The financial crisis and bailout - things that make you go hmmmmm,....

12 posts / 0 new

The whole financial crisis and bailout is a sad commentary on our two party system of democrats and republicans. Without a doubt the housing bubble was caused by the collective actions of both these parties and worse still the blank-check bailout solution pursued was clearly not the product of objective thinking or for that matter even really represents a solution at all.

O’bama credits Bernanke for staving off the second great depression by socializing the losses of major banks. But that is not necessarily true. One option was to take the banks into receivership thereby effectively asserting complete financial control over the bank. The FDIC does it all the time (and has done it time and again very recently, (Shiela Baird I love you)).

How can you claim that you avoided a run on the banks, liquidity, credit crisis, etc. by having the government bailout the banks – very generously – the alternative was to formally extend the full faith and credit of the entire government via receivership?

The contention that proceeding with anything further than a blank-check bailout would have given the markets the appearance that something was drastically wrong is dumb. That shipped sailed when Lehman Brothers slipped into bankruptcy. The market psychology behind an initial shock and subsequent reinforcing events is different. The surprise response of the initial shock makes it much more severe. There was no legitimate reason for not proceeding with receivership. In fact, Bernanke could have announced it as a stipulation, or pending determination, to the exact same bailout package they offered. But he didn’t even negotiate that much. This at a time when the Banks were clearly at their weakest.

Also, I can’t seem to shake the nagging doubts about how bad things really were. I’m not saying there wasn’t a problem. But as we all know, AIG through a party, obscene bonuses got paid, and a host of “other investments” were made. Then there is Phillip Swagel’s recount of the events of October 13, 2008. Swagel was then Treasury Assistant Secretary [Note: that Timothy Geithner’s, then Federal Reserve Bank of New York, fully participated in designing the bailout with Ben Bernanke, then Federal Reserve Chair and Treasury Secretary Hank Paulson]:

“This had to be the opposite of the ‘Sopranos’ – not a threat to intimidate banks but instead a deal so attractive that banks would be unwise to refuse it.”

Authors Simon Johnson and James Kwak in their book “13 Bankers” go on to explain:

“the government had to offer attractive terms because it could not force the banks to agree to any investment, and it is true that some bankers claimed that they did not need government capital. [Eric Dash, “Bankers Pledge Cooperation with Obama,” The New York Times, March 27, 2009, available at http://www.nytimes.com/2009/03/28/business/economy/28bank.html]

Paulson (former CEO of Goldman Sachs), Bernanke and Geithner were essentially pushing free money at the Wall Street banks.

In the end, what Bush and O’bama chose to do:

1) compounded the moral problem stemming from “being too big to fail”,

2) by socializing losses, ran contrary to the very premise our capitalistic society in which those who take the risk get the reward or suffer the losses, and

3) left poor managers in charge of the largest industry in America.

America currently does not have a well functioning financial sector. What is more, America’s financial industry continues to be a drag on the countries overall economic performance.

This time the solution was “trickle-up” economics. More money should have gone to the stimulus.

telliottmbamsc's picture
telliottmbamsc
Joined:
May. 20, 2010 4:06 am

Comments

Jamie Dimon (Barac O’bama’s favorite banker, July 2009 New York Times) of JPMorgan Chase & Co was Class A director of the Board of Directors of the New York Federal Reserve, a three year term which started January 2007. On October 2003, Timothy Geithner he was named president of the Federal Reserve Bank of New York until he was appointed by Barac O’bama as Treasury Secretary soon after November 24, 2008. Jamie Dimon current CEO and chairman of JPMorgan Chase & Co was Timothy Geithner’s boss.

Was this the biggest monetary heist in U.S. history?

telliottmbamsc's picture
telliottmbamsc
Joined:
May. 20, 2010 4:06 am

Failures of financial regulation result in higher compensation for financial executives.

Thomas Philippon and Ariell Reshef have analyzed financial sector compensation and found that the “excess relative wage” in finance – the amount that cannot be explained by differences in education level and job security – grew from zero around 1980 to over 40 percentage points earlier this decade; 30-50 percent of excess wages in finance cannot be explained by differences in individual ability. The also found that deregulation was on factor behind the recent growth of compensation in finance. [pgs. 115-116 of “13 Bankers”, reference August 28, 2009 article from The Washington Post]. Watch what happens surrounding derivatives with the forthcoming financial regulation currently being excreted by the government. The financial industry’s profit centers may be underregulated.

telliottmbamsc's picture
telliottmbamsc
Joined:
May. 20, 2010 4:06 am

As long as there still are people who think one of these parties, or even our current government structure, will eventually work all this out, nothing will change. We need to restructure government, and we need to take it away from the Dems and Reps. They are corrupted and sold to the highest bidder, which ain't us.

