Political Will: Bernanke On The True Cost Of Banking

Stabilization programs in emerging markets often come down to this: the government needs to do something unpopular, e.g., reduce some subsidies, privatize an industry, or eliminate the crazy credit that goes to oligarchs – no one likes oligarchs, but their factories employ a lot of people.  There is naturally resistance - pushback from legislators, riots in the streets, or oligarchs calling their friends in the US foreign policy establishment.  The question becomes: does the government have the “political will” to get the job done?

In fall 1997, a key issue for Indonesia’s IMF program was whether the government could close the banking operations belonging to one of President Suharto’s sons.  There was an epic and fascinating struggle and, in the end, the government did not have sufficient political will or power.  The subsequent loss of US support, and further currency and economic collapse is (messy and painful for many) history.

It is striking that Ben Bernanke now asks whether the United States today has sufficient political will.

How did we get to the point where the U.S., with a strong balance sheet relative to the size of problem banks, is regarded – by the markets and more broadly – as less likely to resolve the problems in its financial system than say the British (with big banks relative to a weak fiscal position) or the Germans (who talk all the time about how they are not going to bail anyone out)?

You can point the finger at Congress.  The parliamentary system in Britain and Germany means that the government can implement and innovate a bailout policy without worrying about being able to legislate enough financial support.  The Obama Administration has much to worry about in this regard.

The problem surely goes deeper – at least back to the bailouts of the fall.  Poor communication, particularly by Hank Paulson, undermined popular and congressional support.  And the lack of a consistent strategy exacerbated initially negative perceptions.

But the underlying issues are deeper still and laid bare by this week’s latest round with AIG.  We have moved far beyond financial policy and into the kind of scandal that really gets taxpayers’ backs up.  The greed of bankers slaps you in the face while the hubris of their leadership remains unchecked. 

There is no sense of responsibility, no feeling of shame, no acknowledgment of any kind of mistake: read Lloyd Blankfein’s FT article again – or print it out and tape it to your wall.  Because we now know, from the newly disclosed AIG counterparties list, that the wealth of Goldman Sachs insiders remains high solely because we saved their sorry bank, their failed risk management strategy, and their pretence of wisdom with our cash in mid-September.

This resentment against bankers pervades Congress, and even the Administration begins to get the message – being called “asinine” yesterday by Richard Kovacevich, the Chairman of Wells Fargo, may have helped underline to Treasury how deeply the bankers appreciate the help they have received.  There can be no resolution and no moving on until there has been a proper congressional investigation, with full subpoena powers, into exactly what did and did not happen around AIG.  This will take months and may well slow down the economy (Jamie Dimon’s clever point: if you vilify us, you will lose), but it is now inescapable.  And, if channeled productively, this kind of hearing may lead to a better regulatory system (and smaller big banks) than the current anemic proposals on the table - as last weekend indicated, the G20 process is currently worse than useless on this issue.

Ben Bernanke knows all this, at the same time as he sees our economy worsening and global storm clouds still gathering.  So where will he take us, starting with the Federal Open Market Committee meeting this week?  The British experiment with quantitative easing is pushing down the yield on long government debt.  It’s risky - inflation, once started, is not so easy to control.  And it may not work so well in the US (where the dollar tends to appreciate as the world becomes more scary) as in the UK (where they can successfully push for depreciation, particularly vis-a-vis the hidebound eurozone). 

Inflation breaks the political and social logjam around banking.  With some luck, it helps growth – at least in the short-term.  And of course the surviving bankers win big.

50 responses to “Political Will: Bernanke On The True Cost Of Banking

  1. Pingback: Political Will: Bernanke On The True Cost Of Banking - Smart Taxes Network

  2. A few years ago, my wife and I took a sailing course on a 38-foot boat with four other people, including a couple in their mid thirties who, as we came to know them, turned out to be extraordinarily guarded about what the husband did for a living. Our imagination ran riot – MI5 anti-terrorist, IRA enforcer, drug czar – what employment could be so unmentionable?

    Worse. It turned out that he was a Goldman Sachs partner, one of those who had just made £52 million from the public offering. We learnt that they and other Goldman Sachs partners and spouses were attending courses on how to cope with sudden wealth.

