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Geithner and Summers need to go
Posted: 25 April 2009 10:57 AM   [ Ignore ]   [ # 16 ]  
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Tavishhill

No, but see, you don’t seem to have a short term solution at all.

And you are hell bent on devising a necessity for a short term solution where one does not apparently exist. The solution is contingent on the fact that time is wasting as Geithner mucks around with his plan that in the long run is going to cause more harm than good.

According to Elizabeth Warren on the Congressional Oversight Committee which is looking into how TARP money is being used, Geithner’s plan is part of the problem.  And he is dodging her questions faster than Superman can dodge bullets:

http://www.guardian.co.uk/business/2009/apr/05/useconomy-regulators


Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government’s Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be “wiped out”. “It is crucial for these things to happen,” she said. “Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade.” She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are “dangers inherent” in the approach taken by treasury secretary Tim Geithner, who she says has offered “open-ended subsidies” to some of the world’s biggest financial institutions without adequately weighing potential pitfalls. “We want to ensure that the treasury gives the public an alternative approach,” she said, adding that she was worried that banks would not recover while they were being fed subsidies. “When are they going to say, enough?” she said.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. “The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous.

The report will also look at how earlier crises were overcome - the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression. “Three things had to happen,” Warren said. “Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out.”

 

TH

Do you agree that there will be a significant drop in the market once the systemic changes you are hoping for get announced? If so, do you agree that we need the stock market to be stabilized before such announcements are made? If not, what evidence do you offer suggesting that middle America’s finances won’t dry up almost completely if we simply let all those banks fail?

Significant? No,  if by that word you mean the bottom is going to fall out, that the sky is falling and that unless we do it your and Geithner’s way, the end is near.  And the evidence I offer is from the scores of experts who make no such claim but instead believe that government restructuring of the banks is most likely the most prudent, feasible and sustainable way to take the bull by the horns. Once the volatility subsides then new laws on regulation need to be sorted out by Congress.

TH

Simply saying there are other viable options that don’t cripple the remainder of our country’s economy is one thing…presenting them is quite another. What other options are there besides nationalizing the banks (which I’m for as part of an overall, structured strategy)?

Go to Bill Moyer’s website and he has dozens of economists and investors whom he has interviewed about the economy.  NONE of them are espousing the virtues of Geither’s policies. Most of them are in favor of government nationalizing on some level. Some use different terms for it and favor different degrees, but again, NONE are talking up a plan that has the taxpayers subsidizing for the risks of investors buying toxic assets.  No one is claiming a short term shot in the arm approach is even necessary. And again, I have heard of no expert outside the Obama circle and wall street that favor this plan.

Robert Johnson’s take from Bill Moyers:

Sort of like a quarterback throwing the Hail Mary pass. The losses on an interception accrue to the taxpayers. And the touchdown is kept by the stockholders. So if they take excessive risk in those times they can actually endanger the stockholders further. The plan that Geithner and the White House, the Obama administration, is adopting right now, which I will call intravenous drip capitalization, is one of forbearance. Meaning, don’t realize the losses on the balance sheet now. Don’t account for everything in a prompt way. Don’t truncate the losses, but allow them to go on. And the danger is the ditch could get deeper and deeper.


BILL MOYERS: How do we stop the bleeding?

ROBERT JOHNSON: People talk of nationalization. I just call it restructuring. Restructuring is a part of capitalism. That’s how the airlines get restructured when they go through bankruptcy. How you might have to deal with the auto industry, how you deal with venture capital projects. Do the same thing with the banks.


BILL MOYERS: Exactly what does it mean to nationalize the banks?

ROBERT JOHNSON: Well, what I think they need to do is inspect them thoroughly, examine, mark down the assets to a conservative level that protects the taxpayer. See the resulting deficit on the balance sheet, which is the hole.

Then the government injects the capital. People continue to operate the banks. People who continue to work there then perhaps sign new contracts with the government. And the government just becomes the stockholder until such time that they sell the stock back to the market and get paid back a little bit for all the lost support that they’re creating for these banks.

(Note:  No sky is falling talk here Tavishhill that the end is near.)

BILL MOYERS: And so the government would step in and do what?

