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Let Wall Street Burn

by NBBooks Wed Sep 17th, 2008 at 07:18:31 PM EST

Cross posted to DailyKos at http://www.dailykos.com/story/2008/9/17/174555/389/60/602022

At the cost of your future, the U.S. financial system is being saved. For a half century, the United States has been unable to find a hundred billion or so a year to fund general healthcare, but now that financial powerhouses like Bear Stearns, Freddie Mac, Fannie Mae, and AIG are crumbling, the U.S. Treasury can magically procure trillions of dollars in promises without so much as a nit of resistance in either chamber of the U.S. Congress.

Your future earnings have now been committed to saving the asses of the millionaire and billionaires who postured as geniuses as they managed and oversaw the financial follies of the past 28 years. The future potential of your country - and the future potential of your children and grandchildren, is being wasted, now, to save a financial system that subtracts real value from the economy; a financial system that enriches the few by impoverishing the many.

Don't believe me? There was a very simple, much less costly way to stop the sub-prime mortgage crisis in its tracks. The only thing the federal government needed to do was negate the ballooning interest payments that doubled or tripled mortgage payments, which in turn caused households to begin defaulting on their payments. Bush, or Bernanke, or Paulson, or whoever could have just told the financial sector that they were not going to get their big jump in interest payments on the sub-prime mortgages and that so long as home owners continued to make their payments at their original interest rate, they could not be foreclosed on.

By what authority could Bush, or Bernanke, or Paulson, or whoever do this? Would legislation had to have been passed? Well, tell me this, by what authority are we the taxpayers being forced to extend an $85 billion bailout to AIG literally overnight? What legislation was passed by our Congress that allowed such a massive commitment of our money?

But to have done this, to have forced the banks and mortgage companies and hedge funds that bought the collateralized mortgage obligations to stick with the original interest rates in those sub-prime mortgages, would have been to impinge on their "freedom" to engage in usury. Usury, which was once illegal under the laws of the United States. Did you know that in the late 1800s, the very morality of six percent interest rates was a hot topic of debate?

Let's be clear here: the financial system is a net drain on the economy. It subtracts much more in value than it adds. The contortions accompanying the disappearance of Lehman Brothers and Merrill Lynch, and the "rescues" of Bear Stearns, Freddie Mac, Fannie Mae, and AIG, do nothing, absolutely nothing, to change the fundamental character of the financial system, which is to -- let's be frank -- loot the real economy.

How much value are we going to get for throwing $85 billion at AIG to keep it afloat, compared to the value we would get if we spent $85 billion tripling the size of the rail mass transit system in Los Angeles? Which commitment of your future creates the most potential for future economic growth?

Listen up - Barack Obama is wrong: It is not merely a question of re-imposing regulations. The present financial and economic arrangements of the United States are fundamentally flawed. Any number of Cassandras have been warning for years about the underlying flaws in our economy and financial system: Stirling Newberry, Henry C. K. Liu, Doug Noland, Bill Engdahl, to name a few. Jerome a Paris was correct, back in August 2007, when he wrote that the conservatives'
Feudalist Economic Ideology is the Problem.

Dean Baker gets right to the heart of the matter:

We should seize on this moment in which the public is rightly outraged by the greed and stupidity of these financial wizards to drive a stake into the heart of Wall Street. With a financial transactions tax we can bring this financial behemoth down to size once and for all.

Here are the basic facts. In the 1960s, for every dollar of the U.S. Gross Domestic Product, there was roughly one and a half dollars traded on all financial markets in the U.S. - stocks, government bonds, corporate bonds, corporate paper, futures markets, and foreign exchange markets. Today, for every dollar of U.S. GDP, there are over seventy dollars traded on financial markets. In the 1960s, the financial markets traded the equivalent value of the U.S. Gross Domestic Product once every eight months. Today, the equivalent value of the entire U.S. economy of goods and services produced is traded once every two to three days.

Assume a speculator is able to capture as profit one fifth of one percent of that $1,200 trillion a year in financial turnover, and that is $2.4 trillion a year.

