***US financial crisis/bail-out master thread***

[m885]

^Touche, I was thinking of interbank loans and the reports of hoarding.

 

[SA]

The LIBOR has been dancing the erratic, funky chicken dance for well over two years now, m, maybe even longer. That a reorganisation of the American banking system is well overdue is a given. Some banks will fail either way, bailout or not. A handful of the bigger banks will survive on their own and another handful would have been saved or backed by the government either way as well. After the bank-eat-bank apocalypse, there would be credit. Maybe not at the same delicious rates as yesterdays, but there would be credit for consumers, business, homes and institutions. Just as there will be credit now, after this bailout mega money bag fizzles out. The only difference between the two scenarios, both of which will result in "we have credit again", is that in the current bailout scenario, the lower base of mortgage holders will have been wiped out, making the rebuilding of greater public spending and hence a regeneration of the economy as a whole that much more difficult. Given the choice of saving either a few CEOs or millions of people, I'll have to go with the latter.

 

[randall flag]

it gets even clearer now

"Even if the US’s massive financial rescue operation succeeds, it should be followed by something even more far-reaching – the establishment of a Global Monetary Authority to oversee markets that have become borderless." writes Jeffrey Garten, also a former managing director of Lehman Brothers.

Garten, now a professor of business at Yale, served on the policy planning staff of Kissinger during his time as Secretary of State. He also served on the White House Council on International Economic Policy under the Nixon administration and went on to become the Undersecretary of Commerce for International Trade under Bill Clinton.

Citing "globalization", a "clash of philosophies" and the "vacuum at the centre" of the current global institutional apparatus, Garten describes his vision for a new monolithic world authority to oversee all financial activity around the globe.

Here are some of the highlights (emphasis added):

A GMA (global monetary authority) would be a reinsurer or discounter for certain obligations held by central banks. It would scrutinise the regulatory activities of national authorities with more teeth than the IMF has and oversee the implementation of a limited number of global regulations. It would monitor global risks and establish an effective early warning system with more clout to sound alarms than the BIS has.

It would act as “bankruptcy court” for financial reorganisations of global companies above a certain size. The biggest global financial companies would have to register with the GMA and be subject to its monitoring, or be blacklisted. That includes commercial companies and banks, but also sovereign wealth funds, gigantic hedge funds and private equity firms.

The GMA’s board would have to include central bankers not just from the US, UK, the eurozone and Japan, but also China, Saudi Arabia and Brazil. It would be financed by mandatory contributions from every capable country and from insurance-type premiums from global financial companies – publicly listed, government owned, and privately held alike.

 

[rant*N*rave]

I want to see it all crash and burn. I'm willing to take the hit personally if it forces my fellow citizens to turn on their fucking brains and let a little information in. To be fair, a lot of people in the mortgage crisis got duped, but ignorance is never an excuse for idiotic behavior when it could have been prevented. An *Adjustable* Rate Mortgage, is adjustable, meaning the rate could go *UP*. OMG! Common sense should have resulted in that conclusion, but it's also in the contract THAT THEY SIGNED!

Americans have a disturbing and dangerous obsession with living in a false materialistic reality and one-upping the Joneses, and it needs to be nipped in the bud. If that creates another Great Depression, so be it. I know that *I* can manage one way or another, so fuck everyone else. I hate to have that attitude, but in the situation, it is the only one that's appropriate in my universe. Until people can prove that they are not completely fucking moronic and obsessed with money, they can go suck a railroad spike.

There is no room for bailing out a bunch of con men and the idiots that bought into it. We can't just keep throwing money at these sorts of problems, because that doesn't fix the problem - it will just keep happening over and over. Shit, it doesn't even really ameliorate the current issues, it just puts a pebble in the hole in the dam that's about to blow. We're simply reinforcing bad behavior. All of this shit is so over most people's heads... How about Congress writes a nice letter to all the people letting them know that they fucked up and that shit's gonna be bad for a while, and how to not be a goddamn idiot in the future.

