, with the economy falling, it's prudent to reduce your leverage. Instead of 30-to-1, maybe you'll cut back to 20-to-1. The end result is that you're lending way less money than you used to.
This is, roughly, what's been happening to the global financial system. Loan losses have reduced capital. Everyone is hoarding money. It's called deleveraging, and in plain English it means that credit markets are broken.
But things can still get worse. What happens if your capital is wiped out completely by loan losses? Then your bank is insolvent. The lights are still on, people still come to work, and bills still get paid, but there's no lending at all. And without lending, you aren't really a bank. You're a zombie.
So is the American banking system insolvent? It's probably pretty close. But this doesn't mean that every bank is insolvent. It just means that the overall average is neutral: Some banks are doing fine, while others are deeply in the hole. And the ones who are in the hole, which include some of the country's biggest, need to be dealt with. But how?
We could, of course, simply let the bad banks fail. But that's what the government allowed to happen to Lehman Brothers last September, and the results were catastrophic. Markets went wild, credit froze, and there was a run on money market funds that stopped only when the Fed stepped in to guarantee them. When a really big bank fails—and some of the banks currently in trouble are a lot bigger than Lehman—it can cause a cascade of defaults that ignites a global firestorm and destroys entire economies. So no matter how appealing it sounds on poetic-justice grounds to let the banks that got us into this mess simply go under, the infuriating fact is that we simply can't afford to let that happen.
Aside from allowing banks to fail, then, there are four main options. The first is to muddle through. The US banking system is still profitable, after all, and this means that over time insolvent banks will build their capital base back up and start lending again. Unfortunately, "over time" could mean years, and nobody wants a broken banking system for that long. (Japan tried this after its banking crisis of the early '90s, and the result is popularly known as the "Lost Decade.")
Option No. 2 is for the government to set up what's called a "bad bank" that buys up the banking system's "toxic waste," loans that have gone bad and are likely to get even worse, eating up bank capital along the way. Unfortunately, the reason this stuff is called "toxic" is because the eventual losses from these loans are impossible to forecast. Are they worth 70 cents on the dollar? Fifty cents? Twenty cents? Nobody knows, and without knowing that, it's impossible to buy them up. There's still a plan on the books to attempt the purchase of toxic assets, but most observers give it little chance of success unless it's so heavily subsidized by the government that it amounts to little more than a massive giveaway.
That leads us to option No. 3: recapitalization. Last year, after former Treasury Secretary Henry Paulson realized that buying up toxic waste wouldn't work, he decided to provide direct capital infusions to banks. The idea here is simple: If the banks don't have enough capital, then give them some more. Even with big losses, if you give them enough, then they'll be able to lend money once again.
One problem, though: There's no reason for taxpayers to simply give money to banks. We need to get something in return. But what?
Page 1 of 2 
Are you kidding?
You have no idea what you are demanding. After the elections in 2010, when the party of Lincoln is in control again, maybe this wouldn't be such a bad idea. After the huge SPENDING bills, not stimulus bills that have passed through the government, I think that 90% of the people in the U.S. would argue against giving the government a stake in the banking system. After this happens, how long until the DemocRATS come for our guns, and then tear up the bill of rights guaranteed by the Declaration of Independence. Socialist policies of the Obama Administration are another step towards Fascism like in Communist Russia of the past.
Four the past eight years,
Four the past eight years, this country has not been a Democracy! In fact it has been a Corporate Fascist government, it has been a Plutocracy & an Oligarchy.
The wealthiest in this Country have REGULARLY been feeding at the government trough, that includes individuals & corporations. They also skew the tax codes to benefit the wealthy & make the middle class pay for everything.
Even before welfare reform, corporate welfare was double the welfare for the poor. When you have the top 1% of the population owning more than 50% of the total wealth, something is very wrong! When you have Executive CEO's making millions every year, plus getting millions in bonuses WHEN THEY BANKRUPT A COMPANY or when they cause the financial situation we're in IS INSANE! I'm really sick of hearing that we're becoming a Socialist country! We already are, at least for the GREED of the wealthy! Doesn't anyone else deserve anything?
For the last 20-30 years wealth HAS BEEN REGULARLY TRANSFERRED FROM THE MIDDLE CLASS & WORKING POOR to the WEALTHIEST! Why is there no outrage about that?
Wall Street WITH our government's blessing have SOLD OFF OUR ASSETS. I'm talking about WHOLE INDUSTRIES! RCA, Lucent, Frigidaire, Zenith,
even power companies! Then you have the music, movie, publishing, & cement, toll roads, the list goes on. All these are 100% or partially foreign owned! So that in effect took away the right to make a living with decent pay from the rest of us.
