I am getting tired of politicians claiming that if we don't pass TARP, or if we let Goldman Sachs fail, or we allow Greece to default, or now, if we let the US default -- the result will be total global financial Armageddon. They are starting to sound like the type of threats that Dr. Evil might make to Austin Powers. You know, "Unless you pay me $1 million I will blow up the entire global financial system." (Place pinky against lips.)
Let's take these threats in order. Congress definitely got hoodwinked by Ben Bernanke and Hank Paulson, who threatened total global annihilation unless we passed TARP in three days. Somehow, Congress was led to believe that unless they gave Hank Paulson $700 billion to purchase bad loans from the banks and take them off their balance sheet, the entire financial system would collapse. Well, they gave Hank his $700 billion, but instead of using it to buy bad loans he took $130 billion of it and gave it to his old banking buddies. So the bad bank loans never were removed from the commercial and investment banks, and yet magically, we all survived. There was no financial meltdown and the banks still haven't dealt with the bad loans on their books.
Similarly, Hank Paulson and Tim Geithner warned of a nuclear winter if Hank's old firm (and mine) Goldman Sachs or Morgan Stanley were somehow allowed to fail. No one had ever imagined that the government would step in and save creditors to an investment bank that had no government-guaranteed depositors and were in the business of naked speculation, but when the dust cleared, that is exactly what they did. American taxpayers ended up contributing hundreds of billions of dollars in cash and subsidies so that debt investors in these highly leveraged investment banks would not lose a dime.
The EU, the ECB and the IMF have been screaming bloody murder lately that a debt default by Greece would lead to catastrophic consequences, not only within the European Union, but throughout the civilized world. A Greek default on its sovereign debt is a foregone conclusion. Greek families have something like $200,000 of their government debt per household. That is more than double the amount of mortgage debt the average American family has, and the Greeks have half our incomes and don't even have a house to show for it. The result of all the doomsday posturing is that the Greek default was postponed just long enough to allow the European banks to sell much of their Greek debt to the ECB and the IMF, thus shifting poorly performing and bad loans from the banks onto the backs of taxpayers. Once again, creditors to the banks who made poor investment decisions were bailed out with taxpayer money.
Now, US politicians are threatening to default on the US debt unless we cut funding to programs that care for our elderly, our sick and our poor. As usual, these politicians are claiming that a US default would be the equivalent of a financial tsunami wiping out all signs of intelligent life in its path.
Let's be real. Nobody wants to see the United States default on its debt obligations. But it really is a completely phony threat. All we are talking about is a bunch of wealthy bond investors missing an interest payment in the mail. If those making the threat believe the consequences could be much more serious, then by definition they have no business utilizing such a threat in negotiations. If they want to freeze out creditors to the United States, Obama should step out of the way and let them try. The mess they create will assure that no Republican will hold elective office again in our lifetime.
When a wealthy creditor misses an interest payment or takes a 5% or 10% haircut on his debt investment in a company or country, they call it an economic catastrophe. What do you call it when Americans who had nothing to do with the cause of this crisis end up losing their jobs, are evicted from their homes or lose their pensions and life savings? This is a much greater catastrophe to me.
I am no anarchist, but in a world where banks and governments have colluded to form a corrupt partnership that led to deregulation, fraudulent lending, over-leveraging and a global financial crisis and recession, if anybody has to suffer, I think it ought to be the creditors who financed these banks and governments. Too much money was loaned to these institutions and the only way to correct that is to restructure their debts. Once these debts are restructured, total global leverage will decline and economies can get back to growing and providing for their citizenry.
Some say that the banks are too big to fail. That because of their massive derivatives exposures and their acting as nodes of the credit default swap spiderweb they call a market, they are too interconnected to fail. Whose fault is that? Let them fail and then let's pass laws so we don't make the same mistake again in the future. Trust me, if we don't break up this unholy alliance between banks and governments and the IMF and the ECB and the Fed now, the problem will only get worse. We will stumble along with an anemic recovery, high unemployment and still be subject to massive financial crises in the future from an unregulated banking sector gone wild.
As we work through the enormous mess created by the overly aggressive lending of these banks and the governments that protected them, it is a certainty that someone is going to get hurt. It makes no sense to me that that 'someone' will be working men and women, our elderly parents, our sickly relatives, the disabled, the disenfranchised and our children who had absolutely nothing to do with the cause of any of these supposed Armageddons.
John R. Talbott is a best selling author and consultant. His new book is mandatory reading for anyone interested in learning the real reasons for this crisis and how to protect yourself going forward. You can read more about John and the new book at www.stopthelying.com or at amazon.com. Information for media contacts is available at www.stopthelying.com.
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Love and peace toward all.
Yes defaulting and cutting spending so drastically, will kill million of poor, and leave most of the rest in desperate straits. Hoovervilles will come back.