Perhaps it is not easy to get your mind to grasp what an astonishing figure this $1,200 trillion is. If you took just one percent of it, $12.0 trillion, and divided that by the 270 million Americans not in the top ten percent of income, every man, women and child would get over $44,000. Imagine how different the economy would look if every person in the United States had been given an additional $44,000 in income every year over the past few years, instead of this:

The New York Times (Bob Herbert) reported yesterday that the 93 million non-farm production and nonsupervisory workers in the U.S. saw their real earnings go up by $15.4 billion between 2000 and 2006. That's half of the Wall Street bonuses paid by just five firms in 2006.

Personally, I think that $44,000 figure is rather interesting. Because, if the annual percentage change in wages from 1959 to 1981 (when Reagan became President) had held at the same average of 5.478% for 25 years from 1982 to 2007, average weekly earnings for private industry today would come to $53,802 in annual wages, rather than the $29,473 we now have. (These are my own calculations, based on Table B-47. Hours and earnings in private nonagricultural industries, 1959-2006 in the 2007 and 2004 Economic Reports of the President. I have multiplied weekly earnings in the table to arrive at annual earnings.)  I believe these numbers give us some idea of the cost of financialization borne by the average working American.  Average Weekly Earnings - U.S. - Projected

A Sept 16, 2008 Wall Street Journal article on the economic damage being inflicted in New York City and London by the collapse of Lehman Brothers and Merrill Lynch (remember, Jerome a Paris calls financialization the Anglo Disease) on page A3 revealed that the financial sector in New York City accounts for about five percent of all employment, but nearly twenty-five percent of all wages. However, note this: personal and corporate taxes paid by the financial sector account for only ten percent of the City's tax revenue.

Imagine if 20 percent of total wages in New York City had been redirected instead to the 95 percent of workers not in the financial sector. Would the hundreds of Bentleys, Ferarris, Martins and Bugattis that had not been sold to the rich "masters of the universe" been more than offset by the thousands of Tauruses, Impalas, and Toyotas? Extend this example to the entire U.S. economy: would General Motors and Ford be losing billions on their North American auto manufacturing operations right now, if average U.S. household income was twice what it now is? How much larger would the market be for hybrid vehicles, electric cars, and other new, green technologies? These are the kind of questions our Congressional committees need to be asking, so that we can begin to know and confront the true costs, and lost opportunities, of the past 28 years' ideological fascination with fairy tale of the "free market" spun by Milton Friedman, Margaret Thatcher, and Ronald Reagan.

As I wrote soon after the Bear Stearns "rescue", in Euthanize Wall Street to save the economy

The fundamental problem is the big players on Wall Street have misused the credit mechanism [the financial system] for their own private gains through the bloating of debt and speculation, at the expense of actually allocating and supplying capital to the real economy.


 there is a mind-boggling amount of derivatives out there, but they are not that widely distributed. Derivatives are very complex contracts, and it takes an enormous amount of computer power and management time to understand them and manage them. In his new book, The Trillion Dollar Meltdown, former Wall Street lawyer and investment banker Charles R. Morris writes that "In 1983, modeling the payout scenarios on Fink's comparatively simple three-tranche CMO took a mainframe computer a whole weekend." Of course, computing power has increased exponentially while decreasing in price since then, but the point is that buying, selling and managing financial derivatives is not for any institution. Millions of dollars in computers and software must be developed and maintained in order to even begin to hope to handle derivatives.

The result is that creating, selling, and trading financial derivatives is entirely the province of the small number of investment and commercial banks that have hundreds of billions of dollars in assets. In other words, the big Wall Street banks. Take a look at this graph from the Third Quarter 2007 Report on Bank Derivatives Activities by the Office of the Comptroller of the Currency

Look at that bottom line that stays flat no matter how much derivatives increases. That's the amount held by end-users. End-users ?! So it's the banks that are holding most of the derivatives. Now, this is just commercial banks, and does not include derivatives activities of investment banks.

According to the Federal Reserve Board's Report on the Condition of the U.S. Banking Industry: Second Quarter, 2006
derivatives holdings of the 50 largest bank holding companies as of the second quarter of 2006 totaled $ 117,631 billion, or $117.6 trillion.

Derivatives holdings of all other reporting bank holding companies in the United States was $88 billion.

In fact, only five commercial mega-banks - J.P. Morgan Chase, HSBC, Citibank, Bank of America, and Wachovia - account for well over 90 percent of derivatives activities by  commercial banks. Here's a graph from the OCC report:

So, if Bear Stearns had been allowed to collapse, who really would have been hurt?

