The Administration Starts to Fight On Banking, But For What?

By Simon Johnson

Speaking to the American Enterprise Institute, Treasury Secretary Tim Geithner had some good lines yesterday,

“The magnitude of the financial shock [in fall 2008] was in some ways greater than that which caused the Great Depression.  The damage has been catastrophic, causing more damage to the livelihoods and economic security of Americans and, in particular, the middle class, than any financial crisis in three generations.”

Like Ben Bernanke, Mr. Geithner also finally grasps at least the broad contours of the doom loop,

“For three decades, the American financial system produced a significant financial crisis every three to five years. Each major financial shock forced policy actions mostly by the Fed to lower interest rates and to provide liquidity to contain the resulting damage. The apparent success of those actions in limiting the depth and duration of recessions led to greater confidence and greater risk taking. “

But then he falters.

In part, the Secretary of the Treasury seems hung up on the final cost of TARP

“Reasonably conservative estimates suggest that the direct fiscal costs of this crisis will ultimately be less than 1 percent of GDP, a fraction of the over half a trillion dollars estimated by CBO and OMB just a year ago.”

But everyone agrees that the true fiscal cost of the crisis (and bailout) of 2008-09 is the increase in net government debt held by the private sector – closer to 40 percent of GDP (i.e., nowhere near 1 percent of GDP).

This matters because, by low-balling the true fiscal cost, Treasury plays down the need for the toughest safeguards in the future.

If the cost was one percent of GDP, then perhaps the measures they have in mind would be enough.  But if the cost is a doubling of our national debt – pushing us close to the danger level on that dimension – then we should think about what we need quite differently.

We agree completely with the administration’s approach – actually, with Elizabeth Warren’s approach – to consumer protection.  (We make this clear in 13 Bankers.)

But the sticking point is “too big to fail.”  Mr. Geithner’s Treasury (and Senator Dodd’s bill) continue to rely on the complete illusion that a resolution authority (i.e., an augmented bankruptcy process for banks) based on US law will do anything to help manage the failure of a large cross-border financial institution.  It simply will not.

I’ve discussed this specific point with top technical people from G20 countries, as well as with our most experienced international bankers and leading lawyers who specialize on this very issue.  They agree that a US resolution authority would be a complete illusion – at least with regard to the big cross-border banks.

Mr. Geithner gave a good speech yesterday.  But someone needs to give another speech, walking us through – step-by-step – how exactly this resolution authority would have prevented the cross-border chaos that followed the collapse of Lehman in September 2008.  Break it down into pieces and expand on every legal nicety.

Then tell us how the resolution authority will work for Citigroup in 5 or 7 years, when that bank will likely be twice its current size.

And the next speech might also explain why Mr. Geithner no longer mentions the Volcker Rules – there was nothing about proprietary trading and nothing about even prospective caps on bank size.  Have they been withdrawn?  What exactly happened on the way to the Senate?

Mr. Geithner wanted to sound tough yesterday.  But is he really coming out to fight?  Or did he and his colleagues already throw in the towel?

76 responses to “The Administration Starts to Fight On Banking, But For What?

  1. Geithner is going to play down the cost not just to avoid seriously considering the strongest reform proposals, but to protect himself from arguments about his role in the crisis.

  2. All we have is the courts to stop “one” out of control party:

    http://americaspeaksink.com/2010/03/dems-drunk-on-power-the-hangover/

  3. Geithner’s giving a “good speech” fails to impress me. Whereas Teddy Roosevelt counseled, “Speak softly and carry a big stick”, the practice of this Administration seems to be “Speak loudly but carry a twig.” Of course, history is littered with good speakers who did little, at best, or who carried out horrible policies.

    Having worked on Capitol Hill during the Reagan era, I was never enamored of Reaganomics. Yet, the guy gave a “good speech.” A friend and former colleague who worked at the White House told me, “We lived in fear that he was going to drop his note cards or get their order wrong.” Yes, RR could give a good speech.