Honest work is PENALIZED & white collar crime (UNDERSTATEMENT) is rewarded.
WALL STREET & THE US CHAMBER OF COMMERCE said "outsourcing good paying manufacturing jobs is GOOD for the Country." Look where we are now! If something is good it's NOT supposed to end up a disaster!
If the "Market" works, WHY THEN DO WE NEED TO BAIL IT OUT ALL THE TIME?
It's just like Ralph Nader said "Capitalism will NEVER FAIL because SOCIALISM will ALWAYS SAVE IT!"
You sir, are an idiot.
Other synonyms one might use to describe the wit of this commenter: stupid, deficient, moronic, empty-headed, obtuse, etc.
Extract your head from the
Extract your head from the dreamworld !! It's already a fascist state -- constitution shredded, civil liberties violated et al, et al. And people still want to support the Ponzi scammers on Wall St. It's freer in China, despite the propaganda which says otherwise.
bill of rights
The Bill of Rights is an addition to the US Constitution, not the Declaration of Independence.
unbelievable! democrats
unbelievable! democrats aren't trying to take your guns, unless you can give me an example all you are doing is spouting garbage that you take on faith (i'll bet this idiot believes in god, ha), Mr Lincoln would never be associated with the slobs and perverts who make up today's republican "party", and dumbasses like you are weeded out when we keep our kids in school longer than primary. you sir are worthless, and your type is the biggest problem this country faces. please go find a hate group and wait there.
This is the paranoia that
-
tagged as:
- result
This is the paranoia that keeps us from moving forward. It is very sad to think that people actually think the way you do.
Fascist and Communism have little in common.
Madam,
Your criticism of the current government appears to be based on a misunderstanding of the past movements of Fascism and Sovietism. While both are authoritarian, Fascists are opposite extremes of the economic spectrum from Communists. A more apt, but still strained, comparison would be to current-day France.
Laws of the market???
No, no, no! Laws of the market??? The laws of the market would cause the value of the banks to plunge until it's worthwhile for some businessmen who'd been saving responsibly to take over. Here's a hint: if it's not worth it for private money, it's not worth it for public money. And if such a value doesn't exist, then the world doesn't want any more banks, and they'll simply vanish.
The market NEVER NEVER NEVER EVER recommends a public take over. The government can't even run the post office well. Now they're going to take over the banks?
If private investors (spending their own money) can't make something work privately, then it's a guarantee a bunch of political bureaucrats (spending my money) can't do it either.
This is an affront to liberty. The best thing would have been to let them go bankrupt. In a free society, incompetent companies go bankrupt. Instead, we've taken money from the competent, given it to the incompetent, and courageous-sounding article like this one pretend that we've stuck it to the man. (They still got the money.)
"The government can't even
"The government can't even run the post office well"? Show me the private company that will carry something, anything, 2000 miles in two days for 42 cents. Frankly, the USPS is a perfect counterexample to those who say the government can't do anything right.
I'm sending this over 2,000
I'm sending this over 2,000 miles, in less then 1 second, for free, because of free enterprise
I seem to recall
I seem to recall that an institution called DARPA had a decisive hand in the fact that you can send this over 2000 miles in 1 second, and at least last time I checked DARPA was not a private enterprise.
You are sending this 2000
You are sending this 2000 miles because our government financed a university to university to military high speed research network which in time became the internet. No private enterprise is large enough to have constructed the internet without the government and given that 50 years passed without one private firm even presenting the idea pretty much speaks for what private enterprise can do independently.
Try emailing me some
Try emailing me some chocolate chip cookies.
If you can read this email
If you can read this email thank Al Gore.
He didn't invent it, just pushed through the legislation that made it more than a university to university to military messaging system. Opened it up to he public.
Web
Uh, no. The Internet was a government funded project that corporate American has simply tried to co-opt completely and, thankfully, unsuccessfully. If corporate America had full control, as it wishes, you'd probably be paying per character sent as well as a slew of other unbundled charges, much like US "health" care.
Oh, but what of the investor class?