And it doesn't help that we have a completely bullshit circus of a political system that has devolved into some asinine me vs. you game... But hey, I've got a smart family, access to fresh water, and lots of guns. So I'm not too worried... (I'm kind of serious though... )

 

[Infinite Jest]

bingalpaws: short answer, banks aren't lending (OK, they are, but nowhere near as much as they were last year, or the year before). Without banks lending to businesses (big or small) nothing's going to happen. No new factories or planes or power plants. No new restaurants or bookstores.

The reason why giving $2300 to everyone is a bad idea? They'll get it, they'll spend it or pay down some debt, and the credit markets will still be closed. By clearing the debt off the books of the big banks, they'll have sufficient credit that they will be able to lend, and the economy will (hopefully) keep moving.

(Like others, I think this sucks: I just think the alternatives are probably worse. I'd like to see serious reform as the price of this bailout).

Bel: I wouldn't rely on the Euros: there's a lot of talk that the crisis just hasn't hit the Eurozone next. A lot of the big European banks are very highly leveraged and could be in trouble soon.

To those suggesting other banks buy up the failed ones: sure, that could work - but those banks are likely to be Bank of China or Japanese banks. Want your entire banking system owned by Asians? I suspect not....

 

[SA]

The reason why giving $2300 to everyone is a bad idea? They'll get it, they'll spend it or pay down some debt, and the credit markets will still be closed. By clearing the debt off the books of the big banks, they'll have sufficient credit that they will be able to lend, and the economy will (hopefully) keep moving.

Rather than hand out inconsequential cheques to the general public, why not use the Fanny Mae and Freddie Mac which you now own as a government and apply the money there and to the FDIC to alleviate the pressure on affected grandfathered mortgages only, i.e. not on new mortgages? This way, the banks may take a bit of the hit, but the pressure from the defaults on mortgages will be mostly alleviated. The other way, you're removing the bad debt from the bank's books, but nothing changes at the level of the grandfathered mortgages. They still owe the same, doubled monthly payments which will force the people to walk away from their homes.

 

[m885]

So the Federal Reserve is opening the floodgates, along with multiple central banks abroad. CNBC is calling it a global bailout. We'll see if this bill even passes in the House- I wouldn't be shocked to see it flop.

 

[SA]

^
Entirely possible. The mounting opposition behind the scenes is greater than I'd expected. Don't know if anyone caught cspan last night, but there was a lot of heavy emotion brought to the floor to accentuate the opposition to the bill. All sorts of petitions are flying about, representatives being spammed and threatened with campaigns to ensure that they won't be re-elected and websites springing up all over the place to voice all of the above. All of this in barely the last 48 hours.

 

[bingalpaws]

The reason why giving $2300 to everyone is a bad idea? They'll get it, they'll spend it or pay down some debt, and the credit markets will still be closed. By clearing the debt off the books of the big banks, they'll have sufficient credit that they will be able to lend, and the economy will (hopefully) keep moving.

The debt's being cleared with taxpayer money tho - how about this - the average debt held by a US citizen is pretty high right now, so instead of the taxpayers giving this cash to the banks for nothing, we give it towards debts owed? The money is still back on their books, and we have something to show for the money we gave them, instead of giving them a handout to allow them to keep us properly indebted to them!! I dunno, it just seems asinine that people who owe to these banks are paying in a roundabout way here, it's just not touching their debts, perhaps there's a way to clear their debt AND give the people a reason to want to help the banks.

 

[m885]

Holy shit... this is going to be bad. I can't believe the House shot this bill down. Circuit breakers are probably going to kick in today. I'm speechless.

 

[youarewhatyouis]

wait, so the 700 billion isn't going to happen? isn't that a good thing?

 

[m885]

^It depends on who you ask. They're still trying to get the bill passed, but the stock market will probably crash today because of the no vote. It's hard to see anything but extreme damage to the US economy.

