The Banks Have Stolen Enough; It's Time to Take Them Over

Hold onto your wallets. The bankers are coming bank for more money. They burned through the $350 billion that we gave them in the first round of the Troubled Asset Relief Program (TARP) and they are worried that even the second $350 billion will not be enough money to keep them solvent. The selective leaks from Treasury tell us that the banks will need far more money to cover their bad debts.

The latest story is that the banks want to sell us their bad assets at above market prices, which was the original plan that Treasury Secretary Paulson proposed, except the banks want to push off their junk on an even bigger scale. In one version, the government would set up a Resolution Trust-type corporation (RTC), like we did with the bankrupt Savings and Loans in the 80s, which would hold all the garbage and then gradually resell it to the private sector to recover a portion of what the government paid.

This is a reasonable course, except there is one big difference between what we did with the S&Ls in the 80s and the leaked plan being floated. The S&Ls were taken over by the government and then resold to the private sector. These were bankrupt institutions that were put out of business. The stockholders were wiped out, which is what is supposed to happen to stock holders when their company goes bankrupt.

But this is not what happens in the plan being discusses. In this plan, the taxpayers just do the banks the great favor of paying above market prices for their junk so that we can relieve them of the burden of their past mistakes. The taxpayers get to eat the losses and the bank executives and their shareholders go on their merry way.

These folks are not market fundamentalist types. The Wall Street view of the world, and apparently the view of at least some people in the Obama administration, is that the government always is there to help a bank or banker in need.

The idea that we would give one more penny to this crew that has wrecked the economy should make taxpayers furious. There is a legitimate public interest in keeping the banks operating; a modern economy needs a well-operating financial system. But, there is zero public interest in rewarding shareholders and overpaid banks executives.

These executives bankrupted their banks and brought the economy down with them. They belong in an unemployment line not collecting multi-million dollar paychecks in their designer office suites.

The obvious answer is to take over the insolvent banks, just as we did with the insolvent S&Ls. The government should form an RTC as we did in the 80s, which would dispose of the assets over time, collecting as much money as possible for the government. The bankrupt banks would be restructured and sold back to the private sector as soon as their books were straightened out. The point of the exercise is not have the government run the banks, the point is to keep the financial system running without giving even more money to the richest people in the country.

This is the only reasonable solution to the mess that the bankers have created. The other solutions are simply efforts to transfer dollars from hardworking taxpayers to overpaid and incompetent bank executives. It is hard to believe that anyone would take it seriously, if not for the enormous political power of the Wall Street gang.

It's too bad that the Republicans' anger over giving tax breaks to workers who did not pay income taxes does not extend to giving tax dollars to Wall Street banks who have wrecked our economy. Where are the anti-government conservatives when we need them?

Comments

[derWahrheit]

It won't do any good to nationalize the banks (which I favor) unless we first re-nationalize the currency (which I advocate!)

[ThomH]

"There is a legitimate public interest in keeping the banks operating; a modern economy needs a well-operating financial system."

Indeed it does. And one that is sustainable in the long term, which ours is not. Any high school student can show that compound interest is not sustainable indefinitely. Similarly, fractional reserve banking is unsustainable in the long run.

Both suffer from the fatal flaw that debt must increase exponentially forever, with money flowing inexorably from the many to the few.

As Kenneth Boulding said, anyone who thinks that exponential growth can continue forever in a finite world is either a fool or an economist.

Can debt grow exponentially forever, Dean?

If not, and the current meltdown marks debt hitting the wall, we must reduce total debt. There are four ways to do so: inflation, very progressive taxation, debt foregiveness (see Leviticus or look up Jubilee), or revolution.

Which do you prefer?

[joebhed]

You raise the correct limitation on the past trends in debt levels.
Yes, they can and have reached the point of saturation and no return, in that it is impossible to generate enough new debts to make the debt service payments on the debt money that already exists.

In reality, this crisis is a crisis of debt service costs.
In terms of substance, it is a lot of worthless paper.