I will lay it out for you from a socialist perspective - nationalization is just a buzzword for socialism. But it is not an evil Ruskie communist conspiracy - it is, in simple terms, what is needed to prevent the 2nd Great Depression. Heaven forbid that people who have put millions and billions of dollars to have high stakes in banks that were cooking the books all along, might have to PAY for their mistakes! Your average working class/underclass American won't see much difference in a great depression - our career prospects will largely be the same as before the crash, and compared to the middle and upper classes, we will be financially stable during these times. But if people don't start demanding accountability from the banking and investor class for their greed and incompetance - and even republicans and paleoconservatives are appalled by these massive bonuses - what we will have is simply a realignment of wealth in this country, taken from mostly upper-middle class Americans and given to the mega-wealthy. People are beginning to lose confidence in the president already, less than 100 days in... yet it took years after the crash of 1929 for the market to bottom out. If drastic actions are not taken, we will see a repeat of the widespread poverty, unemployment and general discontent of the Great Depression - it may very well be worse, considering the amounts of money being thrown around. Make no mistake - the Republican Party will be nothing but a minority party for many years to come. They're done with, given the obvious fact that this collapse was almost completely a direct result of the Bush Administration's policies. The only question is if Obama fails... Americans will lose whatever shred of faith in the system they have left. I myself am unsure if he can fix this system. The damage is largely already done...and what is left to come is largely out of anybody's control at this point. What rises from the ashes of this collapse will hopefully be better than this so-called 'liberty' we have been left with. Thanks a lot , W!
What a load of crap
Keep drinking the kool-aid, idiot boy. That's it, finish the cup. Now keep repeating, "it's all Bush's fault, it's all Bush's fault." Nightie night...
This was way beyond "the Bush Admin policies". How about doofus Barney Fife-Frank obstructing all the efforts to reign in the excesses happening well before 2008? "Well, leth thee. One pluth one equalth eighty-two. I'm in charge of banking now!"
It was a collective effort of obstructive Dems posturing and denying reform for political gain sake, as well as Repub's spending money like drunken sailors. But the real scoop is the "reformation" under Clinton of all the depression-era restrictions along with acts like CRA that put a gun to the head of any bank denying mortgages to poor people who couldn't afford it. The clock started ticking at that monent as to when the whole thing would implode. It's easy to blame Bush; just not accurate.
Banks, credit, etc.
I hope the big global soshynomix circle-jerk grinds to a halt, and they have to vacate the NYSE and put in a food bank for the public instead.
These financial institutions have had a free hand to play their rackets against the public for decades, yo-yo pricing, ARM's, now it's reverse mortgages, oh, and 35% interest(plus penalties and fees and so forth) on the Plastic Fantastic, I tell ya what, I don't care what kind of reforms these people do at this point, I will never again hold a credit card, nor do I ever intend to apply for a mortgage. Have you studied just HOW many people are out on their butts or packing and heading that way because of all this stupidity? There was some news story where a guy was saying that blacks are unfairly targeted or something like that, but it's EVERYBODY, and when industries do things that screw it up for all, then there's a great case for going ahead and getting rid of them.
Is it all the banks' fault? No. They were basically the croupiers running the tables, when the economy started falling apart. Commodities prices skyrocketed, all the professional card-counters were raking it in, and it got to the point where the Fed couldn't print money fast enough to keep up with demand, and it's all just gotten pretty stupid, and now people are cashing in shares, and holding on to their cash, and reading with rapt interest about people like Bernie Madoff and so forth, but before you sharpen up the pitchfork, let's stop and talk about the stock market itself, and whether this particular institution hasn't essentially outlived its' usefulness to the public.
The essential promise of the stock market is something for nothing. You buy a 'share'(piece of paper) of a company, and in return, the company is supposed to pay you money, say, 24 cents a share or something like that. I don't know what they pay in dividends, go research it. Anyway, say you buy a share for $10.00. For that $10.00, every year, they're supposed to pay you a quarter/a dollar/whatever. But you hold on to them, and the value of the share appreciates(hopefully) Maybe the dividend goes up. Anyway, you're playing the market, instead of working to earn money more traditionally, or maybe you do both. Or, are YOU the one that's being played? If I coax you into giving me ten dollars, and I give you this piece of paper, and a nice shiny quarter, and I tell you I'll give you another quarter NEXT year, what's that really all about, what's going on there, something kind of maybe I don't know, suspect, dishonest, that kind of thing?
Bush was real big on everyone playing the market. His brother was involved in the S&L scandal. I don't hold any shares in anything, I no longer hold a credit card, and pretty soon here I'll have burned through the last of my IRA, at which point I'll be down to what's in my wallet and my checking, which if you think about it, is all you really ever have, and if the banks really start going south, which they could, well then it's down to your wallet. What's in MY wallet? Cash, not much, but it all says 'in god we trust' on it. No more percentage-rate funny money for me, thanks. I vote 'no confidence' in Wall St., and I'll bet if they really dig, if they're not afraid to, they'll find more Bernie's. Next time you drive by a federal penitentiary, you can all point out the car window, and say, 'Weekend At Bernie's! LOL
Invest in the stock market? Not with my money.
Swinnnng low, sweeet chaaaariooo-ooot...
