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February 02, 2009

Stop the Super-Madoff

Friedrich von Blowhard writes:

Dear Blowhards,

Today’s New York Times has an interesting column by Paul Krugman that perfectly encapsulates the amazing scam which the financial elite are, by all rumors, going to pull over on the citizenry of the good old USA. The scam, by the way, refers to the multi-trillion dollar bank rescue about to issue forth from our "meet the new boss, same as the old boss" Treasury Secretary Tim Geithner.

This is not only bad public policy, but a transfer of wealth from the innocent to the guilty that will make old Bernie Madoff look like a pisher.

The piece is entitled “Bailouts for Bunglers”, and you should read it in its quite short entirety. The central point is as follows:

“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,” says Timothy Geithner, the Treasury secretary — as he prepares to put taxpayers on the hook for that system’s immense losses.

Meanwhile, a Washington Post report based on administration sources says that Mr. Geithner and Lawrence Summers, President Obama’s top economic adviser, “think governments make poor bank managers” — as opposed, presumably, to the private-sector geniuses who managed to lose more than a trillion dollars in the space of a few years.

Once again: the question is not whether the U.S. needs a functioning banking system. It does. The question is whether the U.S. needs to spend whatever of your money it takes to make the CURRENT, DEEPLY COMPROMISED banking system (and all of its highly paid dependents) not merely functional, but happily profitable again.

The alternative? It would seem well within the bounds of possibility to create a new banking sytem sufficient to handle our needs with the $350 billion we still have in hand; that is, the second half of the TARP money. Leveraged a conservative 10-to-1 that would create $3.5 trillion in new lending capacity. More than enough for the task, boys, particularly in a recession. The money could be put into new publicly owned banks (soon to be privatized) or into existing, but actually solvent banks. I certainly don’t care. Then we could say to the current set of “troubled,” too-big-to-fail institutions -- Citi, JP Morgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Wells Fargo, all of whom are dead men walking, insolvent, kaput -- sayonara, adios amigos, see ya in FDIC receivership. Any still-valuable assets they possess will be sold, and the resulting losses will fall on their employee, shareholders, creditors (appropriately), and, of course, the taxpayer who will have to keep the ensured depositors and other guaranted parties whole (sadly, but necessarily). Not a free solution, but much, MUCH cheaper than the keep everybody-but-the-taxpayer happy solution Mr. Geithner contemplates.

Why, you may ask, would such a strange scheme be seriously suggested by supposedly responsible government employees? The short and simple answer is that the zombie banks, and their employees, and their “dependents” in the hedge fund and private equity universe are too politically powerful to let nature take its course. They’ve captured the Obama Administration, Mr. Geithner, and their Fed regulators; whole swaths of Congress are their wholly owned subsidiaries.

This group of people are about to STEAL your children’s future from you, if you let it happen. And you can stop this. The one thing Congress fears more than losing a crew of lucrative contributors is an angry electorate. Call, write, threaten them…well, you get my drift.

The time to act is now.



posted by Friedrich at February 2, 2009


I suspect that you are right, Fred. (If I may so address you.) When The People realise how much they've been plundered, they may turn nasty. We may then have an answer to Mr Lincoln's enquiry: the endurance proved to be about 100-150 years.

Posted by: dearieme on February 2, 2009 9:32 AM

Publically-owned banks? Hmmm..what was that word the 'pubs kept throwing around during the election cycle? Began with an "S" and ended in "ocialism".

With your new scheme, will we get rid of 0% fractional reserves or step them up? Seeing as banks are the only business legally allowed to print new money, and you want them owned by the government who is supposed to be the only producer of currency, it seems we might actually be able to hit negative reserves if we really believe.

Posted by: Upstate Guy on February 2, 2009 9:34 AM

Bravo, Friedrich! I second your call to action.

Posted by: Lester Hunt on February 2, 2009 10:33 AM

"Writing to my representative" is a rather quaint notion. I fear they have all been bought by one special interest group or another. Throwing the bums out will only result in their replacement by new bums. I fear stronger methods are going to be required to remove this tumor. And the operation may kill the patient.

Posted by: charlton Griffin on February 2, 2009 12:16 PM

The fix is in.

Short of impeaching Obama, what can be done?

The guys who created the mess have the reins of government.

Posted by: Shouting Thomas on February 2, 2009 12:28 PM

Maybe some physical compulsion is needed to educate the malefectors. Physical punishment may be needed as well. Perhaps the individuals involved in this sort of behavior need to feel some discomfort and fear. For instance , if individuals like Geithner or Summers were encountered on the street, perhaps verbal confrontation (and an underlying possibility of physical violence) would be appropriate.

