Even though I know that the Obama administration really does spend a lot of time looking at blogs, I agree with what he told the New York Times about economic blogging.
Mr. Obama rode to the White House partly on his savvy use of new technology, and he has a staff-written blog on his presidential Web site. Even so, he said he did not find blogs to be reliable, citing the economy as one example.
“Part of the reason we don’t spend a lot of time looking at blogs,” he said, “is because if you haven’t looked at it very carefully, then you may be under the impression that somehow there’s a clean answer one way or another — well, you just nationalize all the banks, or you just leave them alone and they’ll be fine.”
Most of the economic blogging I’ve seen has amounted to little more than advocating for bank nationalization. I don’t disagree with that analysis, but I don’t think most analysis takes into account the size of the problem and the unlikelihood of nationalization solving our problems without destroying a lot more wealth.
The truth is that nationalizing huge banks like CitiGroup, Bank of America, and Wells Fargo is completely different from nationalizing little regional banks. You’re wiping out a ton of shareholder wealth, you’re still on the hook for all their bad debt, and where are you ever going to find buyers when it comes time to denationalize the banks?
There are no simple answers to this economic crisis.
You’re wiping out a ton of shareholder wealth, you’re still on the hook for all their bad debt, and where are you ever going to find buyers when it comes time to denationalize the banks?
I thought the point of nationalizing them was akin to puttting them through a pre-packaged bankruptcy. Take Citigroup. How much more wealth are you gonna destroy if you nationalize them? Their shares are at $1. As Krugman and others have been saying, make the debt holders take a hair cut. Why allow Bill Gross and Pimco to get richer off the taxpayer(he bought a lot of Fannie and Freddie debt figuring we’d nationalize both).
the point of nationalizing is to reboot the banking system. The government takes all the crap off the bank’s books and let’s them start over fresh.
It works great for situations where you clean up the books and then sell off the assets to a healthy bank. But when you have no buyer for the healthy bank, you are just stuck with the junk assets and liabilities.
Booman Tribune ~ Obama on Economic Bloggers
If only it were that easy
mi2g
The fact is that the bulk of the capital underpinning the credit that blew up the Mother of All Bubbles was not that of Banks, but of the investors to whom they outsourced the credit risk off their balance sheet, through securitization, credit derivatives, credit insurance and toxic cocktails of the above.
So nationalising the banks isn’t enough. The US, EU, UK etc are actually going to have to come to terms with their creditors (current and future), and completely redesign the system, which is -in simple terms – f…d.
Having said that, I have a naive belief that a solution is actually emerging.
Peer to Peer Finance: a Flight to Simplicity
Why wouldn’t there be buyers for an IPO of a healthy money-center bank? It wouldn’t need to be sold to one entity at one time. And even if it did have to be sold off all at once, a partnership of a few entities like CALPERS could easily buy it.
It seems to me that something like that is exactly what needs to be done. But it also seems to me that Treasury should be lining up potential buyers so that we’re not left holding the bag for assets that no one is prepared to buy.
One thing I don’t understand is why you are worried about being “stuck with assets”. It’s not that nobody wants to buy the assets on the banks books, it’s that nobody wants to buy the assets at prices that will keep banks solvent. That’s why anything like the original TARP would be a giveaway. And since the too-big-to-fail banks are just that, the choices are either a) giveaway or b)
nationalizationpre-privatization. The latter eliminates most moral hazard issues and resolves the problem quickly.And though I think that a lot of the assets will be duds, the federal government does not have to worry about any kind of maturity mis-match, meaning it can sit on the assets for a bit in to see if the values change. Thus takeover has the potential to reduce downside losses.
Yves at NK linked to an interesting IMF study that basically says central banks that dither in a banking crisis increased the cost of the inevitable bailout. Note that this was back on Sept. 27. We are still dithering.
good point on CITI…at March of 2007 the largest bank in the world was pegged at $300. billion…now at the close on Friday, only $5.6 billion. BooMan need not be concerned, shareholders are wiped out. There’ll be buyers once the banks are relieved of toxic fraudulent debt.
