« Massive new registration in Virginia | Main | Jingle Bells, Jingle Bells.... »

18 September 2008

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Cieran

It's bad, but it points the way to good.

I'm with Farmer Don completely on this, and if we'd all adhere to his wisdom, we could kiss CDO's and MBS's and SIV's and GSE's goodbye and get back to doing what we ought to, namely living as informed citizens of that great experiment called America.

As the saying goes, "if you can't be a good example, then you'll have to serve as a horrible warning". Americans used to enjoy behaving as the former -- it's high time we stopped serving as the latter instead.

lina

JoeC: I disagree that we don't have the talent. Currently we don't have "the will." If Obama wins the election, wait and see who comes out of the woodwork with new innovation. Algae-based fuel anyone? Go talk to Van Jones. We could probably retro-fit every home in America with solar energy for the cost of two months in Iraq.


taters

From Krugman
[..]

The real answer to the current problem would, of course, have been to take preventive action before we reached this point. Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock? When Bear went under, many people talked about the need for a mechanism for “orderly liquidation” of failing investment banks. Well, that was six months ago. Where’s the mechanism?

And so here we are, with Mr. Paulson apparently feeling that playing Russian roulette with the U.S. financial system was his best option. Yikes. [..]

http://www.nytimes.com/2008/09/15/opinion/15krugman.html?pagewanted=print

Well yes, it is always easier to keep the horse in the barn.
Despite his personal woes, I thought Eliot Spitzer was one helluva of an AG for the state of NY and he performed an incredibly valuable service for all of us during his tenure - keeping his eye on Wall Street.

In the past, I have been lukewarm to Sen. Obama - however I much prefer him over Sen. McCain.
And I've been warming up to the junior senator from IL. One reason? I like Sen. Obama'a plan for my state of Michigan.

http://my.barackobama.com/page/content/mieconevents

And Gene Sperling, whom Bill Clinton referred to as the "MVP" of his admin. has signed on as an advisor.
He and Wes Clark were two big reasons I was a Hillary supporter.

http://en.wikipedia.org/wiki/Gene_Sperling

Paul

Now we know what Bush was doing while hiding under the bed.

He trotted out his slave, Paulson, to ferret opinion with the congress about a new Resolution Trust. The details of the scheme have not yet been dislosed but it basically amounts to the government buying the "bad debt" of banks to restore "confidence" so they can resume business as usual.

The RTC involved something in the order of a $400 Billion problem. The present "crisis of confidence" (theft, in my view) liability is unknown but it is far greater than a half a trillion dollars.

This is no more than a "get out of jail free" card by Bush to his Republican friends.

Ordinary people who pay the bulk of taxes in this country would underwrite this scheme. These ordinary Americans cannot get the time of day from the government.

Socialism for the rich? You bet it is.

Bailing out AIG was bad enough; this new ploy is idiotic and should be dismissed out of hand.

Shame on us if Republicans regain any position of governance after November 4. A major league bloodletting is needed on Wall Street.

Kevin

Abolish the private central bank and their kabalistic paper money alchemy.

Ever read Faust?

alnval

Col. Lang:

This economic crisis although familiar in the context of 1929, is also strangely similar to the economic crisis faced by post WWII Great Britain.

Almost bankrupt by the war, faced with an untenable trade imbalance, the cost of continuing military committments, forced to negotiate a loan from a foreign government (the US) which would no longer put it on the tab, difficulty in stablizing its currency and unable to increase domestic production without reducing domestic consumption by continuing wartime rationing, Britain finally got real relief as a beneficiary of the Marshall Plan.

Granted they did a lot of nationalizing but the Attlee government presumably did it out of conviction and not necessity. One wonders, however, given their economic circumstances (and our own) whether conviction was really necessary.

Curious

They keep bailing out big banks and their buddies while consistently burning people via inflation. Thus persistent slowing economy. They think investment banking is the actual goose that created the golden eggs, instead of average folks.

The RTC is basically "bailing out the rich agency" (cheap money to help liquidate those funny papers)

I mean you dont see, mortgage resolution agency or small business task force do you?

So basically, it's more of the same.

They are trying to save the inverted pyramid by keep patching the top heavy scheme by using federal budget.

btw, Condi tries to pick a fight with the Russian again. Which is amazing. Still under the illusion she can save Shakaasvili. Russia in the meantime is working with Turkey. (no more free passage into the black sea. Shakaasvili will gasp for air in a few months)

Bobo

If history is any lesson this will take a long time to work out of the system. What happened over the past week happened in 1929 and it took 10+ years to work itself out.

