home

The GOP Plan On The Financial Crisis: Let The Banks Fail

By Big Tent Democrat, Section Economy
Posted on Sun Mar 08, 2009 at 09:36:54 PM EST
Tags: (all tags)
Share This: Digg! StumbleUpon del.icio.us reddit reddit

NYTimes:

John McCain and Richard C. Shelby, two high-profile Republican senators, said on Sunday that the government should allow a number of the biggest American banks to fail. “Close them down, get them out of business,” Mr. Shelby, the senior Republican on the Banking Committee, told ABC’s “This Week With George Stephanopoulos.” “If they’re dead, they ought to be buried.” While the Alabama senator did not say which banks to shutter, he suggested that Citigroup might be on that list, saying the bank has “always been a problem child.”

Mr. McCain, appearing on “Fox News Sunday,” echoed that sentiment without identifying any banks. Mr. McCain, who lost the presidential election last November, also accused the Treasury Department of avoiding the “hard decision” to let “these banks fail.”

[More...]

I bet temporary nationalization does not sound so bad now. In that sense, I think this is a good wakeup call for President Obama and Treasury Secretary Geithner -- bailout money for free ain't coming that way anymore. Bailout money will probably require temporary nationalization now. Enough with the playacting. Time to take action. Time for temporary takeovers of banks like Citi. It's the only choice now.

Speaking for me only

< Sunday Afternoon Open thread | The Economist Calls for an End to the Drug War >

  • Premium Ads

  • Blog Ads

  • Contribute To TalkLeft

    donate to TalkLeft


    • Display: Sort:
    The GOP Plan On The Financial Crisis: Let The Banks Fail | 76 comments (76 topical)

    Readers Must Login or Create an Account to Comment

    In America, a bank can't fail (5.00 / 3) (#1)
    by andgarden on Sun Mar 08, 2009 at 09:41:53 PM EST
    and fail to be nationalized. Here, bank failure means that the FDIC shows up on friday afternoon.

    It is likely that the FDIC does not have the reserves to cover the checking and savings accounts currently at Citi. So here's the question: if Citi "fails," will Dick Shelby filibuster a bill allowing the Treasury to recapitalize the FDIC?  

    Liquidation is what Shelby meant (5.00 / 1) (#3)
    by Big Tent Democrat on Sun Mar 08, 2009 at 09:44:55 PM EST
    I saw Marshall's post and I thought he played stupid in it.

    Temporary nationalization is an attempt to keep the entity alive - the pre-privatization moniker is really quite descriptive.

    Shelby means bury it and sell off the carcass.

    [ Parent ]

    What is temporary? (5.00 / 1) (#43)
    by gtinla on Sun Mar 08, 2009 at 10:27:51 PM EST
    Does that term people are throwing around have a timetable attached to it? Not one that I have seen. Temporary is probably not so temporary and instead is a long long time.

    I went to Krugman's blog today along with others here. I followed a link to a blog at Economist.com. That lead to an article at Financial Times. There in an article was this piece of interesting information.

    The largest bank restructuring undertaken by the US, before last year, was that of Continental Illinois, seized in 1984. It was then the seventh largest bank and yet it took a decade. How long might the restructuring and sale of Citigroup take, with its huge global entanglements? What damage to its franchise and operations might be done in the process?

    Temporary huh?

    Today I mentioned the concern of the continuity of banks that were nationalized. Here we have a seasoned financial writer on a very respected financial publication wondering about the same thing.

    The problem right now is not big banks failing as they can be kept afloat. The problem is the lending out of money by the banks. Obama realizes that and has said he will fix the free ride Bush gave to the banks on the first go around as was discussed in the other thread. Once the money starts being loaned out the economy will improve.

    So there are reasons to keep the banks afloat until they can get funded. It is better to let them lend and recover along with the economy than for the government to take on multiple temporary takeovers that will be albatrosses for 10 years or more. There is no temporary in a bank takeover the size and scope of what people are suggesting.

    [ Parent ]

    Think of it this way: (5.00 / 3) (#49)
    by Anne on Sun Mar 08, 2009 at 10:39:16 PM EST
    It's like finding out you have cancer and being told that it can be treated, and maybe even cured, but it might take a while, and some of it might not be a lot of fun.  

    Would you refuse treatment because your doctors couldn't tell you with any specificity exactly how long it would take to cure you?

    Or would you get the best medical advice and treatment plan you could find, hunker down and get on with that treatment, and with living your life?

    Face it: more than a few of these banks have a cancer, and it either gets treated, with a possibility of a return to economic health, or it doesn't, and it's only a matter of when they die, not if they die.