ROBERT JOHNSON: I would ask for letters of resignation from the top executives of all the major banks. I would not do a case by case restructuring. I would take the largest group all in and say, “I want everybody’s letter for resignation.”

You might not honor all those letters, but you’d have them. I would then say, “The stock is worth zero. The balance sheet is too far negative to continue risking the taxpayer’s money.” The examiners, somewhat like FDR did in a bank holiday, would examine the depth of the hole in those balance sheets.

Fill that hole with money, taxpayer’s money, to recapitalize. Send them back out into the marketplace where people know they’re wholly capitalized. And last thing I would do is I would separate the toxic assets from the bank that you put back in the marketplace.

So everybody knew the resulting creature was sound and confidence could rebuild. Inner bank credit could start to flow again, ‘cause they aren’t afraid of each other.

But the question is would that resulting system of financial institutions, separated from the bad assets, recapitalized for the medium term, create new credit flows?

Give people confidence that there was fair play. That the economy and the financial system, I would say, was subject to the same discipline as the rest of us. There’s an old saying about you don’t ever want to walk under a guillotine, but after the blade falls, you can walk over it. Well after the blade falls people just start walking forward again. But they don’t want to be walking under it.


From a previous comment:

Lindajean

You keep arguing this point as if there is an ultimate truth here. There is not an ultimate truth.  Who outside of the Obama Admin (and the loop)  is actually supporting this plan?

TH


I am.

And I am suppose to take that as a serious answer? Based on any kind of evidence or critique from sources who study and understand economic concepts?

TH


I’ve no idea what Geithner would deem ‘short term’.

And there is the rub, TH.


And that is the real heart of this issue and the danger of the Geithner’s “short term” plan.

This conversation is all about what you think they will do, not about what reasonable people are suggesting.


I think you just made my case.

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Posted: 25 April 2009 11:19 AM   [ Ignore ]   [ # 17 ]  
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tavishhill2003 - 24 April 2009 07:58 PM

Harmful to what end exactly?

If you do not understand the harm in Geithner’s plan after days of discussing why his plan is a bad idea with you on this thread and after you telling me you have read Krugman and others and that you understand their point (you just don’t agree with it) then what else is there to say?  His plan is harmful because it does not hold the bad decision makers accountable for anything, it puts the taxpayer at even more risk, and it does not allow the government to regulate what these bad decision-makers do with the tax payer’s money (in the TARP).

Geithner needs to go because his plan is (by most “experts” estimation) not a good one (among other reasons). And all of your talk that it is simply “short-term” and a vital necessity and that BHO will eventually force Geithner out of the nest as soon as he deems it timely is pure and total speculation.

The bottom line is (and the irony is) you do agree with me that Geithner and Summers should go. Let’s accept that as a fact.

And (again) if I knew for certain that BHO was going to push him out then there would be no need for a thread entitled “Geithner and Summers need to go.”  But we have absolutely NO indication this will happen and not only do we have no indication of it, no rumors, no leaks, no inclinations or innuendos coming from anywhere at all, we have absolutely no reason to believe it as well.

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Posted: 25 April 2009 04:44 PM   [ Ignore ]   [ # 18 ]  
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lindajean - 25 April 2009 02:57 PM

And you are hell bent on devising a necessity for a short term solution where one does not apparently exist.

How is that in any way apparent and on what grounds can you even make such an assertion?  You aren’t even offering an argument against mine here. 

The solution is contingent on the fact that time is wasting as Geithner mucks around with his plan that in the long run is going to cause more harm than good.

Again, you only come to such a conclusion IF and only IF you first assume that the economy wouldn’t have been dangerously affected when the plans you are hoping for were announced when things were unstable.  Thus far, the ONLY shred of an argument you’ve even attempted to make is to suggest that such an impact would merely be the natural ebb and flow of the markets as if it wasn’t connected in any way to such announcements.  Puh-lease.  Don’t waste time.  If you’ve an argument that suggests that we could afford to do these things immediately (meaning while the markets were extremely volatile) or else things will go to hell, then by all means make that argument. 