According to economics professors and business school finance textbooks, the purpose of derivatives is to make it easier to manage the various risks of debt, making credit easier and safer to provide. The effect, according to this common wisdom, is to make credit more readily available. Why has this not been a central question as we evaluate the situation in the aftermath of the Bear Stearns bailout? Let's look at the evidence. These numbers come from the above report, the Federal Reserve Board's Report on the Condition of the U.S. Banking Industry: Second Quarter, 2006
Neither assets nor loans increase anywhere near as much as derivatives. In fact, as we are seeing now, the huge growth of derivatives has triggered a financial collapse in which the supply of credit is rapidly diminishing.

Here's part of the summary from Credit Derivatives and Bank Credit Supply, Federal Reserve Bank of New York Staff Report No. 276, February 2007

The results for the volume of lending are more mixed: the volume of large term loans is unaffected by changes in the degree of credit derivatives protection, while the volume of smaller term lending decreases. Overall, the results suggest an increase in the supply of credit to large term borrowers. Since large firms are more likely to be "named credits" in the credit derivatives market, this finding suggests that the benefits of credit derivatives may accrue mainly to these firms, rather than being spread more broadly across the business sector.

In contrast, there is little to suggest that increased use of credit derivatives leads to an increase in loan supply for commitment lending, to either large or small borrowers. The volume of new commitment lending falls as net credit protection increases, and loans spreads are basically unchanged. The average maturity of loans to small commitment borrowers also falls as credit derivatives protection increases.

In fact, the New York Fed study is forced to admit that

In contrast, Morrison (2005) and Duffee and Zhou (2001) suggest that credit derivatives may undercut other forms of risk transfer such as the loan sales market, and ultimately reduce the overall supply of credit (bank loans and bonds).

So, if the hundreds of trillions of dollars in derivatives are NOT helping get more credit into the hands of entrepreneurs and small businesses (and remember the Bush administration / conservative tax cutting mantra that small businesses are the engine of innovation and employment in our economy), then why are the big Wall Street banks creating such an overwhelming amount of derivatives?

I suggest that it is almost entirely to generate fees, and to trade for the banks' own accounts. But, I confess, I really do not know. If someone in Congress would think to ask the questions I'm raising, we might get some answers. I think Warren Buffett is correct, in his 2006 letter to Berkshire Hathaway shareholders, where he relates the little parable about the Gotrocks, showing how the financial system continues to grow and grow eating up more and more of the real economy.

But I think it really does not matter. What matters is that financial derivatives are a problem that besets the small, select club of big Wall Street investment and commercial banks, and not too many others.

So come the next "too big to fail" crises, I think it would actually be better to let the institution involved fail. And let it take the rest of the big Wall Street players with it. As far as the real economy would be concerned, good bye and good riddance. We can let the big Wall Street players collapse into the ruin they so richly deserve (pun intended) while insulating the rest of the financial system and the real economy. Using the precedent of what Franklin Roosevelt did to stop the bank runs in 1932, the President need simply declare a bank holiday, but only for derivatives contracts. Derivatives aren't supplying credit to the real economy anyway, but the important thing is to overcome the psychology of fear and panic that threatens to infect real bank lending to the real economy.

We want to force a shift of the financial system way from the big-money operations of Wall Street, back to the relatively small lending operations to Main Street. So we let the top dozen or so institutions go under. At the same time, the Fed should make a very public show of back-stopping the smaller commercial banks all around the country - just like it did for JP Morgan Chase in the Bear Stearns "bail-out." The one nagging problem is what to do about all the shareholders? Whoever the next President is can send emissaries to the various pension funds and mutual funds to tell them in no uncertain terms of the intent to let the big Wall Street players meet their well-deserved doom, taking their shareholder with them. If someone wants to bet in a game of chicken that the next President would not actually let the big Wall Street players go under and remain a shareholder, well, they were warned. Yes, this is "talking down" the big Wall Street banks, but it would only be them getting a taste of the medicine they themselves have been cramming down the throats of the rest of the economy (such as having conniptions over Costco paying its employees much more than the retail industry average).

What remains of the big Wall Street players can be sliced and diced, and parceled them out to all the thousands of remaining small banks. For example, a Chase branch or Citi branch in Peoria is offered to 1st National Bank of Peoria for a song.

