Krugman Sounds The Alarm On Banks - Again.
Krugman points out (again) that the administration should have nationalized troubled banks. They didn't, and the under-regulated, undisciplined banking industry is hurting everyone else as a result:
Ask the people at Goldman, and they’ll tell you that it’s nobody’s business but their own how much they earn. But as one critic recently put it: “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.” Indeed: Goldman has made a lot of money in its trading operations, but it was only able to stay in that game thanks to policies that put vast amounts of public money at risk, from the bailout of A.I.G. to the guarantees extended to many of Goldman’s bonds.
So who was this thundering bank critic? None other than Lawrence Summers, the Obama administration’s chief economist — and one of the architects of the administration’s bank policy, which up until now has been to go easy on financial institutions and hope that they mend themselves.
Why the change in tone? Administration officials are furious at the way the financial industry, just months after receiving a gigantic taxpayer bailout, is lobbying fiercely against serious reform. But you have to wonder what they expected to happen. They followed a softly, softly policy, providing aid with few strings, back when all of Wall Street was on the ropes; this left them with very little leverage over firms like Goldman that are now, once again, making a lot of money.
But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.
You may recall that earlier this year there was a big debate about how to get the banks lending again. Some analysts, myself included, argued that at least some major banks needed a large injection of capital from taxpayers, and that the only way to do this was to temporarily nationalize the most troubled banks. The debate faded out, however, after Citigroup and Bank of America, the banking system’s weakest links, announced surprise profits. All was well, we were told, now that the banks were profitable again.
But a funny thing happened on the way back to a sound banking system: last week both Citi and BofA announced losses in the third quarter. What happened?
Part of the answer is that those earlier profits were in part a figment of the accountants’ imaginations. More broadly, however, we’re looking at payback from the real economy. In the first phase of the crisis, Main Street was punished for Wall Street’s misdeeds; now broad economic distress, especially persistent high unemployment, is leading to big losses on mortgage loans and credit cards.
And here’s the thing: The continuing weakness of many banks is helping to perpetuate that economic distress. Banks remain reluctant to lend, and tight credit, especially for small businesses, stands in the way of the strong recovery we need.
So now what? Mr. Summers still insists that the administration did the right thing: more government provision of capital, he says, would not “have been an availing strategy for solving problems.” Whatever. In any case, as a political matter the moment for radical action on banks has clearly passed.
The main thing for the time being is probably to do as much as possible to support job growth. With luck, this will produce a virtuous circle in which an improving economy strengthens the banks, which then become more willing to lend.
Beyond that, we desperately need to pass effective financial reform. For if we don’t, bankers will soon be taking even bigger risks than they did in the run-up to this crisis. After all, the lesson from the last few months has been very clear: When bankers gamble with other people’s money, it’s heads they win, tails the rest of us lose.
Too big to fail is too big to jail. Sorry…
If the Banks had been truly nationalized and broken up, someone would have wanted genuine meticulous audits. The massive fraud of the Banksters would have been uncovered and many Banksters could be headed for the hoosegow. The Cronies would not allow it and instead we just GAVE THEM trillions of dollars.
And thus we live with pump and dump at Government Sachs.
Oh really! Do tell, and whose money are they lobbying with? Let the Pope of Hope (R-Government Sachs) wag his finger at them and that will change their tune…
Or probably not…
---
It will be a jobless and a growth-less recovery, but with the American forte of accounting
fraudmagic, and the printing of much money, all will be well. For a while…At least for the upper tiers, but the ecology continues to crash and sooner rather than the very much imagined later, the jig will be up.
Capitalism imagines endless growth, but we live on a very finite Earth. The great global Ponzi scheme that is American style Crony capitalism will be in its final throes…
Then back to the future, neo-feudalism 101, where the Corporations will have patented the complete human genome, along with all the seeds the American serfs, those former, self imagined middle class, want to plant in their foreclosed upon but now squatted suburban patches turned survival gardens where the term slavery will have a new meaning.
At least for the few that might survive.
Like slavery, the Corporate State cannot be reformed, it must be ended before the end.
statusquObama, change you can only pretend in
VERY well said!!!
"The US has an army of 90,000 soldiers in Afghanistan and is spending $100bn a year, but has still been unable to defeat 20,000-25,000 Taliban who receive no pay at all." - Patrick Cockburn
... the naiveté of some members of this administration is astounding.
The administration knew EXACTLY what they were doing. They don't work for us. They work for their corporate and banking masters pleasure.
Was insane (IMO)
Failure cannot be treated as success and "too big to fail" means it failed by getting too big.
Whatever happened to anti-trust?
Grrrrrr.
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
Too big to fail is too big to exist. Goldman Sachs (and/or other financial giants) going under would have put the fear of God into them. Yes, it would have put a lot of people out of work--especially the little folks who did data entry and other low level jobs--but the money spent on TARP* could have been spent on a single-payer healthcare program that would ultimately make the nation in better financial condition overall.
*Not to mention the ill-advised wars we are in.
Summers should resign or be fired.
The people of privilege will always risk their complete destruction rather than surrender any material part of their advantage." J.K. Galbraith
As Foreclosures Hit All-Time High, Wall Street on Pace to Hand Out Record $140B in Employee Bonuses
http://www.democracynow.org/2009/10/15/black
William Black, Former bank regulator at the Federal Savings and Loan Insurance Corporation. In the 1980s he helped expose the savings and loan scandal. He now teaches at the University of Missouri–Kansas City and is the author of the book The Best Way to Rob a Bank Is to Own One
His writing can also be found, on occasion, at the U of Missouri, Kansas City blog here
statusquObama, change you can only pretend in
Where's the snooze button?
http://images.photos.com/thw/thw14/PH/images/...