It is important to understand that this situation is not one of necessity, nor of public purpose.
The debt-money system of the private federal reserve bankers harbors all of the faults you describe.

The solution then, that you did not postulate, except rhetorically, is the elimination of the debt-money system, and a resort to its opposite, a new money system, debt-free at issue which takes place through the Treasury system of payments to Americans.

Greenbacks.

The debt-money system is broke and cannot be fixed.
See here :
http://www.financialsense.com/fsu/editorials/2005/1212b.html

And the debt-free money system is close to being ready to be introduced to solve all of those problems.
See here:
http://www.monetary.org/amacolorpamphlet.pdf

The rhetorical revolution, with a pen.

[glitzqueen]

There isn't enough money in the world to make these duds solvent, unless they nullify their lunatic derivative bets (as should've been done when the scale of the problem became apparent). Our bailout money is going into recollateralizing and settling those contracts -- flowing right down a quadrillion-dollar rat hole into a shadow economy that dwarfs and contributes nothing to the real one.

[1liberalconspirator]

I agree, it's time to just seize them and the assets of those that ran them into the ground and allow the government to capitalize new banks loans and review the mortgages and be done with it. Piecemeal approaches won't work and it's a waste of time. It's time to just get it done.

[TXfemmom]

It is time to just take over the banks, free up some credit by doing so, and get the good assets with the bad. Then, after we slowly extract ourselves from this mess, we can slowly sell parts of the banks in shares, and the government can actually come out ahead.

[SCG]

We'll waste trillions first before we come around to that idea.

[wcgmilf]

"It's too bad that the Republicans' anger over giving tax breaks to workers who did not pay income taxes does not extend to giving tax dollars to Wall Street banks who have wrecked our economy."

Actually, I was one of those workers who didn't pay taxes because I started a small business in 2007 that failed miserably, causing me to file a negative net income on my 2007 taxes. I stimulated the economy enough that year, I guess, buying office furniture, etc. I didn't get a dime of the "stimulous" package when everyone was getting their $600. So, that idea is a lie fostered by the Conservatives, Limbaugh and the rest. Small business such as mine just ate our losses.

[LuckyBlessed]

My other favorite comments; The other solutions are simply efforts to transfer dollars from hardworking taxpayers to -- overpaid and incompetent bank executives.

Where are the anti-government conservatives when we need them?

[brighterlight]

What happened to Cash+Carry (Kashkari)? Can he answer more questions on Capitol Hill? I think we need a new Cabinet Post and Office: Office of Oversight. This would be Waxman's committe times one-hundred with enforcement capability.

[winningticket]

Banks too big to fail? I think they are too big to exist.

[RFBorjal]

" It is hard to believe that anyone would take it seriously, if not for the enormous political power of the Wall Street gang."

It's about time politicians were made to understand that political power resides in the people, not in the campaign contributors in Wall Street or anywhere else. I hope the voters will remember this every election time.

[GEPearl]

I think the best way to achieve a strong outcome would be for the government to not try and float the banks but instead:

1) buy their debt in the open market and renegotiate the best deal on the loans and assets much like Leon Black did out of the junk bond era and made billions.

2) Utilize a group of well trained people, maybe 1200 to negotiate down loans on behalf of individual borrowers and subsidize those borrower's mortgage payments in the form of additional payments on the loans to keep them up to date like in section 8 rentals, then help these borrowers stay on track by monitoring their budgeting on a grass roots or basic level to get them out of the crisis and thereby bring their neighborhoods out of crisis and thereby brings their cities out of crisis and thereby get their states and our country out of fear and crisis and back on a positive road. It's what all this is supposed to do anyway but it's more direct and clearly the macro approach has way too many flaws, greed and roadblocks to success. This plan will work as it takes out the multiple greed driven middle men and yes, some of the banks will fail as a result but they would have and will fail regardless and should have been left to the market regardless. Respectfuly....

