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Banking on the Brink
Comrade Greenspan wants us to seize the economy’s commanding heights.
O.K., not exactly. What Alan Greenspan, the former Federal Reserve chairman — and a staunch defender of free markets — actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree.
The case for nationalization rests on three observations.
First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.
Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.
Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.
Let’s be concrete here. There’s a reasonable chance — not a certainty — that Citi and BofA, together, will lose hundreds of billions over the next few years. And their capital, the excess of their assets over their liabilities, isn’t remotely large enough to cover those potential losses.
Arguably, the only reason they haven’t already failed is that the government is acting as a backstop, implicitly guaranteeing their obligations. But they’re zombie banks, unable to supply the credit the economy needs.
To end their zombiehood the banks need more capital. But they can’t raise more capital from private investors. So the government has to supply the necessary funds.
But here’s the thing: the funds needed to bring these banks fully back to life would greatly exceed what they’re currently worth. Citi and BofA have a combined market value of less than $30 billion, and even that value is mainly if not entirely based on the hope that stockholders will get a piece of a government handout. And if it’s basically putting up all the money, the government should get ownership in return.
Still, isn’t nationalization un-American? No, it’s as American as apple pie.
Lately the Federal Deposit Insurance Corporation has been seizing banks it deems insolvent at the rate of about two a week. When the F.D.I.C. seizes a bank, it takes over the bank’s bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that’s exactly what advocates of temporary nationalization want to see happen, not just to the small banks the F.D.I.C. has been seizing, but to major banks that are similarly insolvent.
The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.
For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.
Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.
Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.
How would nationalization take place? All the administration has to do is take its own planned “stress test” for major banks seriously, and not hide the results when a bank fails the test, making a takeover necessary. Yes, the whole thing would have a Claude Rains feel to it, as a government that has been propping up banks for months declares itself shocked, shocked at the miserable state of their balance sheets. But that’s O.K.
And once again, long-term government ownership isn’t the goal: like the small banks seized by the F.D.I.C. every week, major banks would be returned to private control as soon as possible. The finance blog Calculated Risk suggests that instead of calling the process nationalization, we should call it “preprivatization.”
The Obama administration, says Robert Gibbs, the White House spokesman, believes “that a privately held banking system is the correct way to go.” So do we all. But what we have now isn’t private enterprise, it’s lemon socialism: banks get the upside but taxpayers bear the risks. And it’s perpetuating zombie banks, blocking economic recovery.
What we want is a system in which banks own the downs as well as the ups. And the road to that system runs through nationalization.
- Posted in
85 Comments so far
Show AllIf the banks are nationalized, the government will become the owner of the banks’ good and bad assets and it will have to assume the banks’ contractual obligations towards their creditors, investors, and account holders. In particular, any contractual guarantees given by the banks to the owners of now-worthless risky “innovative” financial vaporware will become de facto contractual obligations of the government towards these owners.
Nationalizing the banks will open the gates to all kinds of pompous declarations by congress demoblicans about the government’s "solemn duty to honor" the contractual "commitments” that came with the “act of nationalization” bla bla bla, so they can save their trillionaire friends amidst an apotheosis of self-righteous complacency and flag waving.
Indeed if we ignore small-fry investors, pension funds etc., the owners of worthless financial vaporware that truly matter to demoblicans are greedy domestic and foreign trillionaires who bought the financial vaporware with full knowledge of its risks. These trillionaires will lose humongous amounts of money and hence will lose much, if not most, of their economic and political power, if the “financial system” is not saved by the taxpayers.
That’s why the trillionaires have mobilized bribed economists, journalists, and politicians and ordered them to call wolf about the cataclysms that will ensue if the “financial system” fails. “Saving the financial system” is indeed the obfuscating phrase invented by these bribed economists, journalists, and politicians to try saving this neo-feudal class of trillionaires that is “essential“ to what “America stands for” and to “how things should be after we help them out”, as the “radical” Paul Krugman has put it in print repeatedly.
As you may remember, in the middle ages whenever the feudal class created a mess they “rescued themselves” for the “sake of the country” by taxing the hell out of the serfs and the bourgeois, but now with “the triumph of liberty” all of that has changed… yeah right!
But there is no need to save the trillionaires, regardless of how much money they have given to economists, journalists, and politicians and of whether the flow of bribes may stop if the trillionaires fail for good.
The banks should be allowed to go through an orderly bankruptcy that preserve their real-economy presence and protect the savings of their non-reckless customers up to say 200k per account and up to say 1 million total net worth per person (IRS-declared), where a sliding scale could be used that reflect how "aggressive" the interest-gathering strategy chosen by each account holder was and the extent to which the account holder chose risky “lucrative’ financial-speculation products over investments in actual production. The necessary paper trail is available…
One should fire everybody in the *failed* banks' upper management (because they failed, duh!) except for whistle blowers and those essential to day-to-day operations, for those managing customer accounts, and for those having expertise in evaluating loans applications by companies that produce actual goods, be they trinkets, essential insurance products, etc.