Thom's change it from within idea sounds good on paper, but it's just not going to happen in reality. We need a peaceful but firm citizen uprising with new parties, new ideas, and grassroots control.

Common_Man_Jason's picture
Common_Man_Jason
Joined:
Jul. 31, 2007 4:01 pm

Jason, it is a both/and strategy because the Third Party will never get us there in this screwed system. But, blowing up the corporate duopoly is something we can do. While the Republicans are hopeless, and even the libertarian idealists have no politics to deal with corporate power, there is a Progressive Caucus and good individuals in the Democratic Party, and we need to build with them while we also develop a constituency outside the brand.

When we have a constituency and a rebellion against the Corpadems, we will have the "new" New Democrats who are progressive instead of corporatist.

The DC game does not match the electorate, but the elections have become so money leveraged that we have to think about movements and not just election strategy. This does not mean abandoning electoral politics or abstaining from the congressional policy debates. It just means having a constituency perspective outside the consensus and showing it.

The DLC folks have nowhere to go, not us. They are painting themselves into the role of junior partner in the Corporate Party. It may pay well, but time is running out on this empire and its "principalities and powers." It cannot solve any real problem, and it cannot solve its own contradictions.

I think the arrogance of the Rahm is Obama's worst enemy. Sticking a finger in Progressive and Labor eyes will not gain them any favor with the Right and it will lose them their base. Obama needs to fire his corporate staff and hire some real symbols of change if he wants to have a successful presidency and an America with a future. Being a successful emperor only means delaying the apocalypse. The Sun King had a fabulous court, but after them, the deluge.

It is up to us to use Obama as much as we can, but to place our hope in his initiative on our part is unwise. We have to make him do what we want, and that is not just about talking him into it. My point is that we need to focus on the issues and agenda and not waste our time on our disappointment or fatuous hopes. Obama is not an evil doer. Even as a corporate-oriented executive, he would want the business to be run well and "fairly." We want him to confront power, and we need to do it for him.

Run Howard Dean in the primaries as a protest candidate. I would love to see Howard back as a player, and we can do this.

DRC's picture
DRC
Joined:
Jul. 31, 2007 4:01 pm

Tellio asked: Was this the biggest monetary heist in U.S. history?

---------

QUOTE:

As Obama’s chief of staff Rahm Emanuel put it, a crisis is too good a thing to waste. Having created the crisis, Wall Street wants to use its momentum to knock out any potential checks to its power.

Moving in for the kill, Paulson explains that the Treasury is bare, having used $13 trillion to bail out high finance in 2008-09. So he warns the government not to run a Keynesian-type budget deficit. The federal budget should move into balance or even surplus, even if this accelerates the rise in unemployment and decline in wage levels as the economy moves deeper into recession and debt deflation.

“We must also tackle what is by far our greatest economic challenge — the reduction of budget deficits — a big part of which will involve reforming our major entitlement programs: Medicare, Medicaid and Social Security.” The economy thus is to be sacrificed to Wall Street rather than reforming finance so that it serves the economy more productively. It is simple mathematics to see that if the government cannot raise taxes, it must scale back Social Security, other social welfare spending and infrastructure spending.

Financial speculators no doubt will clean up on the turmoil.

http://www.counterpunch.org/hudson02172010.html

Michael Hudson is a former Wall Street economist and now a Distinguished Research Professor at University of Missouri, Kansas City (UMKC), and president of the Institute for the Study of Long-Term Economic Trends

Reaganomics has a new foothold with Obama's economic team.

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 4:01 pm

Sorry DRC, but you're holding on to a false hope. Yes, there are some wonderful Democratic politicians holding some pretty powerful posts. But that's my point. They aren't having any real effect. Even Bernie has cast some disappointing votes for meager compromises.

The system is too broken to be changed from within. It doesn't matter how many progressive people get in there. The system needs to be rebuilt form the ground up, and no sitting politician will ever do that, no matter how well intended.

Common_Man_Jason's picture
Common_Man_Jason
Joined:
Jul. 31, 2007 4:01 pm
Quote Common_Man_Jason:

As long as there still are people who think one of these parties, or even our current government structure, will eventually work all this out, nothing will change. We need to restructure government, and we need to take it away from the Dems and Reps. They are corrupted and sold to the highest bidder, which ain't us.