    [ Parent ]

    Mr.President, there's a cancer (5.00 / 1) (#50)
    by caseyOR on Sun Mar 08, 2009 at 10:41:27 PM EST
    on the financial system.

    Cancer-- still a good description, even after all these years.

    [ Parent ]

    Sorry but that analogy (none / 0) (#56)
    by gtinla on Sun Mar 08, 2009 at 10:58:29 PM EST
    is unconvincing. Cancer is an individual decision. The bank situation is worldwide in scope and affects everyone on the planet.

    With cancer there are few options. With the banks there are options and those options are being considered and played out one by one before declaring the patient dead. Obama said he won't be nationalizing the banks that don't need it. And he should have said he won't nationalize those where it is impractical to do so.

    [ Parent ]

    I just disagree with you. (5.00 / 1) (#57)
    by caseyOR on Sun Mar 08, 2009 at 11:05:42 PM EST
    I don't believe any bank is off limits as far as nationalization is concerned. At some point the taxpayer gets to yell "stop", and the looting of the treasury to prop up failed financial institutions has to end.

    Nobody is suggesting that all banks be nationalized. I am pretty sure that no one wants to nationalize banks that don't need to be. The economy will not be well-served by the government propping up zombie banks.

    And, personally, I wouldn't mind seeing some banking executives reduced to living in their cars and standing in line at the food bank to feed their families. And there are some that might belong in jail.


    [ Parent ]

    They are going to be propped up (none / 0) (#60)
    by gtinla on Sun Mar 08, 2009 at 11:12:42 PM EST
    one way or the other. Nationalization is the ultimate and most expensive prop up you will ever see. But you and others don't address that. You think this is all so simple. Just take them over and no worries.

    When the government took over the Savings and Loans we still ended up in the red. And that was in simpler times with simpler circumstances with simpler financial institutions.

    [ Parent ]

    No, I don't think it's simple. (5.00 / 3) (#65)
    by caseyOR on Sun Mar 08, 2009 at 11:35:03 PM EST
    I don't know of any commenter at TL who thinks it will be simple. Nor do I think it is just of matter of "take them over and no worries." The financial system is a big mess. Fixing it will be a long, hard slog. What Treasury is doing now will only prolong the agony. These banks are insolvent. Throwing taxpayer money at them is not fixing anything. Let's stop pretending these are viable businesses. The longer we wait the more it will cost and the messier it will be.

    By the way, we ended up in the red with the S&L takeover because the government sold off the assets too quickly and too cheaply.


    [ Parent ]

    "Let's stop pretending...." (none / 0) (#81)
    by kdog on Mon Mar 09, 2009 at 08:50:16 AM EST
    these are viable businesses"

    I like that line...very very well said.  

    Am I bugging or for the first time in my life is the GOP sticking up for the little guy, while the Dems prop up three-piece thieves?  I can almost hear Rod Sterling....do do do do...do do do do:)  Dems better watch or the gains of the last two elections will disappear faster than money down the banking rabbit hole.

    [ Parent ]

    Say it is a decade (none / 0) (#45)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:29:32 PM EST
    Why do you object to that?

    [ Parent ]
    Because in less of a decade (5.00 / 1) (#55)
    by gtinla on Sun Mar 08, 2009 at 10:51:47 PM EST
    the banks will be healthy again. As soon as they get more funding with the express purpose of lending it out not only will they get healthy the economy will get healthy. Then all this takeover talk will be moot.

    That's not to mention what most people don't talk about at all and that is what nationalization will do to the economy. I personally think it will be devastating. We already have a financial panic from top to bottom. When people see the big banks seized it will not instill confidence. In fact it will do the opposite. Look what happened when the government didn't keep Bear Stearns privately afloat. It is a big part of why we are in this financial panic. It's a big part of why the banks a hoarding the money they got under Bush.

    And then you have people complaining about throwing money at the banks in the form of loans. Loans! What will they do when we own the banks for 10 years or more and have to completely fund with tax payer dollars as opposed to using the money elsewhere?

    This is way more complicated than many people here want to make it. There are many pieces to this and each move on the board creates a whole new set of problems. This is not a static problem with a static solution. This is a dynamic situation on steroids. That is why Obama is not making any hasty moves that he can't unwind. And when you takeover a bank you can't unwind what you just did for a long long time. Like Powell said: It's the Pottery Barn.

    [ Parent ]

    No (5.00 / 2) (#73)
    by Big Tent Democrat on Mon Mar 09, 2009 at 12:40:59 AM EST
    They will not be healthy unless you believe that the government should give them money for free.

