Stiglitz: Bad Bank? Bad Idea
By Susie Madrak Monday Feb 02, 2009 1:30pmAnother Nobel Prize-winning economist checks in! Joseph Stiglitz echoes Krugman on the idea of establishing a so-called bad bank, in which the federal government would subsidize toxic assets:
Feb. 1 (Bloomberg) -- Nobel laureate Joseph Stiglitz said any decision by President Barack Obama to establish a so-called bad bank to rid financial companies of toxic assets risks swelling the national debt.
Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.
That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said yesterday in a panel discussion at the World Economic Forum in Davos, Switzerland. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.”
Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers paying for years of excess lending by banks. It would also deprive the government of money that would have been better spent shoring up Social Security, he said.
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Ooh...ooh...can I be a toxic asset?
My ass is already pretty toxic.
Banks don't have to share where they spend the money, but any money they don't disclose gets taxed back at 105%.
.
This entire argument about what to do with the major banks that make up the Federal Reserve system has only one correct answer. That is to nationalize them. JP Morgan Chase alone has over 700 trillion in derivatives and no current way to value them. That's just one bank, so as Stieglitz has said, why pay good cash for what is basically trash?
Many at the Davos meeting have said the same thing. Nationalize the banks, get it over with and get this economy moving again. This is what Churchill meant when he asked FDR to get involved in WWII. Sooner or later the Americans will do the right thing. That is after they have exhausted every other option.
In this case, there are no other options other than watching the economy continue to bleed jobs at an increasing rate. Things are just going from bad to worse and while Congress fiddles Rome burns.
After giving over two trillion dollars with no strings attached, this debate over whether to just buy bad assets with another 250 billion dollars seems like too little too late.
The US Senate should strip a "Buy American" clause from President Barack Obama's economic stimulus plan, the chamber's top Republican, Senator Mitch McConnell said Monday amid anger at the restriction from US allies.
http://rawstory.com/news/2008/Top_Republican_...
This past week Republicans - who always love an uneven playing field when business needs cheap labor - have been bellyaching about Obama and the "protectionist" stimulus plan that forces products to be made in America. And? It's a stimulus for the US, isn't it? Isn't the purpose here to get money into the hands of Americans and get them working?
hear statements like this? Or are they too busy worrying about brown people and socialism?
"the plan would leave taxpayers paying for years of excess lending by banks. It would also deprive the government of money that would have been better spent shoring up Social Security"
Oh gee...and wasn't that the plan allll along...and Grover Norquist smiled.
Hmmm, I wonder if they'll help with my mortgage? People familiar with the matter know that it is clogging my personal balance sheet.
What a bunch of BS.
...but are ALL banks going down the tubes? If not, isn't this the very essence of capitalism? Let the bank that made bad decisions go broke, let the ones who made good decisions take the business from them and the taxpayer goes on its merry way, NOT paying some idiots for bad decisions, why do we have to save ALL banks?
Just a thought...
Actually, the TARP bill allowed the Treasury Dept. to fiddle with smaller, local banks that weren't involved in the "meltdown." They were doing fine. But then the fiddling began and some of the smaller banks didn't do so well after that, and they were ripe for consolidation by the big banks.
But, government is good, taxes are patriotic, etc.
double post
The problem with nationalizing the banks is who will regulate the regulators?
At least now, the government regulates the banking system. And, yes, sometimes it falters. But can you imagine if the government controlled the banks...well, you see my point.
ex animo
davidfarrar
The government doesn't regulate the banks. The banks control the government. That's how they managed to get rid of the regulations that had been in place since the Depression. Perhaps you remember those regulations--they're the ones that prevented a meltdown like this from happening. If government actually controlled the banks, they couldn't do worse than the banks themselves have.
Seriously, Dave. "Falters"? The current meltdown, which might be worse than the Great Depression, is the system "faltering"? How bad would things have to be before you used the word "crisis"? Or "bad"?
BTW, the people who theoretically would control the banks would be we, the people, through our scrupulously honest representatives in government.
They call them toxic "assets" when they really aren't assets at all. They are worthless paper.
They were created out of thin air and they can go back to thin air the same way.
Just declare the derivatives and toxic "assets" to be null and void.
Done and done.
I don't even pretend to know how to fix this mess. At some point we have to trust the professional economist and stop listening to politicians who sat back and watched this financial hurricane blow right on in.
"The government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity. The financing of all public enterprise, and the conduct of the treasury will become matters of practical administration. Money will cease to be master and will then become servant of humanity." ~ Abraham Lincoln
...that Lincoln did not print the money to buy slaves. That would have been nicer than the Civil War..
They didn't want the money; they wanted the slaves. You can see the same beliefs on parade now in government, as the conservatives and corporations gang up to prevent people from joining unions. Better to keep them enslaved to the credit card companies, auto companies, banks, etc. etc. Plus ca change... .
