Can we agree upon some basics?

[kentuck]

Nobody knows what to do about the banks. Not Timothy Geithner, not Barack Obama, not Larry Summers, not Paul Krugman, not Joseph Stiglits, no one. Because there is no template to follow this time around. We can keep the banks alive or we can let them die. It is up to the taxpayer, or the taxpayers' representatives in government. Everyone is just waiting for the sunshine to light the path. Nobody knows the way.

We may fool ourselves and say that they are experts, they have degrees and Nobel Prizes in economics. But they don't have any more training than you or I, in the present dilemma facing our country. Nobody knows what to do so they keep shoveling $10's and $100's of billions of dollars to the banks so that our capitalist system can stay alive. Because we do not want to see what will be left behind if we let capitalism fail. It is simply too gruesome to imagine.

So we pretend there are experts to lead us out of this maze of debt. But, there is no one. What happens if there is no money to replace the money that we are giving the banks? What happens if that money is taken out of the economy and no more is printed to take its place? What happens then? The thought must cross our minds, "are we all being played for suckers?" For certain, we are all in this boat together.

[leftstreet]

1. Agree! Although I'm not afraid to let Capitalism die

Capitalism itself has become too gruesome to behold

[MrModerate]

9. Oh, phooey. And do what instead in the way of economic activity? n/t

[Occam Bandage]

2. "What happens if that money is taken out of the economy and no more is printed to take its place?"

I am confused. You seem to think money is something that the government mines from limited Money Veins, and we might just run out someday and then wouldn't things be bad? Money is an abstraction of value, and value is constantly being produced by almost everything anyone does.

I also don't get your point. It seems to be, "We don't know how to fix the problem. Neither does anybody. Maybe Obama is going to use up all the money and then we won't have any money left and that would suck." Is that it?

[kentuck]

4. The FED controls the money supply.

They have for sometime. They put money into the economy when it needs warmed up and they take money out when it needs cooled off. It is as simple as that.

"Money is an abstraction of value, and value is constantly being produced by almost everything anyone does." And what are people doing to produce value or money? Are they producing less than what is taken out of our economy?

So now, the FED, and the banks, perhaps out of fear of inflation, seem to be cooling off the economy? Perhaps it doesn't matter how much money we give the banks if they lend it back into the economy? Unfortunately, they are not lending it back into the economy. The economy is gasping for dollars and cannot get them. There are stories of businesses unable to get money to stay in business because the banks will not loan out the money. They have the money, but they will not loan it out? Why?

Because they are busted? Money is not just a simple abstraction.

[truedelphi]

6. I advised this person to watch the

Bill Moyers/Black interview.

Black sums everything up nicely. I wish that before anyone said anything about the economy, they had to watch this video

http://www.pbs.org/moyers/journal/04032009/watch.html

[kentuck]

10. During the Depression....

there were too few dollars chasing too many goods...that seems to be the direction we are headed, in my opinion. Unlike inflation, where too many dollars are chasing too few goods.

[Sebastian Doyle]

3. What to do is to UNDO the last 28 years.

Everything that Reagan, Poppy, Clinton, and Chimp did to deregulate and enable these thieving assholes. Roll it all back. And start busting up all corporations that are too big, especially banks like Chase and Shittibank.

I also think it's time to get rid of the "Federal Reserve" (which is neither) but that's a little off topic.

[Lasher]

11. I believe Obama's plan is to stabilize the banks first, them break them up in an orderly manner.

We are throwing huge sums of money at the mega-banks to get them stabilized. But I'm afraid that subsequent reorganization will be thwarted by the powerful banking lobby. If so, and unless we repair damage done by the Gramm-Leach-Bliley Act of 1999 and the Commodity Futures Modernization Act of 2000, we will have done nothing to prevent this calamity from happening again.

[truedelphi]

5. You get my viote for the OP with the most erroneous thesis

In any OP since I visited Freeperland three weeks ago.

There are many people who understand what needs to be done. Some of them would be the wise and honest banking insiders who were smart enough and hoest enough to try and tell their bosses at AIG, and other places, that the economy would implode if illegal, ersatz and dishonest policies were allowed to stay in place.

And First and foremost, we need to have a Congressional inquiry into what has gone on. (FDR called for a hundred days of Congressional sessions to sort out what happened back at the time of the Depression.)

We also need to remove criminally complicit Geithner, Bernanke, Summers and Rubin from their appointed poasitions.

You don't have to believe me - just ask students of FDR's - remember, he's the wise man who said it was more dangerous to be friends with organized babanking than organized crime families!

Anyway, since I doubt you will believe me, why not educate yourself? And watch this Bill Moyer's interview with Black (The man who helped put our economy back together after the Savings and loan debacle)

PS you REALLY need to wake up and understand HOW ILLEGAL what obama's henchmen are doing
http://www.pbs.org/moyers/journal/04032009/watch.html

[kentuck]

8. "wise and honest banking insiders..." ?

Surely you jest? Where were they and where are they now?

I have watched the interview of which you speak. I am not defending any of the folks you mention above.

