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TechnoratiFinancial Policy Despair
Over the weekend The Times and other newspapers reported leaked details about the Obama administration's bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy - specifically, the "cash for trash" plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.
This is more than disappointing. In fact, it fills me with a sense of despair.
After all, we've just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn't do anything, and anyway it was someone else's fault. Meanwhile, the administration has failed to quell the public's doubts about what banks are doing with taxpayer money.
And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they're doing.
It's as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.
Let's talk for a moment about the economics of the situation.
Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.
As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there's a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
That's what Sweden did in the early 1990s. It's also what we ourselves did after the savings and loan debacle of the Reagan years. And there's no reason we can't do the same thing now.
But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks' books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn't be in trouble.
And so the plan is to use taxpayer funds to drive the prices of bad assets up to "fair" levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama's top economic adviser, is to use "the expertise of the market" to set the value of toxic assets.
But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn't really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets.
The likely cost to taxpayers aside, there's something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they're doing something completely different. This is starting to look obsessive.
But the real problem with this plan is that it won't work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus - for that is what the Geithner plan amounts to - will change that fact.
You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.
Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails - as it almost surely will - it's unlikely that he'll be able to persuade Congress to come up with more funds to do what he should have done in the first place.
All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.
71 Comments so far
Show AllConservatives/Liberals the terms are outmoded. Governors are less interested in the governed than they are about Re-election. Would *"Native Criminal Class", be a better Descriptor? *Gore Vidal
I read the column here yesterday and congratted Goebbels for his usual en pointe analysis of the Article. I have now read many other fine points brought up by our community and I want to thank you all for sharing these views with our little group.
"Amacd", March 23 5:50 I'm afraid I started to wander a bit while you were telling your Seacaptain metaphor but I'm glad I stuck with it because you made an excellent point.
"erplus", March 23 5:19 I also realize that the point at which we should be taking action is here and now. I'll write to the president tonight to tell him to stand up to those WS exec's and to publish the names of the execs who were able to parlay their gains at the expense of their business.
I regret that I can't leave my job to shout at the Feds except to continue my letter writing to the members of Congress from my State and District and to the members of Congress responsible for cleaning up this mess. I don't expect much but I can try.
"Kerneiz" March 24 12:17 I agree that we can't fix the probs of the economy in 2 months but the opposition has no intention of letting the exec capitalize on his public approval hence the screaming and yelling about the Treasury Sec who didn't shine like a new penny. We all can benefit when the "Democratization". of the Banks that "Amacd" talks about on March 23 at 3:43 PM is used but the behaviour of a Congress that is in bed with the money managers that want a public bailout is a very thin hope indeed. I don't expect anything that would resemble a shift to the people from the group that holds control over the U. S. Budget within their hands and then donates the taxpayers money to warmaking and to industries that get corporate tax breaks for producing a product that destroys our world, for profit, wink, wink.
Krugman covers some excellent points, but failed to mention one that really got me laughing. Yesterday, on the front page of the NY Times, I read that Tin Geitner will be working hard to "persuade hesitant private investors" to participate in the bail-out plan. When one has to cajole people who are in the business of making money to invest 7.5% and reap 50% of any profits, while losing at most that 7.5%- while the FED loans them another 7.5% and the tax payers are forced to cover 85%, it sounds like those hesitant private investors may actually believe that those assets are, indeed, really, REALLY toxic. Yes, many have said it's a win-win opportunity for those investors. However, their hesitation suggests that the odds of winning are minuscule, at best. No matter, The Obama team, and in particular, Geitner, think this is a good deal for all. I think Obama has already been duped to the point of no return. By defending Geitner he has lost a nontrivial amount of integrity. IT was, after all, Geitner who came out last week, expressing frustration about the lack of knowledge related to the AIG bonuses. While it was the very same Geitner that, as the head of the NY FED bank last year, must have been aware of the meeting that AIG had with the FED in which they stated that they would be handing out those bonuses. Obama has surrounded himself with too many of the old guard, and he underestimates their ways, and the amount of trust they deserve. When Bush brought in Paulson of Goldman Sachs to solve the crisis, it was like letting the fox clean the hen house. The term conflict of interest is no longer in the government vocabulary. How could it be, when so many congressmen and women are reaping the benefits. Obama chose a cabinet that included not a single truly left-leaning member. Not a Kucinich. Not a Feingold. Not a Paul. Not one person who has an ounce of true integrity. Bush will undoubtedly go down as the worst president in American history. But it is more and more likely that Obama will go down as the most hated.
what will truly help obama politically is to have his minions propose more and more proposals "to save the financial system" that are transparently outrageous in their trying to save the ultra-rich who are financially exposed to trillions in toxic investments.
and the left should welcome geithner's proposal as a great teaching moment regarding whose fortunes the demoblicans are truly trying to save.
lazy leftists should stop proposing personnel to obama and finally make the effort to find out and publicize the names of the billionaires whom the demoblicans are trying to save with our taxpayer money.
this is the greatest chance offered to americans to learn who are the billionaires that wag the usa dog and to rebel against them and their bribed politicians, journalists, and economists.
the idiotic left should stop complaining about "WS and the banks" and ask the american people if they really want to bail out this or that individual billionaire.
the billions that geithner wants now are not "for the failed banks", they are meant to save the ultra-rich !
even publicizing crude macro-economic data about how many trillions in toxic assets are in the hands of say the richest 0.1% would be very game-changing as it would suffocate the obfuscations of the demoblicans that they are acting for the public good.
demoblicans blackmail americans by crying wolf about "saving the financial system" but they won't be able to blackmail anybody anymore if they are compelled to cry wolf about "saving the billionaires".
only once the citizenry will start saying that it does not want to pay for the financial gambling follies of the richest 0.1%, etc., it will become feasible for obama to go against the billionaires, since at that point taking him out won’t be worthwhile for the billionaires.
