The battle lines over how to deal with the banking crisis have been drawn. On the one side are those who know what needs to be done. On the other are those who know what needs to be done -- but won't admit it. Because it is against their self-interest.
Unlike the conflict over the stimulus package, this is not an ideological fight. This is a battle between the status quo and the future, between the interests of the financial/lobbying establishment and the public interest.
What needs to be done is hard but straightforward. As Martin Wolf of the Financial Times sums it up: "Admit reality, restructure banks and, above all, slay zombie institutions at once."
This tough love for bankers is being promoted by everyone from Nouriel Roubini, Paul Krugman, and Ann Pettifor to Niall Ferguson, the Wall Street Journal, and Milton Friedman's old partner, Anna Schwartz, the co-author of his seminal work, A Monetary History of the United States, 1867-1960. "They should not be recapitalizing firms that should be shut down," says Schwartz. "Firms that made wrong decisions should fail."
The plan laid out -- or, more accurately, sketched out -- this week by Tim Geithner makes it very clear that he is on the wrong side of the issue, more worried about the banking industry than the American people. Like Hank Paulson before him, Geithner appears more concerned about saving particular banks than saving the banking system. No real shocker there. As Henry Blodget points out on HuffPost, it's hard to be surprised that Geithner is sticking with the Paulson plan "inasmuch as he was likely the one who created it."
The big problem is Geithner is acting as if the crisis we are facing is a crisis of liquidity when, in fact, it's a crisis of insolvency. As Ann Pettifor puts it on HuffPost: "Much of Wall Street is effectively insolvent. It's not that these banks lack cash or capital -- it's just that they're never going to meet all their financial liabilities -- i.e. repay their debts. Ever."
Trying to prop these zombies up, as Geithner seems intent on doing, will lead to what Roubini calls "a royal rip-off of the taxpayer" and the risk of "turning a U-shaped recession into an L-shaped near-depression."
President Obama has made it unambiguous that he understands what is at stake -- both for the country, and for himself politically. On Tuesday, he said that if his economic plan doesn't work, "a few years from now, you'll have a new president."
And we know that many within his administration -- including senior advisor David Axelrod - favor a strategy that may be harder on Wall Street but will more quickly revive the U.S. economy.
So it's time to take off the kid gloves Geithner and Larry Summers are using to handle Wall Street and pull the plug on Geithner's deeply flawed plan.
And let's not be distracted by the shiny objects of the financial crisis -- corporate jets, redecorated offices, CEO bonuses, etc. -- as happened to the members of the House Financial Services at yesterday's hearing.
These are important issues, to be sure -- worthy of public outrage, Congressional grilling, and presidential action. But the central task at hand is cleaning up the toxic assets -- and the toxic thinking -- that have contaminated America's banking system.
Being diverted from that is like obsessing over the cut on your finger while the Great White shark that has already bitten off your leg is about to finish you off.
Again, does Geithner maybe know who made them fail (through laxism towards Ginnie and Fannie Mae, Freddie Mac, the WS banks – dropping Bear Stearns and Lehman Brothers to cover up US government/banks complicity -- AIG, Moody's and Standard and Poor's), i.e. the government alias himself? In other words: did he bribe the US and some of the big foreign banks' bosses (like UBS's Ospel who "yielded" 50 billion…) for a worldwide hold-up on foreign banks and investors to help pay back US debt?
How many billions returned to the US from foreign banks and investors versus how many "lost" by US banks and investors? Could Geithner afford to dedicate a smaller part of the multi-billion bargain from abroad to bail out US "victims" he'd bribed to fail on purpose?
It seems the European Union will have to spend twice the amount of bailout money the US do… and how much the rest of the world?
Did Madoff serve to make you believe only a crook could set up a ponzi scheme? And if so, was he awarded for all the dollars he made flow back from his foreign victims into the US economy -- and thus hard to get jailed?
Accordingly after watching these two egos at work it would appear that those of us that have been harmed by the system will never see justice or an equitable Banking system in Obama’s' term as president.
Conversely the wealthy and powerful self interests of the Congress who are really bank buddies
picking up all the financial benefits from the aberrant behavior of these banks will unsure that there is no meaningful legislation passed to protect the consumer. It is business as usual.Obamas' slogan of change is an old tired worn out phrase.
I assume that even CMOs and CDOs generate cash flow -- then why value them at zero if there is no market for them today. Over time they have value. To value them at zero today and take them away from the bank.s shareholders and liquidate them to the hedge funds who are shorting the bank stocks today would be worse than the Madoff scheme. The hedge fund buyers will make a fortune over time, while the bank shareholders and preferred shareholders are robbed today.
