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TechnoratiA Trillion Dollars for the Banks: How About a Second Opinion?
As much as we all want to help out the Wall Street bankers in their hour of need, taxpayers may reasonably ask whether this is the best use of our money. After all, the $1 trillion that is being set aside for this latest TARP variation is equal to 300 million SCHIP kid years. Congress has had heated debates over sums that were a small fraction of this size. To give another useful measuring stick, the Geithner plan could fund 1 million of the Woodstock museums that were the main prop of Senator McCain's presidential campaign.
The core problem is that many of our big banks are bankrupt. If they had to acknowledge the losses that they have incurred on their housing related loans (and increasing their loans in commercial real estate) Citigroup, Bank of America, and many other large banks would be insolvent. Thus far, they have avoided reality by keeping these loans on their books at inflated prices.
The Geithner plan is an effort to rescue the banks by using government funding to prop up the price of these bad loans to levels that will allow the banks to stay solvent. It is not clear that the plan is big enough to accomplish this goal, but that is the basic intention. If it doesn't work, then presumably Geithner will come out with another TARP permutation that involves giving the banks even more money.
There is an alternative. Rather than using government money to keep them alive, we could force the banks to go through a type of managed bankruptcy process like the one that is currently being proposed for General Motors and Chrysler.
Geithner has supposedly ruled out the bankruptcy option because when he, along with Henry Paulson and Ben Bernanke, tried letting Lehman Brothers go under last fall, it didn't turn out very well. Of course, it is not necessary to go the route of an uncontrolled bankruptcy that Geithner and Co. pursued with Lehman.
The government could set up an arranged bankruptcy under which creditors have accepted conditions in advance. While this may not be easy to negotiate, the government does have enormous bargaining power in pursuing such a deal. The creditors (other than insured deposits, which will be paid in full) of these banks may end up with nothing if the government just let the banks sink.
The prospect of even an arranged bankruptcy of a major bank will undoubtedly shake up markets, but many safeguards have been put in place since the Lehman collapse. If the stock market goes down for a few weeks or months, who cares? Running the economy to serve the stock market is a sure recipe for disaster; if President Obama fixes the economy, the stock market will do just fine in the long run.
Anyhow, the Geithner crew insists that there are no alternatives to his plan; we have to just keep giving hundreds of billions of dollars to the banks. Perhaps Geithner is right. But before we throw such huge sums away, further enriching the bankers who wrecked the economy, maybe we should get a second opinion.
Suppose that Congress appropriated a modest chunk of money to have independent economists put together teams to construct alternative plans. Why not give M.I.T. professor Simon Johnson, a former chief economist of the IMF, $5 million to hire a crew to outline his preferred path? Congress could give Joe Stiglitz, a Nobel Prize winner and one-time chief economist to President Clinton, who is also a harsh critic of the Geithner plan, a similar sum to put together his own team.
These economists could develop their best plans and put them out for public consumption. Geithner's crew can then tell us why their plans are unworkable and we must instead hand over the money to banks.
Given how much money Geithner wants to spend - putting it in the hands of the folks that brought on this economic crisis - it would seem appropriate to first examine all the alternatives. After all, we could find out what our options are in this case for the price of just a few A.I.G. executive bonuses. That has to be a good deal in anyone's book.
40 Comments so far
Show AllMoonnneeyyy. Gimme monneeeyyy. Money.Money.Money.Money.
If we really are talking about "toxic assets" (a perjorative term; a better term would have been "over-valued" - but that might not have had quite the same impact), then wouldn't we expect those who borrowed the money to buy the assets to at least be behind in their payments? Couldn't government get a list of those borrowers, check how much is owed, simply buy the assets, then sell the assets at some future date?
Remember when Paulson announced the sky was falling and he needed 700 billion to hold it up. From that moment on, everyone, especially the media went into a panic mode. Been that way ever since. What Baker proposes made sense then, it makes sense now. Taxpayers are a lot poorer, but its time to lock up our money, and spend it when there is a real plan to help all of us. So far, all we have is trust me policies, and a President who seems to revel in telling us how bad things are and working to pay off his campaign supporters. And where is Congress. Right there with our President. Baker is asking for something very simple, to decide where you are going before you start the journey. Not to late to return to square one. One thing is very clear from what has been exposed, the banking industry is too self serving, too big, and inept at supporting our economy.