Klaatu marachas necktie
banks and thrift regulators
-
tagged as:
- solution
The banks and thrift regulators appointed by the Bush administration including the: OTS, OCC, FDIC, SEC and the Federal Reserve have been nothing but cheerleaders for the banking and Wall Street industry. These regulators aside from directing there own agency also are directors of the FDIC. They pass on: policy, regulations, staffing, budgets and closing zombie institutions. They have gutted (chainsawed)safe and soundness regulations in the name of cutting red tape. They have not been replaced by the current administration and should be. Prompt corrective action is a joke under these appointees
But the real scoop is the
But the real scoop is the "reformation" under Clinton of all the depression-era restrictions along with acts like CRA that put a gun to the head of any bank denying mortgages to poor people who couldn't afford it.'
Right. The CRA was especially active in Spain and Ireland.
Look folks, this "CRA AND
Look folks, this "CRA AND FRANK DID IT!" is a silly canard.
There's little to no evidence backing that up, as the problem wasn't banks giving loans to the lower income bracket...since most of the toxic loans were given to people who qualified for NORMAL loans...
You simply don't want to take any responsibility for your actions.
Certainly Clinton was complicit in this. Him and Gingrich unlocked the door and Bush and Co. Yanked it wide open.
Exactly, Deregulation was the problem not poor people
At the height of sub-prime lending in the mid 2000's, only 1 of the top 25 sub-prime lenders was regulated by CRA. The whole endeavor was zero risk for the lenders because the then sold the debt to wall street. F MAE and F MAC actually started loosing market share during this period because lenders found they were able to sell the loans directly to wall street.
Let Winston be wrong for once
Well argued article Kevin, and as the apoplectic responses from our commentator brethren on the right margins of the political spectrum show, also an absolutely necessary one.
The 'nationalization after due process' option obviously is such a bitter medicine for the right that they beat themselves into a reflexive frenzy over it. Will still take a bit until they have exhausted that furry and get to the stage of acceptance.
Which also shows that Obama and Geithner were right to tread carefully with the nationalization/receivership option. I nonetheless hope that they are seriously considering this option and don't vindicate Churchill's famous quip that 'the Americans will always do the right thing... after they've exhausted all the alternatives.'
Crikey....
where do these guys come from? Did this article get linked at Free Republic or something?
Thanks
Interesting read, Kevin. And yeah, those early commenters are trippy.
Where do we come from....Mr. Kevin Drum
-
tagged as:
- solution
No Kevin, we didn't come from Free Republic. We come from everywhere. We come to read MoJo. We come to read, absorb, and peer into the minds of emotional liberals who only know solutions that treat symptoms and not root causes. We seek to understand, only to be frustrated by the illogic, emotion, and from what I see in these comments, downright hatred for their fellow men and women. Still Kevin we come, because we have our country's best interest in heart.
It's time to take a look back further in time to programs that government was never intended to initiate, let alone sustain. Before we do that, take a look at the facts illustrated here, for they paint a different picture of government's role in our economy, and what ails it today.
http://www.americanthinker.com/2009/02/economics_evidence_and_enlight.html
This is just a different, but interesting view, one I'm sure MoJo will never attempt to dispute line, but line, fact, by fact.
The wonderful government "solutions" I speak of are for example: the 16th Amendment, monetary policy and leaving the gold standard, the new deal, must I go on! These pieces of legislation started what will never stop until people say "Enough is enough," and shrug, much like Rand's Atlas. All of these “solutions” treated symptoms, and all continue to have far reaching and long term side effects. There is plenty of data to prove that as well.
But surely, even hard core data, facts and thorough analysis can't penetrate the emotional, irrational liberal. And we tire Kevin. We tire because no matter how simply we lay out our arguments, how thorough the analysis, we just can't get past the dark matter in every liberals brain that inhibits there ability to process logic, and formulate rational thoughts. What is a Regan Republican/Ron Paul Libertarian to do? Should we run out and by Coulter's book, "How to talk to a Liberal (If you must)?"
Perhaps I should just lay out a few more facts.
1) Our country was based on capitalism
2) The federal government was never intended to "manage" or control our markets…period!
3) Without bankruptcy, their is no capitalism
4) Lenders, (CEO's included) and the borrowers signed contracts. They should be held accountable to those contracts as written. I'll gladly hunker down while they learn their lessons
5) Income tax is more addictive than crack cocaine and our government is hooked and wants more
6) Rising tax brackets are by their very nature unfair. Read it and get it through your head
7) Our society is greedy at all levels, super rich to super poor and is over indebted.
