It seems to me that this approach gives US taxpayers the potential upside to giving government support to a bank, and also maintaining an arms length relationship between the government and the bank, with the SWF in between.

FDR had 5 months between his election and his inauguration, and the Depression had already been going on for 3 years and 5 months.

Obama’s crash came 7 weeks before his election, and he had 11 WEEKS from his election to his inauguration.

FDR’s bank holiday was declared March 5th, the day after he took office. Obama has just passed March 5th. FDR’s 100 days ended when? Around June 13th?

FDR had lived through part of the Long Depression, and also the one about 1907, and so did all of his advisors.

We may be being unfair to Obama. Not Obama nor his advisors has ever lived through a real depression. Maybe we should be giving him some leeway, letting them take some time to assess the decisions we are asking them to make.

I’ll tell you what, that 3 years of Depression that FDR had must have been part of the reason that the bank holiday was ready to go on Inauguration Day. He and his advisors had certainly seen what DIDN’T work. They had Hoover to show them the path to not take. For 3 freaking years.

One might also say that June 13th would be his equivalent time (from election day) to FDR’s 100 Days. We may not last that long, but. . .

My son has a degree in Economics, and the economists he pays attention to – Krugman, Stiglitz, Weisbrot, Dean Baker – seem to agree. Two of those are over my head, but what I understand of the other two, I agree, too.

The line of the Communist Party of Germany when they backed Hitler – the worse it is the better it will be.

First the deflation and then the revolution.

If Citi is down 99%, isn’t everyone already panicked and already beginning to see where they will be if that last 1% goes?

(I THINK the answer to that is that, even though the stock price is down 99%, Citi’s value is not really that low. I would guesstimate their overall net worth at about 40-60% of what they were in late 2007. That would put their stock price as one of the all-time great values right now. But the risk, I suppose, is keeping investors away – for the moment.)

He’s not repeating the mistakes of the past and is dong just the opposite: driving interest rates to zero and bailing out the too-big-to-fail banks.

He’s so confident he’s learned the lessons of history that he anticipates economic recovery in ’10. (Bernanke addressing the CFR, 3.10.09)

On the other hand he admits that the “powerful and pervasive effects of financial market failures” nearly took his breath away. He did not anticipate the magnitude of what happened…like Greenspan asleep at the wheel…but he is fully convinced that the TARP bailout was the best move to make. He believes deep in his bones that “stabilizing the financial markets” is the priority and the key to recovery.

The stimulus may be important, and he won’t speak to the decisions of Congress, but bailing out the banks to fend off systemic failure is the sine quo non. Furthermore, financial stability will not be achieved thru nationalization. He doesn’t believe in changing horses in mid-stream, which could only increase systemic instability.

He’s fully committed to putting Humpty Dumpty together again, with a new regulatory regime involving an uber-agency called the “systemic risk authority” and increased transparency and accountability in all the markets, especially in the new derivatives market, the new domain of “financial economics”. “Illiquid or idiosyncratic assets”, as he calls them, the financial innovations arising from this new school of “financial economics” have to be better integrated with the more “mature” instruments and appropriately regulated to inspire investor confidence.

Our future is riding on his analysis of economic history and his belief in the priority of financial markets. It is for this reason that our future is very grim indeed. It is very easy to speak of the future since it hasn’t happened yet, whereas one can footnote statements about the past.

The past is prelude and the past demonstrate the failure of finance, whether through the national banking infrastructure of the past, or in the concentration of financial wisdom and control that is our Federal Reserve in the present.Finance does not manage the economy very well at all. The Fed has failed in its mandate to maintain stability and lessen the impact of the so-called “business cycle”. This crisis is the most spectacular to date.

We are witnessing the failure of the latest financial innovation inspired by the work of Myron Scholes & Robert Merton and the school of “financial economics” itself. It is a colossal bust. Securitization, derivatives trading, it’s all a smoking heap of econometric delusion.

Nationalization is inevitable. Get ready for something that is not taught in schools. Throw out your tired old text books, including your Adam Smith! Private capital has failed to manage its private financial system. Is there any dispute about this? Do the banks and brokerages showing up at the government doorstep, hat in hand, palms outstretched, speak of the success of private finance? That is why we will have a public system.

But Bernanke will do his utmost to get the wreck up and running again in the name of the class interest he represents, his friends at the Council on Foreign Relations and other elite enclaves. And everyone else will suffer, the great mass of people bamboozled by the economic bs promoted on this website and so many others, and those who follow the pied pipers of finance as well.

The cause of the crisis is not difficult to understand, though Benanke doesn’t get it, as no financier does. The cart does not pull the horse. The horse pulls the cart and the horse in the producer, not the financier. The financier is a parasite who rides in the cart.