According to Elizabeth Warren on the Congressional Oversight Committee which is looking into how TARP money is being used, Geithner’s plan is part of the problem.  And he is dodging her questions faster than Superman can dodge bullets:

I’m aware of Mrs. Warren’s views, thanks.  Have been since before she got the job in fact.  She needs to work on her tv perfomances though.  She has also said that Geithner is doing a good job overall in facing the challenges he has to face.  And again, her job is to look out for the taxpayer…which is fine.  But it isn’t a position that puts her in the hotseat as far as governing a national economy on the verge of another Great Depression.

Significant? No,  if by that word you mean the bottom is going to fall out, that the sky is falling and that unless we do it your and Geithner’s way, the end is near.

It’s not just Geithner’s way lindajean.  Stop acting so damn ignorant on this.  LOTS of those very same experts you cite also agree that we HAVE to bolster the markets a bit to the point they can sustain such policy changes.  Stop pretending they all are making the same arguments you are because they simply aren’t.  You keep talking like there is no context necessary for their statements, but there is.  They weren’t making these statements or pushing for these things last fall.  Something changed between then and now.  That being the stabilization of the markets thanks to the work of Treasury, even though it sucks for us taxpayers.

And the evidence I offer is from the scores of experts who make no such claim but instead believe that government restructuring of the banks is most likely the most prudent, feasible and sustainable way to take the bull by the horns.

Those experts are the ones you hear only talking about what to do about spending taxpayer funds.  They rarely if ever go on tv to offer blueprints for how to fix the economy any more.  That’s not a bad thing since the networks are all asking them specifically about the taxpayer issues, but that at the same time doesn’t automatically make their positions viable when you consider the notion of implementing while the markets were bouncing sporadically.  How many of these experts really tell you that they think should announce plans to put in tough regulations etc BEFORE allowing the markets to stabilize?  Prolly none.

Once the volatility subsides then new laws on regulation need to be sorted out by Congress.

In other words, you agree we need to stabilize the markets first, exactly as I’ve said and exactly as Geithner and Summers have said.  :/

You can’t help but cowardly hide behind your loaded rhetoric that you’ve specifically chosen to avoid having this discussion lindajean.  You can keep pretending that I’m some paranoid nitwit who is simply buying into the propaganda coming from Wall St., but it doesn’t make you look smart somehow. 

I’m not saying the sky is falling or that the world will end.  I’m saying there are severe consequences to doing what we BOTH want to see implemented and as such we can’t just rush into implementing those types of actions without due preparation.  See, you’ve had a couple months of a relatively stable stock market and now you are under the mistaken impression that we could even be having this conversation when the markets were posting 400-700 pt daily losses routinely earlier this year. Get real. 

I’m with ya on what has to happen policy-wise and I’m with ya on the bonusses.  But bounds of reason lindajean.  If the choice is between spending taxpayer money in a way that taxpayers don’t approve of versus taking drastic measures to make sure those same taxpayers have jobs in the coming months, I’d gladly bit the bullet and cede the former. 

Go to Bill Moyer’s website and he has dozens of economists and investors whom he has interviewed about the economy.  NONE of them are espousing the virtues of Geither’s policies.

That’s because you are misreading either my posts or the economists’ comments.  I’m not saying Geithner’s plan is good for the long term.  I’m saying it is working rather well for what is absolutely necessary in the short term.  I agree with them and you that if we let Geithner keep pumping money into the markets we can’t sustain that and it will make things worse in some regard. 

What I’m arguing is that while painful ideologically, the necessary step is to let ppl like Geithner and Summers stabilize things in the short term so we can push for major policy changes thereafter because contrary to what you seem impatient to assert, we can’t push those initiatives if the DOW is dropping by a thousand+ pts a week without severe consequences across the economic spectrum.

Most of them are in favor of government nationalizing on some level. Some use different terms for it and favor different degrees, but again, NONE are talking up a plan that has the taxpayers subsidizing for the risks of investors buying toxic assets. 

No one is claiming a short term shot in the arm approach is even necessary. And again, I have heard of no expert outside the Obama circle and wall street that favor this plan.

You’ve simply never heard them asked if such an approach is approriate either.  Moyers certainly hasn’t asked that question.  This is like me asserting that you hate black ppl simply because I’ve never heard you say otherwise on this forum.  It’s a ridiculous string of ‘logic’ to employ.  They all say we need new regulations and new policies and new legislation.  We all agree on that.  But they don’t say the best timing for implementing those items is when the market is as low and volitile as humanly possible. 

