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Krugman And Greenspan: Time To Nationalize Banks

Krugman today:

Alan Greenspan, the former Federal Reserve chairman — and a staunch defender of free markets — actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree.

The case for nationalization rests on three observations. First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary. Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode. Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.

Who disagrees with this? Besides shareholders in the banks? What does Santelli think?

Speaking for me only

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    Does Santelli understand this? (5.00 / 3) (#1)
    by Big Tent Democrat on Mon Feb 23, 2009 at 11:05:51 AM EST
    "To end their zombiehood the banks need more capital. But they can't raise more capital from private investors. So the government has to supply the necessary funds.

    But here's the thing: the funds needed to bring these banks fully back to life would greatly exceed what they're currently worth. Citi and BofA have a combined market value of less than $30 billion, and even that value is mainly if not entirely based on the hope that stockholders will get a piece of a government handout. And if it's basically putting up all the money, the government should get ownership in return."

    Santelli (5.00 / 3) (#2)
    by Faust on Mon Feb 23, 2009 at 11:11:43 AM EST
    is proof positive of the class warfare brewing under the surface of our politics. I'm not sure understanding has anything to do with it.

    Parent
    Yep, yep, yep... (5.00 / 1) (#4)
    by atdleft on Mon Feb 23, 2009 at 11:17:41 AM EST
    I think Santelli's bats**t crazy screed was meant more to drive up CNBC ratings and spark some right-wing faux "populist" outrage than make a logical argument for anything.

    Parent
    The outrage is not faux.... (none / 0) (#11)
    by kdog on Mon Feb 23, 2009 at 11:37:16 AM EST
    I gave Uncle Sam 5 grand last year in federal income taxes...a pittance to some but a nice chunk of change to me.  Damn right I'm outraged that a portion of my 5 large is going to Citibank.  Damn right I'm outraged a portion is going to individuals living in houses they had no business buying in the first place.  Damn right I'm outraged a portion goes to pay for occupations and heinous weapons and prisons and prosecutions and profiteering off same.

    Put an ear to the street...the outrage is real.  People are tired of Reverse Robin Hood.

    Parent

    I agree on all topics but one..... (5.00 / 1) (#19)
    by Inspector Gadget on Mon Feb 23, 2009 at 11:58:37 AM EST
    Damn right I'm outraged a portion is going to individuals living in houses they had no business buying in the first place.

    We are not helping those who had no business buying. Those people are foreclosed on and will go without assistance. The people we are helping are the ones who are current on their mortgages and have the income required to qualify for the reworked loans they will be offered. The principle value of the loan will not be adjusted, only the interest and length of the loan to lower the payments.

    There were people who lost the homes they were qualified to buy, but unemployment or illness changed their circumstances. Those are the people I'd like to see the gov't intervene on and do it through employment stimulus.

    Several articles have said the first jobs to grow are attorneys, investigators, and those who will oversee the stimulus spending. I see Biden has been put in charge of the stimulus.
     

    Parent

    They need charity. (none / 0) (#21)
    by Samuel on Mon Feb 23, 2009 at 12:01:07 PM EST
    Not for the regular taxpayer to be coerced against his will into paying their mortgage.

    Parent
    That's how the system works (5.00 / 1) (#32)
    by Faust on Mon Feb 23, 2009 at 12:15:45 PM EST
    We are all "coerced against our will" into paying all the list of things that we do not agree with. That list will of course vary from person to person. For this person over here it will defense spending and subsidies to oil companies, for that one over there federal funding for NPR and Social Security, for yet another the bailout to the banks, and so on. For some it is taxation as such that is globaly "coercive." And of course LAWS are "coercive" in the same sense since taxation is really just a manifestation of law as near as I can tell. I am "coerced" into obeying traffic lights (cause I'd really rather not).

    Anyway do you have any extra copies of The Fountainhead laying around?

    Parent

    Never read it. (5.00 / 1) (#35)
    by Samuel on Mon Feb 23, 2009 at 12:19:32 PM EST
    I'm saying that the tax payer should not have to pay other's mortgages.

    People respond saying "but what about the people that are getting really screwed".

    I advise them to be charitable as using coercion to obtain this end is inefficient(you can discard morality if you like).

    If you want to discuss something treat me with respect and don't be so presumptuous.

    Do you have any extra copies of the communist manifesto?

    Parent

    And I'm saying (5.00 / 1) (#96)
    by Faust on Mon Feb 23, 2009 at 02:20:57 PM EST
    That "should have to" and "should not have to" have nothing to do with it. The taxpayer has this control over the sytem of expenditure: voting people into office. The people that get elected to office then make decisions about what to do with the money that the government collects from us including the determination on how much to collect and in what ways it will collect. If you want to call expenditure of tax dollars  "coercion" that's fine I suppose but it's an odd use of the word and by the same logic we are all "coerced" to do every single thing that the government does that we don't agree with. This is the hard libertarian position to the best of my knoweledge, i.e. that all taxation is basically coercion. Is this your position?

    Parent
    Ayn Rand is so passe' (none / 0) (#102)
    by MKS on Mon Feb 23, 2009 at 03:21:04 PM EST
    If only that were true. (none / 0) (#116)
    by Faust on Mon Feb 23, 2009 at 06:52:54 PM EST
    That's not what I was saying... (none / 0) (#118)
    by Samuel on Mon Feb 23, 2009 at 08:27:23 PM EST
    but yea taxation is coercion in my view.  If voting is purely begging - since politicians have no obligations to voters - then taxation can't be considered anything else.

    My point though - to be fair - was that we're supposedly a capitalist society - and this is a socialist move.  It's bad for the whole economy to mess with the price system.  It's a belief that the government can print us to salvation I guess.  

    Why put people in a position where it makes sense to work less and have the government/taxpayer pay more on home mortgages?  What about people that saw a bubble and didn't buy a house?  What about people that bought smaller home or didn't blow their equity? What about a million things - the government taking this step or posturing for this step is going to cause heavy damage because who the hell is going to invest when they government sets a precedent rewriting contracts?

    "The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." - Thomas Jefferson

    Parent

    Absolutely (none / 0) (#31)
    by Inspector Gadget on Mon Feb 23, 2009 at 12:13:48 PM EST
    I failed miserably in my comment to include that I am absolutely OUTRAGED that I, who am currently making 1/2 of what I was this time last year, am expected to contribute to the handout planned for people who have good jobs and the ability to pay their mortgage on the OFF CHANCE they will get mad at the underwater aspect of their loan and walk away from it. This can't be any more wrong!

    I also agree that charity is where the others should go, but I would be less outraged if I were at least helping people who are in even more dire straights than me.

     

    Parent

    There's a tie-in here to the "too (5.00 / 1) (#3)
    by Anne on Mon Feb 23, 2009 at 11:16:26 AM EST
    big to fail" argument.

    I understand "too big to unleash the consequences of being allowed to fail," but I don't think anything is too big to fail; that's like saying you've been married too long to get a divorce: it's wishful thinking, fantasy, head-in-the-sand stuff that I think is preventing us from identifying all of the problems and figuring out the best way to pull us out of this spiral.

    Am I saying that we should take our hands off the steering wheel, our foot off the brake and just wait to see how bad the crash is, and whether we will survive it and take anyone else with us?  No, that would be irresponsible on a number of levels.

    Krugman gets it, and I wish Obama would pay attention to what he's saying, because Krugman also added this - emphasis is mine:

    Lately the Federal Deposit Insurance Corporation has been seizing banks it deems insolvent at the rate of about two a week. When the F.D.I.C. seizes a bank, it takes over the bank's bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that's exactly what advocates of temporary nationalization want to see happen, not just to the small banks the F.D.I.C. has been seizing, but to major banks that are similarly insolvent.

