Talkingpointsmemo: Axelrod and Emanuel Were Right (On the American Bank Oligarchs)

[flpoljunkie]

Axelrod And Emanuel Were Right (On The American Bank Oligarchs)

By Simon Johnson

When you cut through the technical details and the marketing distractions, sorting out the US banking fiasco comes down to one, and only one, question. How tough are you willing to be on the people who control the country's large banks?

One option is to be gentle with them and adopt only ideas that they pre-approve. This route involves complicated schemes to purchase, lend against, or otherwise "wash" toxic assets out of the banks using taxpayer subsidies. This will be expensive (for the taxpayer), messy politically, and - most likely - will not work, in the sense of restoring the banking system to something close to its normal mode of functioning; check with Hank Paulson for details.

Alternatively, you can be tough and take steps towards really assessing which banks are insolvent when you use market prices to value their assets. These banks can be taken over in a scaled-up FDIC-type procedure (no golden parachutes!), and controlling stakes in fully recapitalized banks can be sold off immediately to new private owners. The new private owners can handle, under proper anti-trust supervision, the break up the banks. This approach will be cheaper for the taxpayer (but nothing is free at this stage), easier to explain to the electorate and their representatives, and it will work - this is in fact the standard prescription because it always works. But it will not make powerful bankers happy.

So which way is the Obama Administration heading? We honestly don't yet know; the signals are mixed.

more...

http://tpmcafe.talkingpointsmemo.com/2009/02/10/axelrod_and_emanuel_were_right_on_the_american_ban/

[Ikonoklast]

1. If this stimulus bill desn't work, nationalization is the only avenue

for relief, and that includes taking control of the Federal Reserve. As long as the Fed can control monetary policy in this country, we will see a boom and bust economy forever.

But that is how the wealthy maintain control.

[Adelante]

2. Axelrod denies there was a disagreement, fwiw

There were discussions, of course.

http://theplumline.whorunsgov.com/economy/axelrod-denies-losing-internal-battle-to-geithner-over-bailout/

[karynnj]

3. Very nice explanation in this article

To me the second plan is not only as the author says cheaper tor the taxpayer, more likely to work and easier to explanation - it is also fairer. I think you you could use the difference in the likely costs to estimate the REAL transfer of wealth (subsidy) to bankers and their shareholders in the first plan.

This will cause people holding bank stocks for banks that are really bankrupt to lose all the money they had invested in them. This will hurt many people who have money in mutual funds as well - but even though we have treated stocks and funds as if they were almost as safe as putting your money in the bank if you were sufficiently diversified, that never was really true. That was why the experience of most investors - at least over the interval 1988 - mid year 2008, had very good year over year gains - far exceeding the really safe gains that a bank account would have. For those of us in our late 50s or older, this is tough - the investments that looked like they would easily cover a comfortable retirement have shrunk in half. But, the current numbers are reality - and in fact what we thought reality even 6 months ago was really a nonsustainable bubble. The ONLY way that those numbers will improve is for the economy to regain its health - then some (not all) companies will see their profits (and their stock value) increase.

The first plan is picking winners - though they may not think of themselves that way. The fact is they took risks - and were exceeding well pay for them for over a decade. But, those risks failed. This is not the first time a company declared bankruptcy and the people holding its bonds saw their value on that stock go to zero - and there are likely many companies, not in the financial sector, that will also go under even though it was not their decisions that caused this massive financial mess.

[Clio the Leo]

4. Thank you. NT