News flash to Prez. Obama. It’s not just economic bloggers promoting nationalization…or if you don’t like the N-word, call it banana.
Bloggers have taken their cue from nobel laureate Paul Krugman, Sir Alan Greenspan, Nouriel Roubini, the prescient one who called it… and, most recently, the fixer:
Do it now and take the pain or do it later that’s more costly and damaging. Obama is now seen as dithering with no coherent policy.
Btw, interconnected is the fact that the FDIC coffers are empty. The Congress just passed a Bill to allow the FDIC to borrow $500 billion.
The real debt in the banking system? It’s over a quadrillion, OTC derivatives — or expressed in billions: $12,679 Billion. All of which will be hyper-inflated away.
Atrios and Barry Riholtz seem to know what they are talking about on their blogs and both have legitimate credibility.
I agree that all of the alternatives suck in this situation but milking the tax payers for trillions more in order to benefit the shareholders’ of insolvent banks seems like a huge political and public policy mistake.
Boo, do you have any confidence in Geithner? His vague plans are based in wishful thinking.
I think Geithner is going to turn out to be the worst pick of the Obama administration. He inspires zero confidence that he has any idea that he knows what he’s doing.
I mean, really, if the best excuse he can come up with for his tax problems is “I did them myself and Turbo Tax screwed me”, how can he be expected to come up with any real plan for solving our economic crisis?
Geithner and Summers came with the Presidency. Once it becomes clear they have no answers, Obama will look elsewhere IMHO.
They’ve been given the rope, and they will hang themselves.
Well, part of the problem is that you don’t necessarily save money by wiping out the shareholders. Look what’s going on with AIG, where we’re still throwing tens of billions at the problem. That doesn’t go away just because you nationalize.
It’s one thing to take a bank’s bad assets and liabilities off its hands and help it reboot as a going concern. But the public still owns their shitpile and the obligations that go with that. So, from a pure cost-savings perspective, it’s more important to get it right and get the economy growing again than it is to save the taxpayer the indignity of paying for some banker’s manicure.
have confidence in Mr. Geithner:
http://www.globest.com/news/1362_1362/losangeles/177310-1.html
No one said the answer was simple, but the difficulty has more to do with the political power of the banking industry than the solution.
And I’ll be happy if they skip reading blogs and just read Krugman.
There are intermediate steps to nationalization. If banks refuse to loan money, then the federal government needs to step in and create a federal agency that issues mortgages and business loans. Then the banks can either hold onto their money and watch all their potential business go to the government, or they get back into the business. Their choice.
As far as destroying wealth, some wealth was pure invention. Most of that is gone and more will disappear. But if banks won’t do what their job is in the economy then the government must act. By failing to act banks are destroying their own wealth. It may be too late to save a lot of them, but there will be plenty of people after we hit bottom who will need banking services. If not the banks, then the government.
“Most of the economic blogging I’ve seen has amounted to little more than advocating for bank nationalization. I don’t disagree with that analysis, but I don’t think most analysis takes into account the size of the problem and the unlikelihood of nationalization solving our problems without destroying a lot more wealth.”
Agreed 100%. I never see in any of these blog posts any analysis of all of the factors involved in making that decision. At most, they point to a Swedish model or a Japanese model, for instance, but never talk about how these models are the same or different than our current circumstances. Can you rely on two freaking models as proof? What are the pros and cons? What are the pitfalls? How does Treasury, that apparently can’t even get it’s own top-tier of deputies in place, handle something of this magnitude? What will it cost? What might go well, what might go wrong? (You never see them predict how much faster the economy will improve if you do this, but they are more than willing to say it will get worse if people don’t listen to ’em.)
If the object of Krugman et al is to make a case my feeling is they’ve failed miserably because they have not informed and educated beyond making an opinion in a two paragraph blog post, and their solutions offer no practical way from getting from point a to point b beyond demanding that it be done. It’s always very hazy. To me, these people come off at worst as pompous academics who think that their opinion is all that should be necessary to make everyone scamble to do what they want done.