Herman Schmidt
Not a single mention of a non violent tax revolt. Simply the easiest way to shut down the fraud. The problem is of course that the IRS has the American tax payer scared to stand up and be counted. If you are unwilling to even with hold taxes ,how can any measures more severe even be contemplated?
This makes me so mad. This is the looting period, like after the fall of the Soviet Union. Right out in the open, and I can't do anything about it except write letters and rant. If we go into the streets, the mainstream media ignores us and the right wing tells the clueless that we are overreacting hotheads and communists who don't believe in fixing a system that creates jobs for us.
I never expected anything liberal on the economic front from Obama. Obama, after all, was faculty at the University of Chicago Law School. They don't hire liberals; at best they hire go-along to get-along corporate tools or people so immersed in their subjects they are apolitical and leave the structures of power alone. A liberal might sneak in in a totally nonthreatening field like art history, but not in the key areas of law, economics and business. The Board of Trustees of the University consists mostly of financiers and business executives, including the president of Goldman, Sachs & Co. - see http://trustees.uchicago.edu/ They don't want anyone using the prestige of their position at U of C to advocate 'dangerous' ideas. These are the people whom the chairs of departments have to please. Professors may have tenure, but otherwise the power of the trustees to set university policy has changed little since Upton Sinclair wrote The Goose-step circa 1921.
BRILLIANT ! One of the most important 'lobby' mechanisms explained in succinct perfection.
This Bill Moyer's interview last week with William K. Black ( the past Staff leader for Federal Home Loan Bank Board Chairman Ed Gray’s Committee on reregulation of the S&L industry in the 1980s post S&L debacle) was the most revealing description in simple language that any blue collar worker or any individual thereof could understand of the deliberate "coverup" (his words not mine) being perpetrated by Geithner, the Banksters, Congress and Obama Administration.
Please Read and pass along this web link everywhere and expose the corruption of the highest sort.
It hard to put in words how revealing and shocking this "coverup" is.
www.pbs.org/moyers/journal/04032009/watch.html
Here is an excerpt:
BILL MOYERS: Why are they firing the president of G.M. and not firing the head of all these banks that are involved?
WILLIAM K. BLACK: There are two reasons. One, they're much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they're outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, ‘contracts, sacred.' But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.
BILL MOYERS: The cover up?
WILLIAM K. BLACK: Sure. The cover up.
BILL MOYERS: That's a serious charge.
WILLIAM K. BLACK: Of course.
BILL MOYERS: Who's covering up?
WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.
These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...
BILL MOYERS: What do you mean?
WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator.
Right, the economy is still not stimulated because people are losing jobs faster.
One million bucks for every citizen would probably cause too much inflation (rising prices) but they should have experimented with sending a good check to the people as a starter to stimulate the economy.
Rising prices are comin anyway (we ain't seen nothin yet) as soon as the new government bailout bubble kicks in.
Big Inflation will be when they say the economy is in recovery.... it will be another false bubble.
Then the Accounting Office says most of our taxes will go to pay the interest on the new mounting debt.
Commondreamers,
The government should never have bailed out Wall Street, but, if the Fed just had to print money, and the Treasury just had to distribute it, why not send a check for $1,000,000 to every US citizen. Some would invest it. Most would spend it. Problem solved.
discover and ratify the 13th amendment; "titles of nobility." lasting honest change must begin here.
