Re: OY
Josh brings up a point that needs to be made and I think
the republicans totally miss. Quoting Shelby.
other financial institutions as entities unto themselves
with few or no financial ties and obligations to other large
institutions.
If that were the case, shutting them down would be a
piece of cake. Unfortunately they are not. Aye and there
be the rub. If you close down CITI or AIG or BoA you risk
the financial integrity of other large institutions and more
than a few smaller ones at the same time. Both here and
abroad. This is the problem. Until the financial obligations
of these Zombie Banks are cleared, we simply cannot just
close them down with out risking a global melt down. With
dozens, if not hundreds, of other institutions going into
default.
C
the republicans totally miss. Quoting Shelby.
Said Shelby: "I don't want toThe point being that they a looking at these banks and
nationalize them, I think we need
to close them. Close them down,
get them out of business. If
they're dead, they ought to be
buried. We bury the small banks;
we've got to bury some big ones
and send a strong message to the
market. And I believe that people
will start investing [again] in
banks."
other financial institutions as entities unto themselves
with few or no financial ties and obligations to other large
institutions.
If that were the case, shutting them down would be a
piece of cake. Unfortunately they are not. Aye and there
be the rub. If you close down CITI or AIG or BoA you risk
the financial integrity of other large institutions and more
than a few smaller ones at the same time. Both here and
abroad. This is the problem. Until the financial obligations
of these Zombie Banks are cleared, we simply cannot just
close them down with out risking a global melt down. With
dozens, if not hundreds, of other institutions going into
default.
C
Advertisement
Just pull everything down. So things will get worse. And the repubs can then blame it all on Obama. That's what seems to underlie their nonsensical suggestions. It would be as sensible as destroying all the roads because they have so many potholes it's hard to drive on them.
March 8, 2009 4:10 PM | Reply | Permalink
We're giving AIG about $200 billion and the whole company has a net worth of $1 billion. What foundational institutions (not wealthy stockholders) have been prevented from collapsing into a global meltdown? The global economy, just like ours, is in a meltdown.
I'm admittedly a dumb layman in these matters, like most, but I've been decrying the global American run) financial-based consumerist disposable economy for years. But besides being too late, isn’t it counter-productive in this great free-market system for the government to bail out big business (especially speculative markets)?
Haven't we always advocated a market where monopolies are anathema to the health of the economy? Isn't "too big to fail" just too damn big? And who, exactly, is being bailed out? The question is: do we keep throwing bundles of cash our grandchildren will have to pay for onto the fire that is burning down the house?
March 8, 2009 4:18 PM | Reply | Permalink
What you say is true, Don. The problem is the depositors in those institutions abroad. We have the FDIC and such to insure the deposits in our
C
March 8, 2009 4:35 PM | Reply | Permalink
What you say is true, Don. The problem is the depositors in those institutions abroad. We have the FDIC and such to insure the deposits in our. banks. However the banks in other countries do not. If they fail as a result of out banks defaulting and being close down, then they would loose everything. And some of these depositors are very large corporations and may even be other countries. I think the Iceland's total collapse spooked a whole lot of people.
C
March 8, 2009 4:36 PM | Reply | Permalink
True, but there must be a way to support economic systems from failing completely without “bailing out” the hucksters that brought on the collapse. When a bank fails, the FDIC pays off the individual accounts and takes over any assets remaining; they don’t give money to the bank or stockholders, rewarding failed business practices. Not only that, but during the S & L bailout, many of the “bankers” went to jail for fraud, and many of those we’re bailing out have been guilty of fraud, ethically if not legally, even if it was just “creative accounting”(i.e. CDS’s) to hide the risk they carried.
March 8, 2009 5:03 PM | Reply | Permalink
Oh absolutely the FDIC should. But first we need to find out precisely who they are. And don't forget that a number of the banks have subsidiaries in other countries.
One other thing a number of foreign corporations have a very large presence here. If Volkswagen AG goes under so does Volkswagen America. Thompson CSF, then Thomson here (RCA and others). Simons in Europe then Simons here (generators, tellcom, communications...).
See where I'm going.
What amazes me is the same clowns who pushed Globalization are the ones making the biggest stink about the banks getting money and it was Globalization that helped make this such a complicated mess.
C
March 8, 2009 6:07 PM | Reply | Permalink
Let's break them up into manageable bits.
