Where's the Nationalization vs "Bad Bank Plan" *debate*?!

[chill_wind]

We get to pay for this debacle. Don't we deserve one? DON'T WE?

Geithner thinks NOT.

But the nationalization idea still seems to be stillborn:

(Geithner) discouraged speculation that the plan would include the nationalization of some banks.

"We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system," he said.

Such sentiments will certainly make Jamie Dimon happy:

"JPMorgan would be fine if we stopped talking about (the) damn nationalisation of banks ... we've got plenty of capital," Jamie Dimon said, at the annual meeting of the World Economic Forum in Davos, Switzerland.

Sorry, Jamie, but I'm going to keep on talking about it, just because it solves at a stroke the problem of valuing the bad assets that the government is thinking of buying at an absolutely astonishing cost of $3-4 trillion. It would also help address Larry Summers's concern:

Mr. Summers privately expressed concern last week that spending too much to buy bad assets could cripple the dollar, according to a person who spoke with him.

This is a real concern. If you give the banks trillions of cash dollars in exchange for their toxic assets, there's simply no way of forcing them to keep that money in the USA. Even if they lend it only to US companies -- which is improbable -- those companies will surely take advantage of the strong dollar to buy cheap imports.

from


Market Movers
by Felix Salmon

Where's the Nationalization Debate?

http://www.portfolio.com/views/blogs/market-movers/2009/01/29/wheres-the-nationalization-debate?tid=true


For more blood boiling reading about what else Dimon and fellow cohorts are telling themselves and the world, see this narrative about what they are saying inside DAVOS:

Davos Delegates in ‘Denial’ as $25 Trillion of Wealth Vanishes


By A. Craig Copetas and Christine Harper

Jan. 30 (Bloomberg) -- Regret is cheap for some delegates at the World Economic Forum in Davos, Switzerland. Redemption for their role in the worst economic wreck since the Great Depression comes at a steeper cost.

“Nobody in Davos wants to get near a negative like redemption,” said Robert Dilenschneider, chief executive officer of the Dilenschneider Group, a public relations firm in New York. “But the truth is that everyone here is part of the problem, and the public will soon begin demanding a pound of flesh.”

“No banker or businessman wants to take responsibility,” said Dilenschneider, who counts 40 Davos delegates as clients, their identities shielded by confidentiality agreements. “It’s their view that everybody else did something wrong.”

Questions about responsibility, blame and contrition hang in the cold mountain air at the glitzy Alpine resort this week like so much exhaled breath. With $1 trillion of bank losses and $25 trillion of market value gone missing since the start of the financial crisis, there’s much to account for.

“There’s a ‘Great Gatsby’ quality to Davos,” said Niall Ferguson, a professor of history at Harvard University in Cambridge, Massachusetts, referring to the novel by F. Scott Fitzgerald. “When people look back at this gilded age, I’m sure there will be images of the investment bank parties at Davos, just as people looked back at flappers after the 1920s. People are still in denial.”

Ferguson, author of “The Ascent of Money: A Financial History of the World,” and a first-time Davos delegate, said “There’s a sense of ‘let’s have the party anyway,’ and ‘let’s talk about the post-crisis world,’ as though that could be soon.”

article: http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=abAA1ieh6wTk

[terisan]

1. I've already sent my email opposing giving Dollars for junk-He is the one who needs to be convinced.

I am no fan of Larry Summers but Summers is quite right about the threat the dollar if we buy the junk faux assets..

It is coming down to this collection of private big banks or us----I am on the side of us.

I guess the battle between the haves and the have nots is commencing.

[chill_wind]

2. Yep. n/t

[slipslidingaway]

3. He forgot to include the recent and future financing by citizens...

:(

"We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system," he said.

[chill_wind]

4. Dean Baker's alternative solution-- "bank rationalization". But no one at Team O listening..

so it seems.

(horrendously staggering summary of sums of money involved- snipped)


There is a simple alternative, which can be called “bank rationalization” in order to avoid the “n” word. Under this scenario, the government would take possession of insolvent banks. This is not interference with the market, it is the market. Bankrupt banks go out of business, but due to their importance to the economy, we can’t let them be tied up in bankruptcy proceedings for years.

Dealing with the matter all at once can both allow for a quicker fix to the financial system and also ensure fairer treatment of bank creditors. First, the shareholders of bankrupt institutions must be forced to eat their losses. However, we may not want to honor all the debts of the banks at 100 cents on the dollar, which has been current practice.

While the government has guaranteed most deposits, it has not guaranteed the bonds and commercial paper of the banks, nor their commitments on credit default swaps (CDS) and other derivative instruments. If it takes possession of all the bankrupt banks at once, it can apply a uniform policy. For example, it could honor bonds at 90 cents on the dollar or only pay off full CDS obligations to those who actually own the bond that was being insured against default.

To force banks to own up to insolvency, bank rationalization can apply punitive terms to banks that fail subsequently and allow their creditors to hold bank executives personally liable for their losses. Such rules would lead to more truth telling from our bankers.

In short, bank rationalization is both much fairer and better for the economy than the bad bank plan. If only the people who missed the housing bubble can be forced to recognize this fact.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/time-for-bank-rationalization/

[slipslidingaway]

7. Good article and a possible plan...

a few more snips.