Now that our Service Economy has been laid bare how many people will be walking the streets looking for work and stopping at Soup Kitchems for nourishment over the next year or so. If you listen to Roubini it will be worse.

My hats off to Henry Paulson for standing up and doing a few things versus Bernanke who has been at the printing press urging it to go faster.

Who knows whats going to happen but it does not look good.

Our politicians are doing their best to pass the buck and go home early so they can pass it again. That is not out of charecter.

Cash is King, stuff as much as you can under the mattress so you can sleep better.

Patrick Lang

All

It seems that the choices are:

- Let the whole credit bubble collapse as the markets resolve the matter through liquidations. This will create a massive deflationary situation with accompanying high unemployment. The pain will go on for years. Some of you think pain is good in and of itself or that the United States should be punished for its evident lack of virtue. I do not.

- An "RTC" kind of institution. This would be much bigger than the last one. Where would the money come from to capitalize this beast? The US Government directly? This would mean a massive creation of yet more fiat money, a great deal of inflation at least initially, probably followed by vast deflation when THAT bubble bursts. The old "RTC" had a lot of real assets that it took over and over a period of years converted them into cash with which it sorted out the problem. These banks and other financial whore houses possess some real assets out of which something could be made eventually, but a great of the rotten paper is just the effluvia of the nocternal emissions of 30 or 40 somethingish little pricks in expensive suits. You remember them. - the lords of the universe. This rotten paper has no value. The loss would simply have to be absorbed, ultimately by you and me (if you are American). We are talking trillions folks, trillions.

Make your choice folks. Make your choice. Am I angry? Yes. I am angry, but my wife says that I have been angry for a long time.

This comment does not give you an open season license for vulgarity of the kind that I just used. pl

R Whitman

While the US Government is busy nationalizing companies, I wish they would get some profitable ones for a change. How about nationalizing the US holdings of such foreign owned firms as Shell, BP and Citgo. For an encore we can then start on those formerly US companies that moved their headquarters to Bermuda to lower their US taxes. Tyco, Nabors and Haliburton come to mind. Profits from these operations should offset the losses at AIG, Fannie Mae, Freddy Mac and Bear Steans(GM and Ford to be added shortly).

Trever

Col. Lang,

What's your take if someone conducted a false flag/terrorist operation- it would seem the conditions would be ideal. The cynic in me initially considered domestic actors but came to realize foreign elements who have no stake in, or don't care about, our system more likely. Certainly domestic disorder or a natural disaster would most likely knock us to the floor but I can't help but wonder what would happen if...

Trever

Leila Abu-Saba

I don't think "America deserves to be punished..."

I do wonder however, if this crisis might not have the silver lining of forcing us to consume less and reorganize in ways that will improve energy efficiency and reduce energy consumption, which will help our environmental problems immensely. The economic system as set up is not sustainable in the long term. There's enough for all of us; we may have to reorder our priorities however.

Also: perhaps in crisis our society will reach into its reserves of self-reliance and service to community and become more cohesive.

I have weathered all kinds of personal hard times, and some hard times that were related to larger political storms. I believe we humans can work through these latest troubles and use them for our moral and spiritual development.

I'm just an old-fashioned American optimist.

rjj [(rees jones-jones) not the same poster as rj)]
This comment does not give you an open season license for vulgarity of the kind that I just used.

Perish the thought.

This is from a May broadcast of "This American Life." Can't link directly to the audio file.

The Giant Pool of Money

Most people have probably already heard it.

euclidcreek

Mr. Stress writes:

last night I dreamt I was standing in a line
a line like they had in 1929

John Brim
"Tough Times"
recorded early 1950's

Curious

If I were to fix the mess:

1. that AIG, and fannie mae?
well those are big enough to save housing for folks and insure the rest. Rudimentary insurance and investment companies. The rest are just computer system and transaction. Banking institutions, who cares. Unplug the computer and write new program.

2. pick one or two the healthiest bank and hold on to it.

3. then set the world on fire. Burn down every thing. And I mean every single investment banks there is.

no RTC, no bail out, no public money without transparency. Like any sensible capitalist, if I suppose to spend money on something, I want to know absolutely inside out what I am buying.

no funny paper, no backdoor dealing I don't know of, no secret dealing, no old boys network hanky panky.

4. naturally the calamity will slows down the world economy tremendously (nearly crashing) but I am confidence, if we gonna bail out something, then we should bail out something that we know perfectly well what it is that we are bailing out.

so only very healthy companies will survive this, one with very healthy balance book worthy of loan.