If Obama can't throw the bankers in jail and get the money back then he aint gonna change NOTHING. Wall street > the people
Do the math -
Obama thinks that one trillion will trickle down. hah
Divide a good annual salary (say $40,000) into one trillion and you get
25 million jobs. Those jobs could repair our infrastructure, pay salaries to laid off teachers, etc. How about trying some trickle up for a change - change we can believe in.
The word 'economist' has become a four letter word. Anyone who admits to being an economist is a fool.
It is expecting a little much to think Obama can fix the disaster of the last eight years in two months. It would also help if the opposition could shut up and give him a chance, but they are more interested in their political fortunes than in the good of the country. If we can afford to keep throwing vast amounts away in Iraq and Afganistan, we can surely spend some in our own country to keep it operating. Unrestrained capitalism of the Bush reign did not work, so lets try another plan, even though it will have problems that will have to be addressed as we go along. Some of the people that are so worked up now about greed and mismanagement had their eyes closed the last eight years.
No they didn't and that is why they are so worked up--precisely because it is a continuation of more of the same. Ask yourself this--if it was McCain advocating the exact same plans and policies would you be giving him a pass--would you be giving him the cover of: Oh, it has just been a couple of months, give him a chance.
The latest talking point is Obama has to stablise the status quo before he institutes change to regulate- avoiding the very real problem of the status quo being the problem in the first place.
Do you see a problem there?
They must think we are stupid---don't give them any reason to believe it.
Folks, I am surprised that no one has posted about addressing the systemic problem of having a Financial Industry that accounts for 20% of the GDP of a country. 20% of our GDP results from pushing paper around and produces nothing of tangible value.
Further, things are not as easy as they seem. If we don't bail out the big corporations (a conduit to pacify the many foreign governments representing their national interests), we had better prepare for an immediate crash in the value of the dollar which will hurt the poorest sections of the society most by increasing prices. This will likely set the economy back several years if not decades. Check out: China Takes Aim at Dollar http://online.wsj.com/article/SB123780272456212885.html.
We could have just let the market recover on its own, except that we outsourced our manufacturing capability for short-term profits and paper wealth with little correspondence to reality. Further, we sold junk to foreign entities who are really peeved at us right now, and are asking our government to makeup some of those losses.
Remember that 40%of the corporate profits came from the financial"industry" last year or the year before. Paper pushing produces paper profits, but nothing to eat or wear.
"We could have just let the market recover on its own, except that we outsourced our manufacturing capability for short-term profits and paper wealth with little correspondence to reality."
Many on the receiving end of this policy who lost their jobs, realized the scam, but few wanted to listen; they were too mesmerized by the 'low' prices at Walmart and other big box stores--until they finally lost their jobs as well. Ironically, the quality of the goods produced likewise suffered, and have even caused injury. Great deal, eh?
And if China values its currency higher as compared to the dollar, those cheap goods will be hard to find.
T H O U G H T _ S H A M A N
Perhaps the extent of the house of cards is too big to be seen any longer, from even the highest reaches or perches of gov't aviaries ( they are raptors, are they not ) ?
In other words, they can only prop up what they can see -- and understand, and the rest is vacuous, illusionary, and w/o real substance ( as you stated ).
¿ Is it really _ r e a l _ if enough people believe in it ?
¿ Isn't it all essentially a confidence game to re-establish trust in the system, which is why so many smart economists see no prospects for success -- in the direct we're going ?
¿ Are they not called neoCONers for "good" reason ( or the lack of it ) ?
¿ Have you ever read the story of the " Velveteen Rabbit " that was loved so much its "hair" fell out, and through unconditional love became real ?
The 'CON' is clearly getting more difficult to sell.
Few of us can forget the thrill of seeing Obama in Grant Park right after his election. After eight long years of mind-numbing gangsterism crowned with a massive raid on the Treasury, a spark of hope lit the faces in the crowd. Slowly it is beginning to dawn on that same crowd that there was no real change of administration, only a more attractive image, a brighter wit, a compelling smile.
So far Obama has endorsed every degrading policy of the Bush administration: extraordinary rendition (kidnapping foreign nationals and sending them to countries where they will be tortured), illegal wiretapping, expanded war in Afghanistan, massacres in Gaza, postponement of the Iraq withdrawal, and massive transfer of wealth to those who have plunged the world into depression. In analyzing his plans, it seems that Krugman has it right: In Obama's mind, "...there's nothing fundamentally wrong with the financial system." In the words of a recent posting on the Nonviolent Jesus (http://nonviolentjesus.blogspot.com/2009/03/cognitive-regulatory-capture...), "If the goal of Barack Obama is to 'fix the economy', meaning to restore it to its previous state before the cascading effects of loss of trust, then what he is doing makes perfect sense. He is pumping massive amounts of equity into the failed system in order to re-inflate the bubble economy. Bonuses make sense in this context because they are the primary motivating factors for those who created the bubble economy. He can only be considered off-target if his goal is truly to transform the current banking system. But nothing in his rhetoric or practice indicates that it is – his goal is preservation of the status quo, nothing more, nothing less."