"What we have in this country is socialism for the rich and free enterprise for the poor." Gore Vidal
"Institutions are, in a moral sense, impotent unless they are supported by the sense of responsibility of living individuals." Albert Einstein
Sorry for the misspelled words in my last entry. Didn't have the composure to preview it. I just wanna say that all the blogs so far are right on! Kudos, folks!!! One last note: What goes around comes around. This same bunch of sleazeballs have been reaming the less powerful in country after country for DECADES. They've been raping the planet; not to mention supporting proxy sleazeballs that have been raping their own. So now, with the world becoming one big happy family, ... well, you know what they also say: incest is best. So it should really be no surprise that they're gonna rape the less powerful in the grand 'ole US of A, as well, should it? I feel fortunate to have lived long enough to see this karma coming due. Painful as it is to see how much suffering is being inflicted, it's NOTHING compared to the suffering we've (most of us unknowingly- and many uninterested) allowed our leaders to inflict upon soooo many people. Yes, it was the great Winston Churchill who told the RAF colonel in 1919 "I see no reason to not test deadly gases on the Arabs. Oh, and why not test nonlethal gases, as well." And people wonder why there is such a massive uprising against the West. 99.9% of 'terrorists' are simply people who could stand no longer to see their homes destroyed, their wives and daughters raped, and their country sold to sleaze. The other 0.1%? Why, they were the freedom fighters we created to suit our purposes at the time: Bin Laden, Saddam, Amin, Pot, Hamas, Hezbollah. Churchill himself praised Stalin. And Grampa Bush courted Hitler for construction of refineries to support the Reich. I could go back further- to the genocide of the Indians and the theft of men, women and a whole lotta children for slavery. But I'll stop here. I only hope that I live long enough to see the sleaze reap their own personal karma.
Damn it Dean- and all the rest of you (e.g. NPR, etc.) Pleas equit saying that the government is bailing the sleaze out! The sleaze puts up 7%. The Gove matches it. And WE, the TAX PAYERS cover the remaining 86%!!!! To say the Gove is bailing them out is totally misleading
We do not need a bailout fund for economists to get at the truth. If economists want alternatives do them without pay for the good of the Country. I would have more trust in the free opinions and judgments than the paid ones. Or, is it a capital sin to contribute without payment for once in your lives. I have little respect remaining for economists. If you want the respect of the American people then earn it.
The major banks can not be in trouble! The stock price of Bank of America has doubled in the past thirty days and Citi stock has nearly tripled! All those investors buying those stocks are really smart people...aren't they? GM stock went up more than 8% today. So I guess that GM must be doing really well too.
In the old days, Congress would set up a commission and hold public hearings in order to investigate cock-ups like this one. Today they just sell their vote for an earmark and hand out money like it was monopoly money (actually monopoly money is worth more since they actually print it, our money today is just created out of thin air and exists on a hard drive, most of the printed dollars are overseas).
But what do you expect, the worst Congress in a century is still in office since the brain dead voters voted for the same crooks, in some cases a higher office. It makes you sick. The country deserves what they get, if we are that dumb, we don't deserve to have a Democracy.
I’d ad Paul Craig Roberts to the list of economists that should have input on how to solve the banking crisis. While a second opinion is a very good idea Roberts has pointed to a very large unanswered question: How do we pay off the trillions of dollars used for bailing out these banksters? Roberts seriously doubts that the usual suspects would be willing to buy up that many T-bills so the only other option is to lube up the printing presses and print off trillions of greenbacks.
That these dollars would have less value that the paper and ink used to print them is somewhat problematic, as would be carrying around the wheelbarrow full of greenbacks required to obtain a loaf of bread.
Well, you know, Geithner may choose to throw a trillion dollars at the banks every 6 months or so, and eventually that may very well do the trick! But, I guess, I kinda agree with Baker and the Nobel winners, that a controlled bankruptcy/nationalization is probably the preferred choice. Some say keeping the national debt at 10 or 12 trillion is better than 20 trillion, but how would us poor rubes have any clue how deeply we were truly reamed.
We'd be better off if they just went under. Then we can start building our own local economies without the damn bankers siphoning off from us day and night.
We don't need anymore arguments about this. Heed the words of our native born prophet, George Carlin, who said and I quote, "They don't give a fuck about you!".
Unless all of you are willing to fight this so-called government, until you're dead or they are, you can protest, cry, bemoan, wail, petition and any other of your chosen forms of pacifistic whining, and they will not listen to you. Someone once told me that an abuser will not stop hurting you until they have no other choice (thank you Derrick). After marching, protesting, Congresscritter calling and placard waving for the last 50 years or so, what has changed?
Believe me, I wish there was a non-violent way to make the changes needed for us to survive this one. But, even a squirrel will fight a dog that corners it and gives it no other choice. Please, for the sake of your children and mine, grow a pair and start dismantling this sick system, by all means possible.
You first Black_Anarch. Show us you have a pair first.