What I’m asking for is better posts. More information. More analysis. More explaining. More educating. I want the possible downsides, too, instead of the doom and gloom of ‘you better do this or else’.
I know you don’t feel well, so I feel I should cut you some slack … but I’m just not that nice.
Most of the economic blogging I’ve seen – it would be helpful if you could tell us what economic blogs you read. Truthfully, I’ve never seen you link to any. Except Krugman. Everybody links to Krugman. Maybe Brad Delong.
I’ve been wondering for a few months now why the Marcy Wheeler of the economic crisis hasn’t emerged. Marcy isn’t a lawyer and yet she did some of the best political blogging of the Scooter Libby trial because she went in and educated herself. She really informed her readers. She was able to put things into terms that non-lawyers could understand. I’ve been waiting for someone to step to the plate in this economic crisis and do that. NOT advocate for a solution (you’re right, there’s too much of that) but write to inform. Write to lay the groundwork for a discussion based on facts. A discussion based on identifying the questions and then searching for the answers, or at least laying out all the facts that one would need to try to come up with an answer.
I don’t mean to dump on you particularly, YOU don’t have to become the Marcy Wheeler of the financial crisis. But don’t you think it is odd that no political blogger has? That nobody is running regular posts trying to dig into all those issues you raise and inform their readers?
At the very least, why aren’t the political blogs searching out the really good economic blog posts and writing about them and linking to them? I truly don’t understand it.
Maybe it’s the aftermath of the election. Maybe after two years of non-stop process politics the political blogs have lost the knack for just examining issues and providing a forum for information.
the short answer is that the Left is predisposed to nationalize the banks anyway, kind of like the comment corvus made.
So, you’re getting advocacy for a policy instead of analysis.
The longer answer is that the financial instruments involved here are not easily understood.
I think it would be easier to teach myself the law than to figure out how the hell AIG wound up losing all the money in the world.
Your shorter answer is persuasive but your longer answer isn’t. (And your shorter answer is persuasive to me because I’ve found over the last 2 years that once the political bloggers are predisposed to a solution their blogging becomes … not so good. Remember FISA.)
But as to your longer answer.
My question isn’t why you can’t teach yourself enough about financial instruments to be able to figure out how AIG wound up losing all the money in the world. My question is why don’t you link more to economics and legal blogs that ARE trying to answer these types of questions.
In this post you hypothetically ask about the differences between nationalizing Swedish banks and nationalizing ours. I asked that in a comment right here on 1/25. I didn’t expect you to have the answer. Since then economics blogs have talked about it but they don’t go into it in any depth. It would be really helpful if the political bloggers, admitting their ignorance, would write posts ASKING the economics bloggers to expand on their reasoning.
You know. Start a dialog. And all that.
a dialog would be good.
The Swedish model is perfectly fine. But we have larger banks here with more entanglements.
Also, we have another problem that is at cross-purposes with the Swedish model.
So far, we’ve been making too-big-to-fail institutions bigger by letting them get gobbled up by even bigger institutions. Not much alternative in the short-run if you want continuity of services.
But we actually want to break up all these institutions so that none of them are too big to fail. The Swedish model could work, but not well if the end result is that we’re left with two banks in the whole country.
Another factor is that rumors of nationalization are decimating the share value of all banks, making their failure a self-fulfilling prophesy and destroying more wealth. That’s partly why people are pressing for them to speed things up, but you can’t treat all banks the same if they’re not all insolvent.
The one I find consistently helpful is
http://baselinescenario.com/
The person who writes it is not the Marcy Wheeler of the banking world, he is actually a banker. But he presents a wide variety of angles and is not jargony or over-technical.
I don’t think my statements there really require links, but this is a good one.
To go over my points a little:
If you are a holding shares in Bank of America, you’re going to be sorely tempted to sell those shares before they become worthless. Any hint that BofA might get nationalized is going to drive down the price of its shares. But it might be that BofA is not insolvent while CitiGroup is. Treasury is going to assess the books in the next few weeks. I don’t think it is a controversial statement that rumors of nationalization can crush the share price of a stock and actually cause a solvent bank to become insolvent.