5. The rest will end up in yard sale. The healthy company will buy out the junks.


incidentally, this is the VERY advice IMF is giving to every other countries that ask bailing out.

IMF basically says: FU. let the market sort it out. Liquidate everything that can't function without making profit.

---

btw, if it is RTC.
I want everything touched by tax payer money be put online. The information should be public. This way shaddy accounting and bad investment would be exposed. I bet none of them dare asking for money this way.

Cieran

Graywolf:

The regulators didn't do their job.
Who are the regulators?
Government bureaucrats.
Lets put more (like health care) in the hands of these pencil neck drones?

You might want to check your watch, and see if it's set to the year "2008".

What we've learned since 2001 is that any and all federal government employees are expected to swear loyalty to the policies of the Bush administration, under penalty of losing their jobs (and pensions, etc.).

The list of agencies involved is long and distinguished (e.g., try googling "Lurita Doan") , and said list even includes the Department of Justice (ever hear of Monica Goodling or Alberto Gonzales?) DOJ is not supposed to be politicized, but since 2001, it has been.

Regardless of what you may think, it's not the federal employees who are asleep at the wheel here -- it's the top-level political appointees who decide the implementation of policy in this millenium. And you were referring to this millenium, weren't you?

The vast majority of federal employees are hard-working citizens who care about this country enough to roll up their sleeves and work directly on its behalf.

And you owe them an apology.

Andy

Perhaps there is another way. I am a layman at economics, but some smart people have pointed me to this.

Cieran

Colonel:

Am I angry? Yes. I am angry, but my wife says that I have been angry for a long time.

You should be angry, and you should be joined in that anger by any other citizens who live responsibly within their means and who actually work for a living (as opposed to making money via the rigging of speculative games).

The path forward is bleak, but the ruin that lies before us today is only part of the problem. The rest of the mess lies in the future, as we (and our children, and their children) pay back these awful debts due for the wild parties of speculative excess (that we weren't invited to), and with a currency debauched by inflation to add insult to the economic injury.

Those of us who chose to live within our means and to perform real work towards building a better world are once again being handed the handles of the mops that will be needed to clean up the messes of those who didn't play according to the rules.

Anger is an eminently reasonable response to such treatment.

Buzz Meeks

I am heartened to see the strongly progressive comments and suggestions posted here to cure the land of the toxic curse of rethuglism.

When I was a kid I read some of Ayn Rand's hokum after watching Gary Cooper and Patrica Neal in Fountainhead on the Late night movie show. I always thought her writings were similar to Gulliver's Travels; a satire on craven conservative scum with the inventors and heroes being progressives from a New Deal mold.

Unfortunately, but not surprisingly, the neo-cons took her seriously and their interpretation of her screeds has brought these results implemented by St.Ronnie the Drooler.

The GOP, the party that wrecked America; America's Fifth Column;Israel Firsters. Take your pick or invent new ones to inject into the campaign dialogue.It doesn't look Obama isn't going to do it.

Buzz Meeks

McGee

In 2007, after watching the Dow Jones Industrial Average rise from a post-9/11 low of around 7600 in March 2003 (the time of the Iraq invasion) to over 12000, I thought it might be interesting to take a look at which of the Dow Jones 30 were responsible for this to me inexplicable increase. Based on the economic indicators I saw in my everyday life the economy then and now was far from booming and at best flat. What I found was that ALL of the increases during this period were in the financial services and defence spending sectors of the DJ 30 - the consumer and general industrial sectors were all flat or significantly down. So for the past 5 years the Bush/Cheney economic boom has been precariously balanced on a two-legged stool, one leg of which just collapsed. Makes for a lovely conundrum for the Dems if they do get into office and choose to end the folly in Iraq, no?

Dana Jones

Am I angry? Yes. I am angry, but my wife says that I have been angry for a long time.

Yes, but are you angry enough to fight for holding those responsible to account? We not only need to fix this, we need to punish those that got us into this mess in the first place. We need to hold the Bush administration ACCOUNTABLE. They need to be tried and if found guilty of high crimes, punished just like any other criminal in this country. If not, well, we might as well just BURN the Declaration of Independence, and the Constitution on National TeeVee.
We CAN NOT let this gang of thieves and crooks just walk away from the mess they have created. Will someone, somewhere, somehow call out for justice? Oh God, we cannot let them get away with wreaking this (sadly, formerly) Great Country. We just cannot. Will the People ever wake up from the dream that they have been in for the past 8 years? Hello, its turned into a nightmare and you are awake! WAKE UP!
Sadly, I feel pretty hopeless. I feel that McCain will be selected, and things will just keep getting worse, and worse, and worse...

