Geithner Advocates Permanent Billionaire Bailout Society?
Everyone realizes that we have to do something about "too big to fail." But there are two fundamentally different paths: one threatens the very existence of the billionaire bailout society and the other makes it permanent.
The obvious way to end "too big to fail" is to break up large financial institutions so that they are "small enough to fail." Paul Volker, not a radical by any means, argues for this. Even Alan Greenspan -- the very personification of the financial establishment -- agrees.
But to do so threatens the elite status of insiders at giant institutions like Goldman Sachs, JP Morgan Chase and Morgan Stanley. They make their billions from the combination of government welfare and their enormous, market-distorting size. Right this moment we are still bailing them out through a series of subsidies that go well beyond TARP.
Also, there are far fewer large financial institutions left in the marketplace which means that the remaining giants have near-monopoly pricing power. But most importantly everyone knows that we won't let them fail. That gives them access to cheaper capital -- they don't have to pay the risk premium other borrowers have to pay because you and I, through Uncle Sam, are implicit cosigners on the downside of the deal. And of course, they have excessive political muscle.
For those of you that believe financial institutions have the very best talent and therefore deserve the very best pay, take a look at Why Do Bankers Make So Much Money?"" by Rick Bookstaber. Here's one memorable passage:
"But I don't buy the notion that there are so many who have the level of talent that justifies tens and even hundreds of millions in compensation. I think this level of compensation, and the notion of talent behind it, is the result of the inherent uncertainty in the financial enterprise, one that makes it very difficult to assess talent. Indeed, I think the invocations of talent for money producers in finance are akin to those that, in times past, were set aside for the mystical powers of saints and witches."Treasury Secretary Geithner doesn't want a radical departure from that witches' brew. He argues that it's possible to prevent the next meltdown by setting up a new watchdog council of regulators and by increased regulations on the large institutions that are designated (in secret, mind you) as too big to fail. He hopes that the next meltdown can be avoided by monitoring them closely, requiring more capital reserves, and by prohibiting excessive leverage. And if they go under Geithner wants the large institutions to be assessed to pay for the bailouts, after the fact. (Why not before the fact? Geithner thinks they would view it as insurance and gamble even more.)
Sadly, this would make bailouts a permanent feature of our financial system. It would guarantee the perpetuation of our billionaire bailout society for generations to come. (See "Breaking out of the Billionaire Bailout Society" on
Today, our large financial institutions have an even a tighter grip. But our political establishment is afraid to break them up. If Roosevelt or Taft were around today, they'd probably get the same treatment as back-benchers like Dennis Kucinich. It's not often that we can see such a clear fork in the road. We can either prop up the billionaire bailout society or we can begin the necessary process of breaking it up. You know what the financial interests want. It's now a question of whether popular resentment can be translated into a new populist rebellion. Granted, it's not looking too good. But to quote Yogi Berra "It ain't over till it's over." Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
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To quote a Chinese proverb. "A journey of a thousand miles starts with one small step".
The journey to America's future could also start with one small step. Timothy Geithner needs to step down as Secretary of the Treasury.
He has proven himself many times over to be a member of the establishment that created the crisis in the first place.
I nominate Elizabeth Warren as his replacement. Change we can believe in (for a change)
Surely there must be some provisions in our anti-trust laws we can use to break these behemoths up. At least we should be able to separate the investment banks from the regular banks by repealing the law the allowed it.
I know how we can very quickly open the eyes of even the simplest of people. Tell ever house hold that by December 1st they need to write the government a check for $500.00 and then every month after that $100 for the rest of there life so we can give it to the banks. This would raise such a cry around this nation. People would be on the phone and at the capital in a hear t beat. Because really thats what we are doing right now. People don't feel the squeeze enough yet. If we had to fork over the cash with in 30 days out of our pockets then and only then would everyone demand change.
"Too big to fail" should really be changed to "too well connected to fail". At the present moment the New York Federal Reserve Member Banks own the government of the United States lock, stock, and barrel. If their power is not broken there is going to be a New Political Party in the United States. It is coming. It will be fierce in vengeance. And it will be very, very successful. It will be slow to form as people try to give the Corporate DNC party time to transform into what is needed. If they fail, it will be Katie bar the door. It will form out of the intimate mass communication and fund raising ability of the Internet and it will rule this country for the next 100 years. It is coming. Stay tuned.
