The zombie assets that falsely inflate the equity number of bank balance sheets contribute to investors’ distrust in the financial system. That’s part of what’s causing a freezing up of credit. To overcome that fear, we need the banks to “tell it like it is.” Unfortunately, that means having some banks admit they’ve gone bust.
And those banks should be nationalized.
At this point, they have no incentive to be prudent and the country is going to bail them out anyway.
Please share widely!
What is so hard about this? The FDIC does it all the time. If the big banks are insolvent, which several appear to be, the government should take them over, equity should go to zero (its well on its way for Citi and Bank of America among others), assets should be auctioned, and the system can reboot. Everyone except for regressive Republicans knows markets require this kind of regulation to function.
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p>All of which makes me deeply uneasy when I observe that Geithner & Co. seem to have such a hard time (a) articulating the obvious, and (b) taking action. Instead, they have tied themselves up in much the same knots of incoherence that bedeviled Paulson and his posse. Which has led to a worsening recession.
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p>I assume they don’t want to admit the scale of the problem. But that kind of ostrich approach is not a long-term solution to anything. And with every day that passes, the new team takes greater ownership of the problem — and disclosure becomes harder.
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p>I thought we were in the post-ideologue time of pragmatism. Sadly, that doesn’t seem to be the case: ideology and political games still seem to be trumping pragmatism.
We seem to be imitating Japan’s political problems in response to their slump. Their government was similarly reluctant to face down the bad news from banking and take the obvious action.
One important objection, from another thread on this, is figuring out how to run a bank from the government. Obviously, there won’t be any embarrassing bonuses paid to executives, but what about business decisions necessary to the business of the bank that would be unpopular politically?
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p>When “greed” is supplying the impetus for the free market it’s much more politically neutral than when it’s guided by the Treasury Department.
And I don’t necessarily disagree that a quick and painful write-down, with corresponding liquidations, isn’t what is needed now, despite this risk.
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p>I note downstream in this thread that the scale of the changes may have already overstepped the scale of the problem. It’s at least a possibility and one that mitigates the next steps to be taken… Noting, of course, that such rapid, not to mention violent, changes often create problems of their own…
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p>I’m becoming more impressed with Tim Geithner as he goes along, if not wholly satisfied with how telegenic he is… And wholly pleased with President No-Drama Obama.
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it’s inevitable. The question is how many trillions we’re going to light fire to before we act on the inevitable.
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p>By nationalizing the banks, we ensure that we’ll eventually get our money back – which is a far cry from any of this TARP business.
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p>Plus, this is how we make sure these major corporations get with the program and stop doing stupid shit that hurts America. When TARP was originally being discussed, there was lots of talk about “moral hazard.” (Note how we don’t hear Gary throwing around that phrase anymore.) Well, nationalization avoids that. So, it ensures there’s consequences for fucking up the economic system running a company into the ground, whilst also making sure that those consequences don’t fuck up America to the nth degree in the process. I’d call that a win/win.
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p>Perhaps you continue to labor under the assumption that we possess the same economy that we had in, say, August, of last year….
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p>There are two distinct problems here:
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p> 1) ensuring the health of the overall banking system, which, despite the venom isn’t particularly to blame for the mess… and, despite the hysteria, may not be all that unhealthy at the moment… It could be that all it needs is some support during a time of great and widespread transition, because it’s time to…
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p> B) hold a wake and funeral for the ‘shadow banking system’ and manage the transfer of good assets to the heirs apparent (the ‘traditional’ banking system) while finding some way to deal with the bad assets.
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p>Wall Street is gone. There is a wide and deep, and densely smoking, crater where Wall Street used to be… Many of the people who got us into this mess are, by and large, either dead or dying. The biggest players are either already nationalized (FANNIE/FREDDIE, AIG) or GONE (Bear Stearns, Lehman Bros., Merrill Lynch) or they are no longer ‘investment banks’ (Goldman Sachs and Morgan Stanley) and have become the more traditional bank holding companies. This brings them under the umbrella of regulation of which they were heretofore free. A goodly portion of the solution might simply to excercise patience and wait for order to re-emerge out of chaos.
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p>While it remains very possible that some banks might need to be nationalized, it’s also possible that the cure, already having been affected, just needs time to work… that and a helping hand during the tumult and temblors as gravity re-asserts itself ..
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p>There is, I submit, a difference between correcting a problem and punishing those responsible for causing the problem. The first part is where we are right now. The second will have to wait until the ground stops shaking…
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p>Alot of the correctives you argue for were taken well before TARP was even a gleam in Hank Paulsons glassy stare. Bear Stearns was sold off for pennies. Fannie and Freddie were nationalized and the entire board liquidated. That is to say… fired. Same for AIG. Lehman went down in flames and the remaining investment banks still can’t see straight for trying to figure out what happened. Morgan Stanley will probably be consumed by another bank sometime in the next six months. I’d be very surprised if Goldman Sachs was still around a year from now. Those primarily responsible for, in your words, ‘fucking up the economic system‘, have suffered the consequence of being removed from power. It’s true, they not having been outright punished but they have, as a consequence of the correctives already taken, have been removed from the levers of power. I would like to see outright punishment in due time. However, right now it’s enough for me that I see them out of the picture… and that the remaining financiers are suitably chastened by events such that they proceed with a healthier view of risk.
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p>It’s quite stunning… jaw dropping and jowl shaking stunning… to think of the radical changes we’ve undergone already. We have to surf these changes and then pick up the pieces. The next steps ought to be careful, very very careful, ones. Nationalizing a bank that doesn’t need it could be a disastrous course. The same can be said of failing to nationalize a bank that does indeed require it. I’m sure glad I’m not in Tim Geithners place right now…
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p>But what’s important to note is that the remaining ‘traditional’ banks might not be troubled for the same reasons that those aforementioned malefactors were troubled: No, they might simply be reeling from proximity to the explosion…
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… on Simon Johnson below (video)? One of his worries is that without an actual solvency test that results in insolvent banks being nationalized, we risk the new oligarchs looking like the old oligarchs. Surely there is some ‘breaking-up’ that needs to be done for our economy’s health, but outside of nationalization a la Johnson, I don’t know how you’re going to accomplish it legally or politically.
…yet. will take a look at it in the near future.
… interview with an MIT guy on this:
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p>Transcript here.
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p>Long video, but definitely worth a watch.
This is definitely worth a watch. The arguments about insiders and about what kind of experts we need now require wider airing.
The whole discussion should be bumped. Too important a discussion not to have.
Zombie banks, BMG here, you heard it first