    [ Parent ]
    Continental Illinois (none / 0) (#52)
    by Steve M on Sun Mar 08, 2009 at 10:42:58 PM EST
    is by far an outlier.  But the answer is, it takes however long it takes to get fair value for the assets.

    [ Parent ]
    What make them an outlier? (none / 0) (#58)
    by gtinla on Sun Mar 08, 2009 at 11:06:54 PM EST
    You didn't provide any comparisons.

    And yeah, however long it takes. Brilliant planning.

    [ Parent ]

    Find me another bank (none / 0) (#61)
    by Steve M on Sun Mar 08, 2009 at 11:25:09 PM EST
    that took anywhere near a decade to re-privatize.  Go ahead, try.  The reason a bank might spend a long time in receivership is that its assets are unusually toxic and difficult to dispose of - which means your magic wand of a solution would have problems as well.

    You'd do well, frankly, to put aside the wiseass tone and stop assuming you know more about this issue than everyone here, because odds are you don't.  If you have superior knowledge you're certainly hiding it well.

    [ Parent ]

    Continental Illinois (5.00 / 1) (#71)
    by lambert on Mon Mar 09, 2009 at 12:04:54 AM EST
    Hasty search yields this case study from 2002:

    September 26  1984: Permanent solution put in place, effectively nationalising Continental using FDIC funds

    1991: FDIC sells off its last equity stake in Continental, bringing the rescue programme to a close some seven years after the banks near collapse

    I'd call 7 years "anywhere near a decade." And, interestingly, the idea in 2002 that we there was a legal framework for nationalization was uncontroversial.

    [ Parent ]

    Right (none / 0) (#72)
    by Steve M on Mon Mar 09, 2009 at 12:18:13 AM EST
    But when I said "find me another bank" I meant, you know, ANOTHER bank besides the one we were talking about...

    [ Parent ]
    You made the statement (none / 0) (#68)
    by gtinla on Sun Mar 08, 2009 at 11:40:30 PM EST
    of outlier. Prove you are right. It's not up to me to prove you are wrong as it was you who made the claim. If you can't back up your claim then I have to conclude you are blowing hot air.

    I'll ignore the rest of the nonsense you said.

    [ Parent ]

    Okay dude (none / 0) (#69)
    by Steve M on Sun Mar 08, 2009 at 11:53:06 PM EST
    I will list the duration of every bank receivership in history, just to please you.  Keep clicking refresh.

    [ Parent ]
    Be my guest (none / 0) (#83)
    by gtinla on Mon Mar 09, 2009 at 10:59:38 AM EST
    I'm not sure what you are going to accomplish. What happened in a pre-global world prior to 1984 means nothing to today's environment. You'll be trying to compare some apples to oranges. For example Citi being a global company compared to pre-1984 purely domestic companies of a smaller scale has very little to do with today. Toss in the fact that since the depression we have not seen anything of this scale. Seems to me that the banks that had the ability to buy other banks have already done so. Whether they have the ability to buy more would be pure speculation for outsiders.

    But hey, if you have the time to research the past receivership of some bank in the suburbs of Atlanta or somewhere and you think that has anything to do with the scale of multiple banks possibly going onto receivership then be my guest.

    I remind you that your time spent will change nothing about what actually happens. But from reading your last post you appear to be one of the millions on the net who are more interested in winning meaningless arguments with anger filled non-fact based posts than discussing the very real ramifications of the things you advocate. Have fun.

    [ Parent ]

    It is decidedly not brilliant (none / 0) (#77)
    by cal1942 on Mon Mar 09, 2009 at 01:51:04 AM EST
    to delay and look for ways to preserve these entities intact. Start the process asap.

    Delays will only deepen damage to the economy and make recovery more difficult and wreak terrible havoc and suffering.  Don't let the early 30s happen again.

    [ Parent ]

    Why (none / 0) (#75)
    by cal1942 on Mon Mar 09, 2009 at 01:37:55 AM EST
    What damage to its franchise and operations might be done in the process?

    do you care what happens to the Citigroup franchise?

    Sounds to me like the author is concerned that everything stay in place, the management, stockholders, etc.  Does the author have a vested interest in Citigroup?

    Personally I believe Citigroup and others of its ilk should each be broken into about 20 or 30 Frank and Charlies Bank and Bar & Grill.

    [ Parent ]

    I would like for Shelby to explain the difference (none / 0) (#5)
    by andgarden on Sun Mar 08, 2009 at 09:48:03 PM EST
    between nationalization and liquidation.

    [ Parent ]
    I think he did (none / 0) (#8)
    by Big Tent Democrat on Sun Mar 08, 2009 at 09:51:33 PM EST
    in the quote I have.

