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A Bailout We Don't Need
By James K. Galbraith
The Washington Post
Thursday, September 25, 2008; Page A19

Now that all five big investment banks -- Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley -- have disappeared or morphed into regular banks, a question arises.

Is this bailout still necessary?

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html?wpisrc=newsletter&wpisrc=newsletter (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html?wpisrc=newsletter&wpisrc=newsletter)

So, let's use the next few years to plan, mapping out a program of energy conservation, reconstruction and renewable power. Let's get the public sector and the universities working on it. And let's prepare the private sector so that when the credit crunch finally ends, we'll have the firms, the labs, the standards and the talent in place, ready to go.

Some will ask if we can afford it. To see the answer, don't look at budget projections. Just look at interest rates. Last week, in the panic, the federal government could fund itself, short term, for free. It could have raised money for 30 years and paid less than 4 percent. That's far less than it cost back in 2000.

This is not a bail out, its a train robbery without the train.  Funny how all these free market types don't believe in that when risk turns bad.

GM is complaining it can not get a loan for tooling the new electric car. Let me see GM owns Ditech a big mortgage company and credit card companies. I would be glad to loan GM money at 20% interest they charge there customers. What GM is really saying is that they can not get 3% money "just in time" as they are used to getting. The just in time philosophy only works when you have a fool proof plan. It seems that the CEO's today only plan as far as the next bonus.

No one is going to blame you for what you used to do, Liz. But what do you suppose the world did commercially before the Kn ights Templar and the Medicis and Fuggers? Was there no commerce at all then? Did no one earn a living?

I'm not sure why the "banks" are such a problem. As the writer points out the hugest of the bailout boys are either defunct or defunct as investment banks.

I'm sure there's an answer here, just is it one that's outside of the notion that the world will not exist without the commercial banks and the investment banks? Umm, the invisible hand should make way for new ones to expand if that notion actually works anyhow, right?

Nikki

QuoteI'm sure there's an answer here, just is it one that's outside of the notion that the world will not exist without the commercial banks and the investment banks? Umm, the invisible hand should make way for new ones to expand if that notion actually works anyhow, right?

And that paragraph?

It's never about us regular folk. I worked in the financial sector for 24 years. The banks didn't need a bailout. If they waited for the dust to settle the market would have balanced itself out. But they panicked. Let's face it, there were some unscruptuous acts committed and those people should be prosecuted.

Who needed a bailout? The people who were going to lose their homes. The people who have lost thier jobs. In my opinion, I'm happy those banks failed because it gets them off their high horse. Every day people who once had well paying jobs are falling into ranks of the working poor.   

Gennee

I'm with Lisbeth on this one.  I too worked in financial for a long time.  I have no love for the people at the top of the financial world, but letting them twist slowly in the wind would be cutting off our nose to spite our face.

Think of this as Enron only it's the entire US financial system.  Enron's game worked as long as long as the markets believed that their financial assts were accuratly valued and continued to lend money to keep the game going.  The collapsed happened when someone woke up and realized that there were no markets for their long term oil futures contracts and thus no value to them.  Enron very quickly collapsed when they were no longer able to raise capitol and keep the ball rolling.

That's very much like what's happening in US credit markets now.  The toxic waste tranches of the mortgage suddenly had no value and many financial institutes, like WaMu, were no longer credit worthy.  I think the Administration hoped that the markets would work themselves out slowly over a period of time or at least until Bush was no longer there to blame it on.  Alas, they were wrong. 

Bear Sterns is a player that I especially loath as they were duplicitous cheating bastards!  But what they really did wrong was get too far out in front of the curve.  Hedge funds, the source of their demise are designed to perform inversely to the market.  They were right about the market direction, they just thought the shock would come sooner than it did.

If we did nothing the markets would eventually right themselves but it would be over a period of several years accompanied by general economic decline.  "In the long run we're all dead" JM Keyenes

So, I agree that $700 billion blank check in the hands of Paulson is way to much and in fact, one of the proposals, $250 billion with Congressional oversight and Federal guarantees (insurance) of bank debt sounds pretty good.  Especially if it's accompanied with relief for beleaguered homeowners.

Some of the time I miss that game.

Posted on: 26 September 2008, 18:44:50

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Quote from: Nichole on September 25, 2008, 02:06:20 PM
No one is going to blame you for what you used to do, Liz. But what do you suppose the world did commercially before the Kn ights Templar and the Medicis and Fuggers? Was there no commerce at all then? Did no one earn a living?

Are you suggesting a return to feudalism?  Lisbeth mentioned land based wealth in the medival world and it's important to note that people were part of the land.