    The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.

    For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.

    Now the administration is talking about a "public-private partnership" to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.

    Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.


    I would love to know what Sheila Bair thinks about this.  I don't think Wall Street likes her, but that's probably because she is looking at the big picture and not just at the stockholders' bottom line - I hope someone in the Obama administration is listening to her.


    You can't be serious (5.00 / 1) (#81)
    by NYShooter on Mon Feb 23, 2009 at 01:37:25 PM EST
    "For example Krugman argues that both BofA and Citi's combined market value (stock) are a combined 30 Billion. So? That's artificial stock prices and not the actual worth of the companies."

    What the He$L is an "artificial" stock price? If the stock price is (shhhh...artificial)and it's really "worth" much more, I guess you're the only person on earth that is in on the secret.

    If it's worth so much more, why aren't they buying like crazy?

    Do you realize when you write something like that on the net, your comments are out there and everyone can see them?

    Parent

    And in 1987, (none / 0) (#103)
    by NYShooter on Mon Feb 23, 2009 at 03:21:25 PM EST
     when the stock market lost almost 24% of its value in one day, there were 17 stocks that actually went up.

    Look, I apologize for the snark, but what you're saying is just plain rubbish. Warren Buffet has spent a lifetime studying thousands upon thousands of companies, trying to find that one company out of the thousands available where he believes he sees something other investors haven't seen yet. And even then, he's made numerous mistakes. He's the first to admit that. But through hard work, patience, and lots and lots of study, he's been right somewhat more than he's been wrong.

    But where do you get the bizarre notion that looking at the stock price is looking in the wrong place? The stock price times the number of shares outstanding IS the value of the company. What you're talking about is the "potential" somewhere down the road of a company. What is your house worth? It's worth exactly what someone will pay you for it today, not what you think its worth, or what it may be worth in the future.

    Please don't tell me you believe that when you look at your 401k statement, and it shows it's down 25% that it's not a "real" loss, but only a "paper" loss.

    Do you?

    Oh, and one more thing; why do you suppose all those Bank CEO's, who have accumulated hundreds of millions, even billions, of dollars in salaries, options, deferred incomes, and bonuses, aren't out there buying their bank shares with both fists? Goldman Sachs alone, paid out more in bonuses than what their entire net worth is. Surely if they knew what you know, they could buy their companies, and save us taxpayers all that trouble.

    Parent

    I see you know (none / 0) (#113)
    by NYShooter on Mon Feb 23, 2009 at 04:57:38 PM EST
     what you're talking about....way too knowledgeable for me...lol

    Purchase of shares in one's own company by ranking executives is public information.

    You can look it up; try the Google...lol

    Parent

    Purchases by executive officers and (none / 0) (#117)
    by Green26 on Mon Feb 23, 2009 at 07:07:12 PM EST
    directors must be filed with the SEC within 2 business days of the trade. Most reports are filed on the 2nd day. Thus, it's not possible to know who may have bought or sold today.

    It looks like BofA insiders have made some purchases and exercised some options this month, but not much. The CEO purchased 200,000 shares earlier in the month. A director made a small purchase last week.

    Insiders can't trade when they are in possession of material inside information, nor during company-imposed blackout periods. If any of these banks are in important discussions with government, like Citi appears to be, then their insiders are probably prohibited from trading by reason of internal trading policies.

    Parent

    That's correct (none / 0) (#119)
    by NYShooter on Mon Feb 23, 2009 at 08:37:14 PM EST
    and many purchases and/or sales by insiders are for reasons other than their opinion of the future direction of their companies. E.g. option expiration dates, taxes, college tuition, and simple portfolio adjustments.

    Parent
    think you missed something (none / 0) (#84)
    by souvarine on Mon Feb 23, 2009 at 01:48:49 PM EST
    You forgot to bold the first phrase: When the F.D.I.C. seizes a bank. Are you trying to argue that the FDIC is not an agency of the federal government? Or that to seize a bank does not mean to put that bank under the control of that federal agency?


    Parent
    Here's how the FDIC (none / 0) (#94)
    by Anne on Mon Feb 23, 2009 at 02:18:10 PM EST
    describes itself (all emphasis is mine):

    The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

    An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.

    The FDIC receives no Congressional appropriations - it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. With an insurance fund totaling more than $45 billion, the FDIC insures more than $5 trillion of deposits in U.S. banks and thrifts - deposits in virtually every bank and thrift in the country.

    Savings, checking and other deposit accounts, when combined, are generally insured to $250,000 per depositor in each bank or thrift the FDIC insures. (On October 3, 2008, FDIC deposit insurance temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009.) Deposits held in different categories of ownership - such as single or joint accounts - may be separately insured. Also, the FDIC generally provides separate coverage for retirement accounts, such as individual retirement accounts (IRAs) and Keoghs, insured up to $250,000. The FDIC's Electronic Deposit Insurance Estimator can help you determine if you have adequate deposit insurance for your accounts.

    The FDIC insures deposits only. It does not insure securities, mutual funds or similar types of investments that banks and thrift institutions may offer. (Insured and Uninsured Investments distinguishes between what is and is not protected by FDIC insurance.)

    The FDIC directly examines and supervises about 5,160 banks and savings banks, more than half of the institutions in the banking system. Banks can be chartered by the states or by the federal government. Banks chartered by states also have the choice of whether to join the Federal Reserve System. The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System. In addition, the FDIC is the back-up supervisor for the remaining insured banks and thrift institutions.

    To protect insured depositors, the FDIC responds immediately when a bank or thrift institution fails. Institutions generally are closed by their chartering authority - the state regulator, the Office of the Comptroller of the Currency, or the Office of Thrift Supervision. The FDIC has several options for resolving institution failures, but the one most used is to sell deposits and loans of the failed institution to another institution. Customers of the failed institution automatically become customers of the assuming institution. Most of the time, the transition is seamless from the customer's point of view.
    The FDIC employs about 5,000 people. It is headquartered in Washington, D.C., but conducts much of its business in six regional offices and in field offices around the country.

    The FDIC is managed by a five-person Board of Directors, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party.

    It's a little long, but it's informative.


    Parent

    I won't be arguing (5.00 / 1) (#6)
    by Militarytracy on Mon Feb 23, 2009 at 11:28:14 AM EST
    I wanted it done weeks ago, but perhaps it wasn't time.  We are at the mercy of inflation vs. deflation forces at the moment and perhaps certain types of "timing" are necessary.  If anyone took an honest look though at the predictions of the losses that the shadow banking system took, they would have understood that the banks owe exponentially over what they are worth or have the potential of being worth in my lifetime. But nobody wanted to talk about that then.  So we will talk about it now.

    The crazy thing is... (5.00 / 2) (#7)
    by Dadler on Mon Feb 23, 2009 at 11:28:19 AM EST
    ...when you get right down to it, this is like a concert/party that gets out of hand.  This is like Woodstock on steroids  Too many people show up, there's not enough tickets, the crowd is getting unruly.  And then, a wise authority announces "It's a free concert from now on..."  In other words, we need to realize that, like Woodstock, we can either riot or, as Wavy Gravy said, we can have breakfast in bed for 400,000 people.  The choice is ours.  Cooperation or destruction.  There are simply times when it is better to be wildly generous beyond all measure.  This is one of those times.  Nationalizing the banks is no different than sheltering a fellow human being in need.  Not with the intent of housing them forever, but of simply offering them a measure humane protection from a terrible storm.

    But we're so locked into our paradigms, I don't know if we're capable, as a nation, of realizing that the simple act of sharing is all that is required.  Nuts.

