Monday, August 22, 2011

Banker's Bailout

How do we fix the banks?  Set them free 

 I normally frown upon blog posts consisting of large chunks of direct quotes, but John Tamney has hit a home run.

Deregulation and free markets didn't wreck the world economy--Government protections did. Bad banksters and the governments who love them are the Bonnie and Clyde of global monetary scams.
Governments have shielded banking from market forces, and we're all now paying the price:  
it's apparent from the myriad bailouts of banks within it in modern times that, absent government protection, the financial world would look quite a bit different. Put simply, political unwillingness to apply market forces to the business of finance means that its long-term health and dynamism is in fact reduced.
Government intervention distorts markets and creates perverse incentives
The better, more realistic, explanation for the paralyzed credit situation in the aftermath of Lehman actually goes back to the spring of 2008. It was then that the Fed and Treasury, fearing "contagion" relating to Bear's demise, saved its creditors through a deal in which the Fed took Bear's debased assets on its balance sheet.
Then J.P. Morgan was offered the still-functioning bank on the relative cheap, its downside covered by the federal government. As Wallison put it, "I see the market meltdown that followed the Lehman bankruptcy as a result of the moral hazard created by the rescue of Bear Stearns six months before."
Your government took the toxic assets off of the banksters's accounts and put them on YOURS
Other accounts of the time in question support Wallison's view. The fact that the federal government subsidized J.P. Morgan's acquisition of Bear Stearns created an expectation among healthy financial institutions that they too should have their downside protected in snapping up insolvent firms. 
As Andrew Ross Sorkin put it in his 2009 book, Too Big To Fail, acquirers wanted "Jamie" (J.P. Morgan CEO Jamie Dimon) deals whereby the government would guarantee the most toxic assets of companies being purchased. Absent the subsidized buyout of Bear, there would have been no presumption of a government role as savior of any financial institutions, thus a more realistically priced market for banks in trouble.
What the episode teaches us is that while markets can ably prepare for and weather all manner of calamities, what they handle badly are opaque government policy stances whose changing nature causes information vacuums and panics like that of October 2008.
I'd love to see the US Government finally give free market capitalism a try... Source for all Quotes:  Global Economy Held Hostage by Lehman


Always On Watch said...

A personal observation here: Interest rates for savers (I'm referring to products such as certificates of deposit) have not been this low in my lifetime -- as far as I can remember, anyway.

Were savings interest rates higher, I'd be taking some of that interest money and going out and causing inflation in one section of town. Lots of people used to do so, myself included.

Instead, we who save are now being penalized. Pretty soon the bank will start CHARGING to hold my money.

And one more thing....We savers do pay income tax on interest from savings. I do wonder how much government revenue is no longer flowing in because of those low interest rates on savings.

Silverfiddle said...

AOW: It is theft by monetary policy.

Paging Dr. Paul!

Thersites said...

Your government took the toxic assets off of the banksters's accounts and put them on YOURS

It's WORSE than that, Silverfiddle.

They took toxic assets off of banksters accounts and HID IT FROM YOU.

Anonymous said...

With Keynesian theory and fiat money, the banksters have had a field day being the middlemen between the borrowers and the lenders. The Keynesians and the banksters assumed there would always be sufficient lenders to cover the demand for credit. It now appears they were wrong. The banksters are panicking.

Z said...

silverfiddle; is it even realistic to think that someone like Ron Paul COULD fix things at this late date?

AOW, you're so right about interest; it's lower than ever and causing people to spend less and worry a LOT LOT more.

Jersey McJones said...

This is just stupid.

The bank collapse was caused by the repeal of Glass-Steagall. It was lack of regulation and oversight - or even any laws whatsoever - that paved the way for the collapse.

It's just such obvious self-serving ideological tripe to say that government involvement in the debacle caused the debacle. It isn't true, it didn't happen, it's a stupid, stupid, stupid lie.

And that moron! Saying that a bailout from six months earlier created a moral hazard that caused the rest of the collapse! What a moron! The bubble was created years earlier, GS was r3pealed in 19-friigin'-98 for Christs sake!

Who does this moron think he's fooling?


Silverfiddle said...

Z: Yes. With a Republican congress, President Ron Paul could fix this. I've read his books on the subject. He knows what he's talking about. Unfortunately, few are listening.

With the presidential bully pulpit, he could dismantle much of this, but there would be strong opposition from "the socialists of all parties."

Silverfiddle said...

Jersey: Like manure, your stinking pile of ignorance and inflammatory language contained one seed of truth.

Yes, the repeal of Glass-Steagall contributed greatly. Government took away the downside to casino banking.

If you don't understand moral hazard, I can't help you. Government created an expectation and the crony crapitalists came swarming in.

Speedy G said...