Diabolus est Deus Inversus
is what I get on the linkage
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
Forbidden ys.
Musta been good.
Not really:
(New link not working either).
Okay, I give up, it's just a woman in bed taking a hammer to an alarm clock.
http://www.youtube.com/watch?v=g3fYNMvJbro&fe...
Now y'all see why I like Youtube so much
Diabolus est Deus Inversus
I think I'll watch "The Deadliest Game" ....again.
Anything to escape from the Wall Street sideshow that is crashing down upon us all.
I should be packing...but why break my record now?
Waiting until the last minute is just my style....
Is it 5 o'clock yet???
"The US has an army of 90,000 soldiers in Afghanistan and is spending $100bn a year, but has still been unable to defeat 20,000-25,000 Taliban who receive no pay at all." - Patrick Cockburn
Don't you love that the banks are lobbying fiercely to prevent regulation meant to protect the U.S. taxpayer, and they're doing it with whose money?
Yeah.
Even if they didn't use our money against our interests . .
IMO the failed banks - FAILED!
I might be too selfish as I wouldn't stand to lose anything. I have no real investments or holdings so it is WAY easy for me to say "Eff 'em!"
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
Perhaps they expected bankers to have something resembling a conscience and to feel some degree of social responsibility. haHA!
Maybe if we give them another trillion they'll decide to get honest and above board?
(not bloody likely!)
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
I think what they need is fear. Fear of pitchforks and torches. They'll never, ever, ever have to be afraid of badges and guns.
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Thomas Jefferson (1743 - 1826), (Attributed)
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
Unbelievably prophetic. Too bad no one listened to him. Or only the wrong people did.
"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist."
Dwight D. Eisenhower
"The US has an army of 90,000 soldiers in Afghanistan and is spending $100bn a year, but has still been unable to defeat 20,000-25,000 Taliban who receive no pay at all." - Patrick Cockburn
Thanks for the quote.
Now members of our government like the pres and sec of treasury declare openly that the financial sector is the most important part of a strong economy.
It was recently stated that health insurance companies add no value to the process of health care, only cost.
What value do banks add these days?
Bwahahahahahahaha!
But most of us don't have enough to even justify a safe.
Incidentally a friend of mine who works for a mid-sized bank stated that his bank made 50% of its revenue from banking fees. And in their forward-looking meeting, the focus was not so much on generating more loans as it was utilizing a profitable, expanded fee structure.
Nationalize a bank and let me put my money in it. I'll pull my money out of the bank who are screwing me and put it in that bank. A government bank would be a bank of the people. I'm tired of putting my money in the bank of the wealthy scoundrels.
Jeanne
Can you imagine what the reslugs would say about a "public option" bank?
Rush's fans will think it will literally destroy the planet.
Just to see the reaction. I'm hoping at some point they self combust.
Jeanne
How can we possibly complete with a public bank that isn't run by greedy con men who skim off all of the fat?
The same government that's taking money hand over fist from the people and giving it to corporations? Umm, really?
The government is the enabler here. They have granted the mechanism by which we have today's banking cartel. The government has created this moral hazard by letting these companies off the hook on anti-competition law, and anti-fraud law. These companies do what is in their nature unless they're controlled, and instead of limiting how they operating, we've only fed the wrong incentives, so it should hardly be a surprise that all of this is happening.
The anger is directed at the wrong group of people. It is only Congress that has the power to correct the incentives
"It is well enough that the people of this nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Henry Ford (1863 - 1947)
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
I thought that was Lincoln?
quotationspage.com
It is usually pretty good about their sources but I have had to send them one correction.
The quote is at:
http://quotationspage.com/quote/30417.html
"I know that there are people who do not love their fellow
man, and I hate people like that! " ~ Tom Lehrer (1928 - )
Given the approach so far of Obama's economic team towards the remaining financial institutions, I agree with Yves Smith and firmly believe that the current team never intended for serious financial reform to happen. I think they view real reform as ultimately taking money of their pockets and, as such, is "not a good thing."
http://www.nakedcapitalism.com/2009/10/krugma...
As Yves so succinctly pointed out, the reason they're upset now is that no administration likes being revealed as being a puppet, either of the banking industry or any other industry (*cough* Insurance *cough*). But, sadly, they made the devil's bargain. And now have no one else to blame but themselves.
If I'm wrong and reform really is on the agenda, then we should see something substative being announced by Secretary Guithner and move forward rather quickly. But I wouldn't hold my breath.
Self regulation is a joke. There need to be strict laws in place and they need to be enforced. Free traders will argue that it will hurt business and ultimately everyone else but that argument can no longer be made with a straight face. We let them do what they wanted. We let them police themselves and they came very close to destroying our entire economy.
Those who advocate free trade are only interested in trade to be free for them by exploiting the market place to their advantage. They don't believe competition and will always seek to drive out competition whenever thay can. Free Traders love debt because
Debt = Slavery. It is all about control over the masses.
It's the most regulated industry in the country. If it's under-regulated, it's Congress' fault. Obama and Democrats have had 9+ months to better regulate, and they haven't. Now what?
When Axelrod was asked about Goldman bonuses on the weekend by Stephanopolous on Sunday. He seemed to want to dodge the question and only hold Banks who still owe tarp accountable for what they pay their employees. That tells me a lot about where this administration stands on Goldman and anything that will hurt Goldman. Sad to say but this administration is Goldman's bitch right up to the top guy.
These banks have been saved but nothing. Goldman gets richer the more mainstreet gets poorer. It's that simple. Goldman vs Mainstreet and Goldman's winning because the government is letting them.
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