The effect then is to excise the big Wall Street C and I banks, just like a tumor is cut out of the body. Yes, I will make the idea explicit here: the goal in the next crisis point of the financial collapse should be to ruthlessly euthanize the biggest institutions on Wall Street. These big commercial and investment banks are NOT providing any net value to the economy - they are actually sucking value out.  A few years ago, John Bogle, founder and retired CEO of The Vanguard Group of mutual funds, estimated that the financial system is actually subtracting $540 billion in value from the economy (See Bogle's discussion on Bill Moyers Journal.)

Consider the conclusions of a February 2005 report, by the Federal Deposit Insurance Corporation Consolidation in the U.S. Banking Industry: Is the Long, Strange Trip About to End?, on the effects of the emergence of the mega-banks like J.P. Morgan Chase, HSBC, Citibank, Bank of America, and Wachovia.

In addition to lacking consensus on cost efficiency gains, empirical work to date has also failed to find substantive evidence of other benefits that one might hope consolidation would yield. For example, there is little evidence that either consumers or shareholders have benefited from consolidation in the industry. In fact, there is growing evidence that increases in market power at the local level may be adversely affecting consumer prices (for both depositors and borrowers). And as we mention above, there is also some evidence that managers might be pursuing mergers and acquisitions for reasons other than maximizing firm value (researchers who have studied the issue have consistently found support for the idea that empire building and increased managerial compensation are often a primary motive behind bank mergers). Finally, findings from several researchers suggest that industry consolidation and the emergence of large complex banking organizations have probably increased systemic risk in the banking system and exacerbated the too-big-to-fail problem in banking.

Did you catch that? empire building and increased managerial compensation are often a primary motive behind bank mergers.  Forbes reported last week that the five principals of Goldman Sachs were paid over $300 million. This is really what the game has been about for the past thirty years.

Once we have eliminated the big Wall Street institutions that have been essentially looting the economy, and redirected the financial system back to providing capital for capitalism, we need to ensure that speculation does not again become a problem. The best and easiest thing to do is simply to tax speculation. In Why Financial Crises Will Keep Happening Ian Welsh explained how returning the top income (incomes over $5 million) tax rate to the 75% or even 91% of the 1940s to 1970s will eliminate much of the financial manipulation that ultimately saps the strength and vigor of the real economy. In The Economic Case for the Tobin Tax, Thomas Palley explains how a Tobin Tax helps dampen speculative volatility in the foreign exchange markets, and directly references the idea of Pigouvian taxes, which Wikipedia defines as a tax levied to correct the negative externalities of a market activity.  A Google search for "Tobin tax" will provide a wealth of good material to read, or you can simply go to the website of the Tobin Tax Initiative.

The damaging details of exactly what Wall Street is all about is leaking out all over the place. A few days ago, a Bloomberg news wire revealed that half the revenues of the big Wall Street firms came from trading for their own accounts:

Lehman's market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors' valuation of the rest of the third-biggest U.S. securities firm is zero.

After being the most profitable business on Wall Street, generating more than $65 billion in pretax profits for the four largest U.S. securities firms between 2002 and 2006, trading has become a black hole. It still accounts for about half of the revenue at the Wall Street firms. Yet Lehman Chief Executive Officer Richard Fuld and Merrill CEO John Thain have been unable to convince shareholders to attach a value to the businesses.

So what if we as a society now prohibit the masters of the universe from trading? It seems we would actually be doing them a favor. But let's do ourselves a favor, and just shut down the whole damn casino. As one commenter wrote on a leading financial blog a few months ago in The Credit Bubble: Deregulation Gone Wild:

The fact of the matter is that very sophisticated financial instruments are not necessary for the functioning of a modern economy. Simple stocks, bonds, futures and insurance of vanilla varieties handle the vast majority of real needs. Nor is there any evidence I am aware of that mega-banks/investment houses/brokerages/insurers serve customers better than the older businesses which were forced to concentrate on just one area.

Certainly we can't just roll back the clock, yet the truth is that much of what happened would never have happened if the old rules had been enforced. They were, in fact, specifically put in place to avoid exactly what has happened, by people who were around for the last big clusterf*ck in the 20's and 30's. And if you read a history of the period, the parallells aren't just echoes, they are so close it's like reading the script for a movie remake.