Hey, when the HUD Secretary and now Governor of New Your is vouching for zero down payment No Doc home loans, and Barney Frank is promising to keep packaging those bad loans to FANNIE & FREDDIE, a crapitalist would have to be a fool NOT to back their power plays.

Bunkerville said...

I think this pretty much sums it up:

Back in 2002, the top 10 banks controlled 55 percent of all U.S. banking assets. Today, the top 10 banks control 77 percent of all U.S. banking assets.

the “big six” U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America’s gross national product.

Anonymous said...

If you're interested in underlying principles and root causes, this link sheds some light:

Under the spreading chestnut tree where I sold you and you sold me."

~ FreeThinke

Anonymous said...

"The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution...if the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
 - Thomas Jefferson, US Founder and principle author The Declaration of Independence

And some have the witlessness and temerity to suggest the thinking of our Founders and the founding documents they left us are outmoded and irrelevant for today's needs!

~ FreeThinke

Ducky's here said...

Completely inadequate. As obsolete as the horse cart.

Jersey McJones said...

So, Silver, you're saying banks and insurance and investment houses should be left to do whatever they want with each other? Right?

Did you fall down and hit your head recently?

You want more of that?


Anonymous said...

With the highly inflated price of fossil fuels and the problems of pollution I wouldn't be a bit surprised if the horse cart -- along with a return to regionalism with greater local and individual self-sufficiency -- were to make a strong comeback.

Horse shit may not smell very pleasant, but at least it can be used to fertilize crops.

I'd like to see outhouses come back as well. The melons, cucumbers, squash and pumpkins my grandparents' generation grew around their privies were incomparable.

we could live very well without having out-of-season fruits and vegetables available year 'round.

Getting the Welfare Class back to the fields wouldn't be a bad thing either. At least they'd be earning their keep once again.

Where there's a will, there's a way.

~ FreeThinke

Jersey McJones said...


Every developed Western nation has some form of a central bank. We can not, in a modern, stable, Western society, have the booms and busts of the more speculative markets determine the course of everyday life.

There's a reason the "investment class" is usually very small. It's very risky. Banking is in and of itself very risky.

And that's why governments take an active interest in the health and stability of our banking, investment, and insurance sectors.

Had we honored that responsibility during the Bush years, this crash would never had happened.

You want more of that?


98ZJUSMC said...

It's just such obvious self-serving ideological tripe to say that government involvement in the debacle caused the debacle. It isn't true, it didn't happen, it's a stupid, stupid, stupid lie.

I take it that you can prove that?

Oh wait.....pffftt, I just realized who I was quoting. Never mind.

98ZJUSMC said...

And that's why governments take an active interest in the health and stability of our banking, investment, and insurance sectors.

active interest in ensuring that people who have no real hope of repaying loans, get them


Fannie Mae Kool-Aide - .25

Have a double.

98ZJUSMC said...

Every developed Western nation has some form of a central bank. We can not, in a modern, stable, Western society, have the booms and busts of the more speculative markets determine the course of everyday life.

So? Specious argument, much?

Ducky's here said...

active interest in ensuring that people who have no real hope of repaying loans, get them
Farmer, you're full of shit.

Did the government FORCE Lehman's to leverage the mortgage paper at 50 to 1 and bet that housing prices would continue to rise?

Did the government force the management of Fannie to try to double their earnings by going into competition with the likes of Countrywide? Hell if Fannie were a government entity like it was not all that long ago it wouldn't have failed.

Did the government force the Fed to keep the money spigots on? I doubt they threatened Greenspan the way Nixon threatened Arthur Burns. Greenspan was a willing right wing tool.

No, you insist on being so freaking out of it that you assume the default rate cause by pushing the level of home ownership up a couple points was enough to cause a liquidity problem. Buy a freaking vowel.

Kid said...

Not only did the Fed print up 30+ trillion (and that was as of a couple years ago) to give to the banks in exchange for their worthless mortgage paper so THEY could have a do-over, how about this.

FASB-157 which was a financial regulation that forces banks to Mark to Market, all assets they have on the books. (read:yet even more Worthless monopoly money mortgage paper/toxic assets), FASVB-157 has been disabled indefinitely because forcing banks to formally recognize that paper on their books right now would force them all into bankruptcy.

Remember this is After the Fed bought (probably 40 trillion by now) of their worthless paper mortgage derivatives..

How many people on the [main]street do you think have any visibility into this?

Ducky's here said...

Another boy genius.

et's assume the ridiculous figure you quote is true (it equals a good portion of the world GDP)

The fed didn't print that volume of money. In most cases it purchased mortgage assets which are performing assets.

Pitch till you win, the left is here to help you live the life of the mind.

Kid said...

Well duck boy, you're not only lacking in intelligence as well as information but you like to stick your hand in monkey holes too.