 

[Snowbear]

this is such a great post.

this entire disaster happened on the republicans' watch and, even thought they are the party of "not-spending" they're spending $700B more of our money and the record of the republican's candidate to next be president on this issue is abysmal...

and still you find a way to use this news to bash obama?

alasdair

I think calling the republicans the "party of not-spending" is an unfair characterization. The R's have never seen a wall street banker they did not want to help.

 

[m885]

^The Republicans probably just delivered a bizarre and massive blow to the banking system and the country in general. Look for bank failures, a credit freeze and market plunges in the coming days, weeks and months.

 

[Snowbear]

Since the Dems. have a majority in the house, why have they not approved the rescue?

 

[Infinite Jest]

^
A majority of Dems voted for, a bigger majority of Republicans against. So yeah, not just the Repubs fault.

I suspect that this would be a good time to panic.

bp: I'm not smart enough to give you a good answer, but I suspect there are flaws with that idea.

SA: you mean this deal will apply to new mortgages? That seems odd and stupid, so I can see your objection.

From all I'm reading, this isn't a brilliant plan or the best possible plan. But doing nothing would be a total disaster.

 

[m885]

Some Democrats voted against it for the same reason that the Republicans did. This plan was very unpopular and a lot of representatives were afraid of supporting it.

 

[Nickatina]

The debt's being cleared with taxpayer money tho - how about this - the average debt held by a US citizen is pretty high right now, so instead of the taxpayers giving this cash to the banks for nothing, we give it towards debts owed? The money is still back on their books, and we have something to show for the money we gave them, instead of giving them a handout to allow them to keep us properly indebted to them!! I dunno, it just seems asinine that people who owe to these banks are paying in a roundabout way here, it's just not touching their debts, perhaps there's a way to clear their debt AND give the people a reason to want to help the banks.

This would make so much sense. It would likely get our citizens on board and get this economy helped. As it was drafted, I don't blame anyone for not liking the bailout, for the reasons you brought up. It truly angers me that our legislature are not looking at OUR best interests when deciding to use 100's of billions of our dollars.

 

[DigitalDuality]

i couldn't say it better myself.

 

[Ernestrome]

Capitalists can buy themselves out of any crisis so long as they make the workers pay

http://www.guardian.co.uk/commentisfree/2008/sep/29/uselections2008.useconomy1

America has a terrible headache, but it seems like no one wants to cure it

For the election to make any sense in such a crisis, the assumptions of the past 30 years must be thoroughly challenged
All comments (97)

* Gary Younge
*
o Gary Younge
o The Guardian,
o Monday September 29 2008
o Article history

There is common sense; and there is good sense. Common sense represents the received wisdom of years and the widespread opinion of the day. It may be rooted in fact, fiction, rumour or reality. On one level it doesn't matter. So long as it is commonly held, then, in essence, common sense becomes a fact of life.

Good sense, on the other hand, represents those durable truths and stubborn facts that outlive their unpopularity. The fact that it is right does not necessarily mean that it is not marginal. It persists for the simple reason that prevailing conditions underpin its relevance even when prevailing opinion ignores it.

At times the two coincide, at others they collide. At different moments in different places, burning witches, a flat earth, eugenics, slavery, smoking in restaurants and corporal punishment in schools were all common sense. But they were never good sense.

"Common sense is not something rigid and stationary," wrote the late Italian Marxist Antonio Gramsci, who crafted the distinction from Mussolini's prison. "It creates the folklore of the future, a relatively rigidified phase of popular knowledge in a given time and place." Good sense, he argued, was often concealed in common sense, but emerged primarily in times of crisis and transformation.

We find ourselves in one such crisis now. As markets plunge, banks fail and traders panic, the core principles that have underpinned western economic and political culture for a generation have been thoroughly discredited. Less than a month ago the invulnerability and inviolability of unregulated global capitalism was common sense. The system that leaves half of the world living on less than a dollar a day, with some so impoverished that they are eating mud cakes and selling their children into bondage, was apparently working well. To suggest otherwise was to be dismissed as extreme.