[1liberalconspirator]

I agree it's time to take it down.

[SCG]

No no no, you don't understand how the free market economy works. You give the wealth to the demigods and they spend it on a single million dollar parchment waste basket, and it trickles down from there.

It's the top of the pyramid that produces and supports the bottom.

Didn't you learn anything from the Reagan years? Yes, the Fed has to keep pumping money into the top, much like a plumbing to a fountain.

[Tom Joad]

Banks once made money by persuading each of us to place our funds there; the bank would then invest our funds and the return paid our interest + the banks' profits. Now banks seem to 'make' their money by taking our funds, then taking more of our funds after those funds are laundered through the federal government. Question: Which university business program trained the MBAs with this philosophy? Perhaps it's time to close the 'business schools'. No more MBAs ("My Brother's Associates"...as Tony Soprano might say)

[joebhed]

Dear Tom,

The banks haven't made money that way for almost a hundred years, since the passage of the federal reserve act.
Operative word is reserve, not federal.

It is a private monopoly corporation, with a license to run the country.
It's member banks CREATE money every time they make a loan.
They CREATE money out of thin air.

So, FYI, EVERY business school in this country has been teaching exactly this method to every graduating class for almost a hundred years.

And, YES, that IS the problem.

[Hdaryl01]

We don't want to Nationalize the banks. If we do, we will assume their Trillions of dollars in liabilities from their ceative play in the $1.14 Quadrillion global derivatives market. Let them go bankrupt. This way, the other idiot bankers on the other side of the derivatives on derivatives on derivatives on derivatives will take it in the shorts-not us.

[got2Bkidding]

Sorry, but nope. The CDS like any liability could just go away. If we file for bankruptcy a judge decides which debts must be repaid and which do not. Let the banks file bankruptcy, then let a judge say "okay assets good, liabilities (like CDS's) bad" bye bye CDS's. The bankruptcy court could then place the bank into government receivership.

SEC regulations forbidding or severely curtailing the derivative market could also be put into place. I would suggest a .02% fee placed on each derivative transaction. Let the derivative market pay us back for the mess they created and that we are now forced to cleanup.

[Hdaryl01]

"There is a legitimate public interest in keeping the banks operating; a modern economy needs a well-operating financial system.'

Observation: A modern economy needs a well operating financial system. This does not necessarily equate with keeping the banks operating. In fact, I would submit that the inverse is true. We have done nothing but feather the nests of the bankers, and stack the decks in favor of the banks for the last 40 years. And, what have we gotten? The S+L crisis. Junk Bonds-Milken. Enron. Bear Stearns. Lehman. Citbank. Bank of America. WaMu. Wells Fargo. Wachovia. Countrywide. Ameriquest. Fanie Mae. Freddie Mac. Unemployment. Bankruptcy. Refusal to lend. Demands for repeated trips to the TARP trough.

Let's try it alone, without the bankers' help and stewardship. How about direct relief from our government to us..............? F**K the bankers.

[RJII]

its time to stop bailing out the too big to fails. i'm ok w/ the auto bail outs only because they seem to be making the leap and didn't borrow near as much--yet.

[FemWorkingClass]

http://solari.com/archive/housing_bill/

"In other words, we are in the process of merging all outstanding mortgage fraud with existing U.S. government securities and collateral fraud. Add to that the assumption of the back-door liabilities protecting all of JP Morgan Chase and the New York Fed member banks’ positions on cleaning up Bear Stearns and maintaining large derivative positions, including in the mortgage and precious metals market. Now add to that whatever collateral fraud is embedded in the Fannie Mae and Freddie Mac portfolio plus significant increases in liabilities at FHA. "

"America does not have a debt problem. We have a political problem. We have created a system where secret governments can steal and have Congress, the U.S. Treasury, and the Federal Reserve replace whatever they stole. The theory is that the end of the world will come unless we bail them out. That is not true, for all the reasons you learned in kindergarten about letting bullies have their way. "