Go figure.

Jim, you say, “We need a statement from the Fed – a public commitment to a price level target – a promise that prices will be x higher in y years. That promise, if believed, will get people to spend more now – before their cash in the bank erodes.”

Why do you think that? Not that we can take a Gallup poll at face value these days, but the Gallup-Healthways Well-Being Index from USA Today (03-10-09) says that 62% of us – 5 out of 8 – are “struggling or suffering.” What I am seeing and hearing around Illinois does lead me to think they are close to the mark. People right now aren’t worried about maybe losing a little value to inflation. They are more worried whether there will be food on the table in 3, 6 0r 12 months. A LOT more worried. No one is planning vacations this year AT ALL. Everyone is hunkering down. Worrying about losing a few percentage points to inflation – if inflation is even happening – is such a ‘pre-Depression’ mentality, something from long ago, like late 2007.

Mark Weisbrot points out that, “But inflation is falling in most of the world, and in the US, prices are actually dropping. The US consumer price index fell at an annual rate of 8.4 percent over the last quarter.” (http://www.truthout.org/030609J)

It seems we are going to NEED all that government money in the economy, just to balance out the deflationary spiral that is trying to take hold. As I learned it, in the 1930-1935 period the money supply dropped by a third.

On inflation – 5% nominal GDP growth would be just fine. That is the Feds standard target. Just have the hit it!

More inflation than expected. It is not really about inflation – it is about inflationary expectations – to get people to spend – to change their behavior – and their attitudes.

The change in expectations in the tips market is not what I have in mind. We need a statement from the Fed – a public commitment to a price level target – a promise that prices will be x higher in y years. That promise, if believed, will get people to spend more now – before their cash in the bank erodes. Changes in rate expectations are not powerful enough – because they could also change back – and might – and we all know it. A commitment is very different – because we all know the Fed can make that happen – whatever expectations are. Therefore it will be believed. And behavior will change. Houses, cars, and stocks will be bought. The action will move from the bid side to the asked side. Real wages will fall and employment will rise.

The Fed has lost control of the money supply – and of monetary policy. No one believes them. Bernanke is passive – sitting in Congress and saying that he EXPECTS – economic activity to be slower for a year or two. That was entirely and utterly dreadful – the thinking of a passive bureaucrat – not of a leader – not of a Volcker. It is Bernankes job to CAUSE things to happen. It is our job to expect them.

Summers has said that the government should now do “too much” – because the economy is doing to little. But the Obama administration is not doing too much – it is doing too little – about the immediate financial crisis – and his nice indeas amout stem cells or Iran or environment – who could possibly care less if we have a depression. People are really starting to wonder what plant he is living on.

The stock market in the last two months has had the worst two months in the entire history of the stock market. People should really really think about that. It both reflects and causes the most profound kind of deflationary fears. The worst two months ever – ever – ever. That is really not good. And the dollar is climbing. Both of those things both reflect and cause deflation. Straight panic is right round the corner. And Obama dozes. And reminds us how politically correct and wonderful he is. When I see him on tv now I turn it off and gag. I voted for him – but his budget is a lie from end to end – and he knows it – and so do I. That is really not good. If he is not careful he literally will be the next Hoover. His chance to be the next Roosevelt is already shot.

Which is why people are so entirely freaked out. By this time in his administration FDR had prices rising and production making a big time come back – by going off gold and giving us an unexpected inflation. And the banks were in worse shape then than they are now.

Why has Bernanke not done this? He is fully and entirely aware of everything I have said. He is not an Andrew Mellon – a conscious deflationist (though there sure are plenty of these on the web). But Bernanke is giving us deflation. His policies are NOT WORKING. Does he not notice this? By the Taylor rule – which he is entirely and totally aware of – short rates now should be at minus six percent. Money is greeting tighter and tighter and tighter, as prices fall and fall. It is entirely and totally insane. And he sits there and does nothing. Why?

Because he is a frightened little mouse of a man. Because he does not have the votes on the board to do this. Either it is this or he really has gone insane.

He needs political cover from Obama. To aim consciously at inflation is not a normal policy – to say the least. Obama should say that an inflation is what he wants – and then direct the Fed to get one. That would give Bernanke the cover he needs. And that would be the decisive “too much” policy that Obama needs. Then he can give a many speeches on stem cells as he wants – though I still won’t listen to them.

And – I think – toss out Geithner and replace him with Volcker. Nixon goes to China. People will trust Volcker to give us a moderate and careful inflation.

And then – the very next day – right after the speech – recap the banks.