You are mistaking my strategy for Geithner’s or rather, vice versa.  I’ve no reason to think he isn’t as misguided as you claim.  However, he is still useful in the short term because his strategy HAS worked well thus far for his goal and he is gonna be useful in some capacity in the future.

Robert Johnson’s take from Bill Moyers:

(Note:  No sky is falling talk here Tavishhill that the end is near.)

He also says we need to take our time in reviewing the assets.  And again, we are talking about comments made at a time when the markets are stablized.  Care to take a gander what he and Krugman et al were saying last September leading up to the bailout legislation?  How abotu you back and re-read what they were saying and see the sort of language guys like Krugman were using before you try to color me as paranoid.

And I am suppose to take that as a serious answer? Based on any kind of evidence or critique from sources who study and understand economic concepts?

Again, go read what all these economists were saying as their “rosy” outlook for the economy if the govt didn’t inject taxpayer funds to bail them out.  Study the sequence of events they clearly laid out last fall when talking about the dangers of just letting these institutions fail.  Those sequences don’t just disappear because we got a new president.  The same sorts of things will very likely happen if we would have just tried to nationalize the banks when the markets were nosediving every week. 

The same ppl you are happy to parade about to prop up your argument today are only making the statements they are today because we have a more stable market and the time to implement the various ideas they have is fast approaching.  They weren’t making these same comments last fall when they were telling us how “the sky would fall” if the govt didn’t pour taxpayer money into the banks. 

And there is the rub, TH.


And that is the real heart of this issue and the danger of the Geithner’s “short term” plan.

This conversation is all about what you think they will do, not about what reasonable people are suggesting.


I think you just made my case.

No, my position is about what I think they SHOULD do, just like your position.  The difference is that my strategy includes the type of actions that Geithner has taken and requires drastic action to only be taken once we have a safer, stable market to work with to make sure that we minimize the effects of implementing such policies in the interim.  The reason I view having a stable market as necessary is because we’ve seen how easily the markets fall apart when they aren’t stable upon major announcements about policy changes that don’t favor Wall St. 

Furthermore, we know what guys like Krugman et al were saying about the consequences of letting these banks go under when the markets were nosediving.  It’d be horrific economically and there is no reason to not avoid that if possible.  Geithner has been useful in stabilizing things for us.  He’s done good in taht regard. 

That doesn’t mean I agree that he should keep doing what he is doing.  It means I think he’s done well in general thus far and as we enter phase 2 of my strategy I’d like to see Congress step up and force him to transition to a track that will help him recover taxpayer funds responsibly. 

If you think I was trying to argue that we should just trust Geithner form now on, you’re an idiot.  That wasn’t what I was saying AT ALL.  In fact, I even came out to clarify for you several times that I think if we take his plan beyond the short term stabilization phase, we’re not gonna fix the problems inherent in the banking system and things will get no better for us.  I know of no other way to make myself more clear than to say that our only dissagreement is on whether we should implement the initiatives you want while the market was dropping by a thousand points a week versus doing so when it is much more stable.  I say we need it to be stable to curb the risk.

[ Edited: 25 April 2009 05:19 PM by tavishhill2003]
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Posted: 25 April 2009 05:03 PM   [ Ignore ]   [ # 19 ]  
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lindajean - 25 April 2009 03:19 PM

If you do not understand the harm in Geithner’s plan after days of discussing why his plan is a bad idea with you on this thread and after you telling me you have read Krugman and others and that you understand their point (you just don’t agree with it) then what else is there to say?

You misunderstand my point in asking that.  I was attempting to illustrate that the plan you are speaking of was harmful to the TAXPAYERS as opposed to being detrimental to the goal of STABILIZING THE MARKETS.  You prove my point beautifully below.

His plan is harmful because it does not hold the bad decision makers accountable for anything, it puts the taxpayer at even more risk, and it does not allow the government to regulate what these bad decision-makers do with the tax payer’s money (in the TARP).

...got it yet?

Geithner needs to go because his plan is (by most “experts” estimation) not a good one (among other reasons). And all of your talk that it is simply “short-term” and a vital necessity and that BHO will eventually force Geithner out of the nest as soon as he deems it timely is pure and total speculation.