Patrick Lang

Buzz

Progressive? Hey!! I consider the neocons to be leftists. pl

zanzibar

Pat

I understand your anger. Many of us feel it. Especially since this was all predicted and many, many people who kept warning about it were just laughed off the stage. Entire blogs were spawned chronicling the approaching tsunami. Anyone that wanted to know had the information. Yet it was not prevented.

This too shall pass! But...will we learn anything or just repeat it as we have been doing for the past few decades.

Whether we use asset liquidation or currency debasement our standard of living will decline. All we are doing is addressing the symptom not the cause.

We know that none of our politicians will choose the direct pain of liquidation, so we can be certain that they'll use currency debasement. Printing is a lot easier and the helicopters have already started taking off. Paulson is not going to bankrupt his retirement plan. And Barney Frank and Chuck Schumer who have never met a taxpayer bailout of Wall Street they didn't like are all for RTC2. Note that both played a significant role in the GSE debacle. Harry Reid at least admits he has no clue and says he will look to the guys who have played defense with the same playbook that got us into the mess for the right answers! I am surprised no one's asking GreenScam - probably the single most culpable person in all of this. They'll treat the symptoms in the short term. We know what it will look like - those who took outsized risks and bet the farm will still get to run the farm and keep the loot. They'll throw a sop to those among us citizens who got into the greed is good theme and speculated on homes we could never afford by reducing our mortgage balances without any penalties. As usual those that were prudent will pay the most - ensuring that in the next go around there will be even more of us who will join the party. And believe me that next go around will be just round the corner.

What I am pessimistic about however is if we as a nation will ever address the causes. Or by the time we get down to it some generations hence if it will even matter as the rest of the world would have passed us by.

I think what we have seen in the financial realm over the past few decades is mirrored in other areas. Our lack of interest in history and first principles. Common sense to temper the shining "new" theories with "scientific" labels. To recap for some with short memories, in 1980 financials represented only 6% of the capitalization weight of the S&P 500. Last year they were nearly a quarter and represented a third of the earnings. So an old staid business that intermediated capital became the large core of the US economy in over 2 decades. IMO, the 80s marked a sea change in attitudes that provided the underpinnings for what we have seen since. Prior to the 80s our capital markets were known for integrity (although Nixon sealed the deal on a fiat currency). Financial statements of publicly traded companies were trusted. Balance sheets were deemed important and built to be like Ft. Knox and the notion of meeting Wall Street quarterly estimates was not the gospel. Business performance was known to follow a rhythm of going up and down. Only a small fraction of corporate debt was rated "junk" and there many US corporations with AAA rated debt. Then came the 80s with the Reagan Revolution and supply side economics that took debt into the stratosphere and glorified greed and spending. With Gordon Gecko as the icon the swashbuckling pirates - Mike Milken, Ivan Boesky, Carl Icahn, et al, in the name of increasing shareholder value came upon a formula of asset stripping and substitution with debt. Milken was the first guy to receive an annual wage package of a billion dollars. Then came the 87 crash and Greenspan's first of many bailouts. Of course Boesky and Milken did do time. We then moved to the next boom time and the S&L shenanigans. Once again regulatory forbearance and leverage created a real estate and credit boom that ended in disaster. There was a good amount of corruption in this scandal with some notables being Neil Bush and Silverado and John McCain and the Keating 5. Some 700 thrifts were closed and the taxpayer wound up paying something like $200 billion. Every time Wall Street coughed Greenspan coughed up. By the time we hit 2000 Glass-Steagall was repealed thanks to Phil Gramm, Bob Rubin and Bill Clinton. We were off to the races. We had the epic "new paradigm" dotcom stock market bubble followed by the "Housing ATM" and "securitization" bubble. In each case standards became more lax. Monetary policy was relaxed and prudence rules were removed. Financial institutions essentially became gigantic leveraged hedge funds. Wall Street paid out hundreds of billions in bonuses based on sham "accounting profits". Lehman paid its managers $5.7 billion in bonus in 2007. The whole edifice has now toppled from its own weight and all the accounting gimmicks. And here we are using the same playbook and the same plays. Nothing learned. No accountability. Socializing all the losses with more and more debt.

