Is letting banks fail an option? / Stimulating this economy

Discussion in 'Politics' started by D_Ireonsyd_Colonrinse, Apr 12, 2009.

  1. D_Ireonsyd_Colonrinse

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    The financial crisis -- bad banks, toxic assets and taxpayer bailouts.

    Federal Reserve chairman Ben Bernanke is committed to the idea of bailing out large corporate financial institutions like banks and Wall Street firms. Bernanke considers himself an expert, a "student" of the Great Depression. His belief is that the Federal Reserve was a main cause of exacerbating the problems at that time. He feels they didn’t react quickly and strongly to stem the economic collapse that soon followed. The idea - that the Federal Reserve would be a "lender of last resort" - was to have a central authority who would be able to step in during moments of financial crisis to inject some liquidity to prime the pump and get the system going again.


    April 15th tax day "Tea parties" are a new grassroots phenomenon "sweeping the nation", protesting the bailouts, protesting the stimulus package, protesting congessional deficit spending. If there's governmental money involved, the tea parties are protesting it with homemade signs. The American Family Association says it is planning "Taxed Enough Already" (TEA) party rallies in 1,000 cities and towns on April 15.


    --------------------

    I listened to a radio conversation (posted on youtube), an interviewer interviewing Alex Blumberg and Adam Davidson from NPR's "Planet Money":

    Interviewer: Why not just let the banks fail in the marketplace? Why would that trash the world economy? Wouldn't, then, the FDIC take care of the insured shareholders and then some other new banks would spring up and start all over again?

    Alex: If you think of depositers at a bank, like - as most of us, like as a savings account, most of us have less than $250,000 in our savings account - and we are loaning that money to the bank when we have a savings account. That is protected money. So if the bank were to go under, the government would make us whole. But there's a lot of people who loan the banks money in much greater sums, like millions and billions of dollars at a time.

    Adam: Pension funds... you know, institutional investors... and really rich people...

    Alex: And that is the main way these really big banks sort of function, getting this institutional money, which if the bank were to fail, and these people were not made whole, this would set off an entire chain of events, because that would mean your pension funds - your pension fund is lending your bank a lot of money right now, million, billions of dollars - and if the bank were to go bankrupt and they were not able to pay it back, then your pension fund takes a hit... and that has consequences down the road, there's this sort of horrific spiral...


    --------------------

    The Christmas season was pretty bad. Consumers have not been shopping for a long time. Cash is needed to stimulate the recession economy. It's not coming from consumers. Banks have frozen, stopped lending. If consumers, businesses and banks cannot be counted on to start the stimulating of the economy, this leaves government. The billions in bailouts are to assist the banks it "thawing", lending again, to give the "liquidity to prime the pump and get the system going again". The stimulus package itself is to inject money also and to get people working again as a side benefit.

    One of the leading republicans in congress, House minority leader John Boehner, has called for a "spending freeze", that is, for injecting no money anywhere via government, "until the end of this fiscal year". Many economists think he's got the solution exactly backward.



    Alex and Adam from NPR were on Rachel Maddow's MSNBC cable show last week, and Alex was explaining a chart he'd just seen regarding U.S. household debt as a percentage of the GDP.

    Alex: "There's a chart of household debt in this country... household debt is everything that you owe on your credit card and your mortgage and on your car, everything, and if you add up everything that everybody owes in the country and put it all together, that's what the household debt is. And this chart was a percentage of GDP.... it says that we collectively as a nation, as people, owe 13 trillion dollars."

    If you look at this chart, this monsterous household debt started dramatically increasing around 2000, and crested around 2007:

    http://creditwritedowns.s3.amazonaw...m/files/2008/10/household-debt-vs-savings.png


    YouTube - Rachel Maddow Show: Planet Money, Explained
     
  2. houtx48

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    it's an option....................star shine star bright keep on subject tonight.
     
  3. ackomack

    ackomack Member

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    Letting banks fail is an option.... if your goal is to annihlate the remaining successful sectors of our economy and put EVERYONE out of work.

    Just ask anyone who has spent any time studying economics whether letting banks fail is an option.

    Unfortunately most Americans don't fully understand and appreciate the precarious situation last fall presented, nor do they understand how closely we've flirted with serious economic disaster and how the extreme bailouts by the government prevented many from having to stand in bread/soup lines. In an economic downturn, letting banks fail is the quickest way to force profitable businesses into bankruptcy.