    I have to admit, though, that at least Reagan’s speeches were precursors to reasonably parallel action. With the Obamaites, I feel we get a fancy package that camouflages the actual policy or lack thereof. As Fritz Mondale asked Gary Hart, “Where’s the beef?”

  4. “But is he really coming out to fight?”

    Is there even a case to be made that the Obama administration is not owned by the financial services industry? Are we looking at Greece writ large?

  5. This would be one of our rare moments of agreement. Let me pile more on and say there would be quite a few people in the NYFRB who would rather this not be dug into too much.

    I still think it stinks to the high heaven that the NYFRB lawyers seemed to be encouraging AIG to hide information from the SEC and the general public. Has anyone explained that yet??
    http://grahambrokethemold.blogspot.com/2010/01/aig-more-upfront-than-geithners-ny.html

  6. Mondale could have been a great leader. He was honest and told people he would raise taxes. And people always scratch their heads why politicians lie. Politicians lie because they know where the truth and bitter tasting medicine gets them in an election. Although it was NOT the same election run, I always wonder what Mondale thinks in his mind when he sees replays of H.W. Bush’s “Read My Lips” Lie.

  7. But just to be clear, Mr. Johnson, you “agree completely” that any new consumer protection authority can be lodged beneath the Fed (as I understand the legislation to provide) and retain independence and effectiveness?

  8. We have tried to impose democracy and Capitalism on the people of Afghanistan who’s way of life and Government has been based on greed and corruption for centuries and is a way of life in most Arab countries.

    It seems to me that we not only have failed to sell Democracy to the Arabs but they have sold their methods of greed and corruption to our so called Democracies.

    Democracy has come to mean a vote every 4 or5 years and no control of what happens in between. There was hope with Obama but that hope is fading fast.

  9. When Simon Johnson catches up with Timothy Geithner, I’ll eat my hat.

  10. Actually Mondale was a great leader for the people of Minnesota. And most of all Mondale had a genuine concern and care for peoples. He was a better man for it, but he probably didn’t have the right dash of cynicism in his personality to run a “modern campaign”, i.e., Lie.

  11. George Recco

    >>Mr. Geithner wanted to sound
    >>tough yesterday. But is he really
    >>coming out to fight?

    Haha, PLEASE. Geithner’s idea of getting “tough” is paying 100 cents on the dollar.

  12. Letting Geithner lead the charge on financial reform is flatly ridiculous!! He is Goldman Sachs through and through, as is Larry Summers. The President needs to wheel the Trojan Horse back out of the gate and close the door before it is too late!! Fire Geithner, Summers, and the GS Mafia! The fox cannot guard the hen house if we wish to save the hens!
    Volcker may be 82, but with the help of able assistants like Professor Warren, he would be a much better choice to lead financial reform – he wants reform! Geithner wants to bury it and leave the door to the US Treasury open to the perpetual raid that is going on right now, where the Fed loans GS, Chase. BOA and other financial investment houses funds under the newly minted fiction that they are banks, and they buy Treasuries with the money instead of making loans, receiving a guaranteed return. This is going on right now. Geithner knows it – it has been in the press (Matt Taibbi – “Rolling Stone”), but all that he wants to do is turn a blind eye to it as he did as the head of the Federal Reserve Bank of NY. What a great watchdog he is – talk about an inside job! OMG
    what a field day the Republicans should have during the financial reform debate – their problem is that they have lied so much that will anyone believe the truth from them?? We will see.
    Who watches the watchers?
    The Romans were aware of this problem – is the Obama Administration??

  13. Yes, hasn’t “the administration’s approach” been to throw away vanilla requirements, acquiesce in pre-emption, and now at least tacitly support the CFPA’s total destruction by putting the Fed in charge of it?

  14. Can you please give us your operational definition of “low-balling”? Perhaps Mr. Geithner is using the same “new math” he used to calculate his income taxes for 4 years. He should be required to take a remedial math class at MIT because math was evidently not part of the International Econ curriculum at Johns Hopkins.