Our society’s insatiable thirst for more stuff (SUVs, big screens, vacations, bigger home, boats, etc.) all played a factor in this crisis. People wanted more stuff, the market responded. And government exacerbated the situation by making damn sure that everyone got their share. This crisis wasn’t created by Wall Street investors alone. It was created by the majority of our population (anyone who is over indebted).
You completely ignore the scenario of holding this group of people and lending institutions accountable. What’s the worst case? Hypothetically, if the economy drops into a depression, we won’t be able to buy any more goods from China. Maybe, resourceful (greedy rich folks as you so often call them) citizens that have capital will invest in...Umm...our manufacturing, textile, and industrial bases to rebuild what we've outsourced.
But, but, they will be taking advantage of unemployed people, paying them unfair wages, not providing 100% of their health care costs, um, not providing day-care, etc. But goods and services will be made right back her in the good ole US of A, just like they were before big labor ruined that for us. So, to me it sounds like this crisis could give birth to another industrial revolution, if only the government would butt out!
But the government won’t let the markets do what they would naturally. And my children, all our children will be caught in the financial web of government for their entire lives. They will be taxed exorbitantly. They will wait in single payer health care lines. They will be tongue tied, unable to speak their minds for fear the thought police will ascend upon them. They’ll see government funded and televised partial birth abortions on multiple channels, because a fetus (even minutes from birth) has no liberty….does it Kevin. Visualize it…Kevin. I could go on and on, but you get the picture, or not.
Nationalizing the Banks is likely just one of the many steps the government will take in the coming months. And the illogic I see in the comments above is a real testament to the downright stupidity and morally invertebracy of the folks standing in line for more government Kool-Aid and glued to their computers waiting for the next MoJo article. No thanks. I’ll just have water.
Regards,
William B.
Is libertarianism now a religion?
William B.
Why do I get the feeling that for you guys libertarianism is no longer a political philosophy but a religion? Maybe because you have this tendency of pretending to be in possession of the absolute truth and that those who disagree with you therefore just must be too stupid to see that?
This lack of agreeing with your truths appears to frustrate you so much that you feel entitled to belittle people of other political persuasions as illogical dimwits. Has the thought ever crossed your mind that these other people might just as likely have arrived at the conclusion that your truths are no their truths and that your holy cows are not their holy cows, because, like the idea of the gold standard they are so, well, past century.
Maybe some people also just don't want to go back to the medieval days of pre-industrial labor relations and pauperism because they believe that we can do better. Maybe some people have an ideal of a more balanced society than that.
Maybe some people think that market forces are a good generic way of organizing economic exchange between people and societies, but they are not god and on occasion they need to tempered for the overall good. And so on, and so on.
I'll acknowledge one thing. Unlike some of your early brethren, who just relieved themselves by hurling insults, you at least made an argument. Thanks for that, otherwise we'll just have to agree to disagree.
Big banks, can't live with um, can't sell um to North Korea.
I lack the time to comprehensively explain the voluminous details involved. People say that our government is unable to adequately administer the banks. Which may be true but is also a bit comical, because the banks have been controlling our government for quite a while and the result has clearly been that the banks have failed to administer themselves and in succession, the U.S. government they controlled also failed. People neglect to appreciate that in the history of the USA, this most recent disaster in actually the 6th such event, proximately caused by the U.S. central banks. The Federal Reserve was in fact created to try to give the (bogus) impression that some independent agency was watching the consumer's backs--following the bank debacle of the early 20th century. This was a patently false impression from the time it was proffered. The FED was a way for the central banks to disguise their power-base and continue to control the entire show from behind a 'wizard-of-oz' style curtain.
Control of so much money always does this. It first consumes the small potatoes, then the medium sized ones. In short order, there are no more corpses to be consumed by the lenders and so they begin to turn on each other--as well as the high earners and corporate benefactors. The giant banks create their wealth through destruction and so that wealth is necessarily short-lived.
Pres. Obama should sign an exec. order that until further notice, no interest rates above 15%. This may not solve the problem but it would help slow the proverbial bleeding and thereby shorten the recession/depression. But he probably won't. Why? A few possible reasons. 1. He may not be that courageous. 2. He is a lawyer and probably has no idea what to do and is akin to a deer in the headlights, hoping that his advisors will figure out the appropriate remedy. 3. Sadly, he may have his own political issues and may not be completely on our side (???).
Anyway, we need a real house-cleaning, ala FDR (or more). We need nothing less then a general reorientation of our priorities as a civilization. Otherwise, the 'golden-rule' shall still apply, perhaps more so then ever before: "Those who have the gold make the rules". We will then continue to suffer, to greater or lesser degrees. Some of us will defend the worst offenders, such as Bush-W who took a hobby of Clinton (appeasing Wall Street) and turned it into an 24/7-365 profession.