We are now moving dodgy assets and losses on to the taxpayer balance sheet. The Fed is monetizing funds for these large bailouts. Real incomes for Americans have remained stagnant for years. Our savings rate is now negative. We are dependent on our competitors to finance our day to day operations. Both political parties have failed. After all this chicanery by our elected and business elites our citizenry have yet to demand our Congress do our business - restoring rules of prudence and transparency in our financial affairs. Investing our taxes on infrastructure here at home. Why?

taters

It will take the same kind of thinking and action that FDR and his team took. Not necessarily the same ideas although I do see a need for an aggressive public works admin. We are seeing the results of the unfettered machinations of the right and it ain't pretty.
I really like Sperling's idea of creating a new investor class - consisting of middle income and the working poor. And it would be good for the market.
I can hear the cries of SOCIALISM! already by the naysayers. I guess it's OK to bail out corporations but screw the people.

This Sperling piece is from 2003 - however it is every bit as relevant now.
I agree with those upstream that sacrifices need to be made - with a profound change in thinking.

Gene Sperling, regarding a universal 401k via the 'evil' DLC..

[..] To that end, here's an idea that is bold and simple: a program of universal 401(k) accounts that would help all Americans build a better future for themselves and their children.

Here's how it would work: Middle-income and working poor families, who often fall through the cracks in our wealth creation and retirement savings systems, would be given the opportunity to open new tax-deferred retirement savings accounts. They would be eligible for up to $1,000 in matching funds for savings they contributed, provided through refundable tax credits. For low-income families, the government could provide a 2-1 match; for more moderate-income families, it could be a 1-1 match. Under this plan, a family eligible for a 2-1 match could accumulate a nest egg of $190,000 simply by contributing $500 a year for 40 years, assuming a 5 percent rate of return. [..]

[..] One of the main reasons that so many Americans lack significant investments, beyond the fact that it takes nearly all of what many families earn to live, is that our system for encouraging savings and wealth creation is completely upside-down. Because the only tool our nation employs to encourage savings is tax deductibility, the more you earn, the easier we make it to save; the more you struggle to make ends meet, the more we tell you, you're on your own.

For instance, if you and your spouse make $500,000 a year and are in the 35 percent tax bracket, you get an initial 35-cent tax break for every dollar you save, which expands as the dollar accumulates interest without being taxed. If you make $50,000 and are in the 15 percent bracket, you start with 15 cents in tax breaks on every dollar saved; but if you are a hard-working family of four making $25,000, and one of the 33 million tax filers who do not make enough to owe income taxes, you get nothing -- not a penny's inducement to save.

As a result, of the $125 billion in revenue the government forgoes each year to subsidize tax-deferred savings vehicles, only 2.1 percent goes to the bottom 40 percent of workers. [..]

Sperling also states:

Democrats should support this progressive universal pension as an addition to Social Security's guaranteed benefit structure. Republicans should accept it as a chance to promote individual savings.

And he closes with:

Finally, implementing a universal 401(k) should not require increasing taxes or driving up the deficit. Democrats could simply argue for funding this effort by transferring to it a portion of the recent tax cuts for dividends, capital gains, and complete estate tax repeal. This would force the right question for America's investor class into the policy debate: Do we want to direct $100 billion a year to reward a handful of already wealthy investors, or do we want to promote an agenda to help 100 million more Americans become new or stronger members of the investor and wealth-creation class?

http://www.dlc.org/ndol_ci.cfm?kaid=125&subid=164&contentid=251789

I won't be surprised if we hear of something similar being touted by someone like Sen. Jim Webb or Sen. Obama soon. It would have been a hallmark of Hillary Clinton's admin.
Moderate Republicans and conservatives should not fear this. Nor should anyone for that matter. (A universal 401k) It really isn't - by any stretch - something from the realm of the far left.

Cold War Zoomie

Some of you think pain is good in and of itself...

There needs to be enough pain to force us to change our ways. That's perfectly natural. Soup kitchens and massive unemployment is way too much - that's killing the patient.

We need just enough pain to turn us back into a saving nation. But here's the rub - if we save too much we then turn into 1990s Japan where there was not enough *spending!*

This new and improved RTC plan makes me sick. Intellectually, I accept that it is probably the right thing to do - spread the "punishment" out as much as possible so we don't need soup kitchens. Emotionally, it makes me sick because I just know all these Wall Street types and their enablers are going to walk away from this mess when they should be drawn and quartered in the streets.

I get less angry and less passionate as the years pass. No more screaming and throwing things at the TV. I'm just a leaf floating down the river that eventually opens into the sea, where I'll finally disintegrate.

Now that's a happy thought for starting one's day!

The comments to this entry are closed.

My Photo

August 2020

Sun Mon Tue Wed Thu Fri Sat
            1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 31          
Blog powered by Typepad