Bankers Get $4 Trillion Gift From Barney Frank

[Marcus Bryant]

http://www.bloomberg.com/apps/news?pid=20601039&sid=a48c8UpUMxKQ

[Heath Ledger]

I loved Barney on the Andy Griffith show.

[Winehole23]

Meet the new boss, same as the old boss.

[Winehole23]

Having an explicit government backstop for capitalism is a real kick in the nuts. It kind of queers the whole deal. Megabanks shouldn't know for sure in advance that we'll vouch for their losses. It creates perverse incentives.

[boutons_deux]

http://graphics8.nytimes.com/images/blogs_v3/economix/economix_print.png (http://economix.blogs.nytimes.com/)

http://www.nytimes.com/adx/bin/adx_remote.html?type=noscript&page=blog.nytimes.com/economix&posall=Bar1,TopAd,Position1,Position1B,Top5,SponLi nk,SponLink2,SFMiddle,Box1,Box3,Bottom3,Right5A,Ri ght6A,Right7A,Right8A,Middle1C,Bottom7,Bottom8,Bot tom9,Inv1,Inv2,Inv3,tacoda,SOS,CcolumnSS,Middle4,L eft1B,Frame6A,Left2,Left3,Left4,Left5,Left6,Left7, Left8,Left9,JMNow1,JMNow2,JMNow3,JMNow4,JMNow5,JMN ow6,Feature1,Spon3,ADX_CLIENTSIDE&pos=Position1B&query=qstring&keywords=? (http://www.nytimes.com/adx/bin/adx_click.html?type=cookie&pos=Position1B)


December 31, 2009, 7:06 am

Lessons Learned but Not Applied

By SIMON JOHNSON (http://economix.blogs.nytimes.com/author/simon-johnson/) Simon Johnson (http://www.nytimes.com/2009/04/03/business/economy/simonjohnson.ready.html), the former chief economist at the International Monetary Fund, is the co-author with James Kwak of “13 Bankers,” forthcoming in April 2010.

In the 1990s, the Clinton administration amassed a great deal of experience fighting financial crises around the world.
Some of the Treasury’s advice at the time was controversial — pressing South Korea to open its capital markets to foreign investors at the height of the crisis — but the broad approach made sense. Failing financial systems needed to be fixed upfront because it offered the best opportunity to address the underlying problems (e.g., banks taking excessive risks). If you delay attempts to change until a recovery has begun, the banks and other crucial players are powerful again, and thus more resistant to change.

In a speech to the American Economic Association (http://www.vanderbilt.edu/AEA/)in 2000, Lawrence H. Summers — the primary strategist during the crisis — put it this way (http://www.jstor.org/pss/117183):

“Prompt action needs to be taken to maintain financial stability, by moving quickly to support healthy institutions. The loss of confidence in the financial system and episodes of bank panics were not caused by early and necessary interventions in insolvent institutions. Rather, these problems were exacerbated by

(a) a delay in intervening to address the problems of mounting nonperforming loans;

(b) implicit bailout guarantees that led to an attempt to “gamble for redemption”;

(c) a system of implicit, rather than explicit and incentive-compatible, deposit guarantees at a time when there was not a credible amount of fiscal resources available to back such guarantees; and

(d) political distortions and interferences in the way interventions were carried out…”

Mr. Summers now heads the White House National Economic Council and is the Obama administration’s top economic adviser. He is surrounded by experienced staffers from the 1990s, including Timothy F. Geithner (then the assistant secretary of the Treasury and heavily involved in the details of the Asian financial crisis; now Treasury Secretary) and David A. Lipton (then under secretary of the Treasury for international affairs (http://www.ustreas.gov/press/releases/rr1939.htm); now at the National Economic Council (http://www.whitehouse.gov/administration/eop/nec) and the National Security Council (http://www.whitehouse.gov/administration/eop/nsc/)). (Paul Blustein’s “The Chastening (http://www.amazon.com/Chastening-Inside-Crisis-Financial-Humbled/dp/1891620819)” is the best available account on the personalities and policies the 1997-98 emerging market crises.)

We should ask ourselves whether this group applied in the last 12 months what it learned in the 1990s?