    Such furtiveness suggested to us that they were at least highly embarrassed by so much undeserved affluence. Therefore, I expect that many of the individuals who were attracted to banking by the easy money are sensitive enough now to be feeling some kind of Post Traumatic Shock Disorder. It is the fashionable affliction these days… yet far less miserable, for sure, than the lives of those now living in tent cities who have to walk a mile to toilet or showers, or the misery of the world’s 3 billion poor whose increased sickness and starvation is the real price of the bankers’ grotesque avarice.

    Contrition from Blankfein? No chance. However, in their hearts they know.

  3. Putting aside the heated rhetoric for a moment, let’s look at it from a banker’s perspective. Their whole job is based on trying to make/get more money. Period.

    Label it “bailout”, say they should be “ashamed”, etc., etc., but at the bottom line, the US taxpayer showered money onto these banks free and clear. So at the bottom line, after the catastophic mistakes they made with structured products, the banks got paid for them. This explains why *some* of these top bankers don’t seem s chastened–they’ve pulled off a “heads I win, tails you take most of the loss” scheme. I’m not saying that attitude is right or wrong, just that it is.

    If the government didn’t want I. Bankers to keep acting like I. Bankers, it should have either a) taken over an ownership stake and imposed its managerial will, or (more preferrably) b) recognized insolvent institutions as such and liquidated them. “Too big to fail” is just marketing-speak for “the consequences of doing the right thing is too unpalatable to our elected officials”.

  4. All the big wigs think that we can’t nationalize the big guys because the people don’t want the government to run big businesses, however if we fired every last one of those lousy bankers I think people would be dancing in the streets. People want heads to roll, why not use that to our advantage?!

  5. “…Stephen Schwarzman, was actually upbeat on the long-term prospects. As he scans across the wreckage across the global economy, he sees lots of compelling values… To this end, Blackstone is focusing on distressed opportunities, especially through its GSO Capital Partners fund (which has experienced a nice pop in capital inflows)…” http://www.bloggingbuyouts.com/2009/02/28/blackstones-stock-dimwitted/

    “…with the total breakdown in public confidence, I don’t think it matters very much what we businessmen think about ourselves. What matters is what the public thinks, because their public trust is what’s really crashed. And I brought with me a survey that I just read this morning that is very melancholy, and it makes me sad and perhaps even a little ashamed… And I imagine for the moment that instead of us guys engaging in self-serving soothing declarations, we look at what’s going on here from the standpoint of the public…” http://ftalphaville.ft.com/blog/2009/02/20/52718/lowlife-grave-diggers-at-the-big-fix/

  6. Given you acknowledge that Congress has become resentful of conceited bankers, it’s probably worth considering that what is driving the G20 (see your post “Much worse than you think”) is a parallel resentment of the perceived conceit of the Washington Consensus.

    Former Reagan adviser Dr Jerry Jordan recently likened the USA’s crisis to going over a waterfall – with no prospect of getting back upstream. He said the world needed to adjust to this, particularly Asia.

    Some G20 leaders may share his perspective, and even be enthused about the fall from grace of the USA & the policies it is perceived to have pushed globally. They may be comfortable risking crises at home in order to wipe out the credibility of the IMF.

  7. Forgive me for saying this – but I think you are being a little unfair to our central bankers and elected officials.

    When you say “doing the right thing is too unpalatable”, you presume that the “right” thing is punishing the culprits (bankers) even though the cost of doing so is harming literally billions of people caught in the crossfire. Many of whom are innocent.

    Some of those people – particularly those in less developed countries – will die as a result. Or will see their children die.

    And even if we did the “right thing”, do we really think that moral hazard is the only (or even primary) cause of these crises?

    The argument you are making is this:

    “The free market _would_ have worked, if only the foolish government had allowed the incentives to be strong enough.”

    The counter arguments are:

    “The cost of enforcing these incentives are so unconscionable that we cannot follow through (and sadly they know it).”

    And

    “Even if we enforced the contracts, we’d still get banking bubbles – the other cognitive, behavioral, organizational, and legal factors overwhelming favor bubbles, and hence collapses.”

    Frankly, everyone needs to be on one side of this debate…

    Either you believe we need markets that are _more free_, or you believe we need markets that are _less regulated_.

    And the consequences to this choice are incredibly real.