We are very carefully and slowly being led to slaughter by the elites and banking Mafias!
the sheeple in this country are like cows that hear the dinner bell and come lumbering along into the slaughter house. this IS how dumbed down this society has become! the people posting hear do not represent the vast majority of Americans that just don't give a darn and allow government to have free range to become as corrupt as they have!
I like your post. How can we educate that majority that doesn't want to think is the question I'd like answered. We a definitely headed toward a monarchy where the kings, queens, and nobleman are the super rich as described in Les Leopold's post. This is another good reason to keep their hands off the free internet.
Americans don't fight back, they are easy prey.
Dumbed down, indeed. You want proof? There are over a thousand posts for Michele Obama wearing leopard-print cat ears for Halloween.
This one has less than 100.
Banks are not able to do anything right or wrong, legal or illegal only Bankers are.
We must expose the names of Bankers that stole our pensions and damaged our
beloved country so badly . Arrest them put them on public trial then jail.
If we do not their next scam will be bigger.
I like your idea. Expose them as criminals and bring them to trial.
What ever happened to just not giving them the cash and letting them eat it?
They are eating it -- the cash, that is.
The bankers had better hope the cops catch them before the public does....
Do you really think that this divided society with its obsession with stupidity and consumerism is somehow going to "rise up" and take out the pitch forks?
You are talking about a country where half the population is fighting AGAINST its right to have health insurance. You are talking about a country in which half of its citizens are calling its president Hitler/Osa
Do you think these people have a clue what's going on? Doubt it. They're job is to spew hate, support ignorance and bring down the very idea of the country taking care of its citizens.
THIS is America. No revolt will happen because you'll get thrown in jail... for whatever way you think you will revolt. Go ahead...tr
I have read some commenters, when reading the "Business" section here, that go out of their way to point out individual lack of common sense, lack of financial responsibility, lack of being able to live within one's means, etc., and yet, these very same commenters, hail the innovation and "rightness" of a financial system that shows very little common sense, very little responsibility and seemingly no idea of any boundaries whatsoever. These great icons of capitalism repeatedly let us down but somehow, in some "Bizzaro World" reasoning, the finger of blame gets pointed at the citizenry that let down these geniuses of Wall Street. And how is it that individuals let the great corporatists down? By behaving exactly as they do! But, since the average citizen cannot buy a congress, or a White House, they are left holding the bag of bad debt and forced to pay more than once for every mistake and greedy decision of these modern day Scrooges, while at the same time being told how terribly irresponsible they are. No more! Grow a pair, people, refuse to cooperate at all. Respect is a two way street, especially if it is a demand from the privileged to the struggling. Stop feeding the pigs!
OK, I'm done. And yet, somehow, I feel .... I feel .... um ....absolu
We have let them down, we ran out of money they could can get their hands on.
Not only 'too big to fail', but apparently 'too powerful to be examined' as well. From Bloomberg yesterday:
[quote]"Re
“There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.” [/quote]
Breaking up the big banks into smaller banks is not the solution, because the root of the poison tree is the central bank. You must go back to 1913 and unwind 100 years of unconstitutional money delivered for profit by a private cartel.
'The obvious way to end "too big to fail" is to break up large financial institutions so that they are "small enough to fail." '
yes, yes, yes, yes, YES!
No-- the obvious way to end "Too big to fail" is to LET THEM FAIL ANY WAY!!!!
They broke the law. not Fail but Jail.
Obama needs to dump Geitner and Summers. And he needs to start breaking up these 'to big to fail' banks. If anyone sees Teddy Roosevelt's trustbusting hammer, please overnight it to Obama, stat!
AGREED
DITTO.
Fanned!
Obama won't propose to do this until Olympia Snow is on board with it. I can't see that happening.