I also don’t think it is controversial to suggest that we want to come out of this with fewer too-big-too-fail institutions than we entered it.
the point of my original comment.
Let me give you a hint. Go back and read your post and your generalized statement about economics blogs. Then read my original comment again.
Look, I know as much as you about this. In fact, I’m willing to bet that I know more about it than you do because of what I do in real life. It’s not that we couldn’t have a really fun discussion about this. But it would be no more helpful than any two well educated well read non-economics experts talking about it in line in the grocery store.
What would be REALLY great would be for those two well educated well read non-economics experts to be in line at the grocery store behind a real live expert in economics with whom we could discuss this and ask a lot of really good questions.
Think of the blogosphere as the grocery store. I’m relying on you to find us the line that has the econ expert in it and get him/her to talk to us.
.
I like his analysis and argumentation …
WHERE TO DRAW THE LINE? Suppose we nationalized four banks. Bank Five would then find itself at a severe disadvantage in competing for funds with the government-backed quartet. Forced to pay higher interest rates to attract depositors and other creditors, its profitability would suffer.
THE DOMINO EFFECT As stock traders began to contemplate the nationalization of Banks Five, Six and Seven, their share prices would tank, and short-sellers might consign the companies to an early grave.
POLITICAL OBSTACLES The process of nationalization and reprivatization went amazingly well in Sweden partly because it was remarkably free of political interference. Would that happen here? You decide. My bet is no.
THE CONFIDENCE QUESTION Finally, because nationalization runs counter to deeply ingrained American traditions and attitudes, there is a danger that it might undermine rather than bolster confidence.
In a small country like the Netherlands, the two major international banks needed government assistance for survival: ING and ABN-Amro, part of Fortis. The third bank Rabobank survived because their shares are not listed on the stock exchange but are held by stakeholders, the agricultural community.
"But I will not let myself be reduced to silence."Here’s a link.
I’ve already read it. And I’d already read the one you linked to above.
I note that neither of them are economics blogs. Which was the point of your post.
Unlike almost everyone else in this thread I’m trying to actually talk to you about your post.
I’m not sure what I’d have to do to be credited with “analysis” short of writing a fairly wide-ranging book on human nature. If I had to categorize myself down for the sake of brevity, I’d say I was a social democrat in the European sense of the phrase, I’m not a social democrat because I believe in social democracy. I’m a scientist; as such, I don’t believe in anything in the commonly understood sense of the word. The solutions I propose tend to be more or less socialist because the findings of the sciences with respect to human nature seem — to me — to be best addressed by collectivism, at least in certain areas of public life.
I think the underlying problem of the US financial system, and most extant financial systems, is a failure to address certain fundamental aspects of human nature. One of these is that, being evolved from herd-following scavengers, humans, like most scavengers, tend to be rather greedy and prone to hoarding because, in the environment in which they evolved, food and other resources were available at unpredictable intervals, so it made sense to grab everything available as there was no way to know when more resources would become available. Now that we can satisfy our needs reliably, this trait has become an anachronism, and we see it exhibited in billionaires who compulsively seek still more riches, and in much of the world’s population suffering from malnutrition because the rich countries are unwilling to share their enormous surpluses.
Another basic trait of human beings is that our ancestors, like most primates, had a competitive pack hierarchy where alpha status was achieved, more or less, by systematically humiliating and abusing one’s competitors. We’re still wired for that, hence the tendency of humans towards admiring authoritarian figures. The actual emotional mechanics revolve around guilt and self-esteem, and one of the most dangerous traits of human beings has a particularly ugly synergy with those emotions: cognitive dissonance.
Often misunderstood, cognitive dissonance is, simply put, the psychological discomfort humans experience when they have contradictory beliefs. One response to this is compartmentalization, which we see in “culture of life” anti-abortion activists who are enthusiastic supporters of the death penalty. The other, more common response, is for the belief with greater emotional weight to prevail and for the competing belief to be modified to fit. From this we get any number of white-collar criminals who quite sincerely believe that they have done nothing wrong because they are unable to overcome their instinctual hoarding behavior and therefore rationalize their criminal behavior into a virtue.