    He said let it die - to wit, liquidate it.

    Temporary nationalization is about trying to keep it alive - fix it and reprivatize it.

    Of course, both require a receivership process but with different goals.

    It is a pretty simple concept - Chapter 7 vs. Chapter 11 (but with Chapter 11 being the government being the DIP.)  

    [ Parent ]

    Either way, Uncle Sam (none / 0) (#12)
    by andgarden on Sun Mar 08, 2009 at 09:53:52 PM EST
    is on the hook for a lot of money.

    [ Parent ]
    Hard to say (5.00 / 2) (#17)
    by Big Tent Democrat on Sun Mar 08, 2009 at 09:55:13 PM EST
    The issue of deposit insurance is an interesting one but the REAL issue is dealing with the sh*tpile.

    [ Parent ]
    Frankly, I'm all for liquidating the sh!tpile (5.00 / 1) (#21)
    by andgarden on Sun Mar 08, 2009 at 09:59:16 PM EST
    though maybe not immediately. That's why I think government seizure would be preferable.

    [ Parent ]
    For Citi (5.00 / 2) (#25)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:02:11 PM EST
    it is inevitable. Complexity be damned.

    [ Parent ]
    BTW (none / 0) (#4)
    by Big Tent Democrat on Sun Mar 08, 2009 at 09:45:53 PM EST
    It would be informative to know what the FDIC's exposure is in Citi. Do you know?

    [ Parent ]
    FDIC is on the hook (5.00 / 2) (#14)
    by caseyOR on Sun Mar 08, 2009 at 09:54:19 PM EST
    for up to $250,000 for each depositor, nothing more. FDIC has no responsibility for bondholders or brokerage accounts or any of the other stuff Citi does. How many depositors does Citi have?

    [ Parent ]
    maybe (5.00 / 1) (#20)
    by andgarden on Sun Mar 08, 2009 at 09:57:25 PM EST
    $100B.

    [ Parent ]
    See (none / 0) (#23)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:00:20 PM EST
    the deposit insurance is not the issue.

    [ Parent ]
    I think with a bank as big as Citi (none / 0) (#29)
    by andgarden on Sun Mar 08, 2009 at 10:07:30 PM EST
    the Treasury will be looking to bypass the FDIC. They will probably want to keep all of the depositors whole, because part of the crisis last fall came from a run on the big banks by big depositors. If they aren't protected at Citi, all of the big banks will see similar runs again.

    [ Parent ]
    Hmmm (none / 0) (#33)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:12:30 PM EST
    Sounds like a pitch for temporary nationalization to me.

    [ Parent ]
    Absolutely (none / 0) (#34)
    by andgarden on Sun Mar 08, 2009 at 10:13:32 PM EST


    [ Parent ]
    That is what the FDIC does... (none / 0) (#47)
    by gtinla on Sun Mar 08, 2009 at 10:34:06 PM EST
    keep depositors whole. Why would there be a big run on a bank when the money is insured by people who can print money?

    There was a reason the FDIC amount was increased to 250K. It was to calm people.

    [ Parent ]

    For banks like Citi $250K isn't enough (none / 0) (#48)
    by andgarden on Sun Mar 08, 2009 at 10:38:23 PM EST
    My guess is that a run by the uninsured depositors could take all of the big banks down. And if they're not insured, why shouldn't they try to get out?

    [ Parent ]
    I rather doubt many (5.00 / 1) (#63)
    by gtinla on Sun Mar 08, 2009 at 11:29:06 PM EST
    financially savvy people with millions are putting it all into one bank these days. People with millions usually are adept at spreading their risks in the normal course of business. And with these days and all the domestic banks and insured Credit unions to spread their money around to people would have to be fools to do otherwise. Not to mention they can put major money in government backed T-Bills.

    Unless you have figures where a whole lot of people have big bucks tied up in one bank I'd have to say that maybe you are making up a problem here that does not exist on any scale of concern.

    [ Parent ]

    It's true that many (none / 0) (#66)
    by andgarden on Sun Mar 08, 2009 at 11:35:29 PM EST
    are in T bills and various other banks. If you'll recall, the race to T-Bills last fall was a major part of the problem: a crisis of confidence in the banks caused many people over the limit to buy them, thus destabilizing many of the biggest banks.

    [ Parent ]
    Yeah so? (none / 0) (#84)
    by gtinla on Mon Mar 09, 2009 at 11:18:39 AM EST
    People wanted to protect their money and T-bill offered that. Big surprise.