Of course it is speculation!  For fuck sake lindajean, slow down and THINK for a moment!  My point is that Geithner is useful in the short term and his plan has worked for the necessary goal of stabilizing the markets before implementing the next phase of policy changes and whatnot.  None of those economists disagree with me on that end.  Hell, many of them AGREE with me!  Their position is that we can’t keep letting Geithner do this indefinitely and I completely agree with that as I’ve noted a few times now. 

The bottom line is (and the irony is) you do agree with me that Geithner and Summers should go. Let’s accept that as a fact.

No…I don’t.  Again, I think they need to be kept on to help Obama and Congress work through the market dips upon announcing the policy changes we all wanna see implemented.  They are well liked on Wall St. and as such would serve well as sort of ambassadors to Wall St. to help mow over the tensions after such announcements would be made.  The point being that they can help smooth things over enough to make sure the markets don’t lose all the ground they’ve gained recently (in no small part thanks to these two men btw).

We both want to see these men lose due influence over the regulation legislation.  Taht doesn’t mean I want them fired.  I specifically WANT them to stay for the reason noted above.  Not to say I would mind having more advisers helping Obama who are better suited for making sure more appropriate legislation gets passed and enforced. 

And (again) if I knew for certain that BHO was going to push him out then there would be no need for a thread entitled “Geithner and Summers need to go.”  But we have absolutely NO indication this will happen and not only do we have no indication of it, no rumors, no leaks, no inclinations or innuendos coming from anywhere at all, we have absolutely no reason to believe it as well.

You continue to misunderstand my position lindajean and to be perfectly honest it’s starting to appear like you are doing this on purpose.  I was never claiming there was proof of any kind that Obama would do what I hope he does.  I was simply noting that it’s not in the economy’s best interest to fire these guys, hence why I disagree with your thread’s OP.  They can be used to help even if it means changing the capacity of their influence on policy making.  The mere act of firing them would itself cause the markets to react somehwat violently.  There’s no reason for that right now.  Maybe after the new policies are implemented and underway they could be fired, but until then, they can still be useful.

And FYI, there is reason to think that Obama’s strategy was to stabilize the markets FIRST and then worry about fixing the long term problems inherent in the system.  He has campaigned on that very idea when he was pushing for the bailout last fall.  The very reason he got Summers and Geithner on board in fact was because he knew they’d be helpful in stabilizing the markets which were nosediving when he made the decision.  That isn’t enough to say that we should just have faith and hope his strategy is what I want.  But it’s not at all inconsistent with my strategy either.  Something being speculation doesn’t automatically imply it is false.

[ Edited: 25 April 2009 05:10 PM by tavishhill2003]
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Posted: 25 April 2009 05:28 PM   [ Ignore ]   [ # 20 ]  
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Holy shit!
You two have spent 4,339 words on page 2 of this thread alone, and for what?

TH, if you would just read the Bill Moyers interview that Lindajean linked to in the OP, then this SHOULD be a very short discussion.

WILLIAM K. BLACK: […]. They’re afraid that if they admit the truth, that   many of the large banks are insolvent.

Get it?  The banks are insolvent!

So, if we buy the “toxic” assets (oh, forgive, in Geitner speak they are “legacy assets”) at market value, the banks will still be insolvent.  And therefore, the Geitner plan either (a) is meant to buy these assets at grossly inflated prices, effecting a massive transfer of public money to private parties or (b)is meant to buy them at market prices leaving the banks insolvent.

Hence, this is obviously a plan which will rip us off, and enrich the fuckwits who already ripped us off.

And that took 155 words.

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Posted: 26 April 2009 07:13 AM   [ Ignore ]   [ # 21 ]  
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LJ

Once the volatility subsides then new laws on regulation need to be sorted out by Congress.

TH
In other words, you agree we need to stabilize the markets first, exactly as I’ve said and exactly as Geithner and Summers have said.  :/


I’ve never argued that things don’t need to be stable long term.  That is the goal in nationalizing the banks .  Once the government steps in and reorganizes and sells off the healthy assets to private investors, then we need to re-regulate the banking system by enforcing what is on the books (fraud)  and giving more oversight to regulators. That is a different issue from dumping Giethner and Summers and condoning his plan to stick the taxpayers with toxic assets.  We also need criminal investigations for those who committed fraud.