Social criteria like protecting pensions could also be used by simply dividing the amount invested by each pension by the number of people the pension represents in order to determine what the pension can get in terms of protection and for which individual accounts (since pension-holders who chose especially reckless financial-speculation products should be protected less).
So it’s not time to nationalize the losses of this self-anointed neo-feudal class of trillionaires masters of the universe. Rather, it’s time to shut down their failed banks, to let the greediest investors bite the dust, to claw back any bailout money given so far to them and the banks, and to use this money to jump start directly the flow of credit into the economy after “nationalizing” (hiring back!) the banks’ existing experts in locating, evaluating, financing, and following-through worthy entrepreneurial ventures in real production and giving them a new institutional backing and responsibilities.
This crisis must teach harsh lessons to the most reckless of investors and bankers, and spare those investors and bankers who tried the hardest to stay away from the greedy madness of the last 30 years, even if only for moral reasons.
The tree of liberty must be refreshed from time to time with the blood of
patriots and tyrants. ....Thomas Jefferson
Thank you for a realistic voice in the wilderness. BUT, I am afraid the tide of nationalization via the MSM is gaining momentum.
I've paid attention to Krugman for a long time. My conclusion is that he is a remarkable combination of intelligence and honesty. Your idea of letting the banks fail would likely begin with the collapse of Citi and BoA. This would lead to further collapses on a likely large scale. The hard lessons learned would likely be awesomely large and prolonged. By nationalizing failed banks, the stockholders (investors) would be wiped out and lesson learned. The inertia of a rolling collapse of businesses would be averted or blunted. Your idea would likely lead to true depression which we may, may avert.
about kruggie: possibly as well-intentionedly as some brits like the idea of the royalty, kruggie likes the idea of fat guys with cigars sittings in backrooms of buildings where people work. see also http://www.counterpunch.org/cockburn10302003.html.
as for the galactic cataclysm you forecast in case the cigarred finance fat guys with private jets go down in flames, nothing that horrible happened to united flights when united went through bankruptcy. why not banks ? of course the fat guys with private jets would stop buying private jets and luxury swiss watches. if the demoblicans stopped throwing taxpayers money at the cigarred finance fat guys with private jets, half a dozen trillion dollars could be pumped into the us economy immediately and with help from the real-economy experts of the bankrupt banks. that's some serious small change with which one could (re)develop the country, protect the savings of small-fry americans, etc, etc.
The tentacles of monster spider banks are leagues apart from one air service company.
The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.
--------------------------------------
Obama's just as beholden to the Wall St. Bankers as Bush as he took enormous amounts of money from them.
If Obama betrayed the bankers he'd probably risk EVERYTHING. EVERYTHING.
Nowhere in his political past is there evidence that Obama has the courage to take such a stand.
The illusory democracy will continue until people realize there is no opposition party.
The Obama administration seems to lack the boldness needed to move firmly against the Republican and elite interests that seek to preserve the status quo. Evidence of that is the timidity of the response to the Santelli rant against helping homeowners stave off foreclosure. Professor Krugman and others need to keep up the agitation for taking another path and the general public that supports views such as his (and Nouriel Roubini's) need to make sure that "conservative" voices do not drown out the discourse.
"The Democrats are every bit as much a part of the Establishment as Republicans."
Good point. After the spending bill, the Democrats look to be more so than Republicans.
In an interview last October 10th, Noam Chomsky responded to the interviewer's question about the differences: "Of course there are differences [between the Republican and the Democratic parties], but they are not fundamental. Nobody should have any illusions. The United States has essentially a one-party system and the ruling party is the business party."
That should be apparent to all -- even before the last presidential election.
"The Democrats are every bit as much a part of the Establishment as Republicans. How can you not understand this self-evident elementary fact?"
If you can tell me, without giggling, that we would be in the same pickle we're in if Al Gore had become President, I will give you a shiny new penny. :)
Myst
Very good, Perry Logan. If not for Nader, we would have elected Gore, and the Iraq War would never have happened. I doubt the economic collapse would have happened either. Bush and the Republicans got us into this mess. It's up to Obama to get us out of it!
well, in one sense you are kind of right (but only one). Gore opposed Bush's plans for the war in Iraq. But much like (I admit) myself, and other progressives like Juan Cole, Gore did support the concept of regime change (even by force) if a coalition was built similar to the much more successful Gulf War I.
http://www.commonwealthclub.org/archive/02/02-09gore-speech.html
http://www.cfr.org/publication/4343/commentary_on_the_war_against_terror.html
"we are prepared to cross an international border to change the government of Iraq. However justified our proposed action may be, this change in role nevertheless has consequences for world opinion and can affect the war against terrorism if we proceed unilaterally. "
I think his main objection was the lack of a coalition and UNSC approval. But had we proceeded differently, I still believe that the war could have actually been a war of liberation instead of a violent occupation. Let's not forget, Saddam was amongst the worst tyrants of the 20th century, and his own people had made numerous attempts at overthrowing him only to be killed and tortured.