Humans are, in short, not the kind of animals you want playing with trillions of dollars without elaborate safeguards in place to make sure that they don’t act in accordance with human nature. Faced with a species, most of whose members can be bribed or otherwise corrupted with sums of money in the tens of thousands (or much, much less, frankly), the outcome of leaving a relatively small, unaccountable group of them in charge of sums adequate to corrupt any member of the species is predictable with a high degree of accuracy. Putting capitalists — in the functional, not ideological sense of the word — the very pack alphas who have shown a particular predisposition to the acquistion and hoarding of, well, capital in charge of money is like putting junkies in charge of the heroin supply.
The reason I chose to speak out on this particular issue isn’t because I am ideologically predisposed to prefer collectivization, it is simply because history has shown that we return to this state of affairs with striking regularity, and that fact suggests that the boom-bust cycle is an inherent and unavoidable consequence of the current system. I am not anti-capitalist; there are a great many situations where I think capitalism, properly regulated, works very well indeed, and it is definitely an improvement over earlier economic systems in many ways.
That said, I think we ought to choose the right tool for the job at hand, and that no tool is the right tool for every job. And I think that, at this point in history, it borders on being self-evident that the current financial system, the fundamentals of which have not changed in over a century, is not the right tool for the job. I don’t claim to have the answer, but then, as a scientist, I don’t think anyone has the answer right now. We will only know what the answer is when, after trying several alternatives, we find one that works better than what we have now. But we will not find that answer if we arbitrarily dismiss alternatives that may very well differ in significant details by lumping them all together as things that “the Left” or “some people” are predisposed to. Even if that were in fact the case, the validity or invalidity of a statement does not hinge on the identity of the person making the statement.
I didn’t mean to single you out for criticism…I’m not disagreeing with analysis that concludes we need to nationalize the banks. My criticism is that the analysis I am seeing is not taking into full account the set of factors facing Obama and Geithner. In other words, I agree with Obama’s critique, and I also think it demonstrates that he is reading the blogs.
Idea 1: Print our own money and cut the Federal Reserve out of the picture. Globally.
Idea 2: Make all Federal Reserve Notes worthless. Make it official, instead of lying about it.
Idea 3: Everyone who either owns their house outright, or who has paid a substantial portion of their mortgage (20% or more), immediate owners. No more mortgages. Take the good paper away from the banks so that everyone knows, when it comes to mortgages, everything is crap.
Idea 4: All corporations are forbidden from owning any real property and must instead lease or rent from a single individual who then becomes responsible for all corporate behavior directly involving said property.
Idea 5: Prosecute all corrupt behavior
Idea 6: Hang the rich.
I question whether having private banks is even desirable. Every twenty years or so, one large chunk of the banking industry or other goes tits up, and the taxpayer ends up bailing them out. Since it appears that the banking system can’t even function without substantial regulation and periodic infusions of unearned money, why bother? Make banking a function of the government the way maintaining other vital pieces of infrastructure is.
One potential benefit of nationalizing the banking system is that it just has to break even, not turn a profit. Consider that when you take out a loan from a private bank, the interest you are paying partly helps insure against default, but mostly goes to usurers — er, shareholders — who are making money basically because they already have lots of money, not because they are doing any real work that creates real value. The absence of real work and real value is why, every so often, enormous quantities of “wealth” suddenly disappear and the banks require a bailout with real wealth. The customers of banks get taken coming and going, first with interest and then by being taxed to create real wealth to replace the imaginary wealth “produced” by the banking “industry”.