BAC was a great bank before the govt forced BAC to close the Merrill deal -- as evidenced by the gov't's giving BAC a lot of inducements to close the deal. So why punish the preferred stockholders who had nothing to say in the approval of the acquisition.
A strict application of the mark to market rule means every bank and insurance company is bankrupt. If not for the FDIC guarantee, there would be a run on every bank and insurance company. Forbearance in the application of this rule would save the system.
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Of course the zombie banks should be allowed to go bankrupt. Their investors need to be liquidated to zero. Their buildings should be sold, along with the furniture and electronics.
Congress should use its constitutional powers to create a national bank. The national bank should be monetized directly by Congress, in its constitutional role of minting currency. What that would mean is that instead of going to the US Treasury to borrow the money, on which "we" pay interest, it could simply print whatever it needs and add it to the monetary base, say an additional 30% or so which would be around $300 billion.
This will never happen because the Fed, a consortium of private banks, would cry bloody murder on the lost transaction fees the primary dealers like JP Morgan and Goldman Sachs get for selling the Treasury paper, the lost interest to Fed, and the effective dollar devaluation that would follow. And it would also cause inquiring minds to ask "Why do we pay interest to the Federal Reserve for the privilege of creating our currency?"
Total cost of answers 35 billion + 12 billion - 300billion (not spent on tarp) or a net savings to the country of 255 billion dollars and you could still spend the stimulus package just for the heck of it so the pork could be spent.
The TARP is a lie.
The foreclosure crisis, causing the banks to lose money and the economic recession is a LIE!
It is all math and simple math.
The Tarp of 750 billion dollars was supposed to stop the banking system from going under due to a subprime mortgage meltdown. All foreclosures last year totaled less than 1 million of which only a percentage was subprime. The average foreclosed home was less than 200k. The average payment was less than 1.5k. So just using simple math 1million * 1.5 thousand *12= $18,000,000,000. So the max lost was 18 bilion.
So the TARP is a lie!
When you get a loan for 200k you pay 4k up front in points minimum, taxes current year up front and next year up front. You also pay PMI insurance up front. Based on average taxes and pmi for a 200k loan you would pay 4k+2k+4k+.5k or $10,500.00 up front to get a loan. If the bank never gets paid one payment the pmi insurance pays the bank 200k you paid them 10.k so the foreclosure nets the bank $10,500 and the bank never gets one single payment!!!!!!
So the banks losing money on foreclosures is ONE BIG f......g lie!
We have lost over 3.5 million jobs. We have lost more jobs than were orginally in the housing sector.
So the foreclosure crisis is causing the economic recession is a lie!
http://www.pbs.org/moyers/journal/02132009/watch.html
Listen to these interviews and you will understand why I say this:
One by by Bill Moyers with Simon Johnson, ex chief IMF economist author of "High Noon: Geithner v. The American Oligarchs". http://www.pbs.org/moyers/journal/02132009/watch.html
Another interview by Amy Goodman with Robert Kuttner and Michael Hudson on the Obama Administration"s $789 Billion Economic Stimulus Package and $2.5 Trillion Bank Recovery Plans.
http://www.democracynow.org/2009/2/13/robert_kuttner_and_michael_hudson_on
These are interviews with learned people from different backgrounds who are VERY concerned about Obama/Geithner's Bank Recovery Plan, specifically that it is WAY too easy on the banksters, handing over our money to incompetents who created these problems.
MY CREATIVE SOLUTIONS:
1. Forgive all debt worldwide, and let everybody keep what they now have--free. Everybody starts over unencumbered, and people owed money won't lose, because they won't have to pay the people that they owe--all the way up the debt chain. Wealthy creditors at the top of the debt chain could write off the losses, and get a refund from a special "Top of the Debt Chain Fund" which every country except Haiti would contribute to.
2. Relax counterfeiting laws, so that everybody can print their own money. Institute quality control standards, so people can't make money in any color they want, or width they want, or on any paper they want. In addition, allow merchants discretion to reject currency that looks too absurd, and cancel the transaction. This will force people to make higher quality money if they want to buy something, or make poor quality money, and starve. Self-made money would allow businesses to pay lower wages since workers could print the money they need, if their salary is too low. Worker's living standards, would be their sole responsibility, depending on their money printing industriousness, and payroll savings would go directly to the owners bottom line. "Self-made money" will wean consumers off their addiction to credit cards, and banks would be flush with deposits of their customer's newly made money, and able to lend again.
As Calvin Coolidge said, "Self-government, means self-support".