No more trips to Europe  :(  No more trips anywhere!

Actually, for the both of you who may know banking, at whatever level, but not history or, apparently economics: feudalism was about as far from the banking interests in Genoa, Augsburg, Florence, Siena, and Venice as Wall Street is from Chihuahua.

Those people invented your precious system that's too big to fail, too important to have anything but it's own way. And then taught the English about how to create a Bank of England and, thus, your former lives. Illiterate, unsophisticated and rude they were not.

And people in the cities were no more "part of the land" than you are in SF.

Good grief! Get knowledgable before you make some blanket statement based on a rumor you heard in 9th grade, please.

Nichole

No more trips to Europe  Sad  No more trips anywhere!

Ahh, but you miss those other aspects of Feudalism, the epic quests, the epic contests, the endless war and the Crusades,

What do you mean no more travel, I'm talking the Holy Land here.  Liberated and all.  And you, along with your horse and squire, can visit there and slay the infidel that lives therein.  Forsooth, and zound's you can invade France, quell peasant uprisings (plenty of those) and in your spare time hunt for witches.  Tell me not of the lack of trips in Feudal times, I'm off to join the Templars.  Perhaps from that I might get into banking, which is what the Templars did after a time.

Banking is a troubling deal.  Always has been.  Bankers are trustworthy, but not to be trusted.  Did not the great master Jefferson himself warn that:

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Letter to the Secretary of the Treasury Albert Gallatin (1802)

Great, we now have standing armies too, brought to us by those banks and the corporations that grew up around them. 

We can not allow the banking and finance companies to dip into the the well of American Debt and pull out $700 Billion, with a B, no strings attached.  Its mindblowing that they even thought this out, much less put it on paper.  Give us the money.  You can't review it.

Its like Vinnie and Guido showed up from Jersey and were hanging around saying "Nice economy youze gots here, be a shame if something were to happen to it, you know what I'm saying." Except its not Vinnie and Guido - who at least have the common decency to at least know they are criminals - its Throckmorton, Winslow, and Percy who all think they are beyond the law.  The hubris of this is just awesome.  Really, I mean that.

We can not give you the money because you lost it thinking this thought, which you still seem to hold true,

Our economy today is based on the movement of capital.

Nope, its not.  Never has been.  That's an illusion.  Its based partly on land, as it always has been, and partly on production.  Without production, what's capital exactly worth? 

And, while all the banks were busy out financing the movement of production from the US to other places, they lost sight of the fact that they were no longer acting in their own best interest.  There are a lot of people who should be in jail over all this, like thousands really, who knew what was going on and did nothing about it.

This is not an overnight problem, its coming was warned about for a long time and no one did anything, until this week, when presto!  Hey Rocky, I need over half a trillion dollars please.  Really, watch me pull a rabbit out of my hat.

Cause here is the deal.  What these dunderheaded morons with MBAs missed in all this, is that their 30 year effort to sell off America's production capacity and their pet republican spending money at rate that is also criminal.  So, about the $700 Billion with a B, you need.  We ain't got it.  Everybody's tapped out round these parts, what with few jobs, gas at a record high and the national debt that you allowed to happen. 

I don't think the world ends if these people have to sell the summer homes to pay off bad decisions they made.

I don't think the world ends if these people have to sell the summer homes to pay off bad decisions they made.

Their's will.

We drove out along the Joisey shore two weekends ago, Sandy Hook was just lovely. (Guido and Vinnie seemed to be elsewhere that afternoon.)

All along Route 35 were these incredibly large and beautiful and poorly made mansions, interspersed with mansions built one hundred, seventy, fifty years ago. The solidity of the latter and the lack of substance of the former were just incredible to see. And this was on the shore, hurricanes occasionally ravage that location, each summer at least one seems to make it up that far. More than half of those houses probably couldn't withstand a heavy gale, let alone a class 2 hurricane.

Yet, there they stood. New and shiny and empty. Waiting for buyers.

The one most obvious thing about the entire perspective was this: the "for sale" signs. The number, the number of "reduced" signs attached to them.

Money as we know it, capital, has never been "real" as in touchable, material. It's always been as much a figment as a gryphon has been. Capital requires something real and material to make it work, otherwise you have exactly what appears to be coming about and these idiots do not seem to be able to break their own fantasies long enough to actually see that. They have fallen for their own illusion: "Money is real."

No, money represents what's real and if there's nothing real there the money itself may as well represent air or a good tall-tale.

Paulson, Bernanke and most all of those guys seem to think that the influx of $700 Billion wisps is somehow gonna make everything better. How does the exchange of one form of fantasy for another form of fantasy make anything real?

