Maintaining the Banks

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Atrios sez:

I know I’ll make this point a billion times before this is all over, but there’s a difference between thinking that well run financial intermediaries (which, in theory, competition will create) are necessary for a modern economy and believing that the semi-oligopolistic system of financial intermediaries which have demonstrated beyond all reasonable doubt that they’re at best incompetent and most likely some combination of incompetent and incredibly corrupt should be maintained at a cost of hundreds of billions of dollars (optimistically) in taxpayer money.

I don’t really get this.  Aside from the nitpicky point that the United States actually has one of the least oligopolistic banking sectors in the developed world, what’s being argued here?  That we should let the existing banks fail?  That we should temporarily nationalize them?  Which ones?  And if we do, how should we treat all their creditors and counterparties?  That’s the big question (not whether shareholders should get wiped out — of course they should, but they’re mostly wiped out already), and it doesn’t go away just because we nationalize TitanoBank instead of shoveling cash down its gaping maw in return for preferred shares.  In fact, it makes the question even more salient, since in a post-nationalization world Uncle Sam would be legally on the hook for all those claims.

As for the cost of all this, we might as well suck it up.  We’re way beyond the point of thinking we’ll get out of this mess without spending a trainload of taxpayer dough one way or another.  This debacle is going to cost us hundreds of billions of dollars no matter what we do.

And when it’s over, guess what?  Pretty much all the same people will be in charge.  A few senior executives will be out of jobs, but that’s about it.  And the ones who replace them won’t be much different.  The fact is that these people did what they did not because they’re stupid, but because the system practically begged them to act the way they did.  That’s what’s broken, and fixing it depends mostly on what kind of new financial regulations we put in place going forward.  I guess we’re still in firefighting mode and don’t have time to address that right at the moment, but I’d sure like to start hearing more about it sometime soon.  In the long run, figuring out an effective way to regulate leverage, wherever and however it appears, is probably a lot more important than deciding which bureaucratic solution we should use to clean up the corpses currently littering the battlefield.

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We didn't know what to expect when we told you we needed to raise $400,000 before our fiscal year closed on June 30, and we're thrilled to report that our incredible community of readers contributed some $415,000 to help us keep charging as hard as we can during this crazy year.

You just sent an incredible message: that quality journalism doesn't have to answer to advertisers, billionaires, or hedge funds; that newsrooms can eke out an existence thanks primarily to the generosity of its readers. That's so powerful. Especially during what's been called a "media extinction event" when those looking to make a profit from the news pull back, the Mother Jones community steps in.

The months and years ahead won't be easy. Far from it. But there's no one we'd rather face the big challenges with than you, our committed and passionate readers, and our team of fearless reporters who show up every day.

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