Posted by: Bled Dry on February 2, 2009 1:16 PM

That's a good Krugman piece. And his tone ... It's almost bearable for a change.

Posted by: Michael Blowhard on February 2, 2009 4:16 PM

OK, boys... tell me what you plan to do.

Our government... both parties... just a gang of thieves. We are the U.S. of Kleptocracy.

I see no solution. I don't see a sane leader on the horizon.

Obama hasn't lost confidence in the debt Ponzi scams. His "stimulus" package is just a continuation of the great mortgage scam that destroyed our financial industry.

Looks to me like we're headed to hell in a handbasket. Anybody got any ideas about what we would actually do? Tell me what can stop this madness?

Posted by: Shouting Thomas on February 2, 2009 7:18 PM

Secession. It's the last remaining option.

Posted by: Michael Blowhard on February 2, 2009 11:53 PM

The guys who created the mess have the reins of government.

And that's the problem. Not only did they gleefully and obliviously urge on the shenanigans that bought about the great debt crisis, the same morons now plan to offer us the solution to this crisis. Most of the clowns thought the economy was doing just fine prior to August 08, they did not see the problem. It wasn't malice; it was stupidity.

The problem is that the entire political class both Left and Right cannot see any solution to the economic woes apart from economic stimulation.
As if the economic state of affairs in July 08 were normal! Here in Oz house prices seven times average earnings, the most illiterate employed, truck drivers earning $115000 dollars on mining sites, no experience required. The dumb bastards are trying to prop up an unsustainable boom. It's all going to end in misery.

Here's the playbook.

Option 1: Inflate. Basically this is a transfer of wealth from savers (Retiree's and the thrifty) to the debtors. Now the Government is expecting a lot of the retirees to be self supporting through their 401ks which are basically going to become worthless. However the baby boomers are a huge political class and will force higher taxes to raise benefits. Net result higher taxes in a effectively falling real economy, economic disaster. Self interest above national interest, this situation does not improve till the old farts cease to be a political force, say 2025.

Option 2:Deflate and pay back debts. Politically and culturally impossible. Sets the economy into a nosedive. The welfare state struggles to keep going, social security dies as not enough funds to pay retirees. Widespread social upheaval. Morons keep electing idiot politicians till someone "strong" comes along with an iron hand to fix up problems. You all know how that ends.

Option 3: Default. Shit hits the fan. China, Japan and the Arabs not very happy. Interest rates go through the roof as no one wan't to lend to the Anglo world. High interest rates with high debt levels. Looking good isn't it.

There is no way out of this. It's only going to get worse.

What to do. Live it up and stay on the sidelines; there is nothing you can do.

Posted by: slumlord. on February 3, 2009 3:38 AM

Damned if you do, damned if you don’t. During the election Obama was repeatedly accused of being a closet socialist bent on destroying the capitalist system. His own campaign team made every effort to assure voters that he was not a radical and planned to govern pragmatically. Faced with a collapse of key sectors of the economy as the voting took place Obama won by a solid margin. As the financial crisis deepens, the early signs are that the new Congress and the Obama administration are intent on “staying the course” with the recovery plan begun by the previous administration. In short, in the first few weeks of his term Obama is not offering radical changes, but is pushing ahead with the bailout and stimulus plans, which will take time to be felt on the ground. At the same time the financial sector companies getting hefty bailout funding continue to flail about, doing little to get the economy going again, while its executives keep pocketing high salaries and various perks and bonuses.

So, do we blame the new administration, the new Democrat majority Congress, or the same old “To Big To Fail” companies and their leaders for the situtation we find ourselves in? Or is it both, since the "TBTF" set is so important to fund raising for the two major parties? Do we want the super capitalist financial system we've developed over the past generation re-booted or is it time to try something different? If we try something different should it be “socialist” in nature (i.e. substantial government ownership stake in banks and credit institutions) or something else?

Seems to me that prior to the big meltdown I’ve traded words with a few who comment here about my preference for “buying local” in as many areas as possible … that includes banking btw. I’ve always had my various bank accounts with local institutions rather than large companies. I say the more we, as consumers, support smaller local businesses the better off we’ll be.

Posted by: Chris White on February 3, 2009 10:41 AM

Posted by Chris White at February 3, 2009

So much for Hope and Change. Or an new era of accountability. It isn't heartening, whatever your opinion of the stimulus plan/bailout when Obama picks tax cheats.

Posted by: Not My Fault on February 3, 2009 12:13 PM

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