  15. Marcus Aurelius

    He who would not want complete transparency is someone with something to hide. It would not be in The Peoples best interest to follow their agenda. The mandate should be: No Loopholes!

    And, nothing in the Fed! The Fed assisted in leading us to exactly the dilemma that we are trying to fix! Complete autonomy is essential for any reform to work!

  16. I thought pre-emption was out of the bill. Is it back in? If so, that would be flatly catastrophic as the one and only group that was consistently sounding the alarm as long as five years ago (if not longer) were the state attorneys general. If pre-empting their authority is back, in that would qualify as among the Mother Of All Giveaways to Wall Street.

    I hope that’s not the case.

  17. Some of the so-called elites who are enriched by the deregulated financial system are sociopaths.

  18. Up to now I’ve hesitated to include Tim Geithner as part of the problem rather than as part of the solution. Now I know that he is part of the problem. Both he and Larry Summers need to be dumped… they are too cozy with Wall Street.

    The financial system is like the transportation system. Deregulating it has been as idiotic as it would be to turn off traffic lights, remove lane markers, eliminate the Highway Patrol, tickets, driver education, etc. and tell everyone to let the “free market” decide what happens on the highways. Only a few big tanks would travel freely, total traffic would be a fraction of what it now is, and most people would use the roads with fear and trembling.
    Welcome to the unregulated financial system. People who can’t see that don’t deserve to be involved. Apparently Geithner is one of them.

  19. Geithner is the embodiment of “double-speak” and protect the FED.
    Audit and destroy the FED.
    Fanny Mae & Freddy Mac rolled into one institution are able to resolve the foreclosure crisis upon us by forcing short-sale to the Banksters and issuing honest direct to the US Citizen mortgages.
    Where is the Pecora investigation?
    Where are any of the criminals of privilege charged with the real crimes of fraud that they perpetrated in the Arson of the Economy?
    Restore Glass-Steagall and break the greedy slime-balls up to cure “too big to fail.”
    These vile thieves wouldn’t exist today if not for the American Citizen’s money and they continue to rape us?
    Says a lot about the mind-set.
    Elizabeth Warren to head the Consumer Protection Agency as an independent entity. We can elect her president in 2016 and really have change we can count on.

  20. “But the sticking point is “too big to fail.” Mr. Geithner’s Treasury (and Senator Dodd’s bill) continue to rely on the complete illusion that a resolution authority (i.e., an augmented bankruptcy process for banks) based on US law will do anything to help manage the failure of a large cross-border financial institution.” “It simply will not….” because the philosophy and premise regarding how capitalism should work, not to mention the outright evidence of greed and power, are contrarian. The policy recommendation and thinking is an orderly unwinding of failed banks through bankruptcy proceedings – and not the policy objective of partitioning the banks into smaller entities as an answer to the immediate crisis and broader, the “doom loop.”

    “I’ve discussed this specific point with top technical people from G20 countries, as well as with our most experienced international bankers and leading lawyers who specialize on this very issue. They agree that a US resolution authority would be a complete illusion – at least with regard to the big cross-border banks.” Would highlighting the self-interested benefits of having smaller financial institutions (addressed to the too-much-hubris-to-fail banks) make the argument any easier, perhaps winning over some influential converts (e.g., I think of Arianna Huffington’s political stance way back when)

    “But someone needs to give another speech, walking us through – step-by-step – how exactly this resolution authority would have prevented the cross-border chaos that followed the collapse of Lehman in September 2008. Break it down into pieces and expand on every legal nicety.” Your invitation to speak, Simon (on our behalf ;-)

    Nightly Business Reporter Tom Hudson interviews CFTC commissioner Gary Gensler on derivatives regulations:

    http://www.pbs.org/nbr/site/onair/transcripts/gary_gensler_of_commodity_futures_trading_commission_100311/

  21. Brad Thrasher

    Probably the most misquoted quote of all time. It’s “Walk softly and carry a big stick, you will go far.” TR was quoting the African Proverb.

    Other than that we agree Bruce.