    People just don't understand the systemic importance of financial companies. A failed bank causes thousands of other companies across all sectors of the economy to fail. A failed auto manufacturer hurts a lot of people and can put many of the company's suppliers out of business -- but there are still competitors who can pick up the slack.

    Anyhow, kind of a serious topic to discuss on a large dick site, however I needed to chime in.
     
  4. lucky8

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    No, it is not an option. The FDIC only has about 1% of all deposits in its insured account...and it doesn't cover about $1.4 trillion of large deposits. Not to mention the majority of American money is just a number on a computer, rather than an actual physical currency. Our banks owe countless banks in other countries billions and billions of dollars, which is why it would lead to a worldwide banking meltdown. Financial companies were basically creating their own money with the use of CDO's and credit default swaps. These derivatives and "insurance policies" are owned by banks around the world. So now, the Fed is creating the money that was never there in the first place in order to pay off international, and domestic, banks. A quagmire rivaling that of Operation Iraqi Freedom.

    I think a huge problem with all of this, and I do not know this for certain, is that both the sellers and the buyers of CDO's and credit default swaps were putting them in their books as assets.

    ...and do you really think an independent organization like the Fed, who makes its profit off of lending the money it creates to our government, would really allow their customers(banks) to go under? I don't. Congress can't do a damn thing about this. The Fed is independent, meaning they answer to no one...kinda fucked up if you ask me. Why not just let the states print money instead?
     
  5. D_Ireonsyd_Colonrinse

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    ackomack & lucky8:

    Wow. Thanks for your heated responses. I sort of have an ulterior motive in writing this thread: on April 15th a lot of little "conservative" groups are getting together to protest bank bailouts and economic stimulus, calling themselves "tea parties" (I saw pics from the last tea party with folks holding their "No Bank Bailouts!" signs).

    There's a large susceptiblity to "groupthink" here. The conservatives are against President Obama, no matter what he does, so they are against bank bailouts because he is a fierce advocate (like Timothy Geithner) of preventing large institutions like AIG and Citigroup from going under -- and the panic and crisis and domino effect that would ensue once the full implications of the international interconnectedness of these institutions were revealed.


    This is now a tightly interconnected global economy. It also has disturbing implications. This is no longer capitalism, if one is prevented from failing for the good of the whole. Large financial institutions are bound to become arms of the national as well as a global government.
     
  6. lucky8

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    Well if we want to be completely honest with ourselves...we do not have an actual free market. Being that the Fed controls the money supply and interest rates, the biggest determinates of the performance of our market, I don't know how anyone could say our market is free. It is a manmade, regulated market that has the illusion of being free. Tea party shmee party. In the end, no one gives a damn about groups of people meeting up to drink tea and "protest." Seems conservatives are turning into hippies with all these protests. Ackomack is right, conservative or liberal, the vast majority of people in this country not only don't understand what is happening right now and why the steps the Fed and treasury have taken are necessary, but they really have no clue as to how important the financial industry is to our economy.

    The other day at worked I asked this lady "are you an American" out of curiousity. Her response "I didn't vote for Obama." I then followed up with "what do you mean by that." She responded "I Am an American, and I did not vote for someone to spend trillions of dollars for no reason but to make the wealthy even wealthier." I laughed. She said "what's so funny?" I replied "I'm a finance major, what did you earn your degree in?" Her answer, "graphic design." I smiled and walked away, because at that point I knew her opinion on this subject meant absolutely nothing to me. Our leaders have been telling us about the new world order for a couple decades now. Well, the global economy is here, along with a world court, I would say we are coming closer and closer to a unified planet than we've ever been before. 2012 bitches
     
  7. Elmer Gantry

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    I can also see another form of "groupthink" going on here. What a lot of these tea party organisations seem to be protesting is the level of debt that is being attained to prop up a failed system.

    The banks have been technically broke for a long time with one stimulus or bubble after another invented to prop them up. The derivatives bubble combined with the insane level of debt the USA has found itself in will undo many economies regardless of stimulus packages. Last October was only the opening act. This mess will last years.

    Meanwhile, the longer this nonsense of bailouts goes on, the deeper the whole we dig for your grand children. That's just from the outside looking in.

    The disturbing part is that any criticism to govt policy in the USA is being effectively destroyed due to some form of misplaced nationalism.
     
  8. ackomack

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    I'll start by saying you're being sensitive if you took my first response as heated. It wasn't. If my opinion rubbed you the wrong way then that's unfortunate. I'm simply sharing my opinions in this forum like you.

    I believe increasing government debt is certainly not desireable--however it has been essential in this case that we take on this debt to prevent further damage to the economy. And to anyone who is just now concerned about massive government debts, I ask you this: Where have you been the past 8 years?