Regarding Barney Frank: As it turns out, he was part of the problem. As was Joe Biden, who helped pass some of the laws allowing credit card companies to charge usury interest rates and change their terms retroactively. But these Democrats should fairly be seen as the collaborators. Not innocent but certainly not the 'evil empire' either. The Empire revealed its leaders when Bush-W took a $125-billion surplus and converted it into a doubling of the entire national debt so fast, had it been a TV reality show, viewers would have doubted that such was even possible. (Like a Richard Pryor movie.) This deficit was engineered to benefit the big banks and the Wall Street corporations. While the US was auctioning off its new T-bills, banks did not need to loan money to consumers (or small businesses) to make a handsome profit. This lack of lending competition also created tighter terms for smaller borrowers and higher collateral requirements and higher interest rates, as well as accelerated other charges and fees--such as maintenance fees and audit fees . But the net result was the debilitation of the small businesses and with it, out-went US job growth. The net effect of that was that the big corporations lost revenue and the banks ultimately bankrupted their own depositors--we the people.
At this point, we need a new program. We need a better and fairer system of equities. We need to create our wealth out of production, not destruction.
We also need a totally new branch of the Justice Dept., administered by average, ordinary people, who's role it is to police the Court system. Judges should have all their official phone calls and meetings taped and reviewed at random to stop the brokering of power and position. But Mr. Obama won't do that either. So we are probably all eternally screwed.
Respectfully submitted~
Well put Trollstein. If
-
tagged as:
- solution
Well put Trollstein. If people aren't prepared to ditch the plastic and re-locate their mortgages then they're all screwed and, quite frankly, if they don't take steps to extracate themselves from the financial quagmire they may have inadvertantly slipped into, they deserve everything that surely coming.
This article is a must-read
This article is a must-read ...for anyone wanting to see how a person with absolutely zero knowledge of a particular topic can make themselves come across as a rational-thinking expert. To cite just a couple of fatally 'flawed" facts (i.e. outright lies):
1. The SEC does not set leverage ratios - the Fed does, the very same people the author is suggesting we give even more authority to - as if things are not already bad enough.
2. The de-leveraging is not due to loan losses (if you check the facts, actual loan losses are at a whopping... 4%!). The biggest reason for frozen credit is access, not liquidity (nuance, anybody??). Another factor is the nonsensical mark-to-market rules, which when compounded with the Fed's suggested leverage ratios results in the death spiral we're witnessing. The reason Citi and BoA just announced paths to profitability is precisely because they are now only lending only to AAA+ rated debtors and have already taken a big bath on the MTM rules, so things can literally only go up from here.
Here's a thought for the author: as a potential provider of credit (by investing capital in banks) why shouldn't I be able to choose whether I want to invest a bank with a business model that is based on a leverage ratio of 100:1, 30:1 or 1:1, so long as I am prepared for the consequences? Conversely, as a subsidizer of credit (by virtue of being a taxpayer in a bailout), why is it fair for someone else to decide what my risk appetite is? Let's not forget that it was Congress that forced Freddie Mac and Fannie Mae to leverage as high as they did.
In the future, get a clue about the topic before you jump in with your 2 cents.
Thanks for the though, you can have it back
Having some anger management issues Anonymous, are we?
It's not my business to answer to your accusation of 'outright lies', but I'd pause for the thought that maybe you overdid that point a bit?
What I'd like to respond to though, is your thought experiment. I'd say the answer lies in the fact at least 'professional' investors in banks, as opposed to the diminishing species of ordinary savers, all knew very well what leverage ratios the banks they invested in operated under.
Contrary to your insinuation, that doesn't seem to have had much of a positive effect on their willingness to take the losses that started coming their way once the banking crisis got going. Makes one think that there might be a certain lack of 'being prepared for the consequences', no?
It's all nice and well for you to state that you personally are prepared to take your losses in a manly fashion, but as long as all of the the available evidence suggests that this is not a sentiment shared very widely among the other members of the bank investing class, and as long as the taxpayer therefore is called upon to bail out banks with perfectly clear defined leverage ratios, it's a bit bold to ask for less regulation.
I am sorry for having a bit of bad tidings for you in this regard, but I'm afraid the idea that there should be less regulation in the banking sector, rather than more, has had its heyday and it isn't going to see another one for two or three generations, if past experience holds.