    You know the big problem here still remains banks lending out money & the bad assets themselves (i.e. derivatives). Nationalizing the banks by itself is not going to change either of those two things. It's not. The derivatives will still exist. And it is still unknown whether private equity will lend to a government owned bank. As of today private equity is not willing to lend to banks that the government is funding and who is guaranteeing those bad assets.

    So the government having to take your tax dollars and lend it out is a very real thing. If they are going to do that why not just take those tax dollars and lend them out through the current bank structure? It's not like banks don't know how to run banks and don't know how to do it profitably. Running banks profitably is not the problem here. It is the bad assets which turned the balance sheets upside down, which caused the cessation of capital flow that is the problem. But yet is that what people on the net are focused on? No. Even cult hero Krugman is not writing about that today. It is like nationalization is the panacea to all that is bad when in reality nationalization does not change a thing regarding the two underlying problems - no lending via capital flow; and the bad assets.

    Why it is people can't see those two basic facts and why nationalization by itself does not cure them is amazing.

    [ Parent ]

    Beg to differ (5.00 / 1) (#85)
    by CST on Mon Mar 09, 2009 at 11:31:28 AM EST
    on this:

    "It's not like banks don't know how to run banks and don't know how to do it profitably."

    That would seem to be EXACTLY what it's like.  Those "bad assets" didn't appear out of thin air.

    [ Parent ]

    Those bad assets (none / 0) (#86)
    by gtinla on Mon Mar 09, 2009 at 11:43:59 AM EST
    have nothing to do with the basic workings of a bank or their ability to make profit when doing their basic operations. They have nothing to do with the basic structure of business and consumer banking and lending. They were a scam perpetrated by Wall Street types that bank executives knowingly or unknowingly bought into. But that doesn't change the basic structure of banking.

    [ Parent ]
    That is the group of people that... (none / 0) (#53)
    by santarita on Sun Mar 08, 2009 at 10:43:52 PM EST
    Mr. Geithner and Mr. Bernanke are worried about.   The big stakeholders, especially the ones with foreign accents.

    [ Parent ]
    There is good reason to be worried (none / 0) (#54)
    by andgarden on Sun Mar 08, 2009 at 10:49:20 PM EST


    [ Parent ]
    All checking and savings deposits (none / 0) (#6)
    by andgarden on Sun Mar 08, 2009 at 09:49:39 PM EST
    up to a cap of $250,000 per person and $500,000 per married couple. I don't have the figures at hand, but it's a lot of money.

    [ Parent ]
    The hugeness, BTW, is why (none / 0) (#7)
    by andgarden on Sun Mar 08, 2009 at 09:50:59 PM EST
    the FDIC didn't just seize Wachovia. They don't have a clue what to do with the 4-5 really big banks.

    [ Parent ]
    The clue in one word (5.00 / 2) (#15)
    by lambert on Sun Mar 08, 2009 at 09:54:35 PM EST
    or rather, acronym:

    RICO.

    That's what to do. The business that's straight will go on. It's the stuff that's crooked that nobody can understand.

    [ Parent ]

    No idea what you're talking about, Lambert (none / 0) (#36)
    by andgarden on Sun Mar 08, 2009 at 10:15:45 PM EST
    You're a funny guy, but the conspiracy theory you're pitching seems unsubstantiated to me.

    [ Parent ]
    Well (5.00 / 2) (#38)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:18:14 PM EST
    the CDO and CDSs were pretty shady dealings.

    Calling some of it fraud is not so outlandish.

    [ Parent ]

    "Fraud" is just what William Black... (5.00 / 1) (#64)
    by lambert on Sun Mar 08, 2009 at 11:32:41 PM EST
    ... of S&L fame called it. Yves:

    By way of background, William Black is a former senior bank regulator, best known for his thwarted but later vindicated efforts to prosecute S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City.

    1. You can't conduct a meaningful stress test without reviewing (sampling) the underlying loan files and it seems likely that the purchasers of securitized instruments (not just mortgages) do not even have the loan file data. Moreover, loss ratios vary enormously depending on the issuer, so even a bank that originates (or has purchased a bank that originates) similar product cannot simply take its own loss rate and extrapolate it to the measure the risk on the value of securitized credit instruments.