  8. Look, the financial sector failures are market failures in that the markets (whether traditional banking, mortgage, CDOs, CDSs) did not price risk accurately, and the actors in the markets irrationally put their own short term profits (and shareholder dividends) ahead of long term market growth and stability as priorities. Most of the guys (and notice it’s mostly men) running the banks and the government response can’t deal with that emotionally, because they were too invested tactically in that market failure. So now, when some of the TBTF banks need to fail to restore proper risk pricing, the government can’t do it because governmental managers don’t have the stomach for it.

    That’s a whole different apple cart, BTW, from the American people having the stomach for it.

  9. “Because we now know, from the newly disclosed AIG counterparties list, that the wealth of Goldman Sachs insiders remains high solely because we saved their sorry bank, their failed risk management strategy, and their pretence of wisdom with our cash in mid-September.”

    ???—-Simon, certainly you had to have known this before now. Everyone who followed the markets knew in September that GS and others were on the hook for double digit billions due to collateral calls on unsecured, 100% self financed, maximum leverage loans (otherwise known as Credit Default Swaps) made to AIG. (BTW, will anyone in Government inform the market place just what percent of this pass through collateral actually represents underlying defaults—versus mark to market—on the underlying debt AIG “insured”?)

    It has become almost a matter of religion among some to resist any serious discussion of the difference between “mark to market” and actual non-payments by borrowers. It is as if we fear a return to the dinosaur days of the 80s and before. But this actually matters. There is a difference between getting paid and not getting paid on the loans you have made, regardless of “the mark to market”. If one ever lent anyone money I am sure this can be appreciated.

    The overwhelming percent of losses has come from “marks”, or expectation and confidence about the future. Every time a government official or public commentator for that matter, uses the phrase “toxic assets”, prices of mortgages decline another half percent. I would love someone to define in operational terms what a “toxic” asset is. I believe this is a merely bad crisis—effectively a localized real estate bubble—turned horrific by panic and fear led by Hank Paulson–and now continued very ably by the Obama team.

    I know I may de-emphasize “systemic” issues too much; however, this crisis was given an accelerant by Paulson due to bailing out AIG and his preposterous policy bait and switch on the “TARP” bill. I am convinced that his actions caused the length and severity of this crisis. It is hard to accept that a severe housing bubble in California and Florida could have caused what has happened. But it did because he turned what was a severe crisis, on the order of magnitude of the 1990s, into one much worse.

    His actions were so stunning and absurd it is almost easy to forget them. He sent Bush out to tell the country in late September that if the Treasury did not purchase $800 billion of mortgages the system would collapse. The bill is passed and 2 weeks later he is handing out applications for preferred stock instead. I believe he thought the “about to happen” failure (when Bush spoke to the nation) of WaMu and Wachovia was about to take the system down–especially on the heels of AIG. Then, while Congress debated, the 2 banks were peacefully merged. So he now realizes he blew it.

    His plan then morphed into forcing banks to take preferred stock because he did not know what else to do. He couldn’t just say “never mind”.Then he insults us with his absurd “Bayesian” Keynes quote about changing his mind when the facts change. What facts changed in those 2 weeks? He followed this up with a trial balloon a week.

    Ironically, of course, we still are talking about buying “toxic” assets. We still refuse to acknowledge what is happening, which is we are in the financial equivalent of a crowd rushing from a theater as someone yells “fire”. And know one in Government has the knowledge and confidence to describe why that statement is true.

    I know Greenspan is everybody’s new favorite whipping boy, but somehow he managed to get through 7 crises, each of which looked as bad at the outset as this California housing meltup/meltdown, without us imploding into a self reinforcing cycle of financial despair. Leadership matters and we have none.

  10. septizoniom2

    bernanke said on 60 minutes “they will not fail” re the large banks.
    does that square with any concern about lack of political will? if he has already decided no failure, the the reference to political will is merely a clever rebuke of those who would challenge his decision.

  11. I disagree with you, StatsGuy. To my knowledge, no one has actually shown that the cost of allowing the over-leveraged major banks to fail would be greater economically than the cost of saving them through bailouts.

    I would use AIG’s own scare presentation (available at SCRIBD & several blogs) as an example of how financial institutions are using extortion to have taxpayers fund their bad management.

    I would take a different tack, given the opportunity, and I believe its where NY’s Attorney General Andrew Cuomo is headed: Investigate and prosecute, criminally and civilly, any wrongdoing at any of these institutions. No bailouts, and just maybe bail for their executives and board members until a jury judges their behavior.

