Do You Want to Pay Higher Taxes to Keep the Wall Street Bankers Rich?
Of course you do, because apparently none of your elected officials are arguing against current plans to this effect, or least if they were, the WSJ couldn't find them.
The basic story is very simple. A bunch of greedy and not very bright bankers made hundreds of billions of dollars of predatory loans to low and moderate income people, enabling them to buy homes in bubble inflated markets. Now these people cannot afford to pay their mortgages and the house prices have fallen far below the value of the mortgages. This means that the bankers are looking at huge losses.
But these are not poor people trying to provide child care or health care for their kids, these are rich bankers. So, naturally Congress will cough up the dough.
Some people may think it's unfair to raise taxes for nurses and firefighters to bail out rich incompetent (is that redundant?) bankers, but those people don't understand the complexity of modern finance.
Do they realize how much it costs to buy and maintain a luxury condo in Manhattan or a vacation home in the Hamptons? Do they know all the expenses associated with keeping a yacht or private jet in proper operating condition? Do they realize what it costs to get your kid into an elite nursery school that puts him on the path to Harvard? The people who understand these things know how important it is to bail out the bankers in this time of crisis.
Dean, you have me convinced. Tomorrow I will begin a clothing drive for those poor bankers. I think we can find several tons of discarded blue jeans, faded tee shirts and worn out shoes to send them. I really feel their pain.
February 14, 2008 12:01 AM | Reply | Permalink
Of course, Dean's more than happy to recommend transferring retirees' interest income to the bankers by lowering the Fed discount rate. Got to save those big Wall Street banks.
February 14, 2008 1:29 AM | Reply | Permalink
With the exception of Goldman Sachs and a very few others, major players the world over took big hits. If these guys are dumb where are the smarties?
No, I don't buy it.
Possibly they are criminals who counted on bail-outs but I'd have to see more evidence to believe that such attitudes were so universal...and if they were then what do we do?
February 14, 2008 1:42 AM | Reply | Permalink
"What do we do?"
Why, we save the banks -- at any and all costs. Dean can gloat all he wants; he can act the outraged seer. But in the end he'll get in line with the other "serious" economists. In Dean's home town "stuff happens" all the time, and very few ever pay any price.
February 14, 2008 3:26 AM | Reply | Permalink
Baloney. They didn't "take big hits" at all. Net over the entire period of the housing and internet bubbles, they made profits far beyond the overall economic growth, by farming bubbles. If you actually believe they're hurting, you're a real sucker. In fact, they made a killing on both bubbles.
Key players like Merrill Lynch made enormous profits since the 90's. They made huge profits by inflating the internet bubble, colluding in scams like ENRON, and jacking up their own stocks to astronomical levels. They then sell bogus financial packages to municipalities, pension funds, day traders, and so on, who are left holding the majority of the losses at the end of the bubble having gained very little of the take during the peak of the bubble.
The same routine was done with the housing bubble.
It's a high finance version of the common con artist offering TV seminars on flipping properties. They initially make a killing by flipping properties and helping to inflate the market; and then hype the business like a pyramid scheme while unloading their stock before the crash. It's well documented for example that many "business pundits" collude to help fellow pundits unload stocks. Merrill Lynch, Arthur Anderson, KPMG, and so on have all been busted colluding to manipulate the market on a vast scale.
That's what financial predators and pyramid scams do. They farm victims.
February 14, 2008 5:50 AM | Reply | Permalink
At Goldman Sachs and a very few others you think?
Warren Buffett seems to have been warning about the coming storm for a very long time. Some people do not regard pissing into the wind productive.
Best, Terry
February 14, 2008 9:27 AM | Reply | Permalink
Almost all wrong.
1) Yes the loans were predatory through the entire lending industry, including credit cards, refinancing, and so on, which should be called the usury industry. Even Greenspan was urging people to get into ARMs, and urging consumers to get out and spend on credit cards after the collapse of the first bubble.
2) The bankers are a lot of things, but not exactly stupid. Do you really think they haven't noticed supply side isn't working? They're rather smart, if not wise, con artists. Just like the guys at ENRON, Merrill Lynch, TYCO, Arthur Anderson, and so on, they're all very good at turning a short term profit by manipulating markets and then cashing out and leaving somebody else with the bag. In the social Darwinian laissez faire world view, it's even fair play, no matter how much damage is done. Market manipulation and white collar crime seem to be one of the few profitable growth industries left in the US.
3) They made enormous profits which they avoided paying taxes on due to loop holes, off shoring, and of course the Bush tax cuts.
4) The losses of the internet and housing bubbles have been disproportionately passed on to the taxpayer, municipalities, pensions, and so on, while the profits of two decades of looting have been disproportionately held by Wall Street insiders. Don't forget these companies are publicly traded sticks, and the same people don't hold them going up as those holding them going down.
February 14, 2008 5:28 AM | Reply | Permalink
The applicable phrase: "Too big to fail."
If an individual (other than a multi-billionaire)makes bad financial choices - bankruptcy.
If a small business does the same - bankruptcy.
If Citigroup, Merrill Lynch, etc. do the same - bailout. "We can't allow them to take down the entire system." So, if you are big enough you can play the game - if investments work out, I keep everything; if they don't, the taxpayers make me whole.
February 14, 2008 7:47 AM | Reply | Permalink
Actually we can easily protect the financial system without saving the banks' shareholders and top execs. All we have to do is force the banks into receivership. The shareholders' equity is then wiped out and we can replace the current crew of overpaid bank executives with people who know what they are doing. It is simple, fun, and easy. The only problem is the politics.