    Worry more that it may be Altamont (5.00 / 1) (#49)
    by Cream City on Mon Feb 23, 2009 at 12:43:52 PM EST
    rather than Woodstock. :-)

    Parent
    I worry about the unintended consequences... (none / 0) (#13)
    by kdog on Mon Feb 23, 2009 at 11:44:16 AM EST
    of full-on nationalized banks...I could totally see Uncle Sam forcing people to get an account and get direct deposit of their social security money or tax returns.

    Or sun god forbid...a cashless society with a government bank issued debit card as the only way to conduct business.

    Granted, I'm a crackpot...but can anyone guarantee this will not happen?  It would ease some concerns.

    As a frequent black-market shopper, nightmares of a cashless society wakes me up in cold sweats.


    Parent

    lol (5.00 / 1) (#15)
    by squeaky on Mon Feb 23, 2009 at 11:52:50 AM EST
    Don't worry, cash is not going anywhere. But what has happened is that the banks have written their own legislation, as they have privatized congresscritters.

    25% interest always was considered usury until the last 8 years.

    Now 32% interest is normal, and that is not counting late fees etc.

    It should come as no surprise that banks have been showing record profit year after year after the GOP self regulation party.

    Parent

    Banks weren't self-regulated. (none / 0) (#22)
    by Samuel on Mon Feb 23, 2009 at 12:02:29 PM EST
    The Fed sets the lending rates and the reserve ratio.  

    Parent
    Been Asleep? (none / 0) (#33)
    by squeaky on Mon Feb 23, 2009 at 12:17:33 PM EST
    The whole mess we are in has much to do with the GOP mantra that it is in the interest of the monied sector to self regulate.

    Lobbyists greased that idea along to our sleepy congresscritters.

    Looks like self regulation did not work out so well, although some made out like bandits for a good long stretch.

    Parent

    Once again. (none / 0) (#37)
    by Samuel on Mon Feb 23, 2009 at 12:24:00 PM EST
    Banks were placed within a cartelized environment.  The Fed set rates and reserve ratios and only AFTER THAT was the prisoner's dilemma miscategorized as the "Free Market" possible.

    I'm saying that Fed regulations supersede characterizing the behavior of these banks as "free market behavior".  This environment could not exist in the free market.

    Let me know where/if you disagree.

    Parent

    Personal Experience (5.00 / 1) (#40)
    by squeaky on Mon Feb 23, 2009 at 12:27:12 PM EST
    Last year the interest rates Citibank paid out on its savings accounts is .4% if you are lucky, while the credit card interest rates were up to 35%.

    That is the kind of self regulation that gave Chase Citi et al record profits year after year during the BushCo years.

    Parent

    Not for nothing squeaky... (5.00 / 1) (#42)
    by kdog on Mon Feb 23, 2009 at 12:35:06 PM EST
    I would never give Citi my money to hold, not at .4% and not at 14%...I could and would never trust them.

    I would also never get a credit card from Citi, not at 10% and certainly not at 35%...if I can't afford it I don't need it.

    Point being, nobody is forced to do business with these crooks...Thanks goodness.  

    Parent

    And that caused the problem? (none / 0) (#45)
    by Samuel on Mon Feb 23, 2009 at 12:38:56 PM EST
    Come on.  Look at the m3 numbers and the interest rates - there's a real culprit. If a credit card company screws you over - it's only after they already own you.  Now I agree as a customer - it'd be much nicer if they didn't do that - but that means you have to take your business elsewhere or nowhere - not that Captain America has to come and spank them for maximizing profits.  Where do you think these banks get the ability to lend out 9 times their holdings?  The government, not the free market.  In the free market those banks would go bust real fast.

    Parent
    Aren't the Credit Cards lobbied for (none / 0) (#82)
    by Inspector Gadget on Mon Feb 23, 2009 at 01:38:05 PM EST
    separately?

    I seem to recall lots of discussion over Biden's son being a lobbyist for the Credit Card people and Biden working hard to legislate for the high interest rates.

    Parent

    No. (5.00 / 1) (#43)
    by gtesta on Mon Feb 23, 2009 at 12:35:49 PM EST
    The 2004 SEC rule upping leverage ratios from 12 to 1 to 30 to 1 also allowed "consolidated financial services institutions" to use the assets of the whole to calculate ratios and this was after the walls between commercial and investment banking had alread been taken down.

    Parent
    No what? (none / 0) (#47)
    by Samuel on Mon Feb 23, 2009 at 12:41:30 PM EST
    No to what I said and then you go onto explain how the SEC action is a free market action?  I realize there's more to the Fed than those two factors - but the SEC ain't the free market - it enjoys a compulsory monopoly.

    Parent
    No to the fact (none / 0) (#54)
    by gtesta on Mon Feb 23, 2009 at 12:51:33 PM EST
    that the SEC ruling essentially rendered the rules regulating the behavior of large banks meaningless.
    An then, within this brave new "unregulated free market" world, the banks put short-term profits over the long-term viability of their very existence.

    Parent
    If you call that a free market... (none / 0) (#83)
    by Samuel on Mon Feb 23, 2009 at 01:41:18 PM EST
    then we just disagree on terms I suppose.

    Parent
    No doubt.... (none / 0) (#23)
    by kdog on Mon Feb 23, 2009 at 12:03:09 PM EST
    I've been saying for years our "free market" is in actuality a rigged market...and still the thing blows up!  Talk about incompetence...given every perk and break in the world...a literal license to steal...and still the banks blow it.

    Greed is one helluva drug:)

    I worry though that full-on nationalized government run banks might well be worse...the government has all the guns and makes all the rules...would Joe and Jane Blow really be any less f*cked over under that system?  Remember, the government and the banks have been partners in crime for years, you change the name of the owner, does anything even change?

    Parent

    Did you know (none / 0) (#110)
    by NYShooter on Mon Feb 23, 2009 at 04:32:19 PM EST
    that 2008 (or it may have been 07) was the year that "fees" passed normal operating profits for most full service banks?

    Those $30.00, one day late "fees," one dollar overdrawn "fees," "uncollected check fees" sure add up.

    Since when did the banks become part of our Justice System and who authorized them to levy fines on us? All those transgressions cost the bank a fraction of one cent. By what psychotic justification has this been allowed to occur?

    Don't answer that, we all know the answer.

    Parent

    Yes (none / 0) (#114)
    by squeaky on Mon Feb 23, 2009 at 05:17:25 PM EST
    And Chase was hit with a class action suit for rigging the due dates to fall on holidays and weekends. The results were record profits from late fees. Chase lost, and immediately continued the same practice because it is too profitable to give up.


    Parent
    Not only chase (none / 0) (#120)
    by NYShooter on Mon Feb 23, 2009 at 08:59:56 PM EST
    The practice was/is rampant. They may have made some adjustments to skirt the laws, but as you say it's waaay too profitable to stop them from hiring those pimple faced, open mouthed, adenoid afflicted, testosterone-for-brains, Wharton "B" School grads, whose only job is to play with their computer models,  figuring out new ways to screw the public.

    I never could understand, in this day of instant, click/click, electronic transfers of money from one institution to another why the rules for us retail customers are still back in the days of Adam, Hoss, and Little Joe. Computers run 24/7, so why, if your payment is due on a Monday, and you make a payment on line the prior Friday after 12, 1, or 2 o'clock, the "next available posting day" is Tuesday. Do the computers get to go home for extended week-end leave?

    And why, when checks are bar coded, and your funds are removed from your account in a nano second, it still takes "5 business days" before the funds are available at the other end?

    How come you never see the members of the Banking Committees asking these questions?

    Never mind.


    Parent

    Gazillion Dollar Float (none / 0) (#121)
    by squeaky on Tue Feb 24, 2009 at 12:10:46 AM EST
    And why, when checks are bar coded, and your funds are removed from your account in a nano second, it still takes "5 business days" before the funds are available at the other end?