    Yes, it will cause a huge disruption in international finance and maybe even the global economy, but I find it difficult to believe that it will be more painful than destroying our economic future through massively increased public debt–here and abroad–to bail out these institutions. Quite frankly, I think there are a number of much better managed regional banks and insurers who will step in to fill the liquidity void, especially if they receive just some of the help that the Fed & Treasury are now giving the insolvent major banks & other financial institutions. Indeed, the availability of liquidity to needy and qualified borrowers would ramp up almost overnight while the shadow banking systems of securitization and CDS would probably die the ugly death it deserves.

    Nope, we shouldn’t be negotiating, much less bowing submissively, to financial terrorists. We should eliminate them by choking off funding.

  12. Pingback: Secondary Sources: Houses and Stocks, Bernanke, Summers, Depression Jobs - Real Time Economics - WSJ

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  14. My favorite quote from the Bernanke interview:

    “And you would say what to those bankers right now in this interview?” Pelley asked.

    “I’d say that their job right now is to find a way to make loans to creditworthy borrowers, to get their banks back on the path of making good loans, safe loans, and to have a reasonable sense of humility based on, you know, what’s happened in the last 18 months,” he replied.

    I laughed out loud at that point. Humility? Riiight.

  15. You mention inflation at the end of this post. I think it would be great to do a “inflating your way out of a debt crisis for beginners” post.

    I think many people suspect that the government would like to ‘inflate away the problem’, but I have not seen a good overview of whether the government can create inflation, how it will do so if it does, what problems inflation will solve, what problems it will create, etc.

    In some ways, inflation seems like the broadest way to say “everyone who holds long-term fixed rate debt takes a haircut” and “everyone who owes fixed rate debt gets a bailout.” I wish I understood the issues around inflation as a solution better.

  16. Pingback: MortgageMod.org - Loan Modification » Blog Archive » Secondary Sources: Houses and Stocks, Bernanke, Summers, Depression Jobs

  17. You raise valid points, which I acknowledge, but it’s also important to differentiate between selecting an option (or failing to select an option), and executing competently.

    Thus, we observe:

    1) Team Obama has avoided choosing sides (more markets vs. more regulation). They’ve instead attempted to navigate a middle road. I’m sure there is some middle road that could work, but the middle road they have chosen is (IMO, and in the opinion of many others) highly problematic.

    Specifically, they’re holding to their vision of “markets” when it protects the bankers, and only when it protects the bankers. This requires massive taxpayer subsidies. Their _hope_ is that by borrowing massively, they can restore the system to equillibrium, manage it well going forward, and slowly pay back debt.

    If their hope does not pan out, the US could face national insolvency or hyperinflation (as debt rises, income falls, entitlements increase, and Baby Boomers retire/require elder care).

    I have repeatedly argued that the solution is not to borrow, but QE – I must be nauseating people by now. Moreover, the long term solution is to restore regulation (that was already working prior to being dismantled, largely at the instigation of Friedmanomicons like Larry Summers and with the approval of “banks would never act against their own self interests” Alan Greenspan). I also think it would be beneficial to take down global leverage by reducing cap/asset ratios, while replacing credit with more base money. This should be non-inflationary, and furthermore allow governments to repay crushing debt.

    I think the fear of this solution is that it will remind governments that they have financial power vis-a-vis the markets, and encourage governments to print (and spend) their own money instead of giving that privilege away to the banking oligarchy (to borrow Simon’s term).

    For example of this fear, see a recent article in the Economist’s Voice:

    http://www.bepress.com/ev/vol6/iss1/art2/?sending=10541

    Frankly, they’re afraid of the wrong genie escaping from the bottle. The real genie is global awareness of just how much power/privilege the global banking industry has, AND how incompetent they are at managing it. (The argument that the market is always better than government at managing money is hard to float when the government has to repeatedly pull the markets’ derrier out of the frying pan.)

    2) Even if Team Obama had picked sides, we still would not know which side was right, because they have executed so poorly. Geithner has been horrid. Summers equally bad. (I’m becoming somewhat sympathetic to Bernanke because he looks like he hasn’t slept in 6 months, and his hand is heavily constrained.) When they were chosen, I recall the sentiment was: “They’re insiders – which means no real change – but at least they should know how the system works.” Not only are the insiders, they’re incompetent insiders.

    I say this even as I truly do hope Team Obama will ultimately succeed.