What a massive failure of imagination! We have declined to the point where we literally cannot imagine a pathway out of our slavery to the financial elite. Instead we are willing to give away our retirement and that of our children just so the masters of the universe can return to rule over us again.
This is the same thing FDR did when he expanded and continued Hoover's failed programs.
While at lunch today the restaurant TV was set to CNN and the Dow showed a gain of 6.8%. My two lunch mates noted that it was a good day financially. I looked at them quizzically and wanted to enlighten them but the Navy Bean soup was just to darn good.
Sioux Rose: Thank you for 'empathic.' You're not only right, you are elegant.
Sioux Rose
GORSEGROWER: Thank you for the elegant compliment, much appreciated!
Basically insolvent - this is the phrase to describe the sorry state of the nation's largest banks. It needs to be noted that only a measley 4 banks (out of a total of approx. 8,300) have 57% of the assets and deposits. Roubini, Krugman et. al. are correct, nationalise these pigs now. It seems the Obama Admin. will avoid to the extreme any possibility of nationalising banks. It needs to be done, the assets identified, the crap cleaned up, the banks put back into proper working order and then sold back to the private sector.
Those who run the whole financial sector (the "big boys") are pathetically imcompetent, woefully inept and rotten to the core. I fail to understand the need to enrich and reward them further.
MARTYH
i think it is time we recgnize that we have a system(capitalism)which encourages people to consider only their own interests at the sxpense of others.it is only natural to develop exotic financial gimics as long as the make money from them.it is also natural for wealth to buy a hedge by buying politicians to make laws that enable them to make even greater wealth(i hesitate to use the term profit)because that implies that a useful function was employed rather than pure gambling which is what all financial instruments are,including stocks.
before we can change the system we should,atleast NATIONALIZE THE BANKS SO THEY CAN LOAN MONEY FOR BUILDING INFASTRUCTURE,AND OTHER WORTHWHILE JOB CREATION,HEALTH IMPROVEMENT,ETC.BUT NOT A PENNY TO PRIVATE FINANCIAL INSTITUTIONS.however we must recognize that this will only postpone the next crisis unless we actually change the system.i used to call the system socialism but i don't care what one calls it as long as it cares for the least advantaged of its citizens by redistributing wealth from the most advantage thus creating a caring and egalitarian society.
RMG 6:37 -------- I agree with you but things might be so bad that even nationalisation will not help. Britain immediately fired their Banks CEO's and nationalised them but from what I hear Britian is still collapsing.
Agreed but we must remember the U.S. has a safety valve - the global strength of U.S. T bills, the world has been and will continue to flock to them since last fall. Great Britain has no such luck.
Ugh, still stealing from the poor to give to the rich? Who is supposed to own America? Why is our leader selling us out, again?
Banks... the Final Frontier. These are the voyages of the Geithner Enterprise. Its five-year mission: to explore strange new bubbles, to seek out new finance without new production, to boldly go where no bubble has gone before
Speaking about BUBBLES,
¿ did you ever hear the joke about the two burps ?
The first one says to the second, " let's be stinkers and go out the other end "
The citizenry needs to understand whom the demoblicans truly want to bail out using taxpayer money. Only then it will start telling Obama that it doesn't want to pay for the gambling losses of the billionaire class and that he should bypass WS and the banks to jump-start the economy.
The political and economic power of this neo-feudal class of billionaire parasites is threatened by its self-inflicted apocalyptic exposure to wrecked financial vaporware (no, nobody wants to save "the banks" or "WS", how can anybody be so naive and fall for such an obfuscation!).
Armchair warrior Krugman forgets indeed how much money WS execs and fat-cat investors are fighting for these days.
Obama cannot go against these masters of the universe cold turkey and deny them the bailout they "deserve" (since they "concede" to us any money that we earn anyway, according to their slave-plantation-owner world view).
If he tried, this neo-feudal class of parasites would cough up in a sec more than enough savings to hire full time and for several years every one of the many mercenary armies of the USA plus the whole of organized crime, just to get rid of him.
Obama knows the risks and does not want to be a martyr that goes down in flames. He knows he must proceed carefully and change things only when the situation is ripe. So be patient and careful about what you ask for unless you really want a chance at ending up whining about "the friend of the usurer" aka Joseph Biden...
Fortunately, time is on his side since the dozens of trillion dollars of financial vaporware that need to be "saved" cannot possibly be "finessed" without ruining the USA or ruining the fat cats.
So Krugman and we all should stop whining and hoping for the great leader's redemption (if it happened on TV we all could watch it!). What is needed now is
i) that lazy economists, historians, and political scientists finally make the effort to document in detail --and then publicize non-stop-- which are the great fortunes that demoblicans are trying to save when they cry wolf about "saving the financial system" --including the now-rebellious Krugman initially-- and that they denounce with names and addresses the owners of these fortunes who for decades have bribed mainstream demoblicans, journalists, pundits, and economists and have now ordered them to "save the financial system", i.e., the billionaires.
ii) that progressive activists make sure that Obama and the demoblicans are confronted at every stop with questions about who the specific *individual billionaires* are that stand to benefit personally most if the financial system is "saved" and why exactly these *individuals* deserve so badly to be saved at a price of billions of dollars each; and
iii) that economists, historians, political scientists, and activists convince the public that the bailout money can and should rather be used to jump-start the economy directly with or w/o the co-operation of WS and private banks;
Directing public anger at the actual individuals whom bribed politicians must defend willingly or not but who will become de facto indefensible after everybody finds out who they are, will give Obama the freedom to move in the right direction.