    2. The regulators are overwhelmed because of personnel cuts (particularly heavy among their best, most experienced examiners that had worked banks that had engaged in sophisticated frauds. Buyouts were common, because more experienced examiners appear more expensive. This isn't true when you consider effecitiveness and productivity, but management didn't care about that. Treat what I write after the colon as hearing from me at my most serious and thoughtful: it is vastly more difficult to examine a bank that is engaged in accounting control fraud. You can't rely on the bank's books and records. It doesn't simply take more, far more, FTEs -- it takes examiners with experience, care, courage, and investigative instincts and abilities. Very few folks earning $60K are willing to get in the face of the CEO and CFO making $25 million annually and tell them that they are running a fraudulent bank and they are liars. FYI, this is one of the reasons why having "resident examiners" never works. The examiners don't even get to marry the natives. They get to worship God's annoited. Effective examination is good for you, but it is very unpleasant, ala a doctor's finger up your rectum. It requires total independence.

    So, the examination force doesn't have remotely the numbers or the relevant experience and mindset to examine the largest banks with the greatest problems.

    Yves here. Black is not using the fraud word lightly.

    So, only "outlandish" if you don't give Black any credibility. Some won't, I suppose.

    Of course, if you don't want to do your homework, you can yammer about "conspiracy theories." It's certainly easier, and as long as nobody pays any attention, no harm done.

    [ Parent ]

    In particular, (none / 0) (#39)
    by andgarden on Sun Mar 08, 2009 at 10:20:55 PM EST
    I mean what he's been writing about the bailout last fall.

    [ Parent ]
    Well (5.00 / 3) (#40)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:22:51 PM EST
    the AIG stuff was at the center of it all, selling its AAA rating  to cover the Big Sh*tpile was pretty much a conspiracy to defraud.

    I do not know if that is what Lambert has been writing about but I can tell you that folks I know who were at AIG think it was criminal.  

    [ Parent ]

    The bond rating orgs (5.00 / 1) (#41)
    by andgarden on Sun Mar 08, 2009 at 10:24:17 PM EST
    should probably be investigated by the SEC and the FBI.

    [ Parent ]
    Do we think the SEC is (5.00 / 2) (#44)
    by Anne on Sun Mar 08, 2009 at 10:29:25 PM EST
    even capable of being on the leading edge of investigating?  Or has it been reduced to the Commission of "Duh?"  Or, is that (thank you, Homer Simpson), "D'Oh!"

    I'm starting to think that it's the SEC that needs to be investigated.

    [ Parent ]

    Don't know about the SEC, but (none / 0) (#46)
    by caseyOR on Sun Mar 08, 2009 at 10:32:14 PM EST
    the FDIC has advertised job openings for criminal investigators.

    [ Parent ]
    Definitely (none / 0) (#42)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:24:52 PM EST


    [ Parent ]
    That's not very "particular" (5.00 / 2) (#70)
    by lambert on Sun Mar 08, 2009 at 11:55:33 PM EST
    Again, you're throwing words around like "conspiracy theory" with no evidence to back them up. How on earth is anyone suppose to respond to a statement like "what he's been writing about the bailout last fall"*?

    I mean, is there any concrete problem you have, other than a vague disquiet that some blogger's trying to connect the dots?

    Trillions of dollars of taxpayer money, and nobody knows where it went or who got it.  You can say "Move along people, move along" and yammer "conspiracy theory," or you can try to do your homework. I'm doing my homwork. Unlike some.

    NOTE * Yes, I've done good deal of writing on it, when very few in the left blogosphere were covering the story at all, I might add.

    [ Parent ]

    A Large Part of the Problem w/... (none / 0) (#51)
    by santarita on Sun Mar 08, 2009 at 10:42:05 PM EST
    the CDOs, credit default swaps, and more creative and complex instruments was that they were in large part unregulated and, if there were regulations, the regulatory agencies weren't on the job.  So then in the law of the jungle atmosphere, you have to rely on senior management and boards to do their jobs.  Which is what they didn't do.  It was an atmosphere conducive to fraud.  CDO's and credit default swaps are not inherently evil.  

    [ Parent ]
    Huh? (none / 0) (#62)
    by lambert on Sun Mar 08, 2009 at 11:26:43 PM EST
    What "conspiracy theory"? Easy to throw words around, but if you think I'm "pitching" one, you ought to be able to cite chapter and verse, right?

    [ Parent ]
    Well, a sense of humor is important (none / 0) (#67)
    by lambert on Sun Mar 08, 2009 at 11:36:52 PM EST
    So I value your compliment highly.

    See below for William Black on "fraud." For a less authoritative, but still interesting take on the bubble, RICO, and old-fashioned bucket shops, see here.

    [ Parent ]

    I think (none / 0) (#10)
    by Big Tent Democrat on Sun Mar 08, 2009 at 09:53:01 PM EST
    they wanted to avoid seizing Wachovia but they were going to without a deal on the day Citi (of all banks) stepped in (and then BOA made a better offer).  