  18. Also, when I said:

    “Either you believe we need markets that are _more free_, or you believe we need markets that are _less regulated_.”

    I mean “_more regulated_”.

    Apologies.

  19. I agree with Mike Rulle that it would help one heckuva lot to know how much of the damage to AIG damage was from actual non-payments by borrowers on the underlying debt that AIG “insured.” Even after the government has paid hundreds of billions of dollars in cash infusions, we still don’t have basic information that the market needs.

    Question: Since we can agree that the government wants the market to feel confident about lending and investing, is it reasonable to conclude that the government would have given us this information if they thought it would help us “feel better”?

  20. Bill Bradbrooke

    Philip H.

    Gotta point out that it is the job of a free market to put profit and shareholder dividends ahead of everything. You are correct that risk was not assessed accurately, but that was the fault of the participants in the market not the fault of the market itself. Some participants are paying the price; it is not a pretty sight, but the markets have behaved exactly as they should have.

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  22. Marty, Brentwood NH

    This morning, after listening to a good discussion of the AIG bonus scandal and the intelligent rationales for inaction (on the Diane Rehm Show on NPR), I realized that we’re at a stalemate that may warrant moving our response to a higher level. I heard one speaker answer the question of who the leaders are, that they it’s AIG, and the Banks (and neither Obama nor Geithner) who are steering this financial crisis.

    One objection to firing the AIG executives who were to receive bonuses after ruining the company and the entire financial system indirectly, was that they have the expertise to unravel the problem, there were not enough others to replace them, so we must retain them lest they go work elsewhere and even use their technical knowledge to undermine any bailout effort.

    Taking seriously how unprecedented this economic crisis is, we could say it’s at the level of a great military challenge, a potential War, a financial 9/11. We cannot let any group, even if they have somehow used legal means (contracts), in the end to undermine our nation and worse.

    I wonder if something like nationalizing the executives, deputizing them, equivalent to imposing military rule, could be audaciously imposed. We would impress on them that they are now working for the United States, and any malfeasance will be treated as criminal and treasonous. And not only to AIG, but to any other party that’s so big, it’s failure threatens us all.

    This is a last-resort idea, certainly moving to a much higher level to manage an unprecedented emergency. Analogous situations might be Lincoln’s abandoning habeas corpus during the Civil War. Note that it was extreme, arguably wrong for him to do, yet he didn’t repeat it, he didn’t go on to do something like suspending the next national election. Reagan did not let the air traffic controllers union threaten to stop our air traffic control system, even if in effect he was abrogating contractual relations by firing them en masse.

    So I’m only a layman, and I don’t know what to call it, “militarizing” or “deputizing” the expert workers who created the emergency and making them solve it for the good of our country. I sense that in Obama we have an audacious enough leader, whom the people still trust enough, to make such a bold move.

    Otherwise we are letting this situation spiral downward, and we’re vulnerable to extortion by our own financial institutions lest global financial chaos result. And why would even the greedy and self-interested AIG executives want to live in such a world?

  23. Greenspan was a genius at manipulating market expectations.

    His failure was believing that markets could function without adequate government manipulation (and/or regulation).

    On the scale of evilness, however, Paulson beats him hands down.

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  25. What gets me is we still aren’t getting to the real heart of the problem, which is that we made risk less risky. These people are still greedy bastards because THEIR JOBS AREN’T AT RISK. They don’t get it because the government as owners ought to be FIRING their asses. That’s when we will see contrition and the end of this insane money grab. As well as people who give a damn about doing their jobs right, instead of just making a buck.

    I have no problem with people making a lot of money. I have a huge problem with them thinking it is ok to do that when they are totally incompetent.

  26. The argument of “expertise” vs. “guilt” is reminiscent of the Leninists arguments against the technocratic elements of the Russian (Czarist) regime/economy.

    To short-end history a bit, let’s just say that the Leninists tried to go it alone without the technocrats, and it did not end well. Ultimately, they backed down and accommodated to a degree. After a lot of suffering.

    OTOH, the US has a lot more competent technocrats waiting to fill in for the fired execs than were available in post-Czarist Russia.

    Also, who seriously believes the argument that execs paid 300k+ who helped caused the AIG catastrophe would _really_ be able to find a job elsewhere in this environment?