Indeed bailing out the billionaires by crying wolf about the "financial system", "the lifeblood of american economy", is a much easier job. That's why bribed mainstream demoblicans, journalists, pundits, and economists never mention who are the true beneficiaries of "saving the financial system".
Imagine Obama telling the citizenry, e.g., that demoblicans want that the Randolphs' billions in derivatives be purchased from them at face value by the taxpayers "to save the financial system".
So let's stop complaining about WS, the banks, and the great leader's lack of leadership and vision, and let's give the public the names of the actual billionaires whose fortunes the taxpayers would de facto save by "saving the financial system".
Chris Dodd got a $280 bribe (er, contribution) from AIG....what do think he's going to do?
How about this example of Obama duplicity?
Stimulus? U.S. to buy Chinese condoms, ending Alabama jobs
http://www.mcclatchydc.com/251/story/64577.html
Mike McGraw | Kansas City Star
last updated: March 23, 2009 12:11:12 PM
Call it a condom conundrum.
At a time when the federal government is spending billions of stimulus dollars to stem the tide of U.S. layoffs, should that same government put even more Americans out of work by buying cheaper foreign products?
In this case, Chinese condoms.
That's the dilemma for the folks at the U.S. Agency for International Development, which has distributed an estimated 10 billion U.S.-made AIDS-preventing condoms in poor countries around the world.
But not anymore.
In a move expected to cost 300 American jobs, the government is switching to cheaper off-shore condoms, including some made in China.
The switch comes despite implied assurances over the years that the agency would continue to buy American whenever possible.
"Of course, we considered how many U.S. jobs would be affected by this move,” said a USAID official who spoke on the condition that he would not be named. But he said the reasons for the change included lower prices (2 cents versus more than 5 cents for U.S.-made condoms) and the fact that Congress dropped “buy American language” in a recent appropriations bill.
Besides, he said, the sole U.S. supplier — an Alabama company called Alatech — had previous delivery problems under the program.
It's clear that Alatech's problems over the years, which apparently have been resolved, may have driven U.S. officials to seek much less expensive foreign-made condoms in the first place.
But that's cold comfort to Fannie Thomas, who has been making AIDS-preventing condoms in southeastern Alabama for nearly 40 years in the small town of Eufaula.
“We pay taxes down here, too, and with all this stimulus money going to save jobs, it seems to me like they (the U.S. government) should share this contract so they can save jobs here in America,” Thomas said.
Thomas and others at the Alatech plant said there aren’t many alternatives for them if it closes down, which is a likely result of the contracting switch.
In fact, the government is close to accepting condoms from two offshore companies: Unidus Corp., which makes condoms in South Korea, and Qingdao Double Butterfly Group, which makes them in China.
NATIONALIZE the banks.
if we don´t we will end up like japan,
the lost decade of the 90´s their economy was in the crapper!
'immigrants have', yes, the banks (particularly the central bank of the US) must be under the sway of democracy in this nation.
However, the term "DEMOCRATIZE the banks" is vastly preferable to "Nationalize the banks" for obvious and compelling PR reasons.
Rush Limpbow and the rest of the proto-fascist right would be delighted to fight against "Nationalizing the banks" (because it sounds like fighting against Castro, Stalin, Lenin, Chavez, etc.).
However, even the radical right cabal of loonies would have a hell of a time fighting against the American people wanting and driving Obama to "Democratize the banks".
Trust me, I play a marketing guy on TV, and the term 'democratize' is 1000% better than 'nationalize' ---- which is certainly why the Empire, and its media pawns, want the debate to 'framed' around the awful word 'nationalization', and do NOT WANT FOR A NEW YORK MINUTE the debate to be about the real and vastly more favorable word "democratization", because they would loose that battle as fast as the friggin Red Coats of the British Empire lost the Concord Bridge fight!!!
Americans will fight to the death for "democracy" but are very very suspicious of this foreign and nasty sounding thing called "nationalization".
Well said.
I'm fond of pointing out to my wary friends that regulated public utilities have been entrusted with delivering clean water, electricity and natural gas to our homes for many years. Why not have credit extended by a regulated public utility? Why not health care?
Thank you Mr. Krugmann for having the courage to speak truth to power and unlike so many Obama apologists ubiquitous in this moment of time.
[ _______ O u r __ G r e a t e s t __ D E S P A I R _______ ]
[ _______ is __ N O T __ E_N_D_I_N_G __ the _______ ]
[ _______ " F E D " __ w/o __ R E S E R V E _______ ]
.
We must first and foremost eliminate the underlying MONETARY system based upon
rapacious _p r i v a t e _ c o r p o r a p i s t _ debt ( fractional reserve banking )
http://endthefed.us/
.
[ _______ E _ N _ D ____ t h e ____ F_ E _ D _______ ]
npwr.luv, I can't agree more.
No democratic country except the U.S. (not 'us the citizens') allows its central bank to circumvent democracy.
All the real 'social democracies' of Europe and Japan (which define the only existence proof of successful democracy post-WWII and post-Empire) have democratic control over both their political and economic spheres of life ---- except the U.S., which, of course, is not a democracy or a democratic Republic of any kind, but is totally controlled by a ruling-elite 'corporate financial Empire' only hiding behind the facade of its two-party, 'Vichy' sham of democracy.
The central bank must be under the sway of democracy.
Corporations must be under the sway of democracy.
Politics must be under the sway of democracy (free of money-power, and corporate propaganda).