    [ Parent ]
    The offer was from Wells (none / 0) (#16)
    by andgarden on Sun Mar 08, 2009 at 09:55:04 PM EST
    I'm not even sure the FDIC had enough capital at the time to deal with Wachovia.

    [ Parent ]
    Citi first (none / 0) (#19)
    by Big Tent Democrat on Sun Mar 08, 2009 at 09:56:09 PM EST
    and then Wells. Good point.

    The government always has enough money. Seriously. that is what folks never seem to understand.

    [ Parent ]

    Sheila Bair made that same point (none / 0) (#22)
    by caseyOR on Sun Mar 08, 2009 at 10:00:05 PM EST
    on 60 Minutes tonight. She reminded Scott Pelley that the FDIC is backed by the full faith and credit of the US government. She was quite clear that people should keep their deposits under the $250,000 limit per bank, and if they do that then their money is safe.

    [ Parent ]
    Zactly (none / 0) (#24)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:01:41 PM EST


    [ Parent ]
    Absolutely true (none / 0) (#26)
    by andgarden on Sun Mar 08, 2009 at 10:03:03 PM EST
    But it would not be good for the FDIC to show a negative balance.

    [ Parent ]
    To give an idea of scale (none / 0) (#9)
    by andgarden on Sun Mar 08, 2009 at 09:52:55 PM EST
    Wells and Wachovia combined supposedly have almost $800B in deposits.

    [ Parent ]
    Well (none / 0) (#13)
    by Big Tent Democrat on Sun Mar 08, 2009 at 09:54:04 PM EST
    then the issue is how this so called bad bank idea could possibly work?

    [ Parent ]
    It's not the scale of deposits that matters (none / 0) (#18)
    by lambert on Sun Mar 08, 2009 at 09:55:48 PM EST
    It's the complexity of the transactions.

    And the complexity, just like Enron, is there to cover up fraud.

    So, triage by making sure the simple parts get handled first....

    [ Parent ]

    The rules may have changed (none / 0) (#78)
    by cal1942 on Mon Mar 09, 2009 at 01:56:47 AM EST
    when the cap was raised to $250,000.  

    Before, the rule was that each party of a joint account with EQUAL rights was insured up to $100,000.

    Don't know if the rules cahnged when the cap was raised.

    [ Parent ]

    Hear, hear! (5.00 / 2) (#2)
    by Radiowalla on Sun Mar 08, 2009 at 09:42:21 PM EST
    Let's get on with the task at hand.  Take over the failing banks, run them as public utilities until they are once again functional.  At that time, let them become private again, but under a stricter regulatory framework.

    It's time to get off the pot.

    And (none / 0) (#74)
    by cal1942 on Mon Mar 09, 2009 at 01:22:54 AM EST
    break them in little pieces and make sure they stay that way with up-to-date anti-trust law, a new Glass-Steagall type wall between commercial and investment banks, stringent rules governing mergers, a single bond rating company, etc.   I like what Sanders (I believe) said 'too big to fail is too big to exist.'

    [ Parent ]
    Why not keep on running them... (5.00 / 2) (#11)
    by lambert on Sun Mar 08, 2009 at 09:53:06 PM EST
    ... as public utilities?

    Why bring back the CEOS, the financial engineers, the bucket shops, and all the fraudsters to scr*w things up again?

    Banking should be about as exciting a business as running the local gas company.

    Then, if people with a zillion or two to throw around want to gamble with it, let 'em do so in a place where it doesn't scr*w up our homes, our cars, our health, our education, our jobs...

    Before (none / 0) (#76)
    by cal1942 on Mon Mar 09, 2009 at 01:43:16 AM EST
    the 80s commercial banks were a pretty mundane deal.  Not exactly rocket science.  No creativity needed. And that's a good thing; look what happens when they get 'creative.'

    [ Parent ]
    I agree with Krugman (5.00 / 1) (#35)
    by themomcat on Sun Mar 08, 2009 at 10:15:04 PM EST
    and others who have been saying all along that these failing banks needed to be temporarily nationalized which leads me to some questions. Since the major reasons that Citi, et al are in such dire straights is because they weren't regulated, got into investing in derivatives, credit default swaps and some other banking practices, that I really don't understand, what kind of regulation should be put in place to keep this from happening again? Should it be some form of Glass-Steagall? Should Gramm-Leach-Bliley be repealed or amended? Should there be a separation of banking and investment and a limit on how big a financial institution can get? How will this affect AIG, I know they are not a bank, but they insured the derivatives of some of these banks? I'm not an economist, obviously, just thought I'd ask.