    Thus, even if their “talent” was difficult to replace, as the defenders of the bonuses are arguing, I suspec the market price for that talent has dropped considerably of late.

  27. I think hearings and the prosecution of specific individuals could be really productive. If we look back on to the Pecora Commission hearings, the efforts that they undertook did quite a bit towards improving public sentiment about the government and consumer confidence in the market. It might be largely symbolic, but in this ponzi-conomy, what isn’t?

  28. …and when they have run companies into the ground…and when they’re, in effect, be paid by Uncle Sam.

  29. Jonathan Cole

    The Big Picture:
    Dot com meltdown followed by 9/11 – a major shock to the U.S. financial system results in drastic lowering of interest rates and encouragement of people to have their savings invested in “real” estate (clearly a misnomer).

    Instead of going after the culprits with a major invasion of Afghanistan/Pakistan, Bush/Cheney pursue a destabilization strategy in Iraq for the benefit of their paymasters, the oil and defense industries. The NeoCons (I wish they were “new convicts”) led by leading supporters of the Israeli Lobby such as Wolfowitz(credo: steal from the Palestinians and decimate them by war, and economic deprivation) whose close ties to the international bankers corrupt the entire U.S. banking system from within. These corrupt politicians together with an army of financial nerds from leading universities (who can be sacrificed as pawns in the event of trouble) have now succeeded in a coup of the world financial system.

    This is a zero sum game. All the money lost has been won by someone. We need to identify the thieves, bring them to court and strip them of their ill-gotten gains. Until we do that the rape of society will continue. You think Bernanke looks nervous. Perhaps the plot is about to come unraveled. That is the only way to recovery. All the rest of the establishment’s activity is simply p#ssing in the wind.

  30. Now I’m seeing AIG for the first time disclose the largest recipients of its bailout money:

    France’s Societe Generale received $12 billion, Deutsche Bank of Germany received $12 billion, and Barclays of Britain received $8.5 billion from Sept – December 2008. Goldman Sachs received $13 billion, and the Bank of America/Merrill Lynch combo received $12 billion (I’m not sure when.)

    Yes, this illustrates the widespread interlocking web of financial contracts. But does it clearly show that the U.S. government needed to bail out those financial institutions…by bailing out AIG?

  31. Off the top of my head, I remember FDR forcing the miners and autoworkers to work during the late 1930′s and WWII as essential to the economy and the war effort. At least a somewhat analogous situation here. This is where the rubber hits the road, what is more important, the common good or individual “economic freedom”, and, more fundamentally who decides, enforces.

  32. Not to sound like a broker record – but on the issue of inflation, go to this website:

    http://blogsandwikis.bentley.edu/themoneyillusion/?p=411

    He explains a way in which inflationary expectations could be changed by the Fed, in a moderate and careful way, and why it is so important to do so.

    He also has a very interesting discussion on AIG, and on why we should and could bust them, if we had a better monetary policy.

    http://blogsandwikis.bentley.edu/themoneyillusion/?p=629

    Like StatsGuy, I really do think a bit of inflation would be very helpful.

    And judging by the last sentence of this blog post, so do the authors of this blog. I am glad of that.

  33. And since most of their potential employers are already receiving government assistance, the government could place a hiring freeze applicable to ex-AIG employees.

  34. When Bernanke says that the United States lacks the political will to force Citigroup, Bank of America, and AIG out of business, who exactly does he mean by “the United States”? Because judging by the amount of anger I’m seeing every day, both in the news and from the people I meet, I’d say that the vast majority of the United States’ /people/ are entirely ready to wipe out the shareholders and the management in those companies. It’s not “the United States” that lacks the political courage, confidence, or determination to do this: it’s the Obama administration.

    Which I expected. Which is why I preferred John Edwards in the primaries. I didn’t want this crisis managed by someone equally sympathetic to, and willing to listen to and learn from, both the good guys and the bad guys. I wanted someone to go in there and kick bad guy backsides. But it’s hard to get someone like that through either party’s primary.

  35. Marty, Brentwood NH

    Especially if he doesn’t even have the self-discipline to keep it in his pants. No offense meant, I voted for Edwards in the primary myself.

    I too felt impatient at Obama’s deliberateness, but I think he will come around, and maybe his way is the best possible in our system. Slowly he’s disarming the resistance, letting what needs to be done become obvious to anybody. You must admit, after all, that Obama’s made himself a rather successful politician.

