Economist James Galbraith: Bailed-Out Banks Should Be Declared Insolvent

[eppur_se_muova]

audio, video, transcript all available at Democracy Now:

http://www.democracynow.org/2009/2/10/economist_james_galbraith_bailed_out_banks

AMY GOODMAN: Professor James Galbraith, something I’ve noticed over these last weeks is this whole debate, sort of re-debating the New Deal and FDR and what it accomplished, and conservatives continually saying that it was not the New Deal that ended the Depression, it was World War II.

JAMES GALBRAITH: Well, first of all, there is a grave understatement in those arguments about what the New Deal actually did. And that understatement is typically because the unemployment figures that many people are accustomed to using for the 1930s don’t count people who actually worked for the New Deal. This is Michael Steele’s distinction between jobs and work. But people who were building the Lincoln Tunnel or the Triborough Bridge or the aircraft carrier Yorktown are counted as work relief and not as employed, and there were many millions of those. And when you put them into the figures, you find that the New Deal actually reduced unemployment from 25 percent in 1933 to about—to less than ten percent in 1936. It went up again in ’37 and then came back down again to about ten percent before the war. So, a major, major improvement in unemployment did occur under the New Deal.

It is true that the war made a major transformation in the economy. It drove unemployment to zero. But it also did something else. It gave the American family, the American household, a financial cushion, which was the war bonds that people accumulated during the war that formed the basis for the financial prosperity of the 1950s and 1960s. And that is what made the—made it possible for the private financial system, which collapsed in 1929, to recover in the 1950s and ’60s. And I think that point is very important, because what it shows you is that when the financial system goes down, as it seems to have gone down in the last couple of years, recovery requires a long time. And the precondition for recovery is not fixing the banks; it’s fixing the balance sheets of the households, the creditworthiness of the American family.

much more at the link.

[dweller]

1. back to the top

:kick:

dp

[many a good man]

2. War bonds

This line caught my attention:

It gave the American family, the American household, a financial cushion, which was the war bonds that people accumulated during the war that formed the basis for the financial prosperity of the 1950s and 1960s.

Shouldn't we start talking about 'Bush bonds'?

[ellie]

3. I was reading

the Calculated Risk and there was an interesting post about nationalizing insolvent banks here:

http://www.calculatedriskblog.com/2009/02/obama-on-nationalization.html

[CoffeeCat]

4. So which banks are considered "insolvent"?

Are all of the banks that rec'd bailout money considered insolvent?

Wells Fargo was supposedly a strong bank that didn't even want govt money. Are they
considered insolvent?

[KharmaTrain]

5. They're All Insolvent...Why There's Such A Credit Mess...

Or if they're not insolvent, they're hanging on to whatever assets they have and just trying to protect what accounts they still have. The big fear is a bank run...which could easily happen (and if you watched Olbermann last night you saw how close we came to that happening last September) which would have been a real catastrophe with millions of savings accounts and other "safe" investments being wiped out.

While some of the first round of TARP money did end up squandered (and those who did it should be prosecuted like war criminals), many banks that got the funds took it to shore up their existing accounts...and in many cases that wasn't enough.

Right now if banks can't lend...IMHO, they're insolvent as this is one of the major functions of that industry...to provide funding to keep the economy running. Since they're not able to do that, yes, they're insolvent....and doesn't matter which bank it is.

I wouldn't panic about this...as it appears the banks want to cover their exsiting assets thus some of the next round of funding should go to help secure that base and, Hopefully, allow in the near future to address the real crisis...the large amount of debt, foreclosures and bankruptcies that have turned the economy to jello.

[glitch]

6. Good interview, worth seeing. K & R nt

[kentuck]

7. Amen

"And the precondition for recovery is not fixing the banks; it’s fixing the balance sheets of the households, the creditworthiness of the American family."