TH


You are naive…
You can’t help but cowardly hide… behind your loaded rhetoric ...
Stop acting so damn ignorant on this….
You can keep pretending ...

... but it doesn’t make you look smart somehow. 

..Get real. 

.... you’re an idiot. 

...slow down and THINK for a moment

Are you becoming a little unraveled here?  grin

TH

He also says we need to take our time in reviewing the assets.

He is talking about restructuring the banks.  No one is saying the restructuring should happen in 24 hours. Yes, the restructuring is a process that needs to be done meticulously. I’m not arguing against any of that.  This will be a serious and diligent endeavor.

TH

The same ppl you are happy to parade about to prop up your argument today are only making the statements they are today because we have a more stable market and the time to implement the various ideas they have is fast approaching.  They weren’t making these same comments last fall when they were telling us how “the sky would fall” if the govt didn’t pour taxpayer money into the banks.

 

That is before a 700 billion TARP plan, a 800 billion stimulus plan and Geithner’s plan to have taxpayers subsidize toxic assets.


Comparing then with now is apples and oranges.

TH
My point is that Geithner is useful in the short term and his plan has worked for the necessary goal of stabilizing the markets before implementing the next phase of policy changes and whatnot.

I know your point. Repeating it over and over again isn’t going to strengthen it.

TH

None of those economists disagree with me on that end.  Hell, many of them AGREE with me!  Their position is that we can’t keep letting Geithner do this indefinitely and I completely agree with that as I’ve noted a few times now.

The issue is that his short term policy is dangerous.  No one is supporting it. And you continuously avoid providing me with quotes from all of these people who agree with you.

TH

And FYI, there is reason to think that Obama’s strategy was to stabilize the markets FIRST and then worry about fixing the long term problems inherent in the system.  He has campaigned on that very idea when he was pushing for the bailout last fall.

Again, no one is arguing against stabilizing the market, but subsidizing toxic waste with taxpayer dollars with no accountability is not what most people would have imagined when he spoke of “stabilization.”

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Posted: 26 April 2009 07:15 AM   [ Ignore ]   [ # 22 ]  
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teuchter - 25 April 2009 09:28 PM

Hence, this is obviously a plan which will rip us off, and enrich the fuckwits who already ripped us off.

And that took 155 words.

Conciseness is a work of art.

Unfortunately, the truth does not always set one free.

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Posted: 26 April 2009 07:34 AM   [ Ignore ]   [ # 23 ]  
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In as simplistic terms as it can get, thats my speciality, grin, just what what options do we have other than the Geithner, Summers… whomever’s plan?

Looking at what happened from 1929 until 1933, would/could that scenario happen again in todays economic enviroment?

There seems to me no way that we can save the economy of the US, and much of the world, and be fair to every tax paying citizen. We are way beyond people being ‘ripped off’ Is letting things take the natural route without intervention better? Perhaps so, in the very long run, but how much do we suffer in the interim?

It seems to me that the only thing that we can really do is intervene with borrowed money, try and get the system up and running again, clean out all of the garbage, and eventually try, through long term and sustained economic growth, pay back the tax payers. Of course that may not happen, at least in our lifetimes, but what other option do we have? Really.

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Posted: 27 April 2009 06:13 PM   [ Ignore ]   [ # 24 ]  
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McCreason - 26 April 2009 11:34 AM

In as simplistic terms as it can get, thats my speciality, grin, just what what options do we have other than the Geithner, Summers… whomever’s plan?

Looking at what happened from 1929 until 1933, would/could that scenario happen again in todays economic enviroment?

There seems to me no way that we can save the economy of the US, and much of the world, and be fair to every tax paying citizen. We are way beyond people being ‘ripped off’ Is letting things take the natural route without intervention better? Perhaps so, in the very long run, but how much do we suffer in the interim?

It seems to me that the only thing that we can really do is intervene with borrowed money, try and get the system up and running again, clean out all of the garbage, and eventually try, through long term and sustained economic growth, pay back the tax payers. Of course that may not happen, at least in our lifetimes, but what other option do we have? Really.

Do you believe that restructuring the banks will do none of the above and only Geithner’s plan will?

When you say “what other option do we have?”—-you’re implying there are none?