Nichole

The head of WaMu has only been on the job 3 weeks as the place declares bankrupt and his contract demands that he get paid 18 million on exiting the company. Now tell me that the board of directors are properly representing the stockholder. The facts are most boards are assembled by who you know not what you know. The stock holders are given very little information as to the qualifications of the board members they cast their vote for. I most cases there is not a choice only a place to withdraw a vote for a board member. This process needs to be changed.

Quote from: Nichole on September 26, 2008, 09:22:19 PM
Actually, for the both of you who may know banking, at whatever level, but not history or, apparently economics: feudalism was about as far from the banking interests in Genoa, Augsburg, Florence, Siena, and Venice as Wall Street is from Chihuahua.

Those people invented your precious system that's too big to fail, too important to have anything but it's own way. And then taught the English about how to create a Bank of England and, thus, your former lives. Illiterate, unsophisticated and rude they were not.

And people in the cities were no more "part of the land" than you are in SF.

Good grief! Get knowledgable before you make some blanket statement based on a rumor you heard in 9th grade, please.

Nichole

I have a BA in economics, Nichole.  And I'm a student of history.  Was in school, continue study for entertainment and knowledge.  Ask me about the War of the Roses.

I don't like the situation or the people involved in it.  I think markets should be re-regulated.  It just needs to be done in an orderly fashion.

Ask me about the War of the Roses.

Mistrals or American Beauties? :)

Look, I'm not handing out $700 Billion with a B, without some accountability.  That's it.  That's all folks.  As this was not an overnight problem, you're not going to get some magic - let's through good money after bad - single bullet solution.  Nope.

Ya know, I have ideas about "markets." I used to shop daily at a few when I lived in Berlin. They had nice rutabagas, beets, cabbages, lettuce, tomatoes in season, garlic, basil (fresh). Some were bakery markets and they made great bread, good enough I'd forego making my own just to have a loaf for a few days or a week.

Thing was about markets I've loved is that I could actuallu touch eggplant and onions and smell the herbs and lemons. The only regulation they truly required was my ability to touch smell and squeeze to my heart's content before I chose.

I have trouble with things so imaginary that I cannot in some fashion hold them, touch them. Like a bond made entirely of someone else's promise-to-pay-what-they-owe. Hmmmm, $500K for the privilege of holding something that is worthless from the second it was made?

I dunno. How bout we regulate to an extent that says you've gotta offer something for something. You wanna play imaginary games? Get your buds together and we'll allow you to make-up all sorts of arcane fantasy games that you guys can play together. But we are not going to allow you to market them to anyone but yourselves.

You wanna play? We have this nice city park just over there, enjoy the roundabout.

Nichole

Where are those guys from "The  Merchant of Venice " when you need them.

John Stuart Mill to the Bard of the Avon!! :) I like the direction you're moving in, Lisa!! :laugh:

Nikki

Quote from: Nichole on September 27, 2008, 11:25:28 AM
Ask me about the War of the Roses.

Mistrals or American Beauties? :)

Yorks v. Plantagenets and we get Tudors in the end.  I'm a Yorkist!

Quote"They found a quick way to make a fast buck on derivatives based on A.I.G.'s solid credit rating and strong balance sheet. But it all got out of control."

The term is risk. Normally the amount of risk is based on the probability of success of the investment. Just as mortgage lenders did not inspect people's ability to pay a graduated mortgage payment as interest increased. A.I.G. failed to inspect the derivatives enough to understand the probability. High risk equates to a high return due to the fact that it can and sometimes does go bust. So you calculate the busts with the successes to get a reasonable return. A balanced portfolio contains both high and low risk investments. Very few understand derivatives, but if they promise a high return a flag should go up. Greed has overcome the watch dogs as they went for high returns without enough solid investments. These executives that gambled our security are no less guilty than the terrorist who kidnaps a ship.  Again the check is the auditing firm which is not doing their job. For they too do not fully understand derivatives and let it fly over their heads. These mathematical models are hidden in computers and known mostly by the programmer. A new watch dog is needed to expose these frauds.

Quote from: Nichole on September 27, 2008, 11:36:54 AM

I have trouble with things so imaginary that I cannot in some fashion hold them, touch them. Like a bond made entirely of someone else's promise-to-pay-what-they-owe. Hmmmm, $500K for the privilege of holding something that is worthless from the second it was made?

I dunno. How bout we regulate to an extent that says you've gotta offer something for something. You wanna play imaginary games? Get your buds together and we'll allow you to make-up all sorts of arcane fantasy games that you guys can play together. But we are not going to allow you to market them to anyone but yourselves.