And what about the "too big to fail" problem? As of this past Monday morning, only two independent investment banks are left standing: Morgan Stanley and Goldman Sachs. Is there any doubt that either of these companies is indeed now "too big to fail"? And what about Bank of America, which swallowed Merrill Lynch? If these companies are "too big to fail" why should we as a society wait to see if we will have to bail them out in case of their failing? They should be immediately broken up. As noted in the FDIC report I quoted above, these mega-banks really have not helped the economy at all. The entire idea of national banking companies should be abandoned as a badly failed experiment. What about having to compete in the global marketplace? Let's face facts: ever since U.S. banks have been deregulated to be better able to compete in the global marketplace, they've had their asses handed to them over and over again.  Let's just accept that deregulation is a failed experiment, and accept the fact that a strictly regulated domestic banking system, geared only to domestic needs, is actually the strongest and safest.

In fact, when you look at what our country's needs are, you see just how spectacular a failure the whole conservative experiment in deregulation and "free markets" has been. We need to move off of a dependence on fossil fuels. How much progress has been made toward that goal in the past 28 years? Practically none. We have not even been able to maintain our existing infrastructure adequately, let alone build new infrastructure to meet national requirements - such as urban mass transit rail systems. Of the 39 largest U.S. urban areas, beginning with Nashville, Tennessee which has a population of over 1.2 million, thirteen have no urban rail transit at all, and another five have less than 20 kilometers of rail line. Houston, Texas, now the sixth largest U.S. metropolis, with an urban population of 4.2 million, has a laughable twelve kilometer "system" served by sixteen stations. If the financial system has been unable to steer investment into this crying need, then let's just let the damn thing collapse. It's really of no use to our society.

As Dean Baker concluded:

The basic story is Wall Street has our money. There will be innocent victims in the battle to rein in Wall Street: the administrative assistants, the custodians, the ordinary workers who will also lose their jobs. This is unavoidable. If we eliminated sweetheart defense contracts with Halliburton and Blackwater, innocent people would also lose their jobs, however few would argue that we should therefore continue to throw taxpayer money in the garbage paying exorbitant fees to these firms.

We have a historic opportunity to correct one of the major distortions to the U.S. economy if we move now. There is no way to reverse the growth in inequality over the last three decades without attacking the elite Wall Street crowd. Those folks who back away from this task simply are not serious about addressing inequality. They have our money. It's that simple.

Great article. Tremendous, reasonable empirical support. But you almost lost me at Dean Baker, poor man's Krugman.

I still like Michael Hudson for the money.
DemocracyNow! audio | transcript

Diversity is the key to economic and political evolution.

by Cat on Wed Sep 17th, 2008 at 09:30:36 PM EST
Absolutely. Hudson is first rate.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 05:20:06 AM EST
[ Parent ]
revealed that the financial sector in New York City accounts for about five percent of all employment, but nearly twenty-five percent of all wages. However, note this: personal and corporate taxes paid by the financial sector account for only ten percent of the City's tax revenue.

Somewhat misleading. Quite a bit of the city's revenue comes from sales tax and property tax. Plus quite a few of the people working in the financial sector live in the burbs, thus don't pay city income tax (thank you Shel Silver).

Secondly, your figure for average weekly workers' income is only for those who are paid an hourly wage and who are in non-supervisory positions - or about three fifths of all those who are employed. In other words it isn't the median for all Americans, but rather significantly lower. That doesn't affect the rate of change, or lack of it.

Median annual income for those employed full time year round in the US is a little under $50K. (yes that's full time, year round -  far from everyone, but the latter is assumed in your figures as well, and your figures come close to full time on average, if you factor out those working part time by choice, it's not a huge difference since your figure for all workers is 33.8 hrs/wk and full time is defined as thirty five or over).

Final objection - the problem for Detroit isn't lack of income, it's lack of good products. Their market share has been declining for over a generation. And this year aside, it's not like Americans haven't been buying cars.

That said, I do agree with re-regulation, though I'd really prefer to wait until after Jan 20 for that. Nor can it be done overnight. In the meantime letting the financial system collapse wouldn't be particularly helpful to average Americans.