    Most likely part of a ponzi scheme.

    Parent

    WaMu was nationalized--it was then sold to another (none / 0) (#24)
    by jawbone on Mon Feb 23, 2009 at 12:03:25 PM EST
    bank--I have seen no difference so far in my mortgage. And no one is forcing me to get an account there. WaMu was not as big as Citi, but still a pretty big bank.

    Now, were there only one "national" bank, that would be different. But, as Krugman points out, failed banks are taken over by the FDIC routinely (just more frequently as of this current meldtdown), owners and shareholders (including, I assume, bondholders, take a big hit), the bad stuff is written off, the good stuff sold to new owners with necessary capitalization. At least that's how I understand it.

    Parent

    Without an ounce of economic intelligence, I (5.00 / 1) (#8)
    by Inspector Gadget on Mon Feb 23, 2009 at 11:30:04 AM EST
    am wondering if the banks can be forced to split up either into smaller banks (kind of like unraveling the mergers and acquisitions), or make their divisions separate companies. That would allow the gov't to focus on which divisions are in trouble and which can recover on their own.

    It's not like that hasn't been done in the past with other companies (AT&T/Bell).

    I have no idea if that is feasible, but as huge as these banks are, it certainly seems unlikely they can't hide multiple sins in their gigantic operations.


    Are you talking about (none / 0) (#14)
    by Anne on Mon Feb 23, 2009 at 11:46:21 AM EST
    prior to an actual takeover?  Because if I understand how the FDIC operates when it takes over a bank, it can and does parcel out elements of the bank's operation to other banks that are willing to take them on.  Whether that can or does involve subsidiary companies, I have no idea.

    I would love to know how strong our banking regulations are at this stage, and if efforts are underway or under consideration to strengthen what has been weakened over the years, which may have contributed to what is happening now.

    Parent

    Either, but I wouldn't (none / 0) (#27)
    by Inspector Gadget on Mon Feb 23, 2009 at 12:06:32 PM EST
    think parceling out to other banks would expose the true financial health of each division. I'm just thinking that separating the mortgage division from the checking & saving division might show that the banking part is fine and people needn't worry about running on the bank just because the mortgage side is in trouble. The mortgage side should be the only part that needs the bailout assistance, or the only division that collapses.


    Parent
    That's exactly what they do. (5.00 / 1) (#46)
    by Anne on Mon Feb 23, 2009 at 12:40:34 PM EST
    Go to the FDIC website and look at the list of failed banks.  When you get to that list, click on any one of them, and you will see information that depositors receive and what those with loans are told.

    For example, here is a portion of what is posted about IndyMac - which unlike a straight FDIC closure, was closed by the Office of Thrift Supervision and FDIC was named as conservator:

    I.  Introduction
    On January 2, 2009, the Federal Deposit Insurance Corporation (FDIC) announced that it had signed a letter of intent to sell the banking operations of IndyMac Federal Bank, FSB, Pasadena, California, to a thrift holding company controlled by IMB Management Holdings. This transaction is expected to close during the first quarter of 2009. Information regarding additional dividends for uninsured depositors.

    On July 11, 2008, IndyMac Bank, F.S.B., Pasadena, CA was closed by the Office of Thrift Supervision (OTS) and the FDIC was named Conservator.  All non-brokered insured deposit accounts and substantially all of the assets of IndyMac Bank, F.S.B. have been transferred to IndyMac Federal Bank, F.S.B. (IndyMac Federal Bank), Pasadena, CA "assuming institution") a newly chartered full-service FDIC-insured institution.  No advance notice is given to the public when a financial institution is closed.

    It's an interesting exercise reading the information provided for these various bank takeovers.

    Well, interesting in kind of a stomach-lurching kind of way.

    Parent

    Good idea (none / 0) (#26)
    by abdiel on Mon Feb 23, 2009 at 12:05:59 PM EST
    Talk of nationalization is creating a self-fulfilling prophecy of bank implosions at Citi and BoA.  

    Susan Woodward, Robert Hall, and Jeremy Bulow have the best idea yet, and it doesn't involve nationalization.  Allowing banks to split their own assets and letting government deal with just the bad is a good idea.  Don't throw out the baby with the bathwater.

    http://woodwardhall.wordpress.com/2009/02/23/the-right-way-to-create-a-good-bank-and-a-bad-bank/

    Parent

    The better question is: what does (5.00 / 1) (#17)
    by Green26 on Mon Feb 23, 2009 at 11:56:16 AM EST
    everyone mean by nationalization?

    1. Takeover of all of the banks, or big banks, by the government, and the government runs them?

    2. Significant investment in the big banks, or certain big banks, by the government, and the government runs them by virtue of being the major shareholder?

    3. Significant investment in the big banks, or certain big banks, and the government allows current management boards to run them? Since this is already being done, at least to some extent, I assume this isn't what some of you mean.

    4. Having the government, like the FDIC, take over insolvent banks (or banks the government thinks will likely become involvent), separate the good and bad assets, sell the good assets to private buyers, and sell the bad assets (at huge discounts) to private investors or keep them in some sort of new bad asset government entity.

    The government does not have the resources to shut down and take over many of the large banks in this fashion. This has sometimes worked for smaller banks, because it can be done fairly quickly and the FDIC has experience in doing it. Some believe many consumers would flee these banks to go to more healthy banks, if the government shut down the banks in this fashion. The goodwill and franchise of banks, i.e. value, can disappear fairly fast if this is not done quickly.

    5. Have I missed some any?

    The lack of definition of (none / 0) (#25)
    by inclusiveheart on Mon Feb 23, 2009 at 12:04:50 PM EST
    the term "nationalization" has been bothering me a lot lately.  People have been throwing the word around for a while now, but few have really detailed what specific actions would be taken in their version of nationalization.  For instance, I strongly suspect that Krugman's and Greenspan's definitions of "nationalization" would diverge from one another in some critical ways.

    I think it would be helpful if someone like Krugman defined what steps would be taken in his process of nationalization.  I am hoping that step one in dealing with Citigroup in particular would be to spin off all of the businesses within the "group" that have nothing to do with banking and finance.

    Parent

    Nationalization (5.00 / 1) (#50)
    by Big Tent Democrat on Mon Feb 23, 2009 at 12:43:59 PM EST
    is a well defined term.

    for those who do not want to understand it, it can be treated as complicated.

    Parent

    I am not suggesting that it is not (none / 0) (#55)
    by inclusiveheart on Mon Feb 23, 2009 at 12:54:17 PM EST
    well defined.

    Last fall when they started allocating the TARP money just about every presenter on CNBC claimed that the banks had been "nationalized" which was not even remotely true.  I don't think that the serious folks who not only understand nationalization, but also believe it is the best option at this point have done a great job of defining the term.  

    That is dangerous imo because while I am sure Greenspan also knows the real definition of the term, I am not sure that he would hesitate to redefine it to suit his ideological objectives and cheat us out of the most efficient, fair and stable application of the process as a result.  

    Dems/liberals/progressives often make this basic communications mistake and the GOP regularly take advantage of the opening that they create by assuming that everyone understands the terminology.

    Parent

    Well (none / 0) (#59)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:00:00 PM EST
    It seems to me you have answered your own questions.

    Parent
    Have I? (none / 0) (#101)
    by inclusiveheart on Mon Feb 23, 2009 at 02:38:54 PM EST
    I am wondering how conservatives are going to try to define nationalization.  I don't think I have a clear understanding of that as yet.

    Parent
    Then BT, please tell us (none / 0) (#89)
    by Green26 on Mon Feb 23, 2009 at 01:57:49 PM EST
    what you believe the well-defined term of nationalization means?

    I'd like to hear/see how you're using the term.

    I still don't think people are using the term to mean one particular thing.