"...If we go the bad bank route and pay too much for bad assets, then taxpayers are effectively subsidizing bank shareholders, who would otherwise be wiped out, and bank executives, who would otherwise be looking at big pay cuts or unemployment.

But it gets even worse. There is no reason to think that the bad bank route will be sufficient for resolving the banks problems, at least not in Round I, because they may not come clean with all their bad assets.

It is important to remember that these banks are run by people who could not see an $8 trillion housing bubble. It is likely that they still don’t know the full seriousness of their problems. (The same can be said of Treasury Secretary Tim Geithner and National Economic Advisor Larry Summers, the bad bank’s designers.)..."

[chill_wind]

6. P.S. ssa-- I think he's found your $2 trillion figure you/we were wondering about

a few nites ago:


"Recent estimates from Goldman Sachs and Nouriel Roubini put the cumulative losses to the banking system at around $2.0 trillion. There is a lot of room for guess work in such estimates, but there can be little doubt that this number is in the right neighborhood.

We are in the process of losing $8 trillion in housing bubble wealth. Most of this will be absorbed by homeowners, but if just 10 percent of this loss accrues to banks, that would be $800 billion. In addition, banks have lent $3 trillion to support a bubble in commercial real estate. If one third of these more speculative loans go bad, and half of that loss is incurred by banks, that gets us another $500 billion. Add in $200 billion each in losses on credit card debt, car loans, and small business loans, all of which are now far shakier because borrowers no longer have home equity as a backdrop, and you get to the $2 trillion neighborhood."

[slipslidingaway]

8. I would like to know how much of this money, if any, has already

been transferred to these institutions.

One reason being mentioned is that once these toxic assets are sold to the "bad bank" private equity will be willing to invest in these institutions.

Schumer was just on CNBC saying he is not in favor of the bad bank idea.

:shrug:

[chill_wind]

9. Some of the contracts for completed transactions are online at the Treasury

TARP

http://www.treas.gov/initiatives/eesa/transactions.shtml

[slipslidingaway]

10. True and that may be part, but then we go back to the Bloomberg

lawsuit.

I made calls to my reps to try and get some answers...we'll see, thanks.

:shrug:

http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aGvwttDayiiM

"...What most of them don't know -- and what most of Nevada's congressional delegation won't investigate -- is why the Federal Reserve has made as much as $2 trillion in additional secret loans to a variety of institutions in the past 15 months. Apparently, according to a federal lawsuit filed by Bloomberg News, the Fed has made these loans while refusing to identify either the recipients of this taxpayer-funded largesse or the assets the central bank accepted as collateral.

If proven accurate, these $2 trillion in secret Fed disbursements are nearly three times the size of the gargantuan $700 federal bailout signed into law in early October..."

[chill_wind]

11. "Show Me the TARP Money"- More here and a nice graph and a map, to boot.

Show Me the TARP Money

Here’s our running count of the TARP (Troubled Asset Relief Program), the $700 billion bill passed and signed in October. We'll update as more names come in. And if you've heard of new recipients, drop us a line.

Number of financial institutions: 350

Total amount committed for investment as of Jan 30, 2009 11:15:01 AM: $301.60 billion

Total amount actually invested: $295.20 billion

In addition to these totals, the Treasury has set aside $32.5 billion more for other purposes.

A number of financial institutions have announced their applications for TARP money, but haven’t yet received approval. We’ve left them off this list until they’re approved.

Also, it takes some time for Treasury to actually execute these transactions after preliminary approval – time taken to finalize the agreements. That’s why not all of the money committed for investment has actually been invested yet. Institutions that have received the money are marked in green. All of the institutions below have received preliminary approval from Treasury.

http://www.propublica.org/special/show-me-the-tarp-money

see the graphics -nive resource.

Keep us informed if you learn any updates re: The Bloomberg suit? TIA.

[slipslidingaway]

12. Thanks for the link and I will let you know...

just heard Kucinich on the floor mentioning the additional bailout money and relating it to the money that is NOT being spent on health care.

If you start a new thread with the Dean Baker article let me know.

:)

[chill_wind]

13. Matter of fact- (link). Just another lead balloon.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x422252

[slipslidingaway]

14. We need a place to consolidate articles and links to other threads

on the bank bailouts. I propose the forum below, not as the first place to post an article, just as a reference for future discussions when congress votes on the next bailout.

Home » Discuss » Topic Forums » Congress
http://www.democraticunderground.com/discuss/duboard.php?az=show_topics&forum=308

Good idea on consolidating links???

I just gave the other thread a rec and will kick it later, tough forum, the thread does not sink, but the forum in general gets fewer eyes.

[chill_wind]

16. A good suggestion and as ever- thanks!

eom

[slipslidingaway]

17. There only seems to be a handful of people interested in the topic

but maybe we can gain some new support.

****Bank Bailout Consolidation Thread****
A place to post links to threads and articles related to the bank bailouts.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=308x847


We're all in this together :)

Would you give it a rec...TIA.

[leftstreet]

5. K&R

Where indeed.

[slipslidingaway]

15. Video - Kucinich - Stop the bank bailouts...

http://www.c-spanarchives.org/library/vidLink.php?b=1233688109&e=1233688409&n=1