    You've Asked Some Very Important Questions... (none / 0) (#59)
    by santarita on Sun Mar 08, 2009 at 11:11:08 PM EST
    and the answers are dependent in large part on large social and political issues - like what role should the US (or US regulated financial institutions)  play in the world economy and should all banks or only some large banks be much more regulated...

    [ Parent ]
    The biggest (none / 0) (#79)
    by cal1942 on Mon Mar 09, 2009 at 02:01:54 AM EST
    social and political damage will be done if this is delayed and dealt with in a timid manner.

    [ Parent ]
    You don't have to be an economist, (none / 0) (#80)
    by NYShooter on Mon Mar 09, 2009 at 06:18:01 AM EST
    nor is it that complicated.

    "Follow the money," Deep Throat told us 35 years ago.

    Quick-sale  mortgages are fine; Bundling, no problem, even derivatives are o.k. It's when the "three card Monte" game: slice, dice, chop, and puree, where the magician goes, "poof," blows pixie dust into the transaction and its mirved into millions of untraceable pieces that the word, "fraud," enters the picture.

    If you couldn't count it, you couldn't value it, yet they sold insurance against it.....fraud #1.

    Couldn't understand it? No problem; the rating agencies did your work for you. But they couldn't count it either, yet they rated it.......fraud # 2.

    But, someone had to be watching what was going on; We did have a S.E.C........oops, fraud # 3.

    And the cowboy is chopping wood in Crawford; yup, book-learnin is for them Librul weannies; "Go with the gut," is what real men do.


    [ Parent ]

    That he became pResident--Fraud Zero (5.00 / 1) (#82)
    by jawbone on Mon Mar 09, 2009 at 10:38:24 AM EST
    Okay, maybe not fraud zero as in patient zero, but surely one of the frauds via the Supreme Five.

    Sorta a joke. Sick one. On us.

    [ Parent ]

    So big banks have been fully looted (5.00 / 5) (#37)
    by Cream City on Sun Mar 08, 2009 at 10:16:06 PM EST
    by the big-money Republicans.  That's what this means.  Now that they've been looted, dump 'em on the public to fix them.  Then the plan is to reprivatize, meaning to put the banks back in the hands of the big-money Republicans . . . probably in time to make big donations for the 2012 election.  Thus, the urgency.  Jeez, we've been so had again.

    Close 'Em All and Start Over ... (none / 0) (#27)
    by santarita on Sun Mar 08, 2009 at 10:05:17 PM EST
    again with a clean slate.  Give them a new mandate.  No more big loans with more than one lender, no more interstate banking, no more international trade financing.  But keep the ATMs, please.

    To be clear (5.00 / 1) (#32)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:11:47 PM EST
    That is NOT what Shelby is advocating for - he is saying let them die.

    Liquidate Citi and bury it.

    [ Parent ]

    So Shelby Is Advocating The Equivalent of ... (none / 0) (#28)
    by santarita on Sun Mar 08, 2009 at 10:06:50 PM EST
    a liquidating Chapter 11.  Sounds good to me.  Might take some time unless we want fire sale prices, but overall sounds good to me.

    Chapter 7 (none / 0) (#30)
    by Big Tent Democrat on Sun Mar 08, 2009 at 10:11:01 PM EST


    [ Parent ]
    Story on the local news (none / 0) (#31)
    by andgarden on Sun Mar 08, 2009 at 10:11:29 PM EST
    about firesale auctions of foreclosed homes. The least sh!tty part of the sh!tpile, apparently.

    Do Accounting (none / 0) (#87)
    by DaleA on Mon Mar 09, 2009 at 04:37:19 PM EST
    on a contract basis. Given what I have seen, accounting everywhere is a mess. Firms are running without enough accountants to do a respectable job. For endings, they bring in a different group of temps each time to put them over the hump. Which means that very few accountants know the long term practices of a firm. Nor are there long enough to get a handle on what is happening.

    I have seen places that were years behind in assembling AccountsPayable packets. And months behind in filing. The AP packet is one of the essential units of auditing; it shows where money went. If it requires a small army of file clerks and AP knowlegable people into a condition where one can begin to figure out what happened, things will go slowly. Saw one AP with 6 months of unfiled packets. This was about 55,000 packets, about 250,000 document pages. it took 4 months to begin to get it into shape. The auditors ordered this, and the AP resisted. But finally gave in.

    If the records are as messed up as stated, this could be a growth industry. Neat orderly records are the easy way. Chaotic and messy records almost always are part of a cover-up.

    The GOP Plan On The Financial Crisis: Let The Banks Fail | 76 comments (76 topical)

    Readers Must Login or Create an Account to Comment