    Parent

    Nationalization means, I guess receivorship? (none / 0) (#29)
    by jawbone on Mon Feb 23, 2009 at 12:11:43 PM EST
    Taking over failed banks to separate bad assets from good and then getting the good assets back into the system as new banks or sold to existing solid, good banks.

    It does not mean taking over every bank in the nation, I don't believe.

    Now, if as a result of nationalizaing the insolvent, bloated Big Banks and breaking them up into into units not "too big to fail," we may prepare the financial system to be better in the future.

    But, I am not a economist nor do I play one on blogs. I'm just trying to understand what's going on and melting down our economy. It's been a long time in the making, but the Big Banksters did go off the rails in recent years, fueling excesses in many areas of the economy.

    Would they have done so if we had not hollowed out of our national economy, sending most actual making of things to offer for sale overseas? Making the engine of our economy consumerism and playing paper games with "money"?

    I don't know.

    Parent

    There are at least two ways to do things (5.00 / 1) (#58)
    by Mike Pridmore on Mon Feb 23, 2009 at 12:59:39 PM EST
    in DC to get what you want.  The first is to constantly carp and come at things with a loud and constant partisan slant.  The right is very good at this and gets their slant in the news even when that slant is misleading.

    A second way is to always tell the truth as you see it and let the chips fall where they may.  Krugman almost always follows this approach.  It was interesting to see Rahm Emmanuel take potshots at Krugman in the recent hagiographic puff piece by Ryan Lizza (link), even after he had basically admitted the validity of Krugman's criticism.  At least that makes it easy to tell who the truthteller is and who is the politician.

    Yes, enough of the bailouts... (none / 0) (#5)
    by atdleft on Mon Feb 23, 2009 at 11:21:57 AM EST
    Let's just solve this crisis once and for all. No more postponing the inevitable. These banks are like heroin addicts. We can't just keep giving them methadone and sending them out to do more damage to themselves and to others. At some point, we responsible grownups need to intervene and get them into rehab.

    bank nationalization = rehab = good

    Nationalization is a meaningless phrase. (none / 0) (#9)
    by steviez314 on Mon Feb 23, 2009 at 11:35:35 AM EST
    What we are really talking about here is a forced recapitalization of some banks.

    And thus the question becomes:  how far up the capital structure of the banks do we have to go to get the assets = liabilities.

    I submit, at this time, we just have no clue.  In fact, AT PRESENT, probably no big bank is insolvent.  The issue is, what happens if/when the economy worsens--how much of a haircut do the assets need to take.  That's what the stress test is for.  All the economists saying "nationalization" have no idea what the assets will be worth along the spectrum of 0 to book value--and that is the first key to this all.

    Then the issue becomes who gets wiped out.  Looking at the common stocks prices of Citi and BoA and some regional banks, it seems the common stock holders are already prepared for a total wipe-out.

    Even the preferred bank shares are down A LOT--so they already assume some pain.

    The big kahuna is what to do if the bondholders need to take a haircut.  While that may be the right thing to do, there could be many, many unforseen results if bank bondholders take a hit.  Too many companies are financed by long-term debt to make it so easy to say "too bad for the bondhodlers."  See Lehman for an example of that.  Any forced recapitalization may just have to skip the bondholders as some middle ground.

    Why menaingless? (none / 0) (#10)
    by Big Tent Democrat on Mon Feb 23, 2009 at 11:37:06 AM EST
    You prefer no strings bailouts?

    Parent
    Please read my post--nationalization is (none / 0) (#12)
    by steviez314 on Mon Feb 23, 2009 at 11:44:00 AM EST
    just a loaded word being bandied about.  Many people think that means just the common stock owners get wiped out, which is not what we are really talking about--we are really talking about a forced recapitalization, which sure isn't a bailout.

    The banks' assets must be examined and tested, and if necessary, the common stockholders need to be wiped out and the preferred holders mostly wiped out.  I, however, am very cautious about having the government sticking it to the bondholders by fiat, not least because of the unforseen consequences of such a move.

    As an alternative, see this Brad DeLong post:

    link

    Parent

    What's in a Name? (5.00 / 1) (#51)
    by santarita on Mon Feb 23, 2009 at 12:45:17 PM EST
    "Nationalization" is an emotionally loaded term.  I think what Krugman and Greenspan have in mind is a very brief conservatorship with an orderly disposition of assets and liabilities.

    I read your link to Brad DeLong's website.  I also read the comments section.  There is an interesting set of comments by someone with the nom de computer of "twofish".  

    What I'm in favor of is the government taking its time to do a fair and objective valuation and stress test of these institutions to see what they have.  Then make a determination as to whether and how to inject capital and/or liquidity.  If the government decides that it will just be throwing good money after bad, then it should do the conservatorship route.  I see the proposal in DeLong's blog as the how rather than the what and why.  As I've said before, what is going on right now looks like the stage in problem loan workouts where both the creditors and the debtor are doing fact finding evaluating their options.  Hopefully the USG is a smart creditor and is planning various alternative scenarios, one of which is conservatorship.  

    As much as I respect Krugman, he never seems to consider the possibility that the USG has decided on a plan for an orderly liquidation..  Such an orderly liquidation would take a little more time than the garden variety Friday night takeover of Podunk National Bank where the assets are sold off and the bank opens the next Monday having been consolidated with Larger Podunk Bank.

    Parent

    Common stockholders (none / 0) (#38)
    by Big Tent Democrat on Mon Feb 23, 2009 at 12:24:08 PM EST
    have already been wiped out. Sounds like you want to continue the fiction to me.

    Parent
    No. I do not want to wipe out the (none / 0) (#44)
    by steviez314 on Mon Feb 23, 2009 at 12:37:26 PM EST
    bondholders just willy-nilly like that, especially without doing the stress testing.

    What I am amazed about, speaking as someone who has actually examined the banks' balance sheets,(to the extent the info is public) is how quickly people are to accept the word "nationalization" without reservation, just like we accepted "WMDs".

    It's not just a matter of common stock holders--of course, the market has already effectively wiped most of them out.  Let's go up the capital structure--what about preferred shareholders, long-term debt holders, depositors (foreigners and the over-FDIC limit ones).  

    A decision will have to be made as to how far up you want to go--should we go wherever the stress test and asset markdown takes us, or is there public policy reason to stop with the preferreds, bonds, etc.

    If a bank's assets pass the stress test at 9% unemployemnt, but not 10%, what should be do?

    You see, "nationalization" just is a single word that does not convey the issues that need to be addressed.

    Parent

    Well (none / 0) (#53)
    by Big Tent Democrat on Mon Feb 23, 2009 at 12:46:23 PM EST
    They are wiped out now.

    I do not understand the reluctance to tell the turth in a blog post thread.

    If the government does not step in, the bondholders will get single digit pennies on their dollar.

    Of course the shareholders will get nothing.

    Parent

    While you have no reason to necessarily believe me (none / 0) (#56)
    by steviez314 on Mon Feb 23, 2009 at 12:56:00 PM EST
    this statement
    bondholders will get single digit pennies on their dollar
    is just not correct.

    Much depends on the maturities of the long-term debt and the economic scenario.

    I'd be very suprised if the true # is not somewhere closer to 80-90% on the debt at least.

    I at least have some measure of doubt as to whether giving the debt holders a big haircut is the correct thing to do from a financial policy viewpoint.  Obviously, it's much more cut-and-dried to you.


    Parent

    What is your projection? (none / 0) (#60)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:01:09 PM EST
    2 dimes on the dollar?

    Puhleeeaze. These banks are insolvent and you know it.

    Parent

    The banks are not involvent. (none / 0) (#104)
    by Green26 on Mon Feb 23, 2009 at 03:24:19 PM EST
    At least not yet. Look at their balance sheets. If they were insolvent, the FDIC would have taken them over.