Thom's change it from within idea sounds good on paper, but it's just not going to happen in reality. We need a peaceful but firm citizen uprising with new parties, new ideas, and grassroots control.


Absolutely, but peaceful is not likely as entrenched powers are not likely to concede their ill gotten gains. We also do not need "parties" but one party under the umbrella of the Socialist Workers Party. All other parties are superfluous. The two, we have, solely compete for which is more corrupt. That certainly is not needed now or ever.

Grassroots sounds nice on paper but it also is fruitless against the tyranny of the markets and vested interests. The power of the State must and always be under the power of the worker class.

quaestorchickpea's picture
quaestorchickpea
Joined:
May. 12, 2010 7:02 pm

Chickpea wrote: "We also do not need "parties" but one party under the umbrella of the Socialist Workers Party"

------

If you'd like to debate the follies of their ideologies, I'm willing to do that.

1. For starters, they ignore market demand. That requires command economies. Command economies don't work.

2. They dont have a workable political structure.

3. It's hierarchial. Not a whole lot of change from what we have. Just a different hierarchy.

4.Socialism is merely direct worker ownership of the workplace. Basic economic fundamentals have to remain intact. Capitalism is economics...not a social structure....though we've been led to believe that it's a social structure...and have a rather destructive application of it..

5. A self employed individual is living a socialist principle. A family-owned/operated business is a socialist enterprise. Employee Share Ownership Plans are a step towards socialism. Such things as universal health care may be included in a socialist society...or not. It depends on what the people prefer by a democratic vote.

6. There has never been a socialist nation-state. Closest thing to it was the U.S. at its founding...when the majority owned their own workplace...farmers, shop keepers, craftsmen.

7. Trotskyism may have been suitable for a transition in Trotsky's time. It is no longer suitable nor required.

8. If you'd like a socialist party with a sound platform....start one. There aren't any. If you want a party that maintains the current system with a sound platform...start one. There aren't any.

You can always work to form new, viable conensus within the existing parties...big or small.

Retired Monk - "Ideology is a disease".

polycarp2
Joined:
Jul. 31, 2007 4:01 pm

I have nothing against you, Polycarp2, but find your posts of no value. I hope you take no offense on no response to your posts. If you want to discuss it further, then either use the board functions of private messaging [if there is one] or email me at: quaestorchickpea@hotmail.com

If ideology is a disease, I do not want to catch it.

quaestorchickpea's picture
quaestorchickpea
Joined:
May. 12, 2010 7:02 pm

Thread on how financial leaders comments may influence markets even more than economic news alone moved to discussion thread 'The Rebirth of Economic Thought from the Ashes of the Crisis' -- discussion on Economist Ravi Batra who speaks on Thom's show.

Semantic Monitor's picture
Semantic Monitor
Joined:
Jul. 31, 2007 4:01 pm
Quote quaestorchickpea:

I have nothing against you, Polycarp2, but find your posts of no value. I hope you take no offense on no response to your posts. If you want to discuss it further, then either use the board functions of private messaging [if there is one] or email me at: quaestorchickpea@hotmail.com

If ideology is a disease, I do not want to catch it.

If you support the Socialist Workers Party...you've already caught it...and will be purged if you find the cure. Like the Dems and Repugnants, its ideology based. If you want ideolgical solutions, you'd probably do better to resurrect original libertarianism. Less damaging than either Dems, Repugnants, or the Socialist Workers Party.

Then, of course, there is always the possibily of implimenting an economic democracy. You'll find that discussed at znet communications.

Closest thing you'll find to socialism in this country is in some monasteries....where hierarchy exists to coordinate policy determined by the majority. Hierarchy is a servant....not the "boss". It's called democracy. Monks owning/operating their own workplace is called economic democracy...an extention of democracy.

I highly recommend people taking control over their own lives...and outside of religious communites, a different set of social norms would be expected.... determined in the same manner...by concensus rather than force.

Socialism is nothing more than direct worker ownership of the workplace. A return to humanity's historical past. In the case of Native Americans, a pretty recent historical past. In the case of self-employed individuals, an historical present.

Government ownership is merely a change of empoyers...replacing one boss with another. That isn't socialism.

Retired Monk - "Ideology is a disease"

.

polycarp2
Joined:
Jul. 31, 2007 4:01 pm

Currently Chatting

Green World Rising

In two previous videos narrated by Leonard DiCaprio and available over at GreenWorldRising.org, we’ve seen the dangers that global warming and climate change present for our planet and the human race.

Powered by Pressflow, an open source content management system