    The government hasn't been propping up a failed system by bailing out AIG & Citigroup - rather they are unwinding these organizations in a structured, non-panicked manner to avoid fire sale prices and temper some of the irrational market behavior that has occurred. Nobody has congratulated Liddy or the Fed on the exceptional job they have done unwinding some of AIG FP's complex contracts. Despite some of the ridiculous decisions made by those organizations' previous leaders (as well as our government's governance bodies), there is still underlying value in both AIG and Citi, and the system as a whole shouldn't be scrapped because of huge mistakes made by one part of it (derivatives & risk pricing).

    I also don't think that government bailouts necessarily signal the end of capitalism... besides as lucky8 states, we have been operating in a pseudo-capitalistic economy for years now. Sometimes markets fail temporarily--due to unpredicted systemic changes, shifts in perceived risk, or pure panic. When markets fail, it is sometimes favorable for the government to step in to right the ship and then step back out (privatize).

    Finally, this is a global phenomenon--and I've grown tired of hearing the bellyaching from the rest of the world about how America's indebtedness is to blame for the current downturn. Clearly investors across the globe believed that subprime mortgages were safe investments, and were happy to take the profits before the bubble burst--so don't blame your bad investment decisions on us. We took our profits during the boom and are taking our losses during the bust--just as they should. If you can find a safer, less exuberant economy in which to invest, please enlighten me, as my investment will follow.
     
  9. sargon20

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    Government let banks grow large and now they are too big to fail. If we don't like big business then we must not let it get big. Not banks at least. Banking is not like retail, leisure, manufacturing, etc. It is the glue if you will that holds it all together. Every industry, every organization, every person depends on a strong and viable banking system. Without it, it all falls apart.


    And the ratings agencies? Where were they? They rated those investments as AAA. They were making scads of money too.

    Credit Rating Agency Heads Grilled by Lawmakers
     
    #9 sargon20, Apr 12, 2009
    Last edited: Apr 12, 2009
  10. ackomack

    ackomack Member

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    The disturbing part is that any criticism to govt policy in the USA is being effectively destroyed due to some form of misplaced nationalism.
    Another thing I want to mention is that you are completely incorrect about this. I live in one of the more conservative regions of the nation, and aside from about 2-3 months after 9/11/2001, people have been more than willing to criticize government policy publicly and privately.
     
  11. Flashy

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    perfectly stated.

    you should be posting in this forum far more often
     
  12. Phil Ayesho

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    We could let banks fail... if they were not the banks that hold significant percentages of world wide assets, insurance, and pensions...

    The trouble was the "finance modernization act" passed in Congress in 1998- which ALLOWED ginormous insurance companies to merge with ginormous wall street firms and ginormous banks.
    Prior to that, ever since the depression, such mergers had been illegal because of the risk they represented.
    Republicans pushed for that bill on the basis that the old regulations were "antiquated" and "preventing growth in the financial sector"....

    yeah- preventing the growth of institution too large to be allowed to fail- preventing the growth of graft, corruption and CEO pay and severance packages...

    Add to that the Bush removal of debt caps and cash reserves on these megalopolies and you end up with a handful of unscrupulously run corporations large enough, and unregualted enough to take down the entire world economy.


    IF the Financial modernization act had not been passed, the banks that would be failing would not be so large that we could not just let them fail.


    So, thanks again to Republican party... the party of corporate shilling and corporate drafted legislation... we have all been fucked up the ass to allow a handful or the super rich skim trillions off the top of the world economy... and spirit it away in offshore tax havens so they don't even have to support the nation they robbed for the money...

    Good going you conservative idiots... way to make sure your "fiscally conservative' politicians are not just selling you out to corporate donors...

    What happened to conservative ideas of Law and Order?

    Or is larceny okay as long as the thief is white and already rich?
     
  13. Flashy

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    so, phil...you are at it again, huh? exempting the democrats from joining hands with the republicans to pass the Gramm Leach Bliley Act and abolish key provisions of Glass Steagall and the other sensible regulatory provisions tht stood us well since the Great Depression?


    Let's go over it again, Phil, since you cannot help torching the republicans on this one over and over even though you have been proven conclusively wrong about the republicans being solely to blame for this one act. So take your medicine again:

    *BOTH* parties wet themselves to pass this bill

    it passed and was then signed into law in 1999, November 12 to be exact, by President Clinton....not 1998 as you said.