Freed from the heavy parasitic burden of shareholders, banks could offer loans at much lower interest rates. Not needing to turn a high profit, government banks would have no incentive to engage in predatory lending practices. Perhaps most importantly, simply by adjusting the parameters of loan qualification — within reason, of course — a national bank system could stimulate areas of the economy as needed, helping to boost growth in underdeveloped regions and social classes. And by offering comparatively generous interest rates on savings accounts and certificates of deposit, national banks could encourage personal responsibility and self-reliance by incentivizing savings and long-term planning by individuals and families. Heaven knows a student loan system that was intended not to enrich banks but to enrich society by producing more educated, self-supporting people would yield great benefits for society at large.
There’s no denying that the amount of power that would be transferred from the private sector to the public sector would be vast, and such an ambitious program should not be undertaken without ensuring that it is integrated into the existing system of checks and balances and that those checks and balances are substantially augmented. But consider the alternative, which is the current system of private, for-profit banks, which are essentially accountable to no one. Government banks, in a democracy, are accountable to all of us.
I don’t expect anyone to jump on this proposal, not least because it’s rather vague and just the product of some random guy’s weekend ruminations. But looking at the financial events between about 1880 and the present day, I think it’s worth questioning whether we are well-served by having an economic system that rewards, much less exists at the mercy of, a professional class of financiers who are essentially non-producers whose every cent of profit comes from the hard work of other people. It might be worth suffering if it resulted in a stable system, but it does not do so: it reliably produces an endless series of booms and busts driven by imaginary paper wealth that ends up crippling the real world with real workers and real property.
Indeed. The problem lies in the absence of a workable enterprise model.
As Dr Yunus of Grameen Bank puts it, we need a “Not For Loss” model.
When I hear comments like “We don’t know enough about this problem” or “this problem is bigger than we think/know” or “there’s no easy answer, congress needs to ‘study’ the problem”- HUGE red flags immediately go up for me. why? because I’ve heard this all before and invariably it means the wealthy class are to get special treatment by the federal gov’t. at the expense of the poor and middle class.
One prime example being GM begging for money from the Feds, when they are in the middle of investing $3 Billion to build manufacturing plants in China. This makes sense? This is equitable given the massive job losses and cuts already experienced by auto workers?
The belief by Obama, Geithner, etc. that the investors in the troubled banks and the bank execs must be immune from taking any sort of hit while the rest of us face homelessness, hunger, lack of healthcare is about as ELITIST as it gets, my friends.
Geithner’s PPIF Fund is a huge joke– i.e. a fun to provide “incentives” for investors (the same jackasses who created the current mess) to buy toxic paper, thus freeing up the banks to start loaning again.
What a weak load. Let’s stop making stupid, baseless assumptions here, i.e. the toxic paper will be worth something again one day and face certain facts:
One of the main facts being our current brand of investors want returns NOW, not 5, 10 or 20 years from now. they do not believe in long term planning.
Troubled bank nationalization MUST be done, and the wealthy investors are going to have to take a hit.
Nationalize Citi and the rest, open regional banks to loan money to small and medium sized businesses (the ones who actually create new jobs) and loan money to
people to buy homes, cars, etc., which will significantly help to get our economy moving again.
Sitting around waiting for the banks to decide the “best time” to extend credit again is a joke.
I have to agree with you, more or less. While there are some things that are unavoidably complex, the appearance of impenetrable complexity in business almost invariably means that someone is getting ripped off and the complexity is there to hide the theft. It is for this reason that I never considered investing in any of the “exotic instruments” that appeared over the last decade or so: I thought they were probably scams, and, lo and behold, it turns out they were the biggest scams in financial history.
Like the problem of “too big to fail” institutions, an economic system that is too complex to understand is not a sign that we should try harder to understand it; it is a sign that we should replace it with a system that is comprehensible to the general public. This is, after all, a democracy, and if the people whose job it is to elect leaders can’t understand the economy, how the heck can we possibly choose leaders whose job it is to manage it?
as far as “leadership” needed to manage this, that’s another trainwreck.
the whistleblower (I forget his name) who recognized Madoff’s fraud years ago was on the tube recently- he flat out stated the people at the SEC are nothing but attorney/paper pushers unable/untrained to recognize fraud when they see it.
this is by design, unfortunately. have you read Tom Frank’s “The Wrecking Crew”? I recommend it– you’ll understand why we have a feeble SEC, poisoned dog food, poisoned peanut butter– it’s what the clownservatives
wanted with their “business is too regulated by government” mantra.
then there’s our hapless/buffoon-like Congress.. don’t even want to go there this morning.