I also think you're missing one of the most important factors in the distortion of the economy - the tax regime. It's not that we're not taxing Wall Streeters - as wealthy Americans go, they're paying fairly high taxes because of where they live. (Top marginal local/state rate for folks living on Fifth Ave. - 11.4%, top marginal rate in Texas or Florida - 0%)

However, in general the slashing of effective tax rates on top incomes has made paying huge salaries and bonuses much more affordable for businesses. If they were confronted with eighty or ninety percent effective marginal rates on income above a certain level, even a very high one (say one million) they'd be less inclined provide such salaries. That was the case through the seventies. Again, that has nothing to do with a Wall St. specifically, but rather is a national problem.

by MarekNYC on Wed Sep 17th, 2008 at 11:46:29 PM EST

If they were confronted with eighty or ninety percent effective marginal rates on income above a certain level, even a very high one (say one million) they'd be less inclined provide such salaries.

I think we should focus less on taxing salaries aka 'earned' income and aim instead at taxing wealth, and do so through a levy on unearned income from the privilege of private property.

In particular, a "Location Benefit Levy" ( ie tax on land rental values) is simpler, and less avoidable....

Similarly, we should abolish Corporation Tax, and instead impose a "Limited Liability Levy" on gross corporate revenues instead, thereby taxing the privilege of "free" limitation of liability for investors.

It would have an added bonus in that it would make redundant most tax advisers and accountants overnight....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 05:30:45 AM EST
[ Parent ]
It would have an added bonus in that it would make redundant most tax advisers and accountants overnight....

Are you mad it would make a majority of the most productive (ha) members of the anglo society unemployed.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Thu Sep 18th, 2008 at 05:48:41 AM EST
[ Parent ]
....and that is the nub of it.

By "productive" we mean "productive of claims over wealth issued by credit institutions on the basis of not very much at all..."

A nurse in the "unproductive" employment of the Public Sector = State is of course a drain on the "productive" Private sector.

The minute she is employed by the Private sector (= a Joint Stock Limited Liability Corporation), on the other hand, she is a Wealth Creator.

<bangs head on desk>

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 06:43:27 AM EST
[ Parent ]
Like it or not, the government is in the insurance business, AIG and Lehman brothers prove that.  I think that abolishing corporate taxes in favor of a insurance levy charged on an income basis would be ideal.  

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Sep 19th, 2008 at 07:47:26 PM EST
[ Parent ]
I was wondering when we would be graced by one of your posts.  Glad to see it even if I didn't read everything.

I agree that this problem can only be solved at the expense of those who brought it to us.  They are the only ones who have enough money.  They sucked the life out of the economy and now are trying to get the corpse of that economy to make good their losses.  We could spend a generation trying to save their asses and it still wouldn't work.  And why should we try?

I have just written to my congressman on this subject.  I additionally recommended that Congress should pass campaign finance reform.  If public money in the amount of even $10.00/year per citizen were put into a campaign finance fund there would be enough money to pay for the campaigns of all contestants in each of this years contests.  That would be the best bargain the taxpayer ever got.  Then Senators and Congressmen would be our representatives and could work for our interests.  As it is all we do is pick our pimps and they then whore us out to the big guys.

Figuring out how to prevent such a calamity from recurring and how to recover the maximum amount of the wealth these elites have looted from the rest of us would be a lot easier were they not beholden to the very people who have done the looting. Nothing significant will happen until and unless effective campaign reform is enacted

We should not worry about what that will cost in the beginning.  The cost of not enacting reform is already in the trillions.  The initial reform should be just to swamp the system with public money.  Let interested wealthy contribute as much as they wish. That would make the success of court challenges less likely.  We could also require public broadcasters to provide substantial free air time to qualified candidates as part of their public service requirement.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Sep 18th, 2008 at 01:07:01 AM EST
Also, institute a public service requirement on all who broadcast on the airwaves. Like driving a car, broadcasting in the ether is a privilege not a right handed down by God.

Yes, people can still get past this requirement by using landlines or making their media available over the 'net. But the 'net is an active rather than a passive medium, which does wonders for the media culture there (freepers aside), while running private landlines to hundreds of millions of end-users spread across an entire continent is expensive and of little other use if a working public infrastructure is in place.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 25th, 2008 at 01:38:38 PM EST
[ Parent ]
International datapoint of "too big to fail" central bank strategy: 40,000 of 74,000 jobs worldwide targeted.

Telegrahph 18 Sep HBOS - Lloyds TSB: Biggest rescue deal in British banking history

HBOS, the country's biggest mortgage lender, accepted an emergency takeover from rival Lloyds TSB following the collapse of its share price. Details will be announced today.
Last night it emerged that the emergency deal had been put together after fears that HBOS customers would begin to take out their savings following the sudden drop in the bank's share price.