  22. Brad Thrasher

    Actually Beth, resolution authority was given to the Federal Reserve. It is the so-called “bad bank.” I for one take solace in having lived long enough to have seen crap roll uphill.

  23. Hello,

    >>>>.But then he falters.

    In part, the Secretary of the Treasury seems hung up on the final cost of TARP

    “Reasonably conservative estimates suggest that the direct fiscal costs of this crisis will ultimately be less than 1 percent of GDP, a fraction of the over half a trillion dollars estimated by CBO and OMB just a year ago.”

    But everyone agrees that the true fiscal cost of the crisis (and bailout) of 2008-09 is the increase in net government debt held by the private sector – closer to 40 percent of GDP (i.e., nowhere near 1 percent of GDP).<<<

    Sorry to sound stupid, but can you explain the net increase in in net gov't debt held by the private sector?

  24. Agoraphobic Kleptomaniac

    Wow, thanks for the link to an insane person. I can’t wait for the book that examines how people like that can believe so many things that are blatantly untrue. Throw in the mysogynistic language, and the Ted Kennedy drinking jokes, and you’ve got the trifecta of crazy.

  25. Mr. Geithner wrote:

    “The magnitude of the financial shock [in fall 2008] was in some ways greater than that which caused the Great Depression. The damage has been catastrophic, causing more damage to the livelihoods and economic security of Americans and, in particular, the middle class, than any financial crisis in three generations.”

    Rep Kanjorski’s comments at 2:30 min into the video underscore the depth of the financial shock. A good reason to avoid a second one.

    January 28, 2009 – CSPAN Rep Paul Kanjorski – $550 Billion Dollar Bank Run – Collapse Of The Entire World Economy In 24 hours – video.

  26. ”If I couldn’t study psychopaths in prison, I would go down to the Stock Exchange.” – Robert Hare, creator of the standard tool for diagnosing psychopathic features in prison inmates

    http://www.nytimes.com/2004/12/12/magazine/12PSYCHO.html?_r=1

  27. Maybe I missed something, but the last I heard there was a modified pre-emption in it. That under “special circumstances” or some such amorphous term the OCC could override, which I took to mean setting the thing up to be overridden later on.

  28. I don’t know who the heck you are talking to , but they need to go back to school – and, apparently, not at MIT.

  29. The republican party and many of its followers have descended into lunacy. We see the reaction to the passage of health care reform: bricks through windows, racial, and homophobic slurs as House members entered the Capitol. These tea party people are showing their ugly true colors.
    It’s not good for any of us, or the country.

  30. Talk is cheap.

    To get effective action, it is necessary to document and focus attention on the vast and growing cost of the current “Too Big To Fail” system. This can be difficult because the subsidies are disguised as loans, explicit and implicit loan guarantees, and so forth.

    Secondly, one must document and emphasize that the cost is paid by most people, including business people and other interest groups. The actual beneficiaries are a very small and shrinking group.

    This is a state subsidized banking cartel. Almost anyone who needs or wants banking services, including simple payment services, deposits, and so forth is paying every day.

    Sincerely,

    John

  31. He ain’t from Jersey, that’s for sure

  32. Paul Voulcker is much more knowledgeable then Timmy!

  33. Paul Volcker was born September 5, 1927. Mr. Volker is old enough to have memories of the Great Depression. Comparatively speaking, Tim Geithner was just born yesterday.

    Coming out of retirement to serve and at 83 years old, Volcker is not in it for personal fame or fortune. Geithner on the other hand, could very well be looking forward to a nine-figure career on Wall Street, probably Goldman Sachs.

    Whom do you trust?

  34. Scot Griffin

    “Mr. Geithner wanted to sound tough yesterday. But is he really coming out to fight? Or did he and his colleagues already throw in the towel?”

    Simon,

    The answers to your two questions are no and yes, respectively.

    But you knew that, else you would not have written a paragraph that so concisely presents the Obama administration’s modus operandi to date.