    The US is starting so-called stress testing this week, to see if, using certain adverse assumptions, the banks are likely to become insolvent.

     

    Parent

    And stop changing discussions (none / 0) (#61)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:03:46 PM EST
    in the middle of a comment subthread.

    You want to make an argument that bondholders should be salvaged, then make it.

    that was not at all my point. My point is that they are in NEED of salvaging, not necessarily that we should NOT salvage them.

    right now, they have next to nothing and you are even disputing that point.

    Here's a proposal for you though - if the bondholders are sitting so good, why does the government need to intervene and why in heaven's name should the government's new money be junior to bondholders? IF there is plenty for bondholders now, as you state, then they should have no problem with the government taking a senior position.

    Parent

    Yes, I AM disputing that right now the bondholders (none / 0) (#62)
    by steviez314 on Mon Feb 23, 2009 at 01:12:11 PM EST
    have next to nothing. Do you really think that 50% of ALL loans on the banks' books are worthless?   And since I have examined the banks' balance sheets more recently than you, and have background in this, I'll go with my analysis rather than your assertion.

    And, the gov't money went in junior to the bondholders so it could be counted as Tier 1 capital for the banks' regulatory requirements.  Of course, I think there should have be capital ratio forebearance so that the gov't money can go in more senior.

    Parent

    Simple solution then (none / 0) (#64)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:16:14 PM EST
    Let the bondholders convert their bonds to equity.

    If everything is so rosy at Citi.

    Parent

    Some information on Citi bonds and bondholders: (none / 0) (#105)
    by Green26 on Mon Feb 23, 2009 at 03:39:33 PM EST
    Just under $400 billion of bonds outstanding.

    Citi's 30-year bonds are now trading at 58 cents on the dollar, down from 98 cents in late December.

    "Citi's debt, much of which is unsecured by collateral, is owned by many of the world's leading mutual funds and pension funds, as well as by other banks and insurance companies."

    Note the ownership by mutual funds and pension funds, which means that many of us probably have indirect ownership. Recall that financial institution stock and bonds were considered to be safe and conservative until more recent times. Many retired people own the stock and bonds of financial institutions, due to the dividends and relative safety.

    http://www.crainsnewyork.com/article/20090223/FREE/902239993

    Parent

    Why not give the shareholders (none / 0) (#18)
    by inclusiveheart on Mon Feb 23, 2009 at 11:57:30 AM EST
    choices.  A buyout at a bargain basement price, a complete wipeout, or committ ot staying in for 3-5 years and possibly benefit from the government's restructuring efforts?

    I am still not clear on why shareholders can't wait this out and allow the government to reorganize the banks.  I would if I had had a bunch of money in these banks.  It couldn't get any worse than it is now.  Citi was at $50 last Fall and is now at about $2 per share.  I'd be thrilled to see new management come in now if I were an investor.

    Parent

    Harry Reid (none / 0) (#41)
    by jbindc on Mon Feb 23, 2009 at 12:35:05 PM EST
    Agrees with you.

    Senate Majority Leader Harry Reid said he supports efforts of the federal government to dramatically expand its stake in Citigroup, but wants people to back off from the dramatic rhetoric.

    "It's not nationalization, it's protecting the taxpayers' interests," Reid (D-Nev.) told MSNBC's Morning Joe program on Monday.

    "In the bailout, the TARP, that we made sure the American taxpayer had a way of getting paid back for their investments," Reid said. "That's what this is all about and it's the right way to go."

    The federal government is in talks to take as much as a 40 percent stake in the struggling bank's common stock, the Wall Street Journal reported on Sunday.

    Republicans have criticized Democrats for moving closer to bank nationalization - something White House Press Secretary Robert Gibbs signaled that the administration signaled would oppose on Friday.

    SNIP

    Reid on Monday morning argued that the federal government has been involved in private sector for decades - taking over large chunks of the railroad and the highway system when those industries got into massive financial trouble.

    "I think what we are doing in banking now at a time of distress is the right thing to do and we're getting very close to stabilizing the banking industry," Reid told MSNBC.



    Parent
    The fly in the Greenspan ointment is that he wants (none / 0) (#16)
    by jawbone on Mon Feb 23, 2009 at 11:55:56 AM EST
    the bondholders protected and kept whole.

    Bernhard at Moon of AL points out that he is also employed by PIMCO, "a major holder of bank debt."

    Links at the link above.

    But, be that as it may, simply having Greenspan say the word "nationalization" will give cover to Obama when, and IF, he decides that must be done.

    Roubini recently said that perhaps holding off on nationalizing in order to do all Big Banksters necessary at one time might be better for system stability.

    On the other hand, just heard on NPR top of the hour news summary that Obama/admin are determined to keep banks private. In which case, "saving" them means putting taxpayer monies at risk.  There was something about trading preferred stock purchased with TARP funds for common stock, which would mean the government is out of the running for any payback in case of banks going under.

    Say wha'?

    While that Roubini statement might (none / 0) (#20)
    by inclusiveheart on Mon Feb 23, 2009 at 11:59:35 AM EST
    make sense, it still sounded a lot like he was trying to kick the can down the road rather than just going ahead and dealing with the problem.  Made me think he was hoping that if they waited then they wouldn't have to actually do it.  That attitude doesn't inspire my confidence.

    Parent
    Roubini WSJ interview from weekend-- (none / 0) (#34)
    by jawbone on Mon Feb 23, 2009 at 12:19:26 PM EST
    LINK

    ...So, will the highest level of government be receptive to the bank-nationalization idea? "I think it will," Mr. Roubini says, unhesitatingly. "People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover." And how long will it be before the administration goes in formally for nationalization? "I think that we're going to see the policy adopted in the next few months . . . in six months or so."

    That long? I ask. "Six months from now," he replies, "even firms that today look solvent are going to look insolvent. Most of the major banks -- almost all of them -- are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.

    "Between guarantees, liquidity support, and capitalization, the government has provided between $7 trillion to $9 trillion of help to the financial system. De facto, the government is already controlling a good chunk of the banking system. The question is: Do you want to move to the de jure step."

    Yet another reason why bank nationalization is a good idea, Mr. Roubini continues, is that "we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail. J.P. Morgan took over Bear Stearns and WaMu. BofA took over Countrywide and then Merrill. Wells Fargo took over Wachovia. It doesn't work! You can't take two zombie banks, put them together, and make a strong bank. It's like having two drunks trying to keep each other standing.

    "So if you took over a big bank, and you split the assets in three or four pieces, maybe you create three or four regional or national banks, and they're stronger! Nationalization -- or 'temporary receivership,' if you like, if the N-word is a political liability -- is an occasion to undo the sort of consolidation that has created an even bigger systemic problem. And the only way to do it is by essentially taking them over and breaking them up."  (My emphasis)




    Parent
    Hahahaha (none / 0) (#28)
    by Samuel on Mon Feb 23, 2009 at 12:08:38 PM EST
    "Alan Greenspan, the former Federal Reserve chairman -- and a staunch defender of free markets --"

    Yea...right - like 50 years ago.  The second someone takes a job that involves artificially setting the interest rate at which banks can borrow and legalized counterfeiting - it's safe to say they aren't fans of the free market.

    It is important to remember that the problems we see right now - thought the remedies aren't clear to many - the fundamental cause was the increase of the money supply.  In a free market - whichever currency was being counterfeited would cease to be a currency of choice within the economy.  This problem could never get to this level without the government controlling rates, reserve ratios and creating a credit ratings agency oligopoly by regulatory barriers.

    People keep on trying to blame the free market in an effort to push us towards socialism.  Krugman's characterization of Greenspan is fraudulent - this  must be noted.