Social life must be under the sway of democracy.
Laws must be under the sway of democracy, and the laws of the Constitution must be supreme over any 'corporate contracts' perversion of lower level laws.
And lastly, the military must be under the sway of democracy --- and not subject to a disguised 'dictatorship of unitary executive power' (as it was with George 'Goebbels' Bush).
In this noble experiment of a democratic Republic (based on the 'enlightenment-thinking' that our founding father's cherished and practiced) all of the "indivisible" spheres of our shared and self-governed public life were to be under the sway of democracy and subject only to the singular sovereignty 'of the people'.
Democracy must again be the prime order of our time, at this final end of Empire-times, and everything; political, economic, social, and military should come under the sway of democracy —- just as was intended in the American Revolution against the British EMPIRE's political, economic, social, and military control.
Sovereignty in America is only ‘of the people’ — not of the crown, the banks, the generals, nor CERTAINLY the NON-human corporations!
Dr. Krugman,
In future columns, I would like to hear more detail on how nationalization of the banks would work and what the total costs would be. Do you envision the government simply taking over supervision of the banks without buying off current owners? Also, even if the banks are nationalized, what can be done with the trillions in derivatives? My impression is that these cannot simply be written off without sparking a worldwide collapse of both stocks and currencies.
We ALREADY bought off those banks - with the first bundle. Now they are worth pennies - no, less, because they are INSOLVENT. That is what the word means - they HAVE NO VALUE. THEIR OBLIGATIONS ARE MORE THAN ANY RESIDUAL VALUE. I don't usually print caps, but too many people just don't 'get it' - we already paid for those bankrupt banks once!!! Now we need to fire the whole ruling aristocracy (kleptocracy, actually) and sell off whatever is left of value to honest bankers (yes, there is such a thing - like my credit union). The SHAREHOLDERS and BONDHOLDERS who bit on this dead pig will have to take it in the shorts - instead of us!
I'm not going to type in all caps, but what I wonder if you get is that since the dawn of fractional reserve banking hundreds of years ago the banks have been insolvent. They loaned out more money than they had by printing up certificates and IOUs. But they could never leverage deposits too much though because it would precipitate a run on the bank, and then the bank would go bankrupt.
Enter the cartelization via central banking like the US Federal Reserve system. Coupled with the Fed's ability to print money out of thin air, and it makes the runs largely irrelevant. They can paper over any holes.
"We ALREADY bought off those banks - with the first bundle."
You mean TARP back in the fall of 2008? The plan that Krugman supported? Where they stole $700B for us to give to the banksters?
http://www.theaustralian.news.com.au/
business/story/0,28124,24493595-36418,00.html
From link:
US economist Paul Krugman, a fierce critic of Washington's handling of the current financial turmoil, welcomed the Treasury's shift in focus after Britain announced a plan to take direct stakes in banks.
"US Treasury officials now say that they plan to do something similar, using the authority they didn't want but (that) Congress gave them anyway," said Mr Krugman, who won the Nobel Economics Prize on Monday.
"The question now is whether these moves are too little, too late. I don't think so," he said.
So, you agree that the banks have been bought then?
That's like calling a tumor a feature.
I think we should End the Fed.
04.25.09
http://EndTheFed.us
Rally at Every Fed Bank and Office
"Audit the Fed! Repeal The Fed!"
Support HR 1207 and HR 833 (Rep. Ron Paul's bills)
And S 604 (Sen. Bernie Sanders' bill)
For continuity (and to avoid the post length, time frame, and filtering limits imposed by NYT) I'll consolidate all my Krugman posts on Paul's topic of 'despair' (i.e. crooked 'bailout plan'/scheme) here on CD. [BTW, CD thanks for reprinting Paul and providing a better platform (than NYT) for discussion, discourse, and debate on this most serious of issues].
Here's my initial post from Sat. ----
"Hell hath no fury like a spurned economist" (or a spurned progressive against Empire).
Paul is dead right.
As he has long warned this is not a liquidity problem, but a solvency problem, and Obama is showing a real lack of guts in facing the economic disaster caused by the 'Economics of Empire'.
I was fully committed, worked for, supported, and voted for Nader, because he was the only candidate willing to openly confront the ruling-elite 'corporate financial Empire' which controls our country by hiding behind the facade of its two-party, 'Vichy' sham of democracy.
However, once Obama was in office he almost "had me at hello". When he 'clawed back' at the detached global thieves by shutting down their UBS 'wealth extraction express', I thought this was but the first move toward a more nuanced attack on Empire than Nader would have surely taken.
However, now Obama seems to have folded like a cheap-suited weak-Willie, as soon as the Rubin sandwich bit into him. Now it certainly appears that the money-power (and other powers) of Empire have taken the fight out of our would-be champion.
Which is why I summarized the all-too-real downside in "Empire, Elitism, Externalities, and Extinction". The cry of "Captain, my Captain" is wailing from the panicked passengers, but it doesn't look like our Captain ever understood the political helmsmanship or the economic engineering necessary to right our indivisible political economy of this ship of state against the titanic empire's maelstrom.
It's not often that you hear a Times' economic columnist (a Nobel no less), and the World Socialists' economic columnist sounding so disappointedly similar:
http://www.wsws.org/articles/2009/mar2009/bonu-m21.shtml
The seminal issue, much broader than AIG or the deceitful bonuses, is how to deal with an entire system which allows theft by dumping 'negative externality cost' POLLUTION (in this case 'debt bombs') on our society.