    1. PRESIDENT CLINTON (a democrat IIRC) SIGNED IT INTO LAW

    http://freespeech.vo.llnwd.net/o25/pub/images/clintonsigns.jpg

    President Clinton said at the signing, “The Gramm-Leach-Bliley Act is a major achievement that will benefit American consumers, communities, and businesses… The Act repeals provisions of the Glass-Steagall Act that, since the Great Depression, have restricted affiliations between banks and securities firms. It also amends the Bank Holding Company Act to remove restrictions on affiliations between banks and insurance companies…”



    2. The Senate Passed it 90 to 8 with 1 present and 1 Not Voting

    Democrats voted 38 yea, 7 Nay. (84.4% of democrats)

    a few prominent names among the 38 democratic yea's:

    Max Baucus
    Evan Bayh
    Joe Biden
    Robert Byrd
    Tom Daschle
    Chris Dodd
    Dick Durbin
    John Edwards
    Diane Feinstein
    Ted Kennedy
    John Kerry
    Daniel Moynihan
    Harry Reid
    Chuck Schumer



    U.S. Senate: Legislation & Records Home > Votes > Roll Call Vote

    3. The House Passed it

    362 yes, 57 nay, 15 not voting

    Republicans
    207 yea, 6 Nay, 10 NV

    Democrats
    153 yea, 50 Nay, 4 NV

    Independent

    1 Nay


    (73.91% of democrats)


    GovTrack: House Vote on Conference Report: S. 900 [106th]: Gramm-Leach-Bliley Act




    ALL REPULICANS AND DEMOCRATS IN CONGRESS COMBINED

    Yea - 452
    Nay - 65
    NV -15
    P -1

    All democratic congressmen (Senate and House)


    191 yeas
    57 nays
    4 NV




    75.79% of all congressional democrats voted for it
    93.5% of all congressional republicans voted for it

    and a democratic President *SIGNED* it.




    ----


    Schumer and Dodd rode Shotgun all the way on the Senate package of it.

    Schumer on the day of the signing:

    “Mr. President, this is a historic moment,” Mr. Schumer said. “… The future of America’s dominance as the financial center of the world is at stake… If we didn’t pass this bill, we could find London or Frankfurt or… Shanghai becoming the financial capital of the world. That has grave implications for all of America, where financial services are one of the areas where jobs are growing the most quickly… where our capital dominates the world. And it would be a shame if because Congress has been unable to act that all those advantages were frittered away as they well could be in a global world by our failure to realize the problems that our existing antiquated laws cause us…From Glass-Steagall to Gramm-Leach, from the Great Depression to the Golden Age, from isolationists to internationalists, from underdogs to champions, this bill, in my opinion, Mr. President, is an American success story for our economy… And I was proud to have played a role with so many others in ensuring its passage





    and Phil, considering you are ripping the Republicans for it, maybe you should listen to what Bill Clinton had to say about it recently in response to criticism over him signing it...

    "I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill ... On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence."



    ----


    Byron Dorgan, Democrat, was vociferous critic...but very few republicans listened to him...very few dems did either...and neither did President Clinton


    "I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930s is true in 2010. I wasn't around during the 1930s or the debate over Glass-Steagall. But I was here in the early 1980s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernisation to forget the lessons of the past, of safety and of soundness.''


    ---

    So Phil...either it isn't a problem, according to President Clinton, and he, the republicans and democrats were *RIGHT* to do it...

    OR

    The Republicans and Democrats in the house and senate and the democratic president were *BOTH* grievously wrong.

    You can't have it both ways with your sniping on this particular topic Phil...

    either blame both parties for what they have done, or absolve them both.

    you can't split this one Phil, and no amount of your ranting will change it.

    the republicans and democrats launched this boat and sat in it together...so phil, you can't sink only half a boat and leave the other half floating.

    Take your medicine and grow up...

    you have been harping on this particular one for months and you ignored these very same facts last timearound...

    time to *FINALLY* admit when you are wrong

    BOTH PARTIES DID THIS *TOGETHER*.
     
  14. ackomack

    ackomack Member

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    Flashy, thanks for the research. Now if only everyone else would take the time to educate themselves on both the history of how we got to where we are, as well as simple economic theory, then maybe we would all work together to fix our mess. Neither party can point the finger at the other over the current economic crisis. The short memory of liberals and conservatives alike never ceases to amaze me.
     