.
… it may sound “somewhat blasphemous” for economists who believe in a free-market system to advocate a bank takeover by Washington, but they saw no alternative after they estimated that looming losses by U.S. banks amounted to a staggering $1.8 trillion, which is more than their $1.4 trillion net worth.
“In Sweden they went in and fired all the senior management,” Allen notes. “The shareholders got nothing, but [the government] put the banks back in good shape — it was a better way to proceed.” Allen and other experts note that Sweden’s comprehensive approach was much more successful than Japan’s woeful performance during its so-called “Lost Decade” of the 1990s, when the government’s intervention to help out banks was seen as too piecemeal and not dramatic enough to end a prolonged slump.
Further analysis of bank natiolizations in India and China …
Gordon Brown and nationalization of Northern Rock in 2008
Revolution: “Nationalize the Banks!”
"But I will not let myself be reduced to silence."Unfortunately the way Obama and the rest are dragging their feet on nationalization, and their willingness to waste Trillions of dollars coddling and “incentivizing” the wealthy class to please buy the toxic paper is a rather large indicator that nothing has changed.
the wealthy class STILL gets preferential treatment from the federal gov’t.- at the expense of the poor and middle class who have little to no wealth.
The Emperor Has No Clothes.
http://www.kc.frb.org/speechbio/hoenigPDF/Omaha.03.06.09.pdf
Tom Hoenig is a midwestern economist, and Chair of the Federal Reserve Bank in Kansas City. Enclosed is a speech he gave yesterday.
I agree with his analysis.
Booman Tribune ~ Obama on Economic Bloggers
Maybe there are.
Unitization
is a substitute for secured debt, for instance….
An interesting point is also, look these are multinational corporations that own stuff world wide. If the American government took them over they would own that stuff, including banks of other nations. There are arguments that is illegal, and it might be in other countries. For instance there was one bank that owns the national Bank of Mexico but if the US took it over it would violate Mexican laws of having foreign government ownership of a bank at greater than 10%.
What would happen then?
What I’d like to see which won’t happen is to internationalize the banks. That is, let the UN (perhaps in the person of the WB/IMF) take them over. But then I’m a long time advocate of a world government.
Booman Tribune ~ Obama on Economic Bloggers
World governance, yes.
God preserve us from a World Government.
Here’s the issue. Until banks are put out of their misery, balance sheets actually audited, there will be no counterparty trust. Why? Those shareholders everyone is worried about never actually had assets to back up the wealth they thought they had. To make them whole is to try to make an illusion real.
If Eric Holder is worth his salt, there will likely be a number of fraud cases brought against executives of financial firms. The first out of the barrel is likely to be Merrill Lynch executives, who did not tell about the large bonuses until after Bank of America acquired them. And there is some shady dealings being investigated in Merrill’s London office that look for all the world a way to get around US law.
As for solutions, there is FDIC. That’s it. Make the depositors whole, liquidate the assets at market and tell the debtholders and shareholders “Tough luck”. You should have done more due diligence. Do it now. Do it quickly. And get beyond it.
Is that a tough statement. Not nearly so tough as what is being said about the people who are losing their houses as a result of foreclosure.
The folks that hold the CDOs hold worthless assets. Tough. You’re financial geniuses. Should have thought about the risks.
Could you be so kind as to let us know where you get your economic credentials from?
Besides Krugman, Yves Smith at Naked Capitalism and CR at Calculated Risk have been questioning bail outs from jump street. Volker sees the necessity for nationaliation as has Roubini. Lindsey Graham , t, Alan Greenspan,, and James Baker have supported nationalization. Martin Wolf of FT suggests that it needs be an alternative.
Are you happy that AIG has seconded US TARP to overseas banks?