SRW1...I'm guessing the
SRW1...I'm guessing the point of your rely is that the "professional" investor class somehow took advantage of the "ordinary" investor class (I'm guessing because you haven't actually addressed any of my specific points). Are you aware that all investors, regardless of sophistication must be provided with the exact same information (through something called Reg FD)? In fact, leverage ratios are explicity available in any publicly-traded bank's Annual Report, which is available to all investors including "ordinary" ones. Perhaps, you could have made a more accurate distinctinction between "diligent" and "lazy" investors. Contrary to your perception of my beliefs, I actually feel strongly that regulation should be strengthened where possible to assist the helpless. But the clueless...are on their own and have no business investing to begin with.
You clearly didn't understand my first point, its not that I'm against regulation (or for it at this point, since nothing has actually been proposed - and unlike some, I like to understand what I'm agreeing or disagreeing with), my reaction was to the author's suggestion that we relinquinish almost total authority for running our banking system to the Feds, when in fact they have failed so miserably to use the limited power they have now. Shouldn't the idea of not rewarding failure apply equally to the government?
And since you enjoyed my thought experiment so much, here's another for you: if your beef is that the so-called "professional" investors were able to dupe ordinary investors by feeding them nothing more than fiction that people just wanted to believe....how is that different from so-called professional journalists who feed the general population dis-information that sounds good to people who really dont know the details? Isn't that something we should all be angry about?
A way too long reply
Actually the only part in your comment I addressed, other than touching on its tone, was the sentence
Here's a thought for the author: as a potential provider of credit (by investing capital in banks) why shouldn't I be able to choose whether I want to invest a bank with a business model that is based on a leverage ratio of 100:1, 30:1 or 1:1, so long as I am prepared for the consequences?
The point of my reply was not that 'professional' investors somehow took advantage of 'ordinary' investors. I made the distinction between the two groups because I assumed that your 'potential provider of credit' included ordinary savers, as well as shareholders and bondholders.
With 'professional' investors I meant the latter two. These are indeed also investors I expect to be aware of leverage ratios, but I doubt that to be the case for the majority of ordinary savers, even though that information is publicly available.
After having made the distinction between 'professional investors' and 'ordinary savers', the point of my reply was directed entirely towards the 'professional' investors. The way I understood your question of whether you shouldn't be free to chose the leverage ratio of the bank you want to invest in, as long as you are prepared to take the consequences, was whether you shouldn't be free to choose the risk level of your investment in a bank.
My reply to that was that if we are looking at what is currently happening there doesn't seem to be much evidence for the willingness of investors to accept the consequences of their investment decisions, despite the fact that the leverage ratios of the banks they invested in must have been perfectly clear to them.
I am saying this because it is obvious that we are having a bunch of banks that are in essence bankrupt, but are too big to be allowed to fail. Which means that the shareholders and the bondholders of these banks should have lost their investments. Now, for the shareholders that is de facto what has happened to a very large extent.
But what about the bondholders? I haven't seen them step forward and say we'll take our losses. As a matter of fact, it is quite obvious that every single one of them expects to be made whole by the taxpayer. As long as that is the case, I'd say the Fed has allowed banks, in particular those that can not be allowed to fail, to take on way too much risk. What is therefore needed is less risk and I see that translate into more regulation (and more oversight).
So much to clarify my comment. Now to to your point that I misunderstood your opinion towards the question of more or less regulation. That may indeed be so, but I must admit that even your second post leaves me baffled in this regard. You say that you are actually in favor of more regulation, especially to protect the helpless. On the other hand you (deservedly) criticize the Fed for not having made sufficient use of the limited power it already has and you go on to ask 'whether the idea of not rewarding failure shouldn't equally apply to the government'.
So, the banks have failed, the Feds have failed and, according to your question, so has the government. I'll assume for the purpose of the arguments sake that you did not include Congress among the government, or at least you do not question the legitimacy of Congress to draw up new banking regulation. But who do you see executing oversight, if not the Fed and/or the government?
Ultimately, only the market
Ultimately, only the market is able to provide proper and efficient oversight of RISK, but only if we get out of it's way first! As a matter of fact, as I write this, Treasury seems to have finally realized this as well, and are now proposing a public-private market for banks to dispose of toxic assets.
Until now, the Fed, Freddie, Fannie and other assorted creatures of the government have consistently meddled in the market by keeping ST rates lower than they would otherwise be, insisting banks lend to subprime borrowers and most damaging of all, perpetuating the sense that some businesses are too big or important to fail - as evidenced by the endless trillion dollar bailout-du-jour plans.
As to your point about you making a distinction between investors and savers.... ordinary savers were never at risk due to the FDIC (this is an example of the kind of regulation I favor, strengthens the operation of the markets and provides a safety-net for people who dont want or need the potential risks/rewards of investing). And the last I checked, noone has lost their savings as a result of this financial meltdown, but most shareholders in the banks have most certainly suffered the consequences. As for the bondholders, if you check market price of debt, you will see that its trading for pennies on the dollar, although the losses are not as severe as for the common shareholders, but that is due to the fact that the bondholders are secured creditors whereas the shareholders are not.