If completed the takeover would create Britain's biggest bank with assets of about £1 trillion which would control more than a quarter of the mortgage market. In normal circumstances the so-called "super monopoly" would be outlawed by regulators fearful of the impact on consumers.

But the Prime Minister has agreed to rewrite competition laws to allow the deal to proceed. The Bank of England also announced that it would continue to offer tens of billions of pounds in government funds to mortgage lenders until at least next year.
 HBOS also has about two million small shareholders who have seen the value of their holdings drop by more than 80 per cent over the past year and now have little chance of their investments recovering in value.

Under the terms of the deal being discussed, shareholders are likely to receive about £2.80 in Lloyds TSB shares for each HBOS share. HBOS shares closed at £1.47 last night - compared with £9.87 last year.

FYI dollar LIBOR panelists (2008): Credit Suisse, UBS AG / BoA, JPMorgan Chase, Citigroup / Bank of Tokyo-Mitsubishi, Norinchukin Bank, Rabobank / Royal Bank of Canada / HBOS PLC, HSBC, Barclays, Lloyds, Royal Bank of Scotland / Westdeutsche Landesbank, Deutsche Bank

Diversity is the key to economic and political evolution.

by Cat on Thu Sep 18th, 2008 at 10:58:26 AM EST
No wonder USD overnight Libor spreads went to 4.5% the day before yesterday...

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Carrie (migeru at eurotrib dot com) on Thu Sep 18th, 2008 at 11:00:58 AM EST
[ Parent ]
Sept. 18 (Bloomberg)  The cost of borrowing in dollars overnight tumbled after central banks worldwide pumped $247 billion into money markets.

The three-month rate rose for a third day, to the highest level since January, according to the British Bankers' Association, signaling that banks are still wary of more failures among financial institutions after Lehman Brothers Holdings Inc. collapsed and the U.S. government took control of American International Group Inc.

LIBOR is interbank (dollar LIBOR panelists) trade risk. 3-mo Treasury is an (uninsured) mattress. And so much for the Nekkid Capitalist's politically palatable alternative to GSECF, marketing FHLB paper. Meh.

"No one is really expecting these spreads to come in," said Moyeen Islam, a London-based fixed-income strategist for Barclays Capital and a former U.K. Treasury economist. "There's no let-up in the pressures in what we've been seeing."

Diversity is the key to economic and political evolution.
by Cat on Thu Sep 18th, 2008 at 01:58:48 PM EST
[ Parent ]
Following is an exchange on Democracy Now between Amy Goodman and Michael Hudson from 9-17-'08. Makes sense to me.
AMY GOODMAN: Michael Hudson, we're talking government bailout, which means taxpayers stuck with the bill. Do you think this is the right move?

MICHAEL HUDSON: No, it's the worst possible move, and it puts the class war back in business with a vengeance. Wall Street has been preparing for this for years, because every financial analyst knows that the debts can't be paid. And the question that Wall Street has, if you're going to take a gamble on bad debts that can't be paid, how are you going to come out a winner? And there's only one way of coming out a winner, and that's to make the government bail you out. This has been known for years, because it's inherent almost in the mathematics of compound interest. Every banker I know knew that the loans they were making were going to go bad. They were trying to sell them to somebody else, ultimately expecting them to end up with some sovereign wealth fund.

And now, you had at the beginning of the show, McCain saying that this is the result of fraud and incompetence. The government has now bailed them out. But by bailing them out--Wall Street was coming to terms with the bad debts. When Bear Stearns went under and when Lehman Brothers went under, this began to wipe away the bad debts. And when the debts exceed the ability to pay, there's only one thing any economy can do, and that's wipe them out. Instead, the government is trying to keep the fiction alive. And what Paulson did yesterday, in bailing out AIG, was to try to lock in whoever is the next president not only to further bailouts of Wall Street, ostensibly to protect the public money, but to make it impossible to write down the debts of the four million homeowners that are expected to default this year, impossible to write down the debts of companies that have issued junk bonds, impossible for the country to get rid of this excess of debts that can't be repaid. And you're having really a war now of creditors against debtors. And this is what Wall Street has been preparing for. It needed an emergency to do it. It's really not an emergency at all. This has been building up for many years. Everybody expected it. And breathlessly now, the Secretary of Treasury has done it.