Do you understand zombie banks are like ghosts rattling their chains? Their assets have virtually no market value and expecting taxpayers to get anything solvent from them in return is like expecting the tooth fairy to stick a lump of gold under your pillow?

What is the “natural route” you refer to? This is not about “fairness”  to taxpayers but about control over who calls the shots.  Either Feds control (temporarily) or the wolves on Wall Street will. Wolves in a drunken state on their own elixers.

I’m not advocating a do-nothing policy. Just a plug in the gigolos slurping in more as we throw our tax dollars at them.

When you ask, “would/could that scenario happen again in today’s economic environment?”—-no crystal ball is available, but what puts more money in the hands of Wall Street through subsidies and less power in the hands of the government is asking for more of the same.

Enough is enough!

If you are worried about another Depression, it seems reasonable to refrain from feeding the beast.

Bottom line: BHO wants to encourage market forces (which of course are not real) because he fears the “socialism” label.

This gets to the nitty gritty:

 

In theory, the administration’s plan is based on letting the market determine the prices of the banks’ “toxic assets” — including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets.

The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.

Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Even in an imperfect market, one shouldn’t confuse the value of an asset with the value of the upside option on that asset.

But Americans are likely to lose even more than these calculations suggest, because of an effect called adverse selection. The banks get to choose the loans and securities that they want to sell. They will want to sell the worst assets, and especially the assets that they think the market overestimates (and thus is willing to pay too much for).

But the market is likely to recognize this, which will drive down the price that it is willing to pay. Only the government’s picking up enough of the losses overcomes this “adverse selection” effect. With the government absorbing the losses, the market doesn’t care if the banks are “cheating” them by selling their lousiest assets, because the government bears the cost.

Paying fair market values for the assets will not work. Only by overpaying for the assets will the banks be adequately recapitalized. But overpaying for the assets simply shifts the losses to the government. In other words, the Geithner plan works only if and when the taxpayer loses big time.

Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.

But we are already suffering from a crisis of confidence. When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.

http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html?pagewanted=2&src=tp

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Posted: 28 April 2009 06:34 AM   [ Ignore ]   [ # 25 ]  
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Of course the taxpayers lose under the Geithner plan. Don’t you think the tax payers also lose under the nationalization of the banks? (Initially anyway) Don’t the tax payers lose in this scenario regardless of which route is taken?

Thats the point. Fairness to the tax payers is out the window. We can and must bail out this nations broken economy. There are no right answers and good decisions, considering the average taxpayer.

Many industries are largely broke and government is definitely broke.

Can we not try the Geithner plan and if it does not produce the result that we need, try something else? Or do we start firing people immediately before we even see what is going to happen.

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Posted: 29 April 2009 04:58 PM   [ Ignore ]   [ # 26 ]  
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“McCreason”
Of course the taxpayers lose under the Geithner plan. Don’t you think the tax payers also lose under the nationalization of the banks? (Initially anyway) Don’t the tax payers lose in this scenario regardless of which route is taken?


It’s not the same. When you nationalize the banks the government has control over the end results—how it is restructured.

In Giethner’s plan the banks set the “market value” of all those toxic assets and the price will be rigged in their favor so when the government insures them against losses (via taxpayer money)  they make a big fat killing.

Can we not try the Geithner plan and if it does not produce the result that we need, try something else? .

Depends on when you will be ready to “try something else”? smile

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Posted: 29 April 2009 06:21 PM   [ Ignore ]   [ # 27 ]  
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The Quiet Coup

...Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large…

...But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them…

..This latest plan—which is likely to provide cheap loans to hedge funds and others so that they can buy distressed bank assets at relatively high prices—has been heavily influenced by the financial sector, and Treasury has made no secret of that. As Neel Kashkari, a senior Treasury official under both Henry Paulson and Tim Geithner (and a Goldman alum) told Congress in March, “We had received inbound unsolicited proposals from people in the private sector saying, ‘We have capital on the sidelines; we want to go after [distressed bank] assets.’” And the plan lets them do just that: “By marrying government capital—taxpayer capital—with private-sector capital and providing financing, you can enable those investors to then go after those assets at a price that makes sense for the investors and at a price that makes sense for the banks.” Kashkari didn’t mention anything about what makes sense for the third group involved: the taxpayers…

..Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change...