    To continue with the boxing metaphor, I’d argue that it’s not that Geithner and his colleauges have thrown in the towel, it’s that they have agreed to throw the fight. While we are going to see a “fight,” there’s really no contest. The fix is in.

  35. Geithner appears to be a sock puppet, with the megabanks’s collective hand up his – well, making him talk.

    Obama and his staff are doing nothing to reign him in, which appears to be approval.

    As President, there is a whole lot you can do to force an issue, even without congressional approval or Constitutional authority (G.W. Bush/ Cheney, anyone?). Inaction from the top is clearly an indication of approval, weakness, or both. Leaders Lead, and I’m not seeing anyone leading. Or at least in a direction that benefits The People.

  36. “reign” him in? I meant “rein” – I guess that’s a freudian slip…

  37. “But everyone agrees that the true fiscal cost of the crisis (and bailout) of 2008-09 is the increase in net government debt held by the private sector – closer to 40 percent of GDP (i.e., nowhere near 1 percent of GDP).”

    This sounds like you are saying that net government debt held by the private sector increased by 40 percent of GDP. Surely that is the total amount currently held, while the increase was less, no?

  38. Do economists take math? I’m seriously asking this, because based on my engineering perspective it sure doesn’t look like they understand exponents.

  39. Excuse me. Too early in the morning. I was subconsciously holding GDP constant, but surely it has fallen. That makes debt/GDP a moving target, doesn’t it? A small increase in debt could be large in terms of a reduced GDP.

  40. Walter Machann

    Sec Geithner and Sen Dodd cannot help themselves, nor will they ever help the Administration achieve the needed critical financial reforms. Their game is smoke and mirrors, because they are both deep moles of the financial industry in government. Push must come to shove, and as they will not shove it is time for them to be shoved politely out the door, with medals if necessary.

  41. Does anyone doubt that Geithner will wind up on Wall Street sooner or later? He appears to have led a very charmed life but on a very different planet than most of us have. I don’t begrudge him his supposed advantages, but over the past few years his advantages have become the nation’s disadvantages. He should do the honorable thing and resign as it seems that Mr. Obama seems incapable of firing him.

  42. Dan Wylie-Sears

    Why is resolution authority a complete illusion? It’s pretty obvious that it’s not a complete solution, but it seems as though it’s a not-at-all-illusory small part of the solution.

  43. Tuesday, Mar. 23, 2010 – Globe & Mail – excerp

    “The U.S. (not counting contingent liabilities) is within a year of seeing its debt-to-GDP ratio pierce the 100-per-cent threshold (it is estimated to rise to 94 per cent this year from 84 per cent last year), the deficit is well above 10 per cent of GDP (7 per cent on a cyclically adjusted basis) and so is the ratio of debt service payments to revenues. In the past, this trifecta in the past has been the harbinger of credit downgrades. These numbers, by the way, are not at all far off and in some cases worse than in Greece, Spain, Portugal, Ireland, Italy or the U.K.”

    http://tinyurl.com/yzmctnz

  44. Mr. Geithner wrote:

    “Every morning bank supervisors should wake up thinking about one thing – whether banks have the capital, the liquidity and the risk-management to protect safety and soundness. And, we need a capable group of officials with a separate mission, who wake up every morning thinking only about how best to protect consumers and how best to make consumer markets fairer, more transparent, and more competitive.”

    03-17-10

    “The government also was handing out millions of dollars to bank regulators, rewarding “superior” work even as an avalanche of risky mortgages helped create the meltdown.

    The payments, detailed in payroll data released to The Associated Press under the Freedom of Information Act, are the latest evidence of the government’s false sense of security during the go-go days of the financial boom. Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.

    During the 2003-06 boom, the three agencies that supervise most U.S. banks – the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency – gave out at least $19 million in bonuses, records show.”

    http://tinyurl.com/yzpjamc

  45. I am more interested in what his position and titles were at kissinger & associates.

  46. This post seems to imply that T. Geithner is a creditable human being. He is not. He’s a lieingpompous, pretentious tax cheat. Quoting anything he says is absurd, outrageous & insulting to our intelligence.