"You're not smart enough to argue with me, remember? Just listen to what I say, try to learn from it, & otherwise keep quiet. In all these matters, I am the professor; you are the kindergartener."
Now I get it, you're Stephen Fowler.
http://www.google.com/hostednews/ap/article/ALeqM5jzPQCXoZV5y9hLqr73AlZWRlsJrQD96FLIO80
Pop Quiz:
What did Manuel Noriega of Panama, The Shah of Iran, and Saddam Hussein all have in common?
Answer: they were all "ruthless dictators" propped up by the CIA.
After the Reagan Administration gave over 40 billion to Iraq, our thug, as usual, turned on us.
Go here:
http://en.wikipedia.org/wiki/Manuel_noriega
http://en.wikipedia.org/wiki/Mohammad_Reza_Pahlavi
http://en.wikipedia.org/wiki/CIA_activities_in_Iraq
Use your find command (control-F) and type in CIA then hit enter.
Then hit enter key again to jump to the next cia payment reference. There are dozens of them, complete with references at the bottom.
So there is no doubt in my mind that we created these monsters. The question is: why do we want to keep paying for military adventurism and spy vs spy? All it does is breed terrorists.
As a reformed neocon, I don't anymore. Between our CEO bankster terrorists and our Fatherland S.S. squads we have enough domestic enemies against the constitution right here at home without trying to make new ones overseas!
TJ
"All tyranny needs to gain a foothold is for people of good conscience to remain silent." - Thomas Jefferson
By some coincidence I was at that 2002 speech at the SF Commonwealth Club. One of Gore's better efforts passion wise if not factually sound. I agreed then and still believe now that going after binLaden was a sound strategy but, considering the results achieved in Iraq only a blind man would still consider the removal of Hussein and the Ba'athists from power in Iraq to be a sound strategy. The only thing it accomplished was the removal of AlQaeda's staunchest enemy in the region and , for the first time, the entry of that group into Iraq.
This is actually a great rebuttal to those who prattle that the election of Gore to the White House would have significantly altered our foreign policy. Got any links to his domestic policies, Joe?
"Most people would sooner die than think, in fact they do so." Bertrand Russell
"... a privately held banking system is the correct way to go."
Most of us would agree with this. The problem is the "too-big-to-fail" scenario which encourages unecessary risk-taking for greedy shareholders who encourage it, knowing full well that the taxpayers will ultimately have to absorb their losses in order to prevent a systemic collapse.
How in hell can the average taxpayer have any faith in a banking system or government that guarantees the preservation of wealth for these elite gamblers at the expense of their own miniscule $$worth that is decreasing by the minute?
President Obama and his crew need to come up with a proposal that saves the "real economy" in this country and not just the wealthiest 10%.
Having faith in the system requires that the system work for all of us! How difficult is that to understand?
About this...
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...banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.
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My question is "what happens if "the world financial system" is destroyed?"
I don't mean general globalized statement about riots on the streets (probably true in many cases) or "everybody would be ruined" (probably true in many cases). I mean a few primary specifics.
To clarify my question, I'll say this. It strikes me that there are millions of people on the globe, maybe billions, who don't benefit from the world financial system at all, people who live at the margins of many countries like Lapland, parts of China and the Soviet Union, in South America, parts of Australia, and -- even dare I say it? -- parts of the US. People trade and share goods and learn some critical skills in getting along with each other so they can survive, not cheating each other left and right. Their experience involves what they personally can create that others might want to trade for, goods they already have that others might like to exchange for something they have, the energy to work and provide shelter for their families and neighbors. NOT non-existent money in the stock market (or even in banks these days) or worthless gems and "precious" metals that are useless in a survival mode.
The world financial market has enabled us in America to get some luxuries, some more than others, but it has not replaced our ability to care for ourselves and others. We are not really that far removed from our survivalist past. I have four cousins who grew up without electricity, gas, or running water. They hunted and fished for protein, raised a few chickens for eggs and an occasional stew hen, a couple of pigs, a few cows, and had a large garden that supplied the family year-round. They traded with neighbors for what they didn't have, though my uncle sold fish and shrimp for the money to buy the little they could afford to buy. It can be done with enough willing hands.
While I'm not currently anticipating that the world financial market will collapse since so many countries are doing all they can to save it, I don't have any illusions about who they want to save it for.