I used to have a dog that would sit at the base of the burr oak trees and wait for the industrious squirrel to come down. The squirrel always died. Of course one day the dog saw a squirrel and barreled after it, completely unaware of the truck. The dog walked real weird for a couple of minutes and then died. I don't know if there is a moral to this.
The moral probably is that it's better to be the truck, than the squirrel. :)
Or, like the squirrel, the banksters should have gotten their nuts off the tree before they crashed to the ground. . (OK so oak trees have acorns, but I just couldn't resist the double entendre.)
All the things that Baker has proposed can be implemented when US adopts the democratic process of government.
Another economist against the Geithner plan. Are there any that think it is a good idea? I haven't heard one who is even neutral about it.
There are a number of things that I give the Obama Admin credit for, but his financial advisors are dragging him down. They need to go.
He picked his financial advisers. On purpose. He knows exactly what he's doing, executing the heist masterminded by the bankers.
If they need to go then he does as well. Did Larry Summers twist candidate Obama's arm when he suspended his campaign to rush back to Washington and pimp for the initial release of the unregulated TARP monies? Is Geithner making the final decision or is the president? The responsibility for the actions of this government fall upon the shoulders of the POTUS and nowhere else. Do you think that the appointments were made blindly or do you understand that the views and actions of those in the cabinet reflect the opinions of the leader?
"There is no Alternative." The TINA argument rears its ugly head. Think Geithner might have learned this when he worked for Kissinger & Associates?
“As much as we all want to help out the Wall Street bankers in their hour of need…” Have you lost your marbles?
Can you show me one foreclosure victim, one unemployed, one without health care, one homeless person or one of the millions of exploited taxpaying workers, who’s life has been usurped by these parasites who call themselves bankers, politicians, investors and corporate elite, who would give a damn about Wall Street banksters in need?
And what are we rescuing here, what are we bailing out? Certainly not the masses but the life stile of the megalomaniac obscenely rich.
This status quo will not be sustainable. These bailouts are the system's last throes. But before this Titanic is going under we’ll have a board feast where final lavishness is pampering to the rich. Wait for the struggle for the life rafts.
“…before we throw such huge sums away, further enriching the bankers who wrecked the economy, maybe we should get a second opinion.” Yes, and that opinion is: To hell with all parasites of our nation!
"To hell with all the parasites of our nation"
It is about time.
“As much as we all want to help out the Wall Street bankers in their hour of need…”
- Baker was just being sarcastic there.
Geithner is a bank robber. His plan is to "fix" the financial system. Not fix it.
He has no interest in commissioning intellectuals to discover the wisest approach to solve our ills.
Geithner has a public relations strategy designed to simulatenously pacify an incredibly stupid population while buying him more time to steal everything that's left.
The fact that his plan includes "lending" a trillion dollars to hedge funds tells you everything you need to know.
An excellent public policy formulation idea from Dean Baker. Tap into the independent thinking and Nobel level expertise of people like Stiglitz, Johnson, Robert Reich and/or Paul Krugman, then let the serious discussion of the whole range of available options begin!
Of course, this is exactly what the various White House advisory Councils are supposed to be doing all along, but so what? With all those black swans paddling about and unknown unknowns lurking on every horizon, clearly the more well reasoned policy options there are - placed squarely on the table for everybody's input and consideration - the better our collective chance at wise decision making will be.
Why do I somehow sense that Baker's approach is therefore a complete real world non-starter?
Bill from Saginaw
I think he knows that. He wrote this to throw it in their stupid faces.
When they give money to the banks it doesn't cause inflation because the people never see it.
So Far that is.....
This has all happened before
You are not important. You can die. You can die in as much debt as the weight of the water above the sunken Titanic. Barry will come to your funeral and make an impassioned eulogy read off 3 X 5 cards, then hustle on out of there. Sorry, gotta go, running late for my meeting with Geithner, Summers and the Association of Investing Vampires. Lots of Luck. Chin up! Socks up! God Bless!
The guy's name is Barak, not Barry. Is it supposed to be some kind of insult to call him Barry? Doesn't make sense. At least nicknames for Bush make sense. This doesn't.
Perhaps you might serve the forum better to concern yourself with less trivial complaints?