  15. Flashy

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    thanks ackomack...and once again, perfectly stated on your part.

    you need to post more...we could use a tad more sanity in the politics forum :wink:
     
  16. sparky11point5

    sparky11point5 New Member

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    All my education and experience tells me that we cannot let the banking sector collapse. So, I agree in principle with the TARP and other measures. (Although, oversight and other issues were poorly implemented.)

    Yet, I have this fear that we are rewarding the exact individuals who enriched themselves through real fraud or willfully failed to do anything about this fraud. If you know anything about the reasons for the mortgage crisis, you know that there is a host of bad actors. These individuals knew it was really a scheme to create huge, leveraged, Triple-A rated time bombs, and sell these off before the inevitable explosions.
     
  17. Drifterwood

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    The Banks did fail. That is the problem.

    I can't see that there is an alternative to public ownership in the interim. The interim being that period of time that it takes to find a sustainable capitalist model.
     
  18. D_Ireonsyd_Colonrinse

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    sparky writes: Yet, I have this fear that we are rewarding the exact individuals who enriched themselves through real fraud or willfully failed to do anything about this fraud.

    --------------------

    I get this terrible feeling we're letting the banks & financial institutions like AIG go back to the same practices that got us into this mess in the first place.

    A certain nationalization of the banks is necessary if only nominally, to provide detailed, rigid oversight.

    If a corporation is "too big to fail", literally, meaning the entire international financial system is put at risk by occasional bouts of greed (like repackaging bad debt and selling it as a comodity) -- if these corporations are so vital that they must receive public bailouts to keep from going under and upsetting the world banking systems, then THIS IS NO LONGER CAPITALISM.

    There are a couple dozen mega-corporations that have ceased to be capitalistic, have taken bailout moneys, and who can get us into this same predicament again if we let them run the banks into bankruptcy.

    It's time credit, lending, stopped being "capitalism". Maybe it's time for lending & banking to become public institutions, a branch of the government, with perpetually low interest rates. When will these corporations ever NOT be "too big to fail" if they have the power to bring down the entire international structure?
     
  19. Phil Ayesho

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    Flashy- seriously take a reading comprehension class. OR better yet, bone up on some logic.

    I have stated numerous times that I am not claiming democrats are innocent.
    I have stated numerous times that Democrats, and in fact the majority of the US electorate had fallen in thrall with Republican free market malarky.

    I have pointed out that the massive de-regulation of commerce began with Reagan and has been pushed by republicans ever since...
    And pointed out that "moderate" Democrats have supported this free market imbecility...


    But get it thru your head that the notion of unrestrained free markets is a Republican and a Libertarian policy.
    It always HAS been.


    Republicans are having tea-bagging parties all over the nation, PROTESTING that Obama has LOWERED their taxes... and RAISED the taxes of the Rich to a level that is still 10% lower that it was under Reagan.


    If Republicans can wake the fuck up and accept the free market theory was a catastrophe... and come up with some genuine fiscal cosnervatism... I might vote for one yet...


    If Libertarians could stop worshiping property right over human rights, then I might vote for one of them...

    The the extremists in both conservative factions really need to shut the fuck up about government being 'bad', and smell the fucking coffee about the disaster of our health care system and their own failures to actually spur growth.

    The fact are clear. Under Republican leadership the last 30 years, real income of the majority has fallen, deficits have risen.

    Under democratic leadership in the same period, real income rose, deficits fell, and the GNP grew at a faster rate.

    That is the actual facts.

    Its not that I oppose conservatism... its that conservatism has accomplished the precise OPPOSITE of what they claim they intend.

    Either they are liars who are robbing us blind.

    Or they are incompetent to understand how to effect the agenda they espouse.


    You really can't seem to comprehend that I don't swear allegiance to a party, nor to an ideology.
    I look solely at RESULTS.

    Fuck the democrats and the republicans and the libertarians.

    Anyone waving the flag of any political party is rube.


    I don't ascribe to the "capitalist" theory nor to the "socialist" theory...
    No social doctrine works in absolute.

    All that matters is whether govenrment is serving the intersts of the people... or only serving the interests of the influential.


    I back ANY policy that seeks a more just society, from ANY party.

    But only as long as that policy shows demonstrable evidence of working as advertised.
     
  20. sparky11point5

    sparky11point5 New Member

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    Actually, I think part of the answer is credit unions. I belong to one, and it offers a low-rate credit card, car loans, and other basic services. All the tellers still remember my Grandfather, too.

    Unfortunately, I also carry cards from Chase, Discover, and Amex. All these 'too big to fail' institutions are usurious thieves. For example, Discover just raised their APR to approximately 16%. (I don't carry a balance, but it offends me anyway.)

     
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