You wanna play? We have this nice city park just over there, enjoy the roundabout.

Nichole

So how do you like fiat money, and I don't mean the cars!  The financial markets have greater similarity to a poker game than a produce mart.  I don't like it but it's reality.  I've always found when I fight reality I always lose.

Quote from: Claire de Lune on September 27, 2008, 03:18:10 PM

Quote from: Nichole on September 27, 2008, 11:25:28 AM
Ask me about the War of the Roses.

Mistrals or American Beauties? :)

Yorks v. Plantagenets and we get Tudors in the end.  I'm a Yorkist!

Figures, I can see you helping Buckingham make sure the little lads Edward and Richard in the Tower were strangled and then leaving your buddy Richard Rex afoot screaming something about "for want of a nail!!"

You guys should have left Warwick in-charge if ya wanted to win that little skirmish.

Of course, what with Spider Kings, an Aragonese player and that crafty ace Bolingbroke, perhaps you were doomed to failure anyways. Sometimes the times just point in a direction we don't wanna face. The end of chivalry and the beginnings of actual thinking monarchs, at least for a few decades.

I think tekla may have been right about your travel options back in that day, Claire. I can see you hooking up with Reynald de Chatillon and insisting that Guy de Lusignan should definitely leave Tiberias and the oasis to travel through a parched landscape with no water and lots of heavy armor, "after all your Highness, only about 20,000 well-watered Saracens and we are bringing the True Cross with us! Heck, when we get to the Horns of Hattin we can take the high-ground and have them right where we want 'em."

:laugh: Just kidding of course.

Nikki

Posted on: September 27, 2008, 04:28:55 PM

---

BTW, all money is fiat money, my dear, if there's no gold or something else of value besides the strip-poker game on the third floor to back it up.

Nichole

If you examine existing records you will see that shortly before their disappearance, provisions such clothing and bedding were bought for the Little Princes.  Also, the Tower was not a prison at that time but a fortified palace.  You are aware that history was written by Henry VII and it could be bad for ones health to say anything bad about the king?  Same with his granddaughter.

Prior to Bosworth, the claims of Richards nephews to the throne had been dismissed in favour of Richard's superior claim as the brother of the late Edward IV.  It seems the LPs were shown to be bastards due to Edward's secret marriage before his official one to Elizabeth Woodville.  Edward was a bigamist While inferior to Richard's claim, the LPs had a far superior claim to the throne than that of Henry Tudor.  Richard had no reason to kill his nephews, Henry had very good reason to do so.

BTW, the bodies of the Little Princes have never been found.

Did you read Richard or Buckingham as the instigator of the murders?

You really should pay better attention, my dear. Buckingham did have reasons to rid himself of the "LPs" and to undermine Richard. Go read P.M. Kendall for some interesting ideas. Lotsa bodies never get found and Perkin Warbeck's was.

Nichole

Liz, perhaps this is the time to question what you claim no one has ever questioned before. Sounds like you've got down a great imitation of Henry Paulson.

Having a job in a bank, or in the Vatican, and holding forth about the arcana of either money or salvation isn't exactly the same thing as living in the muck and grime of financing a home and whether or not you get screwed and someone who's worth billions plays fast and loose with "the invisible hand" and then wants a handout because "I'm too big to fail."

T-Rex might have thought the same thing as they died. "O, the world will end without me!" How extraordinarily silly. The world will somehow manage, just as it did before there was an American General or a Goldman Sachs.

As for Lancastrians and Yorkists, unless one is a supporter of Leeds United or Blackburn Rovers I don't think the distinction has held any significance for over 500 years.

Nichole

You're right, Nichole.  The world will certainly survive if nothing were done and things would work themselves out eventually.  It will likely take a number of years and there will be a great deal of pain and suffering for all people.  Liquidity will be bone dry as there are no institutions for anyone to borrow from.  No home loans, no credit cards, no loans for business - nada.  As I've said, I don't like the bail out but the alternative is worse.  Also, the current package is for more palatable than the original one.

The old bailout was a bad idea, the revised one still sucked.  I thought the deal was that we let these people make huge amounts of money based on their taking the 'risk' - oh well, risk has two sides.

I cede my snarkiness crown to ...Nichole!   >:-)

Posted on: 29 September 2008, 13:24:49

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Hey Tekla and Nichole!


Looks like we're gonna try it your way!

New York Times


[/size]

Oh, it was never your crown by any rightful succession, it was just something you seized by fiat.  (See, I can use the world in a sentence too.)