The bankster stole all the money and still get free .004% from the FED, trillions. Wake up. You been robbed, and you praise and defend the crooks.
Investment directly in infrastructure and the citizens safety net will eliminate the poverty for nearly everyone. Otherwise the richest 1000 families will rule like they did before the founding of the USA. It's really hard to imagine you want that.
Why are you so in love with rich people that you would be their slave or serf with righteous enthusiasm.
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen."
- Samuel Adams
Checks to 4,000 FAA employees and contractors have stopped. The only other checks mentioned thus far are Social Security checks.
Not that the loss of a paycheck or two would hurt people like Eric Cantor, but still - they're all about the big symbolic gestures, aren't they?
I don't think they bad people but uninformed because of Fox"News". The pity part is they don't see it, but the educated people that are in the other party do I can't figure out what the people that vote Republicans really want. Its like they dislike themselves and can't think for themselves.
Because Thinking is hard
An interesting study about misconceptions and correct information, "When Corrections Fail: The persistence of political misperceptions" by Brendan Nyhan and Jason Reifler.
A quote from the report:
"... ideological subgroups failed to update their beliefs when presented with corrective information that runs counter to their predispositions. Indeed, in several cases, we find that corrections actually strengthened misperceptions among the most strongly committed subjects."
Faith based politics is the norm because thinking is hard.
When Republicans still believe the biggest lie of all, that they are the party of small government, how can you expect to disabuse them of all the other lies they believe in?
If the facts are telling us something that is in conflict with our beliefs, perhaps you need to adjust your beliefs.
An intelligent citizen will, a Republican will not.”
Keeping the too big to fail banks together, is critical, until the economy stabilizes.
Yes we need to restructure them, and make sure nothing gets that big again, but simply letting them fail would cause HUGE problems for everyone.
Allowing the debt ceiling to hit does A LOT more than impact those receiving payments, it increases interest rates for EVERYONE. It is truly an effect that hits the ENTIRE economy, not just the rich.
Ignorance at its finest!
Stop voting for conservatives and corporatism. Get some real liberal and real progressive in. Don't be fooled by the pretend DLC "pragmatic" progressives. Don't be fooled by the professionally sold slick candidates. Read up on the candidates, see what they have done and said.
Does automation and tech mean anything to you?
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen.
Samuel Adams
But the explanation above is too simplistic to be taken seriously. "Missing a few interest payments" by wealthy bond holders isn't the problem. The problem is that the dollar may no longer be the international monetary standard, interest rates would climb (both for our debt and the nation as a whole), and treasury bonds would not be the safe haven for inflationary concerns.
And it gets worse. Maybe "financial Armageddon" is overkill, but financial panic, recession and real economic pain for millions is all to likely with default. Money is trust. If we lose that, our money is worthless.
If so, it is even MORE important that this borrowing remains a good lending risk--meaning let's make sound long term lending and continued borrowing decisions even if it means short term pain.
Bad news and difficult decisions should not just be swept under the rug, or kicked down the road for the next guy to deal with. This is OUR money, OUR future, let's do it right.
The idea was to compare teams with a more liberal mindset (determined through a scientifically designed questionnaire) against those with an authoritarian (right wing) mindset playing an elaborately designed game where the world is facing a crisis. The results are most instructive.
The liberal teams negotiated, worked with other nations and resolved problems. The authoritarian group, with their belligerence, militancy, stubborn refusal to budge from their own positions, refusal to negotiate, and their tendency to dominate and win at all costs all too soon created a world war that destroyed everything.
The Republican congress that we got as a result of the 2010 midterms is showing these very tendencies. Total and catastrophic destruction is a far better option than giving any ground on their iron-clad pledges.
I won't name names, but for years I had a client (A worldwide TV conglomerate) where the company's upper management was like 65% female.
This came about because they hired lots of young women right out of college and those women rose and grew with the success of the company.
The management style of this female executive structure was as you described: negotiate, team build, look for win/wins as opposed to "my way or the highway." Harmony instead of confrontation.
As the company grew and gained more and more success, more "professional" management was brought in (mostly males). The culture of the corporation changed entirely and became a lousy place to work.
Most of the original founders eventually left and the company has never been the same.
The last time the sky was falling and Congress(the taxpayer) was being called to come to the rescue, what happened? They initially balked, until the market tanked and they got their money, like a good old fashioned shakedown.
Was it used as promised? No. It went to prop up the market and organizations that caused the mess!
Was there ANY remorse whatsoever by those involved? No. Record bonuses!
Was there ANY help for the little guy? No. Record "robo" foreclosures!
Did ANYONE get in trouble(aside from a half day tongue lashing in front on Congress)? No. This is a huge benefit to being "self-regulated", no one ever really gets punished.
Was there ANYTHING learned? No. Record lobbying against even the most common sense reforms to try and get us out of the mess and try to prevent it from happening again!
Tar and feathers for you , buddy.