Be very afraid.
The FED, not the SEC is empowered to issue currency and regulate banking. The SEC has some omnibus power--if the bank is listed as a public corporation (not always). But that power has been vastly underutilized--in all examples--banking being a minor example. The SEC has become a rubber-stamp for the corporate parasites.
So, lets recap:
The FED regulates banks, including the issuing arbitrary (unlegislated) banking laws.
However, the Federal Courts routinely disregard these FED regulations--even though they are quite legally valid and should be binding.
The OCC (Office of Comptroller of Currency) was set up to be the consumer protection agency of the banking world: (The Fed was set up by the central banks--to combat the power of the OCC).
"The OCC was created by Abraham Lincoln to fund the American Civil War but was later transformed into a regulatory agency to instill confidence in the National Banking system and protect consumers from misleading business practices."
http://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_the_Currency
Below is a VERY interesting article on the subject: It is written by Eliot Spitzer on Feb 14th, 2008 (note the date).
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html?nav=hcmodule
Very soon after the Spitzer article was published, all hell broke loose for the Gov., (who was likely frequenting prostitutes since he was 13).
This is the power the central banks have. They can turn law enforcement agencies on and off at their whim and push news from the periphery to the center spot-light.
Respectfully submitted~
lesson on capitol ratios: I
lesson on capitol ratios: I have 10b in capitol. If my capitol requirement is 10%. I can only lend out 9b and I have to keep 1b in reserve. This means my capital ratio is 10:1. This is what traditional banks do. (Citi, JP, BoA)
lesson on leveraging: I have 1b in hand. I borrow 10b against that. This means I am leveraged at 10:1. This is what investment banks do. (Lehman, Bear)
Same ratio. Don't confuse the two.
Thanks for the lesson
Thanks for the lesson. Duly noted.
Now for the question that follows from your statements: So, the biggest zombie of all, Citi, is a traditional bank that is not leveraged in the investment market?
Ah, I see, it is. So, while technically correct, your fine lesson is in essence just a diversion from the current discussion.
Oh and btw, you can come off your high horse now.
Does it at all worry you...
... that you have pretty much every detail here wrong, down to and including thinking the SEC regulates commercial banks (it's the Fed) and forgetting that banks also have depositors and these deposits are a liability to the bank?
Too big To Fail
Ordinarily the market ruyles say a corporation should grow or die by it's own hand. Unfortunatly, the economic mess is too big and too entrenched it allow the banks to fail. That is, unless everyone is willing to start the economy over again at zero. Only the government has the ability to absorb this negative capitol.
Temporary nationalization will, if we are lucky, toss out the corrupt CEO and executives who made this happen and be replaced with government appointees. The down side is political corruption....back scratching to obtain those positions. In addition, when the bank is back on it's feet, there will be political back-scratching between the seller and buyer.
It's a stop-gap solution because the Senate and the last administration refused to act fiscally responsible.
Real Capitalists Nationalize
Very persuasive article. Thanks for the explanation.
misleading with the best of intentions
Kevin,
It doesn't look like from this posting that you have gotten any smarter since I stopped following you in September. You have a position of responsibility to the public that you are not holding up. You are obfuscating the problems and thereby helping the perps continue with their crimes against humanity.
The problem that is about to bury the US and the world economy is investment banking. The downturn we are in would not be of exceptional note if it were not for the overhang of the derivative market which is not discussed anywhere in your posting or by your stellar glob of commenters.
I will continue to tell others that your postings are as worthless as usual. Do you work for the fascists or do you have some other impediment to your thinking about how the world works? I thought progressives were suppose to be providing clarity around situations that are being propogandized by the MSM.
Please do better or don't pretend to others you are trying to help humanity.
Better let the banks go
Better let the banks go under. No sense taxpayers throwing good money after bad.
We may see a total crash of the economy.
We may see a total crash of the economy. Hope that there will be no violence.
u ppl r stupid
u ppl r stupid
u do realize who elects all these incompentent ppl in the gov't right? we THE PEOPLE do so maybe if you want things to be done right STOP VOTING FOR THE SAME DUMP A@@ PEOPLE WHO R F****** UP THIS COUNTRY IN THE FIRST PLACE
oh and r newest president is no good id perefer to have bush back over him and no im not against black ppl i just dont like him he's just going to s**** us over more
SO START VOTING FOR COMPENTANT PEOPLE ALREADY
msn indir
agree to all good comments