The group pushed early and hard for fiscal stimulus, which played the same role in stabilizing spending in the American economy as properly scaled lending by the International Monetary Fund did for weaker economies in the 1990s. At this level, the Summers group drew sensible lessons from the 1990s — listening finally to Joseph E. Stiglitz (then chief economist at the World Bank and now at Columbia), who stressed the importance of easing fiscal policy.
But in terms of the handling of the financial system, the Summers-Geithner-Lipton approach this time is at odds with the views and actions of a decade ago.

In the 1990s, they were opposed to unconditional bailouts — providing money to troubled financial institutions with no strings attached. At one point, according to Mr. Blustein’s account, they derided Madeleine K. Albright, Secretary of State, for proposing such an approach in South Korea. The Treasury philosophy was clear and tough: “a healthy financial system cannot be built on the expectation of bailouts,” Mr. Summers said in his American Economic Association speech in 2000.

( but when the financial system is, EXCEPTIONALLY, the US's, and the US financiers will be repaying Summers with speeches, jobs, etc, ie, the financial sectors owns Summers, then Summers changes his tune.)

A modern economy cannot function without a financial system, so a rescue was necessary to restore confidence in the banks — just as it was in Thailand, Indonesia and South Korea in 1997. Then and now, the economic strategists deciding how to deploy American fiscal resources got to choose the strings to attach. The approach adopted for troubled American banks has been one of the least conditional and softest ever (http://baselinescenario.com/2009/11/19/written-testimony-submitted-to-the-congressional-oversight-panel/).

In the 1990s, the United States — working closely with the I.M.F. — insisted that crisis countries fundamentally restructure their financial systems, which involved forcing out top bank executives. In the United States during 2009, we not only kept our largest and most troubled banks intact (while on life support) but allowed the biggest six financial conglomerates to become larger, both in absolute terms and relative to the economy.

In 2007, the combined balance sheets of these entities were just under 60 percent of gross domestic product. By the third quarter of this year they amounted to 63.5 percent (source: “13 Bankers” by Simon Johnson and James Kwak, forthcoming 2010).

We do not know why the management of major troubled American banks was treated so gently — given their self-inflicted problems. Rick Waggoner, the head of General Motors, was forced out earlier this year, (http://www.nytimes.com/2009/03/30/business/30auto.html) but the administration has not pressed major bank chief executives hard (http://baselinescenario.com/2009/09/15/obama-and-brandeis/).

Presumably this time, the Summers-Geithner-Lipton group will argue that the only way to restore confidence was through the kind of unconditional and implicit bailout guarantees they opposed in the 1990s.

If true, this has a terrible implication. The structure of our financial system has not changed in any way that will reduce reckless risk-taking by banks that are large enough to cause significant damage when they threaten to fail.

The bank overhaul legislation before Congress could still address “too big to fail” issues, but heavy lobbying has bogged down attempts to limit the power of — and danger posed by — large banks. Postponing a restructuring until the banks were out of intensive care was a mistake — and just what today’s economic leadership once warned against.

=======

The US kleptocratic, plutocratic oligarchy is tough as nails on everybody else (the source of their super-wealth), but extremely forgiving and soft on themselves. No fucking suprise.

The US economy is a corporatized, corrupt, monopolized/cartelized racket fleecing the dumbed-down, passive, fat-assed, corporate-media-hypnotized citizenry. Even if the citizens shaped up and stood up (fat-ass chance!), whomever they would elect to Congress and WH would still be owned by the corps and capitalists.

The US is totally fucked and in the toilet.

US is run by the same kind of power structure, with the same kind of police force, as China. Both power structures are unassailable.

Conservatives and Repugs (and their tea-partying lackey stooges) say it's all socialism's fault, which is a big red herring whose stink overwhelms the dumbfuck citizens.

[exstatic]

Meet the new boss, same as the old boss.
http://t3.gstatic.com/images?q=tbn:ri6nM4t6YUPiJM:http://steve.files.wordpress.com/2006/03/Mobius%20Strip.jpg

[Marcus Bryant]

Having an explicit government backstop for capitalism is a real kick in the nuts. It kind of queers the whole deal. Megabanks shouldn't know for sure in advance that we'll vouch for their losses. It creates perverse incentives.

Right. So we double down on what got us here in the first place. But liberal Democrat politicians are about reigning in Wall Street and conservative Republican politicians are about free market capitalism. Yeah.