    What's my favorite ghostbuster's character think? (5.00 / 0) (#30)
    by Samuel on Mon Feb 23, 2009 at 12:12:59 PM EST
    "When losses are made, under the present system those losses are borne by the individuals who sustained them and took the risk and judged things wrongly, whereas under State management all losses are quartered upon the taxpayers and the community as a whole.  The elimination of the profit motive and of self-interest as a practical guide in the myriad transactions of daily life will restrict, paralyse and destroy British ingenuity, thrift, contrivance and good housekeeping at ever stage in our life and production, and will reduce all our industries from a profit-making to a loss-making process."

    - Winston Churchill, Manchester, Dec. 6, 1947.  

    Parent

    Sheesh (5.00 / 2) (#36)
    by Big Tent Democrat on Mon Feb 23, 2009 at 12:21:40 PM EST
    You really are Herbert Hoover's ghost aren't you?

    Parent
    Herbert Hoover (none / 0) (#39)
    by Samuel on Mon Feb 23, 2009 at 12:25:39 PM EST
    and FDR had the same essential policies - huge interventionists!!!!  They both turned a recession into a depression.

    Learn some history Bah Tah Dah!

    Parent

    That's just false (none / 0) (#48)
    by Big Tent Democrat on Mon Feb 23, 2009 at 12:43:12 PM EST
    Your continuing to say it only makes you look foolish.

    Parent
    Well get ready for me... (none / 0) (#52)
    by Samuel on Mon Feb 23, 2009 at 12:45:50 PM EST
    to post a lot.  We'll start with Hoover speaking during the 1932 Election:

    "We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action.... No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times.... For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered.... They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.

    Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for ... "the common run of men and women." Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom.... We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction."

    Parent

    What Hoover said in the 1932 election campaign (5.00 / 0) (#57)
    by Big Tent Democrat on Mon Feb 23, 2009 at 12:59:23 PM EST
    is irrelevant to what he actually did.

    You DO know Hooverlost ina a landslide right? And you DO know FDr won in a landslide in 1936 right?

    You think they were doing the same things?

    As I said, you just look a fool with these ignorant comments.

    Parent

    Well, FDR did cause the Great Depression (none / 0) (#65)
    by MKS on Mon Feb 23, 2009 at 01:17:08 PM EST
     or at least made it worse, and the 1937 backslide showed how ineffective the New Deal was....

    The Great Depression wasn't ended by government programs or government spending but by WWII....This is beyond dispute, right?

    Parent

    Not here. (none / 0) (#79)
    by Samuel on Mon Feb 23, 2009 at 01:33:57 PM EST
    Some people here think you can take all a countries resource - blow them up overseas - and make out like bandits.

    Parent
    Pick up a book. (none / 0) (#69)
    by Samuel on Mon Feb 23, 2009 at 01:25:19 PM EST
    What do you think the RFC was?  The numbers exist.  Hoover spent vast sums of money propping up wages and investing in public works.  Hoover was an interventionist - just like FDR.  

    Parent
    Pick up a brain (none / 0) (#70)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:26:39 PM EST
    And understand that what a book by hoover say might not be telling you the truth.

    Parent
    Look up the RFC (none / 0) (#74)
    by Samuel on Mon Feb 23, 2009 at 01:30:00 PM EST
    And stop just "knowing" and start learning.  Explain how recapitlization of the banking system via Fed mechanism is laizzes faire.  You can't - at all.

    Parent
    Look (none / 0) (#90)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:58:53 PM EST
    if you really believe the idiocies you are spouting, then I certainly do not need to discuss anything with you.

    We do not care for idiots at this site.

    Until I see some sign of a brain in you, I will ignore you now.

    Parent

    Then don't. (none / 0) (#100)
    by Samuel on Mon Feb 23, 2009 at 02:36:59 PM EST
    I would prefer you not get in the way of discussions with zappy comebacks like "snort", "sheesh" and "the new deal was great, no need to discuss".  You're an intellectual titan that learned everything about US history in school or on Krugman's blog and don't let anyone ever tell you different!

    Parent
    No (none / 0) (#106)
    by Big Tent Democrat on Mon Feb 23, 2009 at 03:57:41 PM EST
    Here's my new solution - you are banned from my threads.

    do not comment in them anymore as your comments will be deleted.

    Parent

    What about the farm programs? (none / 0) (#77)
    by Samuel on Mon Feb 23, 2009 at 01:32:23 PM EST
    Do you know a single thing about them?  A single solitary fact?  Do you.  Of course not.  You are a narcissist that become manipulative and aggressive when threatened.  

    Parent
    I am afraid I do (none / 0) (#88)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:56:59 PM EST
    And if you think Hoover had the same policy as FDr perhaps you can explain the AAA and tell me how Hoover enacted it.

    You really know nothing.

    Parent

    Well the first one was the FFB (none / 0) (#98)
    by Samuel on Mon Feb 23, 2009 at 02:24:53 PM EST
    1929 - Hoover creates the Federal Farm Board - an agricultural cartelization device funded by the government and manned by agricultural sector leaders.  Started with initial funding of $500 million to be loaned up to periods of 20 years.  The board was granted legal permission to establish "stabilization corporations" that could arrange to reduce supply (destroy crops) to prop up prices.  On October 26th the FFB announced that it would lend up to $150 million to stabilize prices.  This worked for about a year until farmers, seeing that business was good (from the perspective of the subsidized) began to expand their acreage aggravating the surplus problem).  While this happened, the US lost it's share of the international wheat market.   As the FFB's stockpile of wheat increased, stock prices tumbled due to uncertainty of the intended use for the surplus.  Hoover would dump another $100 million to restabilize within a year.

    Now that's just a snippet of Hoover in agriculture...does it seem at all like the AAA that literally paid farmers with gov funds to destroy crops and livestock to prop up prices?


    Parent

    Hoover (none / 0) (#63)
    by Samuel on Mon Feb 23, 2009 at 01:15:13 PM EST
    From his memoirs:

    the primary question at once arose as to whether the President and the Federal government should undertaketo investigate and remedy the evils. . . . No President before had ever believed that there was a governmental responsibility in such cases. No matter what the urging on previous occasions, Presidents steadfastly had maintained that the Federal government was apart from such eruptions . . . therefore, we had to pioneer a new field.

    During crash week:  Fed adds $300 million to bank reserves while doubling its holding of government securities.  This resulted in an increase of 1.8 billion dollars in bank deposits in a single week or a 10% increase in the money supply.

    Parent

    In his memoirs (none / 0) (#66)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:17:18 PM EST
    George Bush will say a lot of things too.

    Hell, if you are going to start quoting memoirs, why not just make the quote up yourself.

    Parent

    So Salty (none / 0) (#72)
    by Samuel on Mon Feb 23, 2009 at 01:28:38 PM EST
    During crash week:  Fed adds $300 million to bank reserves while doubling its holding of government securities.  This resulted in an increase of 1.8 billion dollars in bank deposits in a single week or a 10% increase in the money supply.

    How is that laizzez faire?  Answer that.

    Parent

    I do not know who you are arguing with (none / 0) (#75)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:30:04 PM EST
    In effectual and half assed intervention is not the New Deal.

    Try again.

    Parent

    Ok. (none / 0) (#78)
    by Samuel on Mon Feb 23, 2009 at 01:33:06 PM EST
    So now you agree - Hoover wasn't Laizzes Faire - great thanks.  Debate over...I think I won.  Clown.

    Parent
    You lost (none / 0) (#87)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:56:01 PM EST
    You said Hoover and FDR essentially had the same policies. that is absolutely false.

    Parent
    How so... (none / 0) (#91)
    by Samuel on Mon Feb 23, 2009 at 02:09:22 PM EST
    Increase public works, prop up wages and inflate the money supply: Both these men did these things which were not common practice during recessions until Hoover came along.