...The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late…

(my bolds)


http://www.theatlantic.com/doc/print/200905/imf-advice

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Posted: 02 May 2009 02:58 PM   [ Ignore ]   [ # 28 ]  
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More:


If we just lie to the people enough and if we can get them [to] believe our lies, then they will become confident and then we’ll get through the recession at next to no cost ... and the banks will all be fine.

http://www.huffingtonpost.com/cenk-uygur/william-k-black-on-geithn_b_183848.html

Whatever happened to the law (Title 12, Sec. 1831o) mandating that banking regulators take “prompt corrective action” to resolve any troubled bank? The law mandates that the administration place troubled banks, well before they become insolvent, in receivership, appoint competent managers, and restrain senior executive compensation (i.e., no bonuses and no raises may be paid to them). The law does not provide that the taxpayers are to bail out troubled banks. Treasury Secretary Paulson and other senior Bush financial regulators flouted the law. (The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) are both bureaus within Treasury.) The Bush administration wanted to cover up the depth of the financial crisis that its policies had caused.

Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth….

http://www.huffingtonpost.com/william-k-black/why-is-geithner-continuin_b_169234.html

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Posted: 02 May 2009 07:01 PM   [ Ignore ]   [ # 29 ]  
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...And more..

News shocker: Citigroup, Bank of America could need more cash

 

Didn’t we already know that? Hasn’t the underlying presumption from the get-go been that the two big banks were in trouble? There is a bleak hilarity to these proceedings. After all the endless Sturm und Drang concerning the stress tests—sham or no sham? too optimistic about the state of the economy? sure to be manipulated by the banks—we are now exactly at the point where we were at the beginning: faced with the problem of what to do with too-big-to-fail institutions that are likely to need a lot more capital to survive an extended economic downturn.


The next step, remember, according to the Geithner plan, will be to give the banks deemed in need of capital six months to raise funds from private sources, before the government steps in. Given the global economic situation, it seems highly unlikely that either bank is going to witness a cavalry charge of white knights coming to the rescue, meaning that six months from now, little will have changed. If the political goal here is to keep kicking the banking problem down the road while the administration deals with the rest of its ambitious agenda, then the White House is executing its plan efficiently. In the current climate, six months is a pretty darn long postponement of the day of reckoning.

But for critics of the Obama strategy, any postponement just prolongs the period in which real damage is being done to the U.S. economy. Rather than drag the process out endlessly, they’d like to see an immediate resolution. Bite the bullet, already! Get the big banks into a government-organized bankruptcy and break them up into a bunch of little pieces.


http://www.salon.com/tech/htww/2009/04/28/stress_test_diaries/index.html

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Posted: 02 May 2009 07:03 PM   [ Ignore ]   [ # 30 ]  
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...And more..

News shocker: Citigroup, Bank of America could need more cash

 

Didn’t we already know that? Hasn’t the underlying presumption from the get-go been that the two big banks were in trouble? There is a bleak hilarity to these proceedings. After all the endless Sturm und Drang concerning the stress tests—sham or no sham? too optimistic about the state of the economy? sure to be manipulated by the banks—we are now exactly at the point where we were at the beginning: faced with the problem of what to do with too-big-to-fail institutions that are likely to need a lot more capital to survive an extended economic downturn.


The next step, remember, according to the Geithner plan, will be to give the banks deemed in need of capital six months to raise funds from private sources, before the government steps in. Given the global economic situation, it seems highly unlikely that either bank is going to witness a cavalry charge of white knights coming to the rescue, meaning that six months from now, little will have changed. If the political goal here is to keep kicking the banking problem down the road while the administration deals with the rest of its ambitious agenda, then the White House is executing its plan efficiently. In the current climate, six months is a pretty darn long postponement of the day of reckoning.

But for critics of the Obama strategy, any postponement just prolongs the period in which real damage is being done to the U.S. economy. Rather than drag the process out endlessly, they’d like to see an immediate resolution. Bite the bullet, already! Get the big banks into a government-organized bankruptcy and break them up into a bunch of little pieces.


http://www.salon.com/tech/htww/2009/04/28/stress_test_diaries/index.html

 

Sorry folks, this isn’t going to go away.

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