And I suspect that whatever happens, succeed or fail, it won't substantially affect the lives of many human beings.
The current financial mess may not affect 'Laplanders,' but for anyone with a roof over their head who does not fully or mostly own that roof, then things could 'substanially affect' quite a few people.
Greg
I'm suspecting that those who have roofs over their heads that must be purchased through a mortgage or rented are in the minority. People live in huts and shacks made from natural materials in many countries and just move on if forced out of one area into another.
I'm not saying this is an ideal to be aimed for, but rather that the food and shelter of untold people in the world is certainly not dependent on the state of the American/European/Asian economy. Maybe nothing in many lives is dependent on it.
I WILL say that nations' governments are certainly dependent on it though, and if the world economy collapsed, we'd see a lot of small country governments collapse. Back to the Dark Ages...
And pardon me for sounding naive, but how does this affect us even if are paying a bank that is holding the dee to the roof over out heads. A complete bank collapse could very well mean not having anyone asking for mortgage checks anymore because nobody can find the legitimate leinholder anymore.
Sure, my deed would then then be a worthless piece of paper, but the house would continue to keep me dry and warm, and that would be fine with me.
---USAn---
Anney I think you're right.
I am willing to bet that 80% of the world is exactly as you describe: Landless Squatters who have little to loose if the world financial system collapses. Some may actually have title or rights to occupancy, but most have no savings of any measure, and no need to keep purchasing crap in plastic packages if the truth be known.
Earlier comments pointed out the "Single Party System" of Big Business that we now have. Republicrats, who hold that all money and power should be held by the top one percent of the population. They have made war on their own middle class, and I think it is fair to let the whole house of cards come crashing down and start over.
The endless Robber-Baron cycle of Nationalization and bailout followed by Privatization and Deregulation. We, the citizen loose on both ends. Just like hard-core traders on wall street, these pukes don't care who they harm as long as they're making money both when the market is rising AND when the market is tanking.
Class: here are some new terms that are useful in our studies of Disaster Capitalism 101:
Nationalization: bailing out big banks and firms that intentionally ran their "private" businesses into the ground by looting their own corporate treasuries in the form of 100 million dollar executive "bonuses/awards" and "mergers" with buddies who loot the sister company being acquired days before it goes belly up.
Merger and Acquisition: a CEO scam that hires lawmakers buddies and regulators into the boardroom later in exchange for turning a blind eye to monopolization and "spinning off" the only valuable pieces of a "distressed" company for pennies on the dollar.
Deregulation: A fraud declaration, whereby all businesses in that sector understand that they can break any labor law or safety regulation as long as they cook their books and show a constant profit to the brokers peddling their hollowed out stock.
Federal Reserve Bank: a counterfeiting scheme that makes money out of thin air and charges citizens billions of dollars in APR interest for their own money.
Wall Street: A giant ponzi scheme where no value to the nation is ever accomplished through the illusion of wealth created out of instruments of such dizzying fuzzy math that nobody can ever figure out what anything is worth: See Tax Code.
Anybody wanna add any vocabulary terms to our list?
Remember, next Monday there will be a test in the bread line Comrades.
TJ
"All tyranny needs to gain a foothold is for people of good conscience to remain silent." - Thomas Jefferson
I would not argue anything you say here except your paragraph on 'nationalization.' Your statement describes to some extent what HAS been happening with the bank bailout. A good nationalization plan would limit the damage to the overall economy while giving taxpayers a possibility for slight gains. Wipe out the stockholders who bet wrong and eliminate the most egregiously awful bank managers and start over.
My question is "what happens if "the world financial system" is destroyed?"
It would not be pretty. Imagine all world currencies suddenly become worthless. Suppose you're a plumber. You can't get bread because the baker doesn't need any plumbing this week.
I agree that many indigenous communities, such as Inuit, would be OK but civilization would rapidly collapse.
useless sarcastic comment deleted by author
Yes, we'd all finally be equal...
"Again, heads they win, tails we lose." No change here.
Banks that have failed need to fail, depositors paid off and the loss's taken by those who made a bad investment. The same with companies. Allowing the auto companies to go through bankruptcy doesn't mean they will cease to exist.
Hear! Hear!
Amen, DaveBronstein. One of the front page headlines in this morning's local paper was "stress test to determine which banks may need more bailout funds". Last week the idea floated by the administration was that the stress test was to determine possible nationalization of insolvent banks. Seems like this administration is utilizing the old strategy of throwing out a rational, noble intent as distraction and than proceeding with the enriching the wealthy modus-operandi.
Dave
Excellent points, excellent.