  47. Edit —————

    This post seems to imply that T. Geithner is a creditable human being. He is not. He’s a pompous, pretentious, lying tax cheat. Quoting anything he says is absurd, outrageous & insulting to our intelligence.

  48. 1% is ridiculus on its face. And Obama is “going to get back every dime” from the banks.” What BS.

    40% of GDP is a START, both financially and in the human cost. Misallocation of capital has a long tail. What about the cost of family breakups, depression, inability to pay for that needed operation…

    The NYTimes editorial today is equally clueless. They completely ignore the political aspect of the financial crisis. C’mon guys “fundamental reform” of the financial system HAS to include political reform.

  49. Thank you for that tip. It’s certainly something I’ll be looking for as I completely agree with your take on it that insofar as banks are concenred, if regulatory capture is possible, regulatory capture is inevitable.

  50. Brad Thrasher

    Rep Kanjorksi is the only government official who has spoken with candor on the subject. However, I believe that we have only succeeded in cementing the oligarchy and postponed the collapse; thus increasing the eventual cost of recovery.

    People, from the right and the left, such as Kevin Philips and Paul Krugman, have argued for years that our economy is not sustainable.

    While I don’t pretend to understand the full ramifications, I fully expect that the Federal Reserve Bank, the fourth central bank in our short history, will collapse.

    What I do wonder, since our central banks keep failing, why we keep creating new ones. Is our system a scam or is it just the paper money boys who are scam artists?

  51. In other words, business as usual.

  52. Brad, I agree with all of your concerns (get out of my head). Pray/develop broader shoulders and you’ll be ok. :-)

    “Red: Get busy living, or get busy dying.”

    The Shawshank Redemption (1994)

    I consider that by listening to as wide a variety of opinions as I can before coming to a conclusion, my attempt to, get busy living and developing broader shoulders.

    The Rep Kanjorksi video (electronic bank run) is a good example of gathering opinions, I’m gobsmacked that it received so little attention, considering the apocalyptic content.

  53. Geithner: Fannie and Freddie Need To Be Changed… But We Don’t Know How

    03-23-10 06:38 PM

    “The Congressional panel tasked with overseeing the nation’s financial system and the Treasury Secretary both agree that there’s a problem with the nation’s system of housing finance. Fixing it, though, may be the biggest problem of all — and neither one seems to have a clear answer…the administration doesn’t have any concrete plans, Geithner said.”

    http://tinyurl.com/yg3urnn

  54. Throwing the towel?

    How about bamboozeling? These are not good faith actors.

  55. What Rep. Kanjorski discussed was common knowledge on the street and among people in finance by the afternoon of September 15, 2008. It had made the rounds of talking heads by evening. As a consequence , distortions were everywhere.

    The very idea that the ideologues would let Lehman collapse and would apparently aid AIG was so unnerving to money managers that they pulled funds any way they could for movement anywhere they felt safer. The silent run was massive even before the weekend started and money managers knew it. Money managers immediately understood that there was no direction. No policy at all. All you heard were pieties and simplicities.

    The whole process over a week end just fed panic. It certainly did with me although I had bailed from money market funds before the problem hit. I held extensive oil lease positions and felt cornered knowing that Monday morning would be a disaster . Everyone I talked to felt the same. Cornered by true believers that would let the ship sink just to be true to their personal righteous beliefs.Beliefs that did not square with the emerging facts. The top dogs were blind and deaf to everything that conflicted with their beliefs. Or so it seemed.

    So I stood pat out of necessity wondering if by selling I would have a bankrupt broker before I settled and lose the nest egg that way.

    The cacaphony of the insane in the media was about the best summary of what I listened to in the week preceding September 15, 2008.

  56. Seems that I recall Simon initially strongly supporting Geithner’s nomination for sec treasury. That plus this post indicates that Simons assessment of geithner’s character is as best inept. Something he seems to have in common with Obama’s pathetic ability to assess character.