Now tell my how much of the toxic mortgage asset paper is tied to actual physical property.
The world GDP? Whats that matter. There is 700 Trillion in derivative paper out there. Guess how much is tied to physical assets.

Now FO. Or at least do some research before coming back.

Silverfiddle said...

Q Jersey: Every developed Western nation has some form of a central bank.

Every developed Western nation has also had some form of crabs. So?

Ducky: The government didn't force them, it incentivized them.

Why not grab all you can when you know there are no consequences.

Jersey: I should have known my point was too subtle for you...

The Democrats repealed Glass-Steagall but kept all the cushy government safety nets in place. Stupidity of the bipartisan variety.

MK said...

"I'd love to see the US Government finally give free market capitalism a try."

Me too, alas the idiot obama desperately wants to give socialism another try.

Rational Nation USA said...

"I'd love to see the US Government finally give free market capitalism a try..."

We'll Silver, so would I and millions of others.

The truth is it ain't gonna happen.

Ducky's here said...

Ducky: The government didn't force them, it incentivized them.


Yes, I can agree with that.

My objection would probably come when some of your posters, and maybe yourself, would not agree that it was started by St. Ronnie Raygun. Dems and Repubs, the rogues gallery is filled with both.

I do split a gut when some right wing fool calls Clinton a liberal.

Ducky's here said...

... and Silverfiddle, why do we assume that a lot of these guys weren't just dumb?

The right really wants to run far away from Greenspan's admission that markets are not self correcting. He had foolishly believed in a rational market and SURPRISE no matter what von Mises says, the aren't.
The market has a good sense of what itch the consumer suckers want to scratch at the moment but don't do to well on longer term issues.

Silverfiddle said...

I don't know why you keep mentioning Greenspan. I don't like the guy and he long ago abandoned any libertarian ideas he may have harbored in his Randian youth.

Greenspan is a Keynesian and a monetarist, as was Friedman.

Free market? Please. I know you are not that naive.

Ducky's here said...

Spoken like a true believer, Silverfiddle.

Despite any evidence that your dogmatic program will function it has to be fully implemented before you will admit any flaws.

Libertarianism, it's a religion like Scientology.

Silverfiddle said...

I am not a pure libertarian, Ducky. More Hayek, less Rothbard is my style.

I don't know it all and I don't have a "program," I'm not smart enough about economics to harbor such presumptions.

I do know that a politburo full of eggheads can crash the economic ship just like us simpletons in the free market can. Only the egghead crashes are much more spectacular.

Anonymous said...

Baiting and badgering is what it's all about, SilverFiddle. There's no sincerity and not a word of truth in any of it. It's argument for the sake of argument.

If there were any real interest in finding Truth, the tone would not be so sarcastic, barbed, dismissive and disrespectful.

After more than ten years of wrangling on the net I see very clearly that a distinct personality type exists which get it's kicks from being an absolute pain-in-the-ass.

Some people derive a perverse sense of fulfillment and satisfaction by doing everything possible to antagonize everyone in sight.

I'm no longer sure it's a good idea to answer these "arguments," because the interlocutor-antagonist prides himself on never admitting any merit whatsoever to anyone's point of view, unless it just happens to coincide with his own.

Graciousness is never part of the equation.

Do read about Critical Theory. It's not a theory at all, but rather a methodology used to neuter and defeat opposition through attrition.

Critical theory is a brilliantly effective, demonically clever tactic that draws its strength from being aggressively insincere and utterly unprincipled.

~ FreeThinke

Ducky's here said...

Sorry Frethinker, I find that right wingers are unwilling to accept much, if anything, outside their limited sphere.

I'm pretty hard left but I accept the function of a market system, maybe in modified form for items like education and health care but I understand it's function.

On the other hand I have yet to run into a fringe righty (and you guys are fringe) who will attempt to understand the reasoning behind the social welfare state.

I always look at the profile preferences of the right and I'm still looking to find one who goes beyond either Christian or American preferences. For truth seekers they are damn freaking limited.

But it's true. I'm a pompous shit who took to heart Sartre's "What is the Novel" and believes art can be tranformative and must combine ethics and aesthetics. Here's a clue, if you stopped at art deco you have not been very serious about your quest. No Galahad you.

Silverfiddle said...

I don't know what "limited sphere" you imagine I'm trapped in...

Citizen68 said...

Ducky, the "reasoning" (if you can call it that) behind the social welfare state is transparent. Do you fail to to understand how a welfare state creates more dependence on govt, which creates a bigger welfare state which creates a bigger govt which... etc! Do you not understand why dependence on govt is a bad thing, seeing as it replaces dependence upon self, neighbors, and community? And you thought Silverfiddle's sphere was limited? Maybe you had a deeper point that I missed, but it seems pretty cut and dry to me.