I had another thought about what the capitalist system "does" that's poisonous and corrosive. In order to succeed in it, one must set aside many matters of conscience. My old-fashioned father was forever grappling with the conflict between what he was asked to do as the VP of a small drug distribution company and his moral principles. He was really in torment sometimes after having worked his way up the long ladder from nothing to having some community stature and some financial security for his family.
Substantial monetary rewards are pretty much limited to those who are willing to give up their integrity for those rewards, and also to keep their jobs.
Huge financial rewards don't go to artists or teachers or those who actually build things. Most of us with ordinary incomes long ago accepted our "place" in the capitalist system, telling ourselves that we don't need more than we are earning. It's generally not disturbing -- as long as we refuse to see what those who've sold their souls to capitalism reap in monetary rewards.
Yet personal value is closely connected to one's income. The poor are despised by many, with the justification that they're lazy or ignorant or some other such foolishness. The wealthy rarely pay the penalties that the rest of us pay for crimes or tax problems or even moral offenses against society.
We don't live in a feudal society anymore, but we live in one that's just as tightly closed as feudal societies ever were. We don't have to bow and scrape to an uncaring king or a landlord now; we just have to bow and scrape to an uncaring system that keeps us in the place where it wants us.
And finally, it seems to me that in America at least, corporate capitalism, in contrast to entrepreneurial capitalism, didn't really get incorporated into the government's positive regard until the industrial revolution began. [That's as good a point as any to begin.] The banks and Wall Street came into their own at about the same time.
That's when companies were able to mushroom in size and become employers of large numbers of people, with the help of machinery that did away with smaller jobs and eventually increased profits beyond the wildest dreams of these company owners. That's also when capitalists became MORE POWERFUL, wealthier, and able to control more people than the governments that governed them, even democratic governments.
So I think to say that "capitalism is the problem" may be ignoring other factors that can make capitalism benefit a country's citizens. However, corporate capitalism is the only capitalism that America respects, with an inconsequential nod of the head to entrepreneurial capitalism, or small business owners.
'So I think to say that "capitalism is the problem" may be ignoring other factors that can make capitalism benefit a country's citizens.'
90% of the problems in this world are created by the elites in their quest to dominate. Capitalism is only an economic structure. The problems we face today are the same problems the people faced all along, since agriculture enabled division of labor, which enabled the elites to enslave the people.
Private ownership of production benefits the people to the degree that it is dispersed among the people. State ownership of production forces the people to submit to a dominant entity, the state. This instills an inferiority complex in the people, weakening their ability to overthrow a corrupt state. The same problem manifests when the elites control production via any type of entity that is larger than individuals, e.g. corporations. The elites' most effective strategy for enslaving the people is to addict them to various opiates controlled by the elites, e.g. "cheap" energy.
The best strategy to combat the elites' abuse of concentrated power is to disperse the power among the people by limiting enterprise size and asset ownership to something like ten man-powers. Occasionally the people find a need to pool their resources so they issue a temporary license to a corporation to build something, after which the corporation is dissolved. If the people implement this strategy, keep the information flowing, and keep their independence from elite influence, they can reach the peak of health and happiness. A great start is to let the banks fail.
Right. But in any oligarchy or hegemony the state defends and advances the interests of their rulers.
Exactly! And who are the real 'leaders' anyway? Who created 'The Fed' and what is it in the first place?
When, as you aptly noted, Krugman (or anyone) says things like, "so do we all", everyone should be hearing the person in the background who is simultaneously coughing and shouting "bullshit". Instead, most everyone gets a cozy family feeling.
The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.
Because the Damnocrats are frightened of the Repelicans throwing a public fit, turning red in the face and calling them communists and blood brothers of Satan; and because the Damnocrats are complicit in everything that has happened. This is the Bill Clinton Damnocratic Party Obama has willingly accepted. Goodbye, Adlai Stevenson, goodbye George McGovern, goodbye Paul Wellstone.
Or, just perhaps, because the people behind the BIG banks won't hesitate for a single second to 'take him out' if he messes with their scene.
Banking reform: 1. Obtain rope. 2. Obtain bankers. 3. Hang bankers. 4. Post video on Youtube. 5. Observe and monitor banking reform
one old atheist
I still say the first step is to create some "Get a rope" award, to be awarded weekly to the most outrageous act of bankery. Then use that to whip up public outrage to the point that the steps you outlined can be taken.
"To end their zombiehood the banks need more capital. But they can’t raise more capital from private investors. So the government has to supply the necessary funds."
You must be kidding, Mr. Krugman....?
For all those years we heard the sermons about "the market knows best" and now, when the "market" has lost all faith in these zombie financial supermarkets the government should "bring them back to life"? Our whole society has been transformed, our ecosystems are on the brink of collapse, our social cohesion has been destroyed, in order to serve primarily the needs of "investors" (private, financial and corporate) so....
why should we want to revive (financial) vampires so they can extract more blood (debt and compounding interest that can never be repaid) out of society at our expense?