Luckily, this issue has already been legally resolved in dealing with dangerous industrial products --- "POLLUTER PAYS" is the legal answer and has been the law of the land since the cigarette settlement, the case of W.R. Grace in “Civil Action” and Erin Brockovich against PG&E poisoning ground water.
The same legal solution can and MUST pertain to financial pollution cased by a financial firm which manufactures corrupt/dirty products which are designed to produce phony profits only by polluting the financial atmosphere.
Manufacturing products which a prudent man knows or should know will produce pollution to the commonwealth, and doing so merely to create the appearance of phony profits (when there really is no profit) is illegal whether the product is cigarettes, dirty chemicals, asbestos, or CDSs.
"Polluter Pays" is the modern law of the land -- in the US and throughout the modern, sustainable, and social democratic world --- and thus financial products producers like AIG FP ('financial products') must pay to clean up the damage their products created.
Polluter Pays is the law and AIG (and most of all of the Wall Street corrupt investment banks, hedge funds, and integrated financial 'super-markets' like Citi) which have been selling rotten financial meat, and 'toxic waste' now have to pay for the pollution and financial sickness that their rotten products have caused!
Krugman knows more than Greenspan admitted in his phony mea culpa about a "shocking 'market flaw'" (that "It's the externality economy, stupid"), but Paul remains silent and Barack remains untutored and unprepared to confront the economic Empire.
Alan MacDonald
Sanford, Maine
Continuing along Krugman's (and Frank Rich's) theme Sunday:
“Those who believe they have foolproof plans are either 1. fools, 2. confused and scared, or 3. scam artists.”
Some in Obama’s team are type 1’s; certainly Reid and Pelosi, Sen. Jim DeMint, R-S.C, and probably Melody Barnes, some literally ‘fall into’ category 2; Geithner, Christina Romer, Austan Goolsbee and Peter Orszag, while the complete and completely ‘offensive team’ are category 3’s, including; Summers, Volcker, Rubin (in the shadows) and the entire economic Empire squad (who changed to bipartisan camouflage jersey’s but are actually playing for the opposition, including Mitch ‘the frown’ McConnell, Mike ‘the snarl’ Pence, John ‘the boner’ Boehner, and Jon ‘the crook’ Kyl, along with the entire corporatist MSM’s pack of pro-empire, corporatist, propaganda parrots --- except, of course, for Paul Krugman.
I don’t pretend to know how politics works, but Obama is certainly making a huge mistake here by being bipartisan with the Empire’s paid killers.
Even the future Republican President, Gen. Eisenhower, when he was the Supreme Allied Commander fighting the Nazi EMPIRE, did not so foolishly believe in a Republican 'big tent' as to invite Nazis into negotiations about how the political economy of Europe should be arranged.
Obama is letting his concern about bipartisanship convince him to open his 'big tent' to the inexorable, implacable, ineluctable, obdurate, obstinate, remorseless, resolute, rigid, unappeasable, unbending, uncompromising, unmovable, unrelenting, and unyielding fascists sworn in blood to protect the ruling-elite 'corporate financial Empire' which controls our country behind the facade of its two-party, 'Vichy' sham of democracy.
Obama has apparently not yet learned the seminal lesson --- when you are fighting Empire for your very life, you do not compromise and let they and their dogs of war into your Commander's tent!!!
Or as Raul Julia explained to Robert Redford in the film "Havana" about why the rebels had to actually FIGHT Batista's fascist pawn regime, fronting for the US corporate and gambling EMPIRE; --- "But, they will not leave by asking NICELY".
One thing.
Paul Volcker has called for Glass Steagall to be brought back.
Also, not taking anything away from Krugman, but others, Galbraith, Roubini, Taleb, have written similar things to what Krugman is writing.
CONT.
Obama now desperately needs to clear the bridge of all incompetent and Nazi crewmen trying to helm our ship of state into their pirate cove, to finish stealing the loot – and then scuttling it onto the rocks.
As I have said before, Obama needs an economic crew of expert, empathetic, and experienced sailors, not a gold medallion wearing, dumb, and self-absorbed bunch of cigarette-boat, power-jockies, who only know how to put the throttles to the firewall and burn up our scarce fuel, and yank, like wankers, on the wheel.
In this case of saving our titanic ship-of-state from the rocks and shoals to leeward, Obama needs a real sailing crew who understand the more subtle nature of using the natural power of winds and seas to sail close-hauled to windward.
The major skill factor in successful sailing is in understanding the combination of elements inexorably linking wind and seas via sail controls and helm --- for which there are numerous sensitive controls, but no single or simple overpowering force of an engine.
In this case of our currently endangered schooner America (like the racing schooner ‘America’, the first America’s Cup winner, which broke the back of perceived invincible British EMPIRE sea power in 1851) Captain Obama must understand and synthesize the indivisible elements of democratic political-economy just like a racing skipper must deal with the indivisible seas and wind.
Captain Obama, whether he knows it or not, is in his first match race with Empire, and Empire always attempts to ‘divide and conquer’ as it has divided economics and politics to conquer both separately. Now Obama has to learn how to hang the ‘political’ and ‘economic’ elements of our indivisible democratic Republic together --- “or we will hang separately”.
Franklin knew this truth of democratic Republic and elite Empire being sworn enemies when he famously answered the lady’s question about our first American battle against the continuing threat of Empire, “Now we have our Republic, if we can keep it (from Empire)”.