Its not my way, I would have prohibited them from doing all this in the first place.  But what it does mean is that we are not going to do it the Bush way, which was to give GW $700 Billion (with a B, BILLION) to pass out willie-nillie to all his pals before he leaves office.

Of course, Phil Gramm is the guy who brought all this on, as McCain voted for it, and now, we have to bail out their pals.  Sorry.  That idea sucked.  Bring me one that might work.  And bring me one that has as a part of it, criminal trials for those who made these decisions, and some proof that it might work.

Quote from: Claire de Lune on September 29, 2008, 01:33:13 PM
You're right, Nichole.  The world will certainly survive if nothing were done and things would work themselves out eventually.  It will likely take a number of years and there will be a great deal of pain and suffering for all people.  Liquidity will be bone dry as there are no institutions for anyone to borrow from.  No home loans, no credit cards, no loans for business - nada.  As I've said, I don't like the bail out but the alternative is worse.  Also, the current package is for more palatable than the original one.

Ya know, this scenario is not the only one. Other economists and "bankers" have actually made different suppositions that have it that the collapse of the casino-interests on Wall Street may well actually boost the abilities of non-giganormous banking institutions and the credit-liquidity is a matter of banks not wanting to release money now to other banks as a means of blackmailing the government into doing what they want the government to do which is to provide the players with a no-strings attached bailout.

That you two accept the direction of "czar" Paulson and his Goldman Sachs cronies, doesn't mean that "worst case" as you see it is inevitable.

You can cede whatsoever you wish, Claire, but I've hardly made the following comment to either of you, nor appealed to my own irresistable knowledge as did this:

Quote from: Lisbeth on September 29, 2008, 10:37:56 AM

Quote from: Nichole on September 26, 2008, 09:22:19 PM
Actually, for the both of you who may know banking, at whatever level, but not history or, apparently economics: feudalism was about as far from the banking interests in Genoa, Augsburg, Florence, Siena, and Venice as Wall Street is from Chihuahua.

Those people invented your precious system that's too big to fail, too important to have anything but it's own way. And then taught the English about how to create a Bank of England and, thus, your former lives. Illiterate, unsophisticated and rude they were not.

And people in the cities were no more "part of the land" than you are in SF.

Good grief! Get knowledgable before you make some blanket statement based on a rumor you heard in 9th grade, please.

Nichole

Oh, Puuulease, Nichole!!! You're blowing it out your ass.  I've never heard anyone on Susans question my knowledge of history before.  I know all about the Fuggers and their mideaval banking system.  What do you know about securities exchange?

Quote from: Claire de Lune on September 27, 2008, 11:13:11 AM
I have a BA in economics, Nichole.  And I'm a student of history.  Was in school, continue study for entertainment and knowledge.  Ask me about the War of the Roses.

Ask me about the War of the Roses and I'll you about my family's personal part in it.

which of course was conveniently deleted to leave things looking as if I just unleashed on one of you.

Please.

Nichole

Posted on: September 29, 2008, 04:32:49 PM

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The fact that "corrections" occur seems to always be the way of the world when it's me or you whose accounts are getting hit by the "corrections." The market fell because people started selling the stocks of the banks that had been holding the treasury to ransom to bailout their poor judgements and losing bets.

And, so people would have to pause and wonder if they fell due to the non-passage. This tactic is as transparent as Saran-Wrap, Claire, and we all know it.

Heck, if I had all my money on the bet that the bailout was gonna go forward with the "changes" that have been reported I'd be pulling money outta the bank stocks as well, at least the major players who are holding all those mythic "securities." I'm thinking the "security" of a gryphon farm would be much more secure than the packaging of debt that cannot be paid-off as a "security."

Heck, maybe we're seeing some real valuation occurring in the market.

Nichole

If nothing else, we are seeing the failure of McCain's style of leadership.  Not that Obama comes off much better.

Quote from: tekla on September 29, 2008, 03:44:15 PM
If nothing else, we are seeing the failure of   Not that Obama comes off much better.

pfff we have been seeing   the failure  McCain's style of leadership. in bush for the last 8 yr,s . and Obama just getting going. so he cant be

that bad at all yet .  :rolleyes: :rolleyes: :rolleyes:

Okay Nichole, I hope you're satisfied!  The earth stopped spinning aand the sky has fallen!  Thanks a lot you nattering nabob of negativism!

:laugh: Yes, I noticed all these fluffy clouds and shards of sky lying around and wafting around my yard yesterday and today, Claire! They were truly lovely and fun.

Who knew the world wouldn't end when the sky fell?!! :) Aren't you happy at how beautiful it all is! :laugh:

:icon_hug:

Nikki