March 8, 2009 6:25 PM | Reply | Permalink
I have been in favor of this for a very long time. One would think it would be obvious that putting all of ones eggs in ones basket is a very bad idea.
C
March 8, 2009 10:42 PM | Reply | Permalink
You're quite right about how they look at it. But please keep in mind that Shelby and his kind are the people who think of evolution and think that means that one day, out of the blue, a monkey gave birth to a human being and presto chango that's what evolution is! Their imbecilic level of thinking is about evolution is in tandem with their economic thinking.
They have what can only be charitably described as a very elementary and basic concept of what modern capitalism is. Their concepts are more on the level of Dickensian times where a bank could be shut down and the owner and major shareholders take a bath and that's pretty much that. They have no appreciation for the interlocking relationships and dependencies of the various wings of finance and commerce that are involved. This is another clear illustration of why anything people like Shelby or his fellow troglodyte Republicans have to say on the economy must be ignored or otherwise discredited for the foolishness it is.
March 9, 2009 12:25 AM | Reply | Permalink
I for once have just a minor point with which I have a disagreement with you here, oleeb.
As ignorant as Shelby is, he has been on the banking committee long enough to pick up some familiarity with how it all works - by osmosis if not otherwise.
I think his comments are more those of a demagogue who knows the falsehoods underlying his expressed "solutions" to this problem, but nevertheless continues ranting in this way because it serves his ultimate purpose, which is to scare the public and undermine Obama's attempts to salvage this mess.
Despicable? Indeed, but pretty much in character for Shelby, even when he was a Democrat. And methinks he's now found the right political association (GOP) in which to exercise his depth of character as well.
March 9, 2009 12:47 AM | Reply | Permalink
Re Shelby [Marshall] wondered: "Something like this is both heartening and insanely distressing at the same time because what exactly does he think people are talking about when people talk about nationalization?"
We know he's in the party of No. So he must deny the status quo at least to the degree of token lip service.
The better question is: Why are people talking "nationalization" if they don't mean it? The term is Reorganization or Intervention.
We should also keep clear in mind the difference between a bank and a bank holding company. Strip out the genuine bank (in sound shape), and let the wolves have at the rest.
March 9, 2009 2:20 AM | Reply | Permalink
No matter what, there exists a severe systemic problem that has to be resolved. We got here because of ill-advised systemic changes which were focused upon profits with little regard to risk. Now that the whole thing has come tunbling down and the scam revealed, those who caused it are seeking to obfuscate their involvement.
The core issue that has yet to be confronted is this has been a collaboration between our government regulators, congress and the financial community. The public clamor for this to be recognized is deafening. Unless or until that happens the possibility of an effective resolution remains remote. All of the major players in this are seriously conflicted. Seriously.
March 9, 2009 8:11 AM | Reply | Permalink
I would not say with little regard to risk. More an attempt to pass any risk off on to someone else or to sometime in the future. But the future has arrived now and the someone else is us.
C
March 9, 2009 9:46 AM | Reply | Permalink
Cmauk - it depends what "close them down" means. I'd be all for debt-for-equity swap. That involves none of the systemic knock-on effects you seem to be worried about. The bond markets won't be happy, but the Fed is keeping them afloat in any case.
March 9, 2009 9:59 AM | Reply | Permalink
I will have to agree as I'll admit I am not that savvy in high finance by a long shot. I thing it is the risk that nobody wish to take, whether it is real or not.
The one thing that strikes me with this whole debockle, is as was stated in a previous post, was that this country in particular has become very adverse to taking risks. Wanting to pass them off or avoiding them entirely. But life in general and business in particular is all about risks.
The whole CDS thing is about getting rich without any risk.
C
March 9, 2009 10:44 AM | Reply | Permalink
Well actually, now that you bring up CDSs - one of the things that really annoys me is the fact that the administration isn't pushing very hard to get them onto an exchange, and Fast! A lot of the contracts trigger pay-outs even if the debtor doesn't actually default. If it is nationalized even with a bond-holder bailout, a lot of insurance writers like AIG are facing huge new losses. It's a big mess; very little transparency on the derivative exposure of the big players on this. The fact Geithner and co haven't put the CDS issue front and center of the whole crisis is quite worrying. It needs doing before the stress-test results come out.
Anyway, I'll stop spouting. Great posts you've had up!!
March 9, 2009 11:08 AM | Reply | Permalink