Obama perhaps does not yet fully recognize the seriousness and unending nature of Empire’s disguised but still threatening grasp --- which is upon us now. His dedicated, skilled, and empathetic crew of natural-born sailors, need to recombine political-economy into the human and humanist ‘age of enlightenment’ that Adam Smith (the moral philosopher), Thomas Jefferson (the democrat), and all of America’s founding fathers knew like the back of their hand.
Obama needs more than technical economists, and political advisors to synthesize a solution to this current crisis, which is guilefully ‘framed’ by those who favor Empire as only an ‘economic problem’ (and other problems as ‘framed’ by Empire’s talking-head pundits as only ‘political problems’).
These problems are not divisible in our shared democracy.
They are all part of the much broader, singular, seminal, signal, and even more threatening existential problem of democracy over these last five thousand years.
And that problem, threat, and poison is Empire itself.
Alan MacDonald
Sanford, Maine
The idea, says Mr. Obama's top economic adviser, is to use "the expertise of the market" to set the value of toxic assets.
This is the second funniest joke you'll hear all week, right after Obama's utterly foolish, useless effort to create an Afghan puppet of the Americans to turn things around there and get us on the road to Victory. There's one thing I've learned about Obama in his two plus months in office: he's a boy scout, a square apple who needs a touch of the beatnik in his personality instead of constantly acting the part of the high school valedictorian. Phat chance.
Based on Obama's economic actions, he is either clueless or corrupt.
Sir,
Barack Obama is both clueless and corrupt. As is evident, his great ambition was to become the world's biggest celebrity. And, he's accomplished that - President Cool Jazz ... the smoothest cat in D.C.
Check out his record, Obama is a compromiser, an appeaser, an arbitrator. For instance, as a senator, he spoke against the War in Iraq then voted to fund it. Now that he's President, Cool Jazz wants to draw down combat troops in Iraq and send them to Afghanistan.
Soon comes Act II of the melodrama when Obama's supporters begin to realize they've been duped. So, a new search will commence for the next demagogue that promises he or she will save the people from themselves.
A "financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they're doing" eh?
Trust me, they do not. During my misbegotten yuppie years I worked at the corporate headquarters of one of those banks in a position that allowed me to see "senior management" in action, and sometimes even to converse with them. They are totally overrated. They are smooth and glib but they aren't smart enough to deserve the money they get for the positions they are in. The myth that corporations, "business," operate with an efficiency that government can't match is complete b.s. Their bureaucratic decisions and processes are just as stupid and counterproductive as anything the federal bureaucracies could come up with.
To me they're like the mafia with the Vegas casinos -- skimming off the cash before it's been properly counted. The main difference is the mafia guys knew they were criminal, LIKED being criminals. The bankers and other financial senior managers believe they are totally virtuous and entitled to their wealth and lifestyle and cannot believe that anyone could possibly begrudge it or think they were capable of wrongdoing ("if a banker does it, it isn't a crime").
If Krugman is right (and he usually is) we're in for big money troubles.
The system only works with the degree of ignorance & the level of denial that define it.
I watch the bidness channel carefully to see what the marching orders are, and I despair over two memes they are pushing. One, the transfer of our wealth to indemnify corporate looters is completely normal, done all the time. Do not question - not only its necessity (We Have No Choice) - but its honesty: standard operating procedure, really. Trust us. Second, being upset over this is bad and totally abnormal. If you are being robbed, you should be polite about it. Don't expect too much. Don't expect a cop on the corner. Hand over you purse, your undies and your first born without disturbing other pedestrians. It is normal and to be expected that Obailme and the NY-AIG-GS Fed crew would let the country's real economy sink into a third world status while they try to protect their own privileged place as masters of the universe. Servitude is the best you can hope for, but nothing to be unseemly about. The important thing is that congress and Wall Street go one as if nothing had changed. It is okay to hope, just don't expect anything to change.
Sioux Rose
PITCH FORK: Good satire. Kind of makes one empathic towards those earlier dictates that did call for the first born child ("you will follow the law of the land!"), or access to the town's virgins, or gold caps from captives' teeth. The greatest darkness is unleashed when authorities presume to answer for what their representative entity's wish for and/or require.
Scathing dismissal of the bonus payouts as an insignificant amount misses the point. Today Geithner is declaring against taxing bonuses and it's clear he was lying saying he'd only heard of the bonuses Mar 10. All this arrogance out of ex-Goldman Sachs people symbolizes what's wrong and why Obama's credibility is sinking fast, if not already in the toilet.
Bravo, Goebbels.
I also heard of the revoving-door process as it applied to elected officials turned lobbyists turned elected officials.
I beleive that if that were true (factual reporting of the election-hiring process has proved the point) then this twist would be another example of the "Native criminal class doing business as usual".
Maybe this "bailout" of billionaire scoundrels who never did an honest day's work in their lives will make it clear to a few more people that the US isn't a democracy but a plutocracy -- a government of, by, and for the rich.
Our "two party system" gives us the choice of who will rob us and beggar our children and grandchildren.
Krugman sez: "By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan ... . This is starting to look obsessive."
-- then: "... financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet."
***
Financial executives believed no such thing. And they weren't betting. There are dots to connect here, Mr. Krugman, and the second reply to this article managed to do it:
DaveBronstein sez: "Geithner's plan would be no different if it had been dictated directly from the Goldman Sachs board room."
***
That's because it was. These guys have been playing with house money the whole time. The fact that the house long ago ran out of money is no problem ... the house holds the rights to the markers of its children and grandchildren.
"...But the real problem with this plan is that it won't work..."