I am saying that I do not have confidence in any of them. I do not have confidence in the solution put forth thus far.

Thank you for educating all of us.

[truedelphi]

17. As far as wise and honest insiders

This is off Daily Kos - originally fromt he NYTimes:
"But as a senior mortgage underwriter at Washington Mutual during the late, great mortgage boom, Ms. Cooper says she found herself in a vise. Brokers squeezed her from one side, her superiors from the other, she says, and both pressured her to approve loans, no matter what.

"At WaMu it wasn’t about the quality of the loans; it was about the numbers," Ms. Cooper says. "They didn’t care if we were giving loans to people that didn’t qualify. Instead, it was how many loans did you guys close and fund?"

Ms. Cooper, 35, was laid off a year ago and is still unemployed. She came forward to discuss her experiences at the bank in order to help shareholders recover money from WaMu executives."
<snip>

Also, "Keysha says there were bribes involved, and that she was even offered 900 dollars to pay her son's football fees, but that isn't even the worst of it. Keysha turned down mortgages that didn't even have the right address. Yes, homes that didn't even exist were given mortgages."

Besides Keisha, 'Sixty Minutes' had another Whistleblower on one of their shows earlier this year. I wouldn't be surprised if every investment firm and bank had at least one brave and honest soul trying to get their company to do the right thing. Honest people do exist. My father was someone like this.

[truedelphi]

18. Your thinking that we may end up with not inflation, but empty shelves

And vacant stores, is a valid one.

I watched a C span hearing back in March with Senators trying to find out from Ms Warren, who heads the oversight committee currently in place to keep watch on Geithner. And at that hearing, one Senator expressed his fears that this nation might end up like Romania. Which is a place where there was such a bad financial situation that no one sent the Romanians much of anything, and all they had to spread around was a whole lot of misery.

I worry about that too. We are in uncharted territory. Since Obama's appointees are not doing the right thing, we cannot foresee with any precision what will occur. Bernanke looked very uncomfortable when Ron Paul questioned him yesterday - he knows that Ron Paul is on to him, and to the whole theory of our nation needing a Federal Reserve - especially an unregulated, Goldman Sachs insider connected Federal Reserve.

But the other people questioning Bernanke were either bought off or else financially unaware. How else do you explain a Congressman who before asking his pitiful questions of Bernanke says, "Well I don't have too great an understanding of financial matters on the level where you over at the Fed are operating," and then asks such a simpleton's question that it was embarrassing that Bernanke took the question.

How does someone like that run for office? Does he go around with the slogan "Dumb about the economy, but boy am I fun to have a beer with?"

[kentuck]

20. I worry more about deflation than about inflation...

I agree with you. We are in uncharted territory. And 95% of the Congress know less than the average DUer about economics, in my opinion. Goldman Sachs has been involved with every penny of these bailouts since day one of this crisis and they have received the money or they have determined who received the money. It was their decision, along with Paulson, to let Lehman Brothers go under, because they were rivals of Goldman Sachs. I guess Goldman Sachs won...?

[Political Heretic]

7. No, I don't agree with that at all.

But its bedtime so... maybe tomorrow.

[SanchoPanza]

12. Not if these are the basics.

I'll try to go through this point by point, but I'm not exactly sure where to begin.

1) There are experts, and we have been through this before. Multiple times, in fact. We've faced both spiraling inflation and deflation, and have the tools to combat both. The only problem is our tools to combat deflation are a bit rusty, since we haven't had anything resembling serious deflation since the late 1940s.

2) We can recapitalize the banks in their present structure (actually, that is what we have done), we can put them into receivership and recapitalize them, we can nationalize the entire financial sector, or we can capitalize an entirely new financial sector and let the current banks die. The first option entails the least amount of risk to the economy as a whole, so that's what Geithner and Bernanke are doing. They're not politicians, so they don't care about the political risk of giving large sums of money to greedy assholes.

3) Banks don't take money and stuff it in a mattress. They invest it or they buy stuff. Either approach keeps money in circulation. If a bank goes under, their creditors get the money and the government makes up any shortfall. The problem we're facing is one of asset deflation. Money, in point of fact, is worth too much compared to stuff you buy with it. To an extent that everyone is refraining from spending or investing out of fear that the value of what they buy will decrease even more.

[kentuck]

15. I would agree with your points but we should also understand...

that it was the "experts" that got us into this mess in the beginning. Blind faith in the same experts may not be a sign of wisdom, but stupidity. We need intelligence and common sense, moreso than expertise in the banking system, in my opinion.

[SanchoPanza]

19. Expertise is verifiable, and measurable.

The obsequious fawning of the chattering class toward people like Greenspan, who spoke complete jargon for much of his tenure as Fed chairman, is not a criterion of expertise. Underneath it all, Greenspan was simply an Objectivist lout who tried to use his influence over the money supply to control public institutions that were, legally and ethically, beyond his pay grade. One can have reasonable criticisms of Bernanke, Summers, Geithner, Stiglitz, Krugman, DeLong, or any other professional economist weighing in on this fiasco. But they earned their bona fides.