February 14, 2008 8:59 AM | Reply | Permalink
"The shareholders' equity is then wiped out and WE can replace the current crew of overpaid bank executives with people who know what they are doing."
The WE being the suckers who've been conned by all those "dummies"? Come on, man, who can believe the suckers are suddenly smart enough to find and recognize smart guys...and, you still haven't said where those smart guys have been all this time.
No. I have a very different view than you do of all this. Assessing risk, which is at the heart of business acumen, is a very hard thing to do (almost impossible, in fact, if you believe the stock market is truly best modeled by a random walk). That's why there's a business cycle; people are very cautious at first but - as they begin to see their friends making money by taking risks - they jump in too until caution is thrown to the winds and the whole thing becomes manic, followed by the inevitable crash.
I don't believe in vast conspiracies in economics anymore than I do in politics. Naturally - as in all things - some are smarter than others and luckier - and manage to ride the beast well.
As for the assertion that the rich are always protected from failure by unfair application of the laws - COMPLETE NONSENSE. I've known many who've lost their shirts several times and recovered - or not.
February 14, 2008 10:51 AM | Reply | Permalink
We have a couple of sub-themes to the mortgage mess that haven't been fully explored.
1. The "victims" were willing participants in this bubble. True, the lending practices were predatory, but we still need to ask the question of borrower self-responsibility. You don't borrow what you can't afford to pay back. I don't think we should give the borrowers a "free-pass".
2. This morning on CNBC "Squawk Box", the usual statement was made that "market forces" will correct the bubble. While, true - what I find surprising with this near-sighted statement is the implication that "market forces" didn't create the problem. Market forces, allowed the problem to occur.
3. The pro-business crowd loves to say "Don't regulate us", let the market work. The mortgage crises of today is simply further proof that those who whine about regulation are not willing to act in an ethical manner. My position, if you can't do business honestly and end up with a mess like today, then the government should regulate!!!!
4. Along the regulation line. Part of the problem was the creation of "black box" financial instruments that no one really understood. Innovation, is sometimes good, but sometimes the innovation is all simply "smoke and mirrors". Again, if banks, savings and loans, and brokerage firms fail in their fiduciary duty to protect the assets of their customers, then they should be regulated to prevent being involved in this type of activity.
In conclusion if businesses don't want to be regulated then act ethically. The "free market" should not be viewed as a license to "steal".
February 14, 2008 11:03 AM | Reply | Permalink
Finally! Dean offers a policy recommendation. And I'm all for it, but ---
In the time it would take to "force" the too-big-to-fail banks into receivership, the "financial system as we know it" would grind to a halt (collapse?). And letting that happen isn't exactly what the Federal Reserve Board thinks it's in business to do.
With the Fed in the hold bailing like crazy there's no way -- politics or no politics -- that this financial ship will ever be permitted to sink.
February 14, 2008 11:53 AM | Reply | Permalink
Why don't we do what every other country in the world has done through all time when large corporations fail and must be salvaged by the state: nationalize the bastards. This happens all of the time. We don't do it because the right-wing religion that only private enterprise knows how to do things well must be protected at all costs under any and all perils. The time has come to drive a spike through the heart of that meme and public drawing and quartering of the careers of major financial institutions' executives and directors is the best place to start. Of course, it just may mean the Paulson might actually have to go back to work rather than a cushy sinecure when his time in Washington is up. Maybe he can find a job in China or India.
February 14, 2008 2:04 PM | Reply | Permalink
The fact that we repeatedly bail out "too big to fail" industries only increases the likelihood that hucksters will repeat the cycle. I think there should not only be some system where they are taken over, cleaned out and wrung dry before being sold to a new group of investors to recoup some of the losses the government may cover.
Even more critical, white color criminals need to get some serious jail time. If a man can get life for shoplifting 3 videotapes, why can the people whose gave us the S&L crisis, Enron and this crisis all likely to get less than 10 years? And why should they have more comfortable prisons?
Their crimes damage society much more than the theft of videotapes. They hurt more people, they steal more money, people even kill themselves as a result of their crimes and yet....because they don't put their hands on the triggers, they get 6 months and a tan.
Seriously, I would like them to get sentenced once for each single person they harm. So if their false filings result in 5000 people being harmed, then 5000 times 3 years.
Maybe if they got some real jail time, they might think about it more. Or...if jail time is no deterrent for them, then maybe excessive punishment of the blue collar criminal might also be mitigated.
February 14, 2008 5:20 PM | Reply | Permalink
Yeah, I caught this right away, weeks and weeks ago.
It is the Conservative mantra: Welfare for poor people = communism = evil; welfare for rich people = free market capitalism = good
They cry year after year about welfare cheats (all 20 of them) who get, what? $12,000 bucks extra over 3 years? saying, "Transfer payments to those who don't earn that money is stealing it out of the mouths of those who do." All the while, they are sitting back and pushing a few pieces of paper, while the grunts are slaving, assembling gizmos for Joe CEO and Bob stock owners to rake in the profits while sitting on their duffs. But don't give the grunts anything!
Hypocrites. Hypocrites. Hypocrites.
Let's face it. The conservative mantra is little people don't count. They don't really mean free markets. They mean people with excess cash (capital) get to reap the rewards of others' labor, and that the large corporations can devour the small. Another equation coming up. . . .
Large = GOOD, but small = BAD.
And everyone kows the govt should give to the good and take from the bad...
Well, I differ with them. I don't mind government bailing out rich people once in a while - if they will also bail out the little people affected by the same events. I am an equal opportunity bailer-outer...
February 18, 2008 1:06 AM | Reply | Permalink