- It's even worse than Krugman says. Because even if it DID "work" (which only means getting banks lending again), the whole US population would still be paying for the the sins of the bankers for perhaps the next 50 years. And meanwhile, the bankers (& hedge fund investors, & private equity firms, & the like) would be handed what Krugman rightly described Saturday as a one-way bet: "Heads we win, tails you lose."
Geithner's plan would be no different if it had been dictated directly from the Goldman Sachs board room. It's clear that the Wall St support for Obama during the campaign is closely related to his filling his entire economic team with pro-Wall Street insiders (Geithner, Summers, Rubin et al). And it's clear that this is the payoff: the govt is trying to "fix" the financial crisis by making the whole population pay for it, EVEN WHILE giving "investors" (ie, those who CAUSED the crisis) a chance to further enrich themselves, via low-cost loans & guarantees.
In other words, instead of putting the banksters in jail for racketeering & destroying the global economy, instead of seizing their ill-gotten wealth and returning it to society, the Obama administration is protecting them from any financial harm whatsoever, and in fact creating new opportunities for them to profit from the crisis.
"Geithner's plan would be no different if it had been dictated directly from the Goldman Sachs board room."
Dave, that is quite correct as far as I can see. Goldman Sachs has been running Treasury and Fed for quite some time. They benefited from both the Bear Stearns and Lehman bankruptcies which removed two of their major competition. All corporate power aims for monopoly.
Our only hope would seem to be that when it becomes obvious that this plan will not work that the FDIC is sent in, with or without a new head at Treasury.
I believe thats fair comment Dave.
"Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails - as it almost surely will"
I believe Krugman is spot on here. Obama is beginning to look like Nero with his fiddle.
Sioux Rose
DAVE B: And it speaks of a pattern of malfeasance, in that this administration likewise granted cover to WAR CRIMES committed by the Bush administration, although as YOU have wisely related in this forum, not without MUCH help from the "opposition" party. Furthermore, where is evidence that Obama is scaling back things like FISA or TRULY closing offshore torture camps, or in any way minimizing military-style interventions in other sovereign nations' affairs. It IS a continuation of previous policies just delivered by a kinder, more gentle face. Seems a lot of people in high placed positions truly think reality is plastic and malleable, and perception (in terms of the population) is just a matter of the right P.R. The US is like a pock-marked diseased individual of past wealth and glory who still struts about as if his evident deterioration is not in plain sight for all to see. And "he" still demands the right to make the rules for others, when lives are being squandered, or otherwise consigned to various sorts of hell. I have too much faith in a BENIGN universe to believe these outrageous excesses will be allowed for much longer. There are higher forces that play the role of equalizer.
What Dave said.
Agreed, the only thing worse than it failing will be it succeeding. Galbraith Jr. said almost exctly the same thing on Democracy Now this morning.
It will effectively end, forever, even the distant ideal of a democratic governemnt shielding the worker from the savage aspects of capitalism, and make government a partner in that savaging of the worker.
Aside from overthrowing them all through armed struggle, I am out of ideas at this point.
At our hang gliding site yeaterday, we heard someone playing with an automatic weapon somewhere in the valley.
---USAn---
PJD
I'm quite sure an idea will come to you. There won't be any revolutions, insurrections or anything like that, never going to be, never was going to be.
But maybe this has to play out till they find out their "grand plans" aren't going to fly? Perhaps it will take the stone wall these folks are about to run into to get their attention? Perhaps we liberals and you progressives should be looking around for allies?
Combined with moderate Democrats, moderate and left leaning conservatives, maybe we could actually do something?
So are you an end-of-history fan? Do you believe that something exceptional happened so the popular overthrow (peacefully or otherwise) of governments is over forever? What was it that happened?
BTW, I prefer to call myself a leftist/anti-imperialist.
---USAn---
By letting assault weapons ban sunset, Dubya and Congress made sure that everybody in the US that wants a machine gun can have one.
"...everybody in the US that wants a machine gun can have one."
Not true. Fully-automatic weapons (machine guns) have been illegal in the U.S. since 1934.
Not exactly. People may purchase a federal license to own a fully automatic weapon. Some states have laws against machine gun ownership and some do not. Of those that do not, some require a state license as well. Machine guns CAN be legally purchased within the United States. But "they" know who has them, obviously.
ekaton
A quite expensive permit in fact, and one must prove he is a legitimate collector as well. The rub is that I can own an AR-15,M-14 or AK-47 as long as it is in semi automatic mode. I can also own the five parts necessary to change my M-14 ( for example) to fully automatic as long as they are not actually assembled on the weapon.
It takes approximately 15-20 minutes to install those five parts if one is in practice.
I think with the AR-15 types its just a matter of changing a couple springs, or so I'm told by someone who claims to know how to do it, though I haven't seen it myself.
Sear block, longer firing pin, three position switch and two springs....
I think you nailed it.
Interestingly enough, some chalk up Obama's seeming inability- or unwillingness to implement bold change or shift course to fear for his life. Based on growing outrage and the increase in suffering--some now with less to lose, wouldn't Obama's servile aquiesence to these looters with transparent demonstrations of anger, actually fuel or increase that probability?
Wall Street never had delusions that the housing bubble wouldn't burst or that the US working class could never get overextended. They hedged their bets by bribing the Democrats and Republicans to assure that no matter who was in the White House when the proverbial feces hit the proverbial fan blades, that Wall Street would have an eternal revenue stream, courtesy of the US taxpayers.
No doubt.....only the bullet will be coming from a different source.....