The Bank for International Settlements (BIS) published a document in 2002 called: "Supervisory Guidance on Dealing with Weak Banks". On page 7 it states:
"Any aid to a present bad bank is the surest mode of preventing the establishment of a future good Bank."
It also warns about not "creating incentives for banks to act in a manner that incurs costs which they do not have to bear entirely".
It seems to me that the document was produced for PR-reasons only, since the advice it offers for a "supervisory approach" has apparently been ignored by those concerned.... From today's perspective the recommendations are highly satirical:
"....if economic surveillance suggests there is a significant risk of a decline in real estate values, the supervisor would be wise to monitor more closely those banks with particular exposure...."
"Evidence from earlier bank weakness or failures shows .....early risk indicators: market slowdown in real output, asset price bubbles, increases in real interest rates and exchange rate depreciation, particularly when these negative shocks occur following a period of rapid credit growth and / or financial deregulation...." (2002)
Funny, that all responsible bank managers can still say they never saw it coming....(most of all Bubblemaker-in Chief Greenspan)since "economic behaviour" is supposed to be inherently "rational"....
anney:
..."It strikes me that there are millions of people on the globe, maybe billions, who don't benefit from the world financial system at all..."
You have raised a very important point here: Who are the architects of this system and who profits from it? Why must it (and who will) be "saved"? Why not use the crisis for a FUNDAMENTAL change in the role, direction and control of monetary policy? (Perhaps those in power fear real "change" like vampires fear sunlight...?)
Why let a global banking cartel & their corporate allies control the economy? (IMF, World Bank, WTO, central banks...)
There is no democracy if we cannot decide in which direction our economy is going and leave it to the "experts" who turn out to be driven by a totalitarian ideology (bordering on a religous cult with the "holy trinity" of market - growth - competition) not reason...("endless growth" is the concept of the - highly competitive but in the end self-destructive - cancer cell...)
http://www.culturechange.org/cms/index.php
Serving the interests (and growth) of a financial and corporate oligarchy should NOT be the primary goal of economic policy but the organizing principle must be the sustainability of production systems as required by ecological imperatives.
Not short term profit for a business elite but long term survival and modest wealth (not in the financial sense) for all people...
"Declaration of Independence" from Wall Street" ?
http://www.davidkorten.org/NewEconomyBook
http://www.democracynow.org/2009/1/26/david_korten_agenda_for_a_new
Paul Krugman and others that argue for nationalization are the idiots who got us in this mess. A common myth is that deregulation allowed banks to create the bubble. This is false. The two major deregulation legislations were the repeal of Glass Steagall (The Gramm-Leach-Bliley Act) and the Commodity Futures Modernization Act. The first is currently being abused by the federal government. Clinton recently said he doesn't regret GLB because it has allowed the government to quickly force banks to merge as they bail them out. So it is ironic that Democrats who blame deregulation are also the ones most abusing it. The second legislation that created a loophole for credit default swaps was completely wrong and something should be done about it. There should certainly be regulation of it. But did it cause the current crisis? No.
The current crisis was caused by the sort of loose monetary policy that ecnomists like Paul Krugman are always in favor of. The guy who now thinks we should listen to him after his economic philosophy got us in this mess. Charlie Minter is a well-known fund manager, who has been warning about exactly what is happening today for two decades, long before Credit Default Swaps were even invented. Here in a lecture in 2003 he describes how in 2000 he stood up in a Paul Krugman lecture and argued with him for 15 minutes becase Krugman was such a fool and could not see the risk in what was going on.
http://www.comstockfunds.com/default.aspx/MenuItemID/181/MenuGroup/Atlantic+City+Presentation.htm
Now we are supposed to listen to the clueless man who got things wrong. How about listening to the advice of someone like Minter instead who has been warning about this for years.
Here Minter describes how we got into this mess and how to get out:
http://www.comstockfunds.com/default.aspx?act=Newsletter.aspx&category=SpecialReport&newsletterid=1377&menugroup=Home
Essentially, we got into this mess due to over consumption, excess debt and government trying to micro manage. All thanks to Keynesian economists like Paul Krugman. He also says the Fed and Government were the main cause. Let me repeat that. The man who for years has now been proven to be right says that the Fed and Government are the cause NOT THE SOLUTION! Krugman the man who got it wrong until a few years ago when he finally woke up wants us to continue fix the problem with what caused the problem! Could he be anymore of a bonehead? Minter says we must not use extreme government interference like Krugman suggests. As he also says there were some very unethical practices on Wall Street but the opportunity for it was created and caused by the Fed. Let me repeat, Minter has been proven correct and Krugman has been proven wrong! Who should we be listening to now that we are in this mess?