  36. I got a question…

    Is there any chance that all this CEO rhetoric is a stall tactic till certain people clean their investments out of these banks prior to what will eventually become “Nationalization”?

    I just gotta wonder. I’m no expert, but there is a lot of money and rich folk involved here.

  37. >however if we fired every last one of those lousy bankers

    Isn’t that part of a nationalization scenario – get new management into these banks and not allow the folks that got the bank to the point of insolvency to continue?

  38. >All the money lost has been won by someone.

    You need to read the primer of this site as to where the money went.

    http://baselinescenario.com/financial-crisis-for-beginners/#deleveraging

  39. For all the bluff and blunder that seems to be going around in Washington about being upset about the AIG bonuses, and the excuses that “these contracts are unbreakable.” I’m just outraged.

    What manager writes a bonus plan that pays out no matter how large the individual/team/group/company loses money? It’s just preposterous that the management was dumb enough to write bonus plans with no controlling levers in them based on AIG profits. At the end of the day their business unit lost money, so the factor that calculates their bonus should take that bonus to zero.

    And if that’s not how the bonus plan was written, then I’d advise our Financial leaders, who now own 80% of AIG and should be sitting on 8/10′s of the board seats of AIG demand every AIG person be fired if they don’t turn down the bonus, and sign amended bonus contracts that have logical performance factors.

    I’ve said it before, I’ll say it again. Genius only goes so far, but idiocy has no upper bound.

  40. You people are a riot. You’re surprised? angry? that Wall Streeters lack contrition? That AIG would negotiate a deal including huge bonuses with babe-in-the-woods Geithner and then take $30Bn from him a couple of weeks before the checks go out? What world are you living in? A brief 10,000 foot overview of Wall Street history – even over just the last 25 years – is replete with examples just as blatant. Why did AIG pay the bonuses? Why did investment banks sell CDOs created from subprime loans to every Tom, Dick and Gunther who would buy one? Easy – as long as someone will buy it, Wall Street will sell it. True 100 years ago, true today, true 100 years from now.
    And don’t think Barney Frank, et al, care about your home foreclosure. And don’t expect any contrition or modesty from that crowd either.
    There’s a shitload of money on the table and the players are engaged. We’ll start to get out of this in 3Q. Meanwhile, the big D.C. and Wall Street power brokers will do what they have always done – whatever it takes to improve their position.

  41. There will probably be some coverage of this soon on this site, but the new 1.15 trillion that Bernanke is talking about using to buy up more bad mortgage securities, (ostensibly to lower interest rates for homebuyers), could also be construed to be an attempt to mitigate the need to nationalize based on the taxpayer owning the toxic security rather than the banks. I don’t know that this is such a good deal for, once again, the taxpayer.

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  43. Policy Narcissism

    The world will be a dangerous place when policy makers fall in love with their own ideas. Congratulations Bernanke for destroying one of the few remaining free markets around. Time to pack up and move. In Bernanke we trust… In Bernanke we trust… In Bernanke we trust…

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  46. “Jamie Dimon’s clever point: if you vilify us, you will lose”

    In an earlier revolutionary situation, this approach would have been known as “economic sabatoge,” and its proponents as “spies and wreckers,” if not “class enemies.”

    Mr. Dimon and the rest of the American money manager capitalist class need to read up on their history.

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  49. With respect to AIG, I do not believe that the USA can gamble that the company’s demise within bankrupcy would not cause immedate and most likely fatal blowback to the USA economy.

    As posters noted many currency swaps are with foreign entities, which might take dim view of the USA, which would reflect on these foreign enteties Central Banks. which would most certainly have damaging effect on USA economy.

    A Country which depends on 12-15 million barrel import per day at a time when it is the world’s largest debtor has major worries if there is sudden devaluation of her currency, or worse, no further loans.

    I am sure that these worries, while unvoiced, play a major influense in mr. Bernanke’s and the Administration’s mind.

    Most of the world rightly blames the USA [and the CITY in UK] as the source of the economic problems in the last 18 months. I do not think that they any more need strong reminders as to the cause of the problem. The USA needs their savings, lest the USA economy wishes to imitate that of Russia in 1990-s!

  50. Helicopter Ben Bernanke is swamping us with Massive Quantitative Easing….The Undertow is likely to destroy us all!

    http://fargoneworld.blogspot.com