  57. CBS from the West

    I wish people would stop calling the United States a democracy. There is no meaningful sense in which that is true.

    The oligarchs choose the politicians with their money. The politicians choose the voters by gerrymandering the districts. The bills are drafted by the lobbyists. The government’s administrative apparatus is headed by people from the industries they are supposed to be regulating. What is democratic about that?

    Let’s call it what it is: a kleptocracy, plain and simple.

  58. As I said, a moving target. OC, in the current economy, both GDP and revenues are down. Is it any surprise to find that ratios with them in the denominator are up?

    As far as credit rating goes, does anybody seriously think that the U. S. is going to default on anything? Well, maybe if the Republicans win in the fall. Some of them are just crazy enough to do so, out of spite.

  59. Yeah, we never quite learned what happened there…

    It’s getting kind of hard to keep up with all the things these folks have done that are horribly wrong.

  60. Valerie Curl

    Pardon me, I’m not an economist or financial expert, but I’ve been watching, reading and learning as much as my elder brain will allow regarding the financial crisis and the rather obscure financial instruments that Wall St created.

    So, last week, Atlantic wrote this whole story on Geithner in which Geithner said his modus operandi was to only take actions that would calm the financial sector and restore confidence. That’s caused me to wonder if his reason for not wanting to break up the TBTF banks and instead have a fairly weak and inefficient resolution authority is because he doesn’t want cause any palpitations on Wall St. that might reduce confidence again in the markets.

    And if that is the case, then would he be correct? What would be the unintended consequences of going after the TBTF banks at this time when the economy is still so weak?

    Mind you, I’m not advocating to keep the TBTF banks; I find them a systemic risk to the economy. But I want to understand all the ramifications of any action which might affect the overall economy.

  61. Geithner has been in Wall Street’s hip pocket since Day 1, and yet we’re still surprised when he ignores all the obvious reform measures and does nothing. Ditto for Obama, who would rather tear apart the country with a poorly executed push for health care “reform” than cure the problems with a financial system that almost took down the global economy.

    When are the people going to wake up?

  62. I’m no economist either ——

    But, you can’t be serious. The banks are all insolvent. They’re sitting on trillions of our dollars the Fed paid them for their unmarketable, toxic assets. Assets they bought with other people’s money (OPM) & consequently lost trillions of (OPM) on. And they’re borrowing trillions more from the Fed at 0.25% and using it to buy Treasuries yielding 3.6%.

    And they’re not lending any of it to businesses in the real economy. They’re gambling with it, propping up the stock market to increase their bonuses.

    Please tell us why we need them.

    Have you heard Bernanke, Geithner or Summers explain in other than vague, hyperbolic crap what would happen if we shut them down? Has anyone proven to you that we wouldn’t survive their demise?

  63. Of course no one knows exactly what will happen if we shut them down. Just like none of these a$$holes knew that the bubble was coming. Just like none of the Pilgrams knew what was going to happen when they got on the Mayflower. At some point you’ve got to let it all hang out. It’s like the old Red Fox joke. “Just shoot up here amongst us – some of us needs some relief”

  64. Valerie Curl

    Seeking revenge certainly satisfies the anger that Wall St. oligarchs caused, but is revenge the answer? What I want to know are the consequences of breaking up the banks now. What would happen to the larger economy? Would the markets become so shaky again that businesses cut back from even their small return? Would that business nervousness cause higher unemployment? Just exactly what would happen?

    What would be the immediate consequences of Mr. Johnson’s proposals:

    “They propose that no financial institution should be allowed to control or have an ownership interest in assets worth more than 4 percent of U.S. gross domestic product, or roughly $570 billion in assets today. A lower limit should be imposed on investment banks — effectively 2 percent of GDP, or roughly $285 billion.”

  65. I thought I told you no one knows what will happen. If they tell you they know they’re lying. Just like Bernanke, et al, told us everything was fine just before the crash. Sounds like you like to nibble around the edges. I just don’t think that ever solved anything. Just like they used to say in the refinery construction business. “If you wait till you’ve got the project designed perfect, 100%, you’ll never build anything”. You’ve evidently never built a refinery.