AMY GOODMAN: But, of course, the argument was, if you don't bail out AIG, it could lead to a global financial meltdown.

MICHAEL HUDSON: What you--it's a meltdown of the gamblers, as Nomi said. These are people who've gambled. You had McCain saying they're gamblers. If these people have gambled, we're talking about derivative trades, billions of dollars of bets on which way interest rates will go, billions of dollars of bad loans beyond the ability of debtors to pay. Why on earth would you want to bail out these creditors?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Sep 18th, 2008 at 02:20:27 PM EST
Ani DiFranco - Not So Soft (1991)

In a forest of stone
Underneath the corporate canopy
Where the sun rarely filters down
The ground is not so soft
Not so soft

They build buildings to house people
Making money
Or they build buildings to make money
Off of housing people
It's true
Like a lot of things are true
I am foraging for a phone booth on the forest floor
That is not so soft
I look up
It looks like the buildings are burning
But it's just the sun setting IN THE WINDOWS
The solar system calling an end to another business day
Eternally circling signally
The rythmic clicking on and off of computers
The pulse of the American machine
The pulse that draws death dancing
Out of anonymous side streets
You know
The ones that always get dumped on and never get plowed
It draws death dancing
Out of little countries
With funny languages
Where the ground is getting harder
And it was not that soft before

Those who call the shots are never in the line of fire
Where there's life for hire out there
If a flag of truth were raised
We could watch every liar rise to wave it
Here we learn America like a script
Same thing
We bring ourselves to the role
We're all rehearsing for the presidency
I always wanted to be commander in chief of my one woman army

But I can envision the mediocrity of my finest hour
It's the failed America in me
It's the fear that lives in a forest of stone
Underneath the corporate canopy
Where the sun rarely filters down
And the ground is not so soft
It's not so soft

"This can't possibly get more disturbing!" - Willow

by myriad (imogenk at wildmail dot com) on Thu Sep 18th, 2008 at 09:09:20 PM EST
... as the Bank of Japan did in the depths of the Lost Decade of the 90's.

That would definitely provide a big chunk of reset relief.

Of course, in the conventional wisdom, that'd be a terrible risk of inflation because of the ... uh, inflationary expectations "everyone" will experience in the middle of a metldown of the finance sector ... ???

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 19th, 2008 at 02:53:34 PM EST
on Friday, Wall Street got a little cocky and the Dow jumped up +368 pts. Outside the stock exchange, the bankers, brokers, and traders unfurled a banner to celebrate.

by Magnifico on Sat Sep 20th, 2008 at 01:02:44 AM EST
This I read somewhere on the net :

Unchangeable factors of USA Empire (meaning it does not matter who is in power Rep. Or Dems):

  1. Debt.

  2. Oil

(1. i 2. together are commonly known as "recycling the petro-dollar; System established by H. Kissinger 1971. after de facto default of "federal government").

  1. War.

  2. Israel first.

Each and every one and all together are recipe  for chaos,  and each and every one is at this time peaking...

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Sat Sep 20th, 2008 at 09:59:12 AM EST
Ignoring reality , that's what Americans do..."We are wining in Iraq" ..."The fundamentals of our economy are fine"...

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Sat Sep 20th, 2008 at 10:05:08 AM EST
[ Parent ]
Checks and balances my ass. The world is ruled by fucking morons.
Through this fog around collapse on WS they added $10 T in state debt and no one even blinked. After freshly printed dollars they print even more now. When in a hole, stop digging - don't get a bigger shovel. They give money and time to those that made this mess at first place so that they can buy tangible assets with that money while it's still worthy anything. People will pay the bill trough inflation (savings, superannuation money, denomination of shares etc). Next step is Chinese and Japans banks are coming to the "rescue" ...and resource wars. Feudalism.

Sorry for pure translation from Serbian.Those are Serbs that live in USA and this is from Serbian forum.

Science without religion is lame, religion without science is blind...Albert Einstein

by vbo on Sat Sep 20th, 2008 at 10:36:22 AM EST
[ Parent ]
The world is ruled by fucking morons.

To be more technically correct, fucking morons rule over a world of dumb fucks.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Sep 20th, 2008 at 12:20:56 PM EST
[ Parent ]

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