But such orthodoxies can collapse even faster than markets. By the end of last week the US treasury secretary Henry Paulson was literally on one knee before Nancy Pelosi, Democratic speaker of the House, begging her to save the bailout deal. Later George W Bush warned of the entire American economy: "This sucker could go down." Suddenly, government intervention in markets, reining in executive pay and placing controls on the flow of capital are good sense.

While the gravity of the crisis is clear, the prospects for transformation remain remote. The fact that this meltdown took place during a presidential election should be fortuitous. It ought to provide the two candidates with an opportunity to lay out different visions of how they would tackle the situation at a moment when the nation is intently focused on politics. If ever the country needed leadership, it is right now. And here are two men vying for it.

Yet the financial crisis has, for the most part, made the presidential campaign seem less relevant, not more. The credit crunch and the election are taking place as though on a split screen. There is a connection between the two - Barack Obama has bounced back as a result of people's attention being refocused away from lipstick and pigs and back on to their mortgages, retirement accounts and jobs. But it is not a substantive one. For while the crisis has changed the electoral conversation, nobody is seriously looking to this conversation for new ideas, let alone a solution.

The notion that there might be alternatives to rapacious capitalism have been all but banished from the public square. That limited discourse leaves us with limited options. Those who claimed that the government was the problem now cast it as not just the ultimate, but the sole solution. Good sense demands a thoroughgoing reappraisal of a system that's in a state of collapse; common sense requires we subsidise it in perpetuity for fear that it breaks down. That sounds like nonsense.

"If you beat your head against the wall," Gramsci once wrote, "it is your head which breaks, and not the wall." Right now the American public has a terrible headache. And it doesn't seem as if this presidential race is going to cure it.

For this election to make any sense at this juncture it must challenge the assumptions of the past 30 years that have led America to this place. They are assumptions that have been aggressively promoted by the Republicans in general, and George Bush in particular. But to gain traction they had to be first conceded and then embraced by the Democrats. The result is an American self-image rooted in unrivalled military superiority and economic might now stands in stark contradiction to a more tawdry and tattered reality. Add the credit crisis to defeat in Iraq and problems in Afghanistan and what you are left with is a sub-prime nation - overextended both militarily and economically, living large and beyond its means.

It will be the task of whoever wins on November 4 to manage America's decline in status and power and a consequent further deterioration in Americans' standard of living. This process will be painful and could be protracted. Little wonder, then, that nobody wants to talk about it. Instead they keep talking of America as the shining city on the hill, without realising that the city they are referring to is bankrupt and the lights are about to be cut off.

It was clear from Friday night's debate that neither John McCain nor Obama really know what to do. The little that they will commit to are things they agree on. Both stand at the mercy of events and the market.

That does not mean it is irrelevant who wins. The difference between them on this issue may be marginal, but for now they are the margins within which we live, and in which many will have to survive. Back in 1932, in the midst of the Great Depression, many commentators lamented the lack of difference between Herbert Hoover and Franklin Roosevelt. One satirist wrote a searing piece about an imaginary match-up between Franklin Hoover and Herbert Roosevelt. "Given later developments, the campaign speeches often read like a giant misprint, in which Roosevelt and Hoover speak each other's lines," wrote Federal Reserve chair, Marriner Eccles. Whatever slight difference there was rhetorically would prove to make a huge difference in reality during a vital period. It makes as much sense to elect McCain as it would have done to re-elect Hoover.

McCain's response to government coffers depleted by the bailout isn't to rescind his tax cut but to freeze spending on everything but defence, veterans and entitlements - a military financial complex. Obama has conceded that his plans to expand access to healthcare, education and to make America energy-independent will have to be trimmed. Finally, the American political class has embraced a redistributive agenda. The trouble is they are about to divert public money from the poor to the bankers and financiers.

"Capitalists can buy themselves out of any crisis, so long as they make the workers pay," said Lenin. It is rarely regarded as common sense to quote him in polite company. Yet as a description of what is taking place right now, it is the most sense I've heard in a long time.