  66. I guess I’m just thankful all the Pilgrims didn’t have your mindset. We’d all still be in jolly old England curtseying to the Queen.

  67. Brad Thrasher

    You are certainly full of yourself.

  68. i am happy that you are on the right track recognizing that such financial sector is dangerous for prosperity. These people misuse their position and behave almost as MAFIA. It can be stopped if honest and smart people self-organize themselves BETTER than they.

  69. trillions? Lol. The media writes some stupid stuff, and people just lap it up. The Federal Reserve is not sitting on trillions in collateralized obligations.

  70. Geithner is not in Wall Street’s back pocket, and never has been. Geithner is far better at tactics that Paul Volcker, who used a dull knife to fight inflation: he inflicted a great deal of unnecessary damage to ordinary Americans. He does not mind causing blood to run in the gutters.

  71. JCH wrote…….”trillions? Lol. The media writes some stupid stuff, and people just lap it up. The Federal Reserve is not sitting on trillions in collateralized obligations.”

    Nov. 10, 2008 (Bloomberg) — “The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral…The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

    “It’s your money; it’s not the Fed’s money,” said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. “Of course there should be transparency.”

    http://tinyurl.com/6gmste

  72. Oberführer for flackery and fudgification.

    And what was his dad’s real title and role at the “Ford Foundation,” and just how much contact did he have with Obama’s mom in Indonesia?

  73. Paul A. Volcker was born just after the first Nuremberg Nuremberg Rally which took place on August 20, 1927. His middle name is Adolf. His father was a city manager in New Jersey, and the family has roots back in Meppen which was where the Krupp proving grounds were located.

    Tie the Volckers to the Rockefellers, which seems pretty easy to do when you look at the Rockefeller oil business with Germany back in the day, and you’ve got the makings of a nice backstory.

    **************

    Simon, come visit us in the comments and let us know where you were born, grew up? Did anyone ever get a fix on your accent?

  74. Sad to say so much of the predatory stuff is at the expense of the poor. Middle class and especially upper class people never carry credit cards with over 20 percent interest . Nor do they get bambozzelled into sun prime loans. Consumer protection would be a significant victory for the least among us , probably few if any of the people who read this blog.

  75. The large amount of US government debt is typically divided into 2 large categories:
    1. Debt held by public, $7,551,862 million when the books were closed for FY09 on 9/30/09 (mostly from sale of US treasury bills and bonds held by citizens and foreign governments, China & Japan are top 2 holders), and
    2. Debt due to intra-governmental holdings (mostly US government taking money from the imaginary Social Security Trust Fund and replacing it with IOUs) which amounted to $4,357,967 million on the same date noted above.
    Often #1 is referred to as public debt and the sum of #1 & #2 ($11.9 trillion) is referred to as national debt. Since our government does not adhere to the same accounting rules that public companies are required to (GAAP) they do not typically report the unfunded liabilities of commitments made in the past such as Social Security, Medicare, etc which former comptroller general David Walker estimates as another ~$50 trillion on top of the national debt. Despite what the CBO’s projections claim, this $50 trillion just took a quantum leap with health care “reform”.
    Ref: http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

  76. GDP in 2009 was $14.24 trillion, so Geithner’s less than 1% of GDP estimate could be restated as less than $142 billion, which would seem to indicate he is saying the taxpayers will take about a 20% loss on the $700 billion TARP program. (Unless the TARP funds paid back by the banks are used as a slush fund and re-spent on new initiatives unrelated to the original purpose of TARP.)

    The 40% of GDP number being tossed about would amount to $5.7 trillion and that would seem to be about right for the projected growth in the national debt over the next 4 years. In essence saying a net $142 billion in TARP spending helped fix the banks, but we expect it will take almost $6 trillion of deficit spending to heal the larger economy and help it recover from the damage done by the Banksters.