    What's the difference that makes them not "essentially" the same policies (interventionist vs laizzes faire)?

    Parent

    Um, size? (none / 0) (#95)
    by Big Tent Democrat on Mon Feb 23, 2009 at 02:19:39 PM EST
    If nothing else, you should understand that.

    Parent
    Um, direction? (none / 0) (#99)
    by Samuel on Mon Feb 23, 2009 at 02:31:53 PM EST
    You get that?  

    Hoover is nothing like FDR because Hoover intervened relatively less in the economy?

    No - Calvin Coolidge is nothing like Hoover AND FDR.  Hoover and FDR are very similar.  

    Is this the Keynesian argument that Hoover didn't spend enough or something?  Multiplier!

    Doesn't it concern you that you were told Hoover was laizzes faire and the facts show he was not whatsoever?  Yea FDR did a lot more intervening - but if conventional wisdom says Hoover was laizzes faire - and he's not - shouldn't you be more critical of conventional wisdom and less critical of me.

    Parent

    Is there any real doubt the money supply (none / 0) (#68)
    by MKS on Mon Feb 23, 2009 at 01:21:51 PM EST
    crashed in the 1930s?  Milton Friedman in his Monetary History of the U.S. describes it....

    If even conservative ecomonmists, or the monetarists, concede the point....it would seem to me there is no real debate.

    Hoover as government activist that prevented a contraction of the money supply....umkay.

    Parent

    Hoover was President (none / 0) (#71)
    by Samuel on Mon Feb 23, 2009 at 01:27:56 PM EST
    while the Fed attempted a recapitalization totaling 10 percent of the money supply.  That means he wasn't laizzes faire which is the specific thing being debated.

    Parent
    Nooooo (none / 0) (#76)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:30:44 PM EST
    That was not what was being debated, but move the goal posts why don't you?

    Parent
    Actually... (none / 0) (#80)
    by Samuel on Mon Feb 23, 2009 at 01:36:21 PM EST
    I said "Herbert Hoover and FDR had the same essential policies - huge interventionists!!!!  They both turned a recession into a depression.
    Learn some history Bah Tah Dah!"

    And you said "That's just false.  Your continuing to say it only makes you look foolish."

    Which I took to mean that you thought Hoover was not interventionist.

    Parent

    "They both turned..." (none / 0) (#85)
    by MKS on Mon Feb 23, 2009 at 01:51:18 PM EST
    Yes, FDR is to blame for the Great Depression.  I knew it....He really was a great man--he even caused the money supply to crater before he took office in March 1933.  Amazing.

    Parent
    Excuse me... (none / 0) (#92)
    by Samuel on Mon Feb 23, 2009 at 02:10:44 PM EST
    you're correct.

    Hoover "turned" and FDR "sustained".  Central planning has never worked - why is this the one exception of all time?

    Parent

    Calvin Coolidge?! (5.00 / 0) (#122)
    by jondee on Tue Feb 24, 2009 at 12:28:51 PM EST
    Talk about being on the ass-backwards, wrong end of history, harsh reality and present considerations.

    But, we cant forget: these are the same clowns who predicted that market forces and "Hayakian principals" would stabilize Iraq within a year.

    Only a dyed-the-wool market fundamentalist would ignore the fact that Coolidge helped usher in the Crash of '29 in favor of admiring Compliant Cal's hands-off Wall St and damn the actual historocal consequences. But, of course, Coolidge was St Ronnie's favorite President (and dollars to doughnuts, Bernie M's), which automatically trumps anything that may have occurred due to regulatory negliogence in the late twenties.

    And people wonder why it is that Libertarians and Born-Agains (twice too many), always manage to find common ground: the common ground being blind, fanatical faith against any and all available evidence to the contrary in the perfection of markets and The Word; "secular authority" and interventions be damned. And when it all goes to sh*t it's either markets adjusting themselves or the Judgement of the Lord.

    Sam, you guys have had your innings these last 8 years, how about sitting this one out?

    Parent

    It was a joke. (none / 0) (#126)
    by Samuel on Tue Feb 24, 2009 at 04:34:16 PM EST
    Based on the video I linked.  I was being called Hoover's ghost for calling FDR interventionist and I said more like Coolidge's ghost.

    Parent
    That was entirely straw man. (none / 0) (#127)
    by Samuel on Tue Feb 24, 2009 at 04:42:01 PM EST
    "Talk about being on the ass-backwards, wrong end of history, harsh reality and present considerations." - Rude and empty.

    "But, we cant forget: these are the same clowns who predicted that market forces and "Hayakian principals" would stabilize Iraq within a year." - I wouldn't know anything about that.  Libertarians aren't pro-war.  If you encounter the contrary it's most likely someone trying to aggravate the rightest/leftest divide by tainting the common ground libertarians represent.

    You can't compare market correct to a belief in god.  "Market" is a term economist use to refer to all the cooperative social agreement made between people.  Believing that people will pursue things rationally - according to their internal reasoning - is much different then believing in god.  Believing in the benevolence of a political leader  that doesn't have to fear substantial repercussions for violating campaign promises is much more similar to believing in God.

    As for the last 8 years - I was a progressive during that whole span and libertarians and the free market were under attack.  Bush only said he liked the free market to get people like yourself comfortable with becoming a socialist country.


    Parent

    Exactly (none / 0) (#86)
    by Big Tent Democrat on Mon Feb 23, 2009 at 01:55:13 PM EST
    and you are absolutely wrong. this is not even debatable.

    Parent
    The Audit is the question or ENRON is the answer (none / 0) (#73)
    by joze46 on Mon Feb 23, 2009 at 01:29:50 PM EST
    America we are already up to our eyeballs in the nationalization of the banking system. Bush and Company literally handed out three hundred billion initially while quietly telling the bankers to scram. Now, the media, especially MSNBC and CNBC Santelli opine, or describe the financial Houdini tricks needed to get away with what they can.

    Face it ten years ago Allen Greenspan summarized the regulation ideal that it was not necessary and the private sector was doing just fine through self regulation. Ladies and gentleman this was said ten years ago. Well folks, now we know whats in his, Allen Greenspan's, wallet.

    The real kicker is now on MSNBC American viewers are coached via Allen Greenspan's wife Andrea Mitchell who has been key player in political counseling. For me Andrea is privy to trillion dollar deals for these past decades adding to a huge contradiction in public insider discourse manipulated if not total out right deception and corruption mingled with biased political trending. Heck even the basic serious news has been corrupted with Andrea and Chris Mathews and Keith Lieberman by the effect of mixing Saturday Night Live jokes with this economic pirate profiteering as a side show comedy, and the placebo of worst person in the world.

    For me the huge vacuum in this whole thing is the audit that must be done with transparency posted to the public at this point that is not talked about before any money is allocated. Anyone can look at the "derivative" concepts and one thing jumps out at me below is small if not important trail must be done that is the "TRAIL AUDIT".

    This is the link hope it works from Cornell University about the regulations that should be done.

     http://www4.law.cornell.edu/uscode/html/uscode07/usc_sec_07_00000001---a000-.html  

    (10) Electronic trading facility

    The term "electronic trading facility" means a trading facility that--

    (A) Operates by means of an electronic or telecommunications network; and

    (B) Maintains an automated audit trail of bids, offers, and the matching of orders or the execution of transactions on the facility.

    Do you think these news Journalist or floor brokers really consider this? No, and they don't want to talk about it because they are complicit in crime for years.

    go to other poster's threads (none / 0) (#115)
    by Big Tent Democrat on Mon Feb 23, 2009 at 05:56:34 PM EST
    I said no more commenting in mine.

    I do not discuss these decisions.

    you're gone.