Credit Default Swaps were the rancid cream on an already very nasty toxic concoction. This was the dotcom bubble created by very loose and risky monetary policy. Also CDS were not the only problem, they built on the problems of structured asset-backed securities like mortgage-backed securities. The whole mess is now collapsing. Look at Minter's site, he was already predicting what is happening now before the Credit Default Swaps were even being used so obviously they were not the cause. And more evidence of this is that the structured asset-backed securities that credit default swaps were built on and which are now also the problem have been around and for sale on the private market since1970 when the Federal government created them. There is nothing new or deregulated about them, the government itself created them! The problem is the insane real estate boom caused by Keynesian economics promoted by people like Krugman and implemented by the Fed.
History of mortgage-backed securities:
http://www.riskglossary.com/link/mortgage_backed_security.htm
So why now all the problems with them? Because our economy is based on debt and loose monetary policy and because we rely on the Federal government to manage things. What is happening now is not proof that the free market doesn't work, in fact it is proof that Keynesian Fed micromanaging of the economy doesn't work. We are not all Keynesians now! We are in fact now all NOT Keynesians. If we continue to follow the course suggested by fools like Krugman we are in for more misery.
One more word about Krugman, he was an advisor to Enron of all companies and was also a well-known whitewasher of slavery in the 90's. He also pushed for the bailouts of the banks last year. And now he's so concerned about taxpayers??!!? What he is concerned about is pushing his agenda for the Federal government taking over the economy so it can mismanage it some more! Here is a link from an article on a Socialist site from 1997 that mentions the whitewash of slavery that he was famous for at the time. His argument was that sweatshops are acceptable because they are good for emerging markets economies. I'm not a socialist but I disagree there is no excuse for slavery, ever, just like torture. And I question just how much "conscience" he has if he can rationalize supporting slavery...
http://www.greenleft.org.au/1997/281/16552
But, ATLAW, is not the provision within Glass Steagal freeing bundled mortgages from regulation precisely the rock that began the avalanche? I do not claim any expertise in this area so forgive what might be seen as a simplistic question. I am under the impression that our economy flourished best when well regulated....
"Most people would sooner die than think, in fact they do so." Bertrand Russell
ATLAW says that it is all the fault of Keynes and his damn gov'mint spending. Does he know the Fed is NOT part of the real government and is in fact run by the banksters themselves (I know, I know, with an assist from a bought-off Congress as well... but one bought-off by these same capitalists)? Does he know the government did not force the creation by the capitalist tycoons of futures and derivatives and hedge funds and weird insurances and strange debt vehicles and insane-mortgage-driven housing prices, but in fact that the Bush government got out of all real regulation during the Bush plague-years? And that the Busites left the US economy to the riverboat gamblers and the looters- leading to the shambles they left us with?
As Bush and the Big Dick Cheney felt the 'free' market knew best, their administration effectively deregulated business by simply stopping government oversight and enforcement. Hey Bush and Cheney were on the take too, they made some real money for their corporate capitalist cronies by having government look the other way; and a favor is a favor, they got their cut. We have been in libertarian free fall since Reagan. But the Bushites put rocketskates on capitalism to speed our descent. And the common(dreams) folk simply feel more and more powerless, as they are put through what Naomi Klein calls the Shock Treatment of the Chicago Boys Gang.
ATLAW (who seems to lean libertarian, like a lot of lawyers who, ironically, would not have a job if there were no government) thinks money is real. Money is not real, or it could not be sent around the world by electrons. It is a system of ordering society. When this system is abused, we have what we have now. But if the economy is based on debt, it is because this is what the banksters want, because then they control society. Taxes recycle these credits, and everything can be considered a tax... the biggest tax for most is the landlord's tax (rent) or banker's property tax (mortgage).
The growth of the money supply is necessary because there are more people creating more things, and money is based upon labor and creation (it is not based on gold, but conversely, the value of gold is based on the labor it can control). More labor, more money. But as money is made corporal, that is, into a 'virtual' entity, it becomes something that can be collected, and also created at will, as credits. Those that collect and create these credits can manipulate the social structure to gather more and more of these to themselves. This is the temptation of those who are given that power. And we currently see the great evil done by those with this power, through their mighty fall from grace, and as they take down everyone with them. The vanity, avarice and hubris of the capitalists has led to the very downfall of capitalism. The vain, stupid Bushite government did not stop the capitalist free-booters from killing again. Instead, they opened the gates (they were supposed to be guarding... just like they always did) to the monsters.
This is where we are now. Sadly, these evil men do not look like pirates, traitors, desperados, degenerates; unfortunately they look and sound like upstanding citizens instead. This is the cognitive dissonance of our time. This is why it is so hard to grasp what has happened. To paraphrase Dickens, these are the best of men and are the worst of men. It was well-known the nattily-attired Hitler liked kids and dogs.