*sarcasm*
Obama needs to reassess his advisers' mentalities. Geithner, Summers, Bernacke are single dimensional thinkers. Their so called "bridge to recovery" via a three-step process will go nowhere. Unless meaningful and sustainable industries are created the U.S. will languish. Obama should look at Brazil to see how their economy.im
And the young people are told to "do whatever it takes to support yourself". They often have to compromise on their values to work at those "choice jobs" you listed. It's really sad and disturbing.
But, our social safety net has shifted from catching the poor to lifting up the rich. So, what are the young to do? They have to work...but
We used to produce things and offer services that mattered..
Geithner, Summers, Bernacke are simply trying to recreate the system which failed last year, they've all done very well for themselves under that system.
Obama and the Democrats need to demonstrate they represent the people who voted for them, or face throwing all of us back into the shark tank of the Republicans.
One of the aims of the professions in modern-day life is to convince ordinary persons that professional skills--or talents--are such that the millions are merited. This is not limited to financial professionals, but extends to lawyers, accountants, and many doctors. Financial people and other professionals have achieved this aim by making the subject matter of the profession so complicated ordinary individuals cannot easily comprehend it. This is evident in regard to the collateralized debt obligations, credit default swaps, and other financial instruments which were the primary means by which the financial professionals gained their fortunes.
The formulas for making sense of these are more complex than formulas for sending a spacecraft to Mars. It's not surprising that many physics majors went into the financial field rather than astronomy to help create such formulas. But financial concepts and operations at such a level of complexity do not deal with the real world. They are essentially imaginative creations intended primarily for the extravagant profits of the ones who have worked themselves into the position to control them largely by making them so complicated no one else can understand them.
The metaphor of gambling--as in Wall Street gambling--is often being used to describe the situation on Wall Street. But it's not gambling--in gambling, one can lose, and the Wall Streeter's have rigged the system so they can't lose. Wall Street is like hucksterism. Guess who the suckers are?
Yo! y ustedes tambien. How' bout tern limits for CEOs?
I hadn't thought of term limits for CEOs. But one thought which has come to mind is something like patents for "financial instrument
The white-collar professions have become like bureaucracies. Now that the financial people, lawyers, etc., control the major areas of American society, they are no longer interested in providing services, but performing routines which they have virtually complete control over for high fees while at the same time maintaining their privileged, exclusive positions.
I saw this during a personal-injury lawsuit in which I was the plaintiff. I was repeatedly lied to by my own lawyers, given false information, and eventually lawyers who represented me at one stage stole thousands of dollars of medical films meant for an operation on my neck. In later civil cases I undertook, criminal judges in Bridgeport, CT, shielded them from accountability. I'm exacting retribution in other ways. But most persons don't have the abilities or persistence for this. They're wasting their time though looking for its from politicians or from the professions.
Term limits for CEOs seem as much of an illegal form of discrimination based on time in service as term limits for politicians. How would you like to see your doctor be forced to retire or change his specialty after 10 years? If no, change the word 'doctor' to 'politician' and answer the question again. If you change your mind when you change the sentence as I suggest, you are being hypocritic
I've been reading about the economic mathematical formulations that are used by economists to predict how the stock market will react in the future. It all started reminding me of Isaac Asimov's wonderful science fiction series of books called Foundation written in the early 60s.. The premise of the series is that mathematician Hari Seldon spent his life developing a branch of mathematics known as psychohistory, a concept of mathematical sociology (analogous to mathematical physics) devised by Asimov and his editor John W. Campbell. Using the law of mass action, it can predict the future, but only on a large scale; it is error-prone on a small scale. It works on the principle that the behaviour of a mass of people is predictable if the quantity of this mass is very large.
Thanks for your novel reply. Yes, what goes on in the financial sector these days is like science fiction, as you noted. And as I did in my comment, it also has a P. T. Barnum character. Barnum said there was a sucker born every minute. And he made his fortune charging dimes and quarters to multitudes to see sideshows and circuses. While following Barnum's basic observation, the Wall Streeters have outdone him incalculably by reaping fortunes not based on small change, but millions and billions. Barnum was innocuous, and offered delights and entertainments. The Walls Streeters, on the other hand, are secretive and malign, and offer illusions and ruin.
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