Being familiar with basic tenets of macroeconomics is a necessity if you want the ability to fairly judge whether someone is feeding you complete horseshit or not.

[omega minimo]

13. Why are you totally ignoring the economists who have spoken out about what needs to be done!!!!!

:wow:

[truedelphi]

21. I think he wrote the OP in a confusing manner

He believes that he is saying that we are in uncharted territory - precisely because Obama is doing something that no one fifty years ago would imagine anyone doing. You don't let the rats who gnawed the holes in the ship to stay at the helm. But that is what Obama is doing.

You might check out his responses to me. he does know that there are people with answers - but since those real answers are not being followed, how the heck can we know what will happen?

At least that is my take on it. (Especially after reading his replies to my remarks.)

[GeorgeGist]

14. I agree that true believers in capitalism ...

have no empathy for their victims, but the experts don't.

[PufPuf23]

16. The solutions are obvious; but political and institutional inertia

and vested "economic elite entitled" interests are the problems in solving the financial crisis. I do not like the direction of Geithner, Summers, et al one bit.

Sarah Palin and killing wolves by helicopter is an apt metaphor for an ecological description of why feeding the black holes of insolvent bank holding companies is a bad strategy.

The economy is an ecosystem just like the wolves-caribou-vegetation-soil/sun/water complex in Alaska. The relationship is a pyramid capped by the predator wolves and caribou consumers and users of vegetation for food and shelter. Think of the soil/sun/water and vegetation as natural resources and infrastructure respectively required to support caribou. Caribou populations feed the wolves. Killing wolves flattens the triangle and increases the number of caribou for hunters in concept. Caribou populations go through cycles, not unlike business cycles, where their food, the vegetation is renewed by fire with a commensurate rise in caribou population. Caribou age class structure, health, and fecundity vary as well and wolves "thin" the weak and wolf population cycles somewhat lag the condition of the caribou herds.

Dumping billions of dollars into insolvent bank holding companies in the hope that they will extend credit for businesses and consumers is in fact merely hope and an attempt to buy time to re-inflate failed institutions. We citizens face the situation where infrastructure (in the broadest sense including roads, schools, small businesses, manufacturing, and so on) is degenerating and we are a poor prey base for the financial elite. The last thing consumers (us caribou) need is more debt. What we need are good paying jobs, health care, education, and so on. More debt is a caribou with more ticks.

I would compare dumping billions of dollars into insolvent bank holding companies to dropping cow carcasses to the wolves because the caribou population has collapsed. Not only is there no certainty that the monies will be made available to businesses and consumers, but, even if credit is extended, the major problems are existing consumer and small business debt combined with the collapse of asset values, loss of jobs, and loss of consumers: think collapse of the vegetation needed by the caribou for food and shelter.

A rational solution:

1. Reinstate Glass-Steagall and break up the bank holding companies. Not only are the mega-bank holding companies "too big to fail" but the very nature of combining commercial banks, investment banks, and insurance companies creates a system full of "moral hazard". The break up could be by bankruptcy or nationalization (IMO the better solution) to separate the wheat from the chaff and then re-privatize solvent financial businesses. As an aside, a healthier and more robust economy would be to reduce the size and bring back more locally-owned businesses in general. The "box stores" literally drain capital out of local economies.

2. The taxpayers' investment in the financial institutions should be limited to equity investment in marginal parts of the broken institutions. The monies are best spent at the bottom of the ecological/economic pyramid to improve the lot of consumers and small business. I would suggest investment in: (1) infrastructure, education, health care, and new technologies; (2) true cost of living adjustments in programs like social security and even welfare over the short term; (3) lowered tax rates for 95% of the taxpayers and highly progressive taxes on the top 5% until the economy is stable; (4) debt forgiveness or rate reductions on student loans and credit cards; and (5) mark to market principal reductions on mortgages. Spending stimulus monies on us caribou will have a 5X-7X multiplier effect that will ripple upward through the economy while pouring the same dollars into the top serves failed institutions and financial managers with less economic multiplier effect for society as a whole. Socialized health care for all with private insurance an option would be my preference and best for small business and social welfare. We need far more and better trained medical professionals.

3. Re-regulate the financial institutions and re-structure the Federal Reserve system. More transparency and oversight is a requirement. Limit the use of derivative securities.

4. Re-think global trade agreements and limit foreign ownership of domestic assets. We need to be wise in decisions about the environment and use of natural resources.

The current stock market recovery is a mirage until us caribou have adequate food, shelter, other necessities, and and discretionary income and time for pursuit of happiness. Tax payers and the less fortunate need adequate income from jobs and entitlement programs. The volatility of the current stock market (up 200 one day, down 110 the next and so on) is not a sign of recovery but of profit-taking by hedge funds and large private investors that invest on market volatility not value. We are consciously or unconsciously being set up for devalued assets further consolidated by the large investors with cash that is being drained from the market.

[PBS Poll-435]

22. No.

The stress tests are a friggin joke.

Krugman has been silent about the banks, lately.

It isn't as bad as they want you to think.