So Atlaw is wrong, and spouts Libertarian and Republican propaganda when he says the government is the problem. After Phil "the deregulator" Gramm sold out to the capitalist bastards-of-the-universe and lifted the restraints upon the free market capitalists, it did not take so very long to have these parasites destroy the living tree, that grew for decades from the Roosevelt era of Progressive GOVERNMENT of, by, and for the people -and as that hope had grown from the founding of this nation.
THE 'FREE' MARKET IS A LIE told over and over again by the noisemakets of the right-wing-god MOOLA Religion. And the holy rollers are still around, whipping up their irrational emotional frenzy, this time about mean old socialism.
Capitalism is not democracy, nor even a decent form of social structure. It is a mere social structuring tool that has become the Master of our current society, and we have since Reagan been more and more run by capitalist Gollums-in-suits with their lies and deceits. We would recognize them for what they are, if they did indeed look like their souls... sadly, they do not, and so they can work their confidence tricks with impunity. But they, along with the capitalist religion, need to be put back into their rightful low and deferential places. If we are to survive as decent beings upon Earth.
I hope you people know that you can always join a credit union and ditch the banks. The more people opt out of banks and switch to credit unions, the more banks will be forced to either come clean or collapse. How hard is that?
Terrance Mitchell
Redfield, South Dakota
TM
I closed my commercial bank account in January and moved to a credit union.
While it's true that credit unions are much safer than commercial banks, they are not rock solid either. (Didn't know this when I switched institutions, but it wouldn't have mattered.)
http://www.time.com/time/business/article/0,8599,1865649,00.html
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Starting in January, the National Credit Union Administration (NCUA) will tap a $41.5 billion pot of money approved by Congress in September to feed liquidity into corporate credit unions faced with mounting losses on securities tied to home loans and other lending. Corporate credit unions act as banks to retail credit unions, which are the institutions consumers interact with. In addition, the plan provides $2 billion for retail credit unions to cut interest rates on mortgages held by homeowners struggling to make payments. All of the funding is structured as loans and is due to be paid back. (See TIME's top 10 financial-crisis buzzwords.)
While some retail credit unions located in frothy real estate regions have suffered — so far this year, 16 have been taken over by the NCUA — they have in general held up better than corporate credit unions. Some of the nation's 28 corporate credit unions moved heavily into securities tied to mortgages, car loans and credit cards. That means they are now racked by the sorts of write-downs plaguing commercial and investment banks.
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One thing in favor of non-profit credit unions is they don't pay the 40% taxes that commercial for-profit banks pay nor have they practiced gambling with their depositors' money (very conservatively-run), so they aren't in as dire straits. But, just so you know, they have their problems, too.
Hi Anney,
Thanks for the info. I didn't know the plight that even credit unions are facing. I guess it's back to stuffing the money under the mattresses. Darn, I need to purchase a couple more guns and loads of ammo to keep the money safe under my mattress. Sad.
Terrance Mitchell
Redfield, South Dakota
TM
FWIW, it apparently wasn't what's called the "retail credit unions", those that citizens bank with, that caused the problems. It was the CORPORATE CREDIT UNIONS, middle-man entities that invest the retail credit union money, that did the dirty banking, just like the corporate banks did. The retail credit unions used by citizens suffered from their practices, which lost their depositors' money the same way the corporate banks did. Just not as much, since it was only some of their money that the retail credit unions allowed the corporate credit unions to get their hands on.
And as for hiding your money under the mattress, if the economy collapses, nobody's money will be worth anything anyway. Better store up tradable goods!
Ah yes. Ralph Nader described this in yesterday's article. It looks like credit unions are going the way of labor unions. First the big monied goons privatize them and then they make them look bad so that people will destroy them and in the process empower the perpetrators. Sad.
Terrance Mitchell
Redfield, South Dakota
On the Financial Ninja it was reported that one of the companies that Citi loaned lots of money to just declared bankruptcy.
http://benbittrolff.blogspot.com/2009/02/sfcg-big-bankruptcy-in-japan-citigroup.html
Let them fail. Start completely new banks with new capital and regulate them heavily. For example, don't allow mergers so that one eventually becomes “too big to fail”.
"And once again, long-term government ownership isn’t the goal: like the small banks seized by the F.D.I.C. every week, major banks would be returned to private control as soon as possible."
How to avoid long-term government ownership? Give their stock directly to the taxpayers who bought it in the first place, not to the government. That's private control.
Please explain to me money to support banks is not being spent to expand the credit union and cooperative bank system which has not failed and results in depositors owning banks not the government or predatory capitalists?
Please explain to me why money to support banks is not being spent to expand the credit union and cooperative bank system which has not failed and results in depositors owning banks not the government or predatory capitalists?