The New World To Come,
Putin, Hu, EU, and CBs have a profound FOREX dilemma. Putin was in Davos Switzerland crying to the G20 that the world must dump the US Dollar as the world reserve currency, that is, the Federal Reserve Note (FRN), that is not a constitutional silver dollar, but rather fiat paper money having an artificial inherent value based upon required IRS tax payments, and that has an intrinsic value of absolute zero. The US, once on the gold and silver standard suckered the rest of the world into accepting these valueless paper notes for goods and services, who have all done so at their own peril. US citizens gave up the ghost in 1913 when President Wilson signed off on creation of the FED, and hence, stuck US Citizens with that paper trash and surrender economic freedom to the Federal Reserve Bank, a privately owned bank, controlled not the US government but by domestic and foreign banks.
The world in plunging into depression and hot rhetoric flies back and forth, as the world economy spirals out of the control, with charges and counter charges of fault, and with banking defaults, as most nations attempt to devalue their fiat currencies attempting to maintain market share of foreign exports. One sad mess, all created by the use of inherently worthless fiat money, with that but power in the hands of the banksters. Consequently, gold and silver bullion prices are on the rise during the financial turmoil and the panic now accelerating world wide, and bullion prices are likely to go ballistic in the near term, upward of $6000/oz by the end of Obama's presidential term.
Nationalization is the only way out and in turn backing the dollar with something of value again such as gold and silver just as we did prior to the creation of the Fed in 1913. It is long past time to kill the beast.
being a democrat i believe that obama has
our best interests to stimulate the economy, BUT
I draw the line at buying these toxic debts/loans.
these companies/banks should have to eat their own
bad decisions.....not the American public.
we did not participate in these moronic decisions
and we don't benefit when these companies/banks
make a profit.......so we should not eat the poison.
Then refinance them for the value they were bought for. Helps us, the buyer and our treasury.
...thats what it would all be worth anyway...pennies on the dollar...what are you ron? ...some sort of free market advocate or something?
"All of the perplexities, confusion, and distress in America arises, not from the defects of the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation." -- John Adams
"It is well enough that people of the 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
I wish I could go to Vegas, lose everything but taxpayers pay back my losses.
Fiscal insanity.
But when it takes us down, we're going to take down a lot of fat cats with us.
A bad bank is a very bad idea
By Rolfe Winkler
Updated Monday, February 2nd 2009, 9:48 AM
When rumors surfaced on Wednesday that the Obama administration may create a "bad bank" to buy toxic assets, financial stocks soared. Of course bank shareholders were happy; the plan is likely to be a titanic taxpayer hand-out. It has to be to achieve the administration’s goal of keeping banks in private hands.
To understand the banking crisis, and Obama’s emerging solution, all you need to know is one equation: Assets = Liabilities + Equity. This equation explains why banks are dropping like flies.
A bank’s assets are the loans it makes to borrowers. Its liabilities are the dollars it borrows from lenders and depositors to fund those loans. Shareholder equity is what’s left over.
During the bubble, banks made loans for houses at vastly inflated prices. Say, for instance, a bank lent $1 million to a borrower buying a Miami condo in 2006. The borrower promised to repay $1 million over the life of the loan, so the bank valued this asset at $1 million.
Flash forward to 2009, and the condo is now worth $500,000. The borrower defaults because he’d rather lose the condo than pay a million-dollar mortgage on a property now worth half that.
The bank forecloses on the condo and sells it for what it can get, the current market value of $500,000. The bank’s asset, the loan, has fallen from $1 million, which the borrower owed, to $500,000, the amount recovered. A 50% loss.
Damn, that was informative. Even I could understand that. Thank you so much for posting it.
...on money.
..(I too) never learned about money in school, cuz the never taught it!
I'm not finished learning but what I have learned in the past three years made my head explode!!!
money as debthttp://www.youtube.com/watch?v=vVkFb26u9g8&feature=related
I took an economics college class but this is beyond anything covered there.
http://www.youtube.com/watch?v=vVkFb26u9g8&fe...
No economic classes cover this stuff. Schools are teaching this stuff. Watch "The Money Masters" on Google Video and you'll see a lot more about what we aren't being taught. Peace. Appreciate your appetite for information and curiosity.
Took the words out of my mouth. I took economics, finance, minored in business but what we are seeing today is not covered in those courses.
haven't read it yet but Freakonomics seems like a better description.
another form of big government. And it actually works out to be worse for the people.
For example, health costs would be much lower if we had government-run healthcare, because it's in the government's interest to keep the costs low. Private insurers also want to keep costs low, but the difference is, they also need to continually increase profits and no one is held accountable for mistakes. If something goes wrong at a state-run hospital, heads will roll.
In this latest financial meltdown, the people responsible are nameless, faceless and unaccountable to the people. Here we are, screwed out of our money AND we can't go after those responsible. AND we're STILL going to pay for it with our taxpayer money.
but your assessment is seriously incomplete.
The US dollar loss in real estate valuation is approximately $2 trillion.
The US dollar loss because of mortgage defaults is approximately $1.2 trillion. Thus far, there is more on the way.
Neither amount is anywhere close to what has incinerated the world's financial systems.
That number one culprit is Credit Default Swaps.
These have been typically at a ten to one ratio of the underlying securities.
Gretchen Morgenson in the NYT predicts there is another $15 trillion in the pipeline that could go bust.
The bad bank takes these mortgages which were securitized in CDOs off the bank's hands.
Some CDOs are totally worthless. Some have a value but it is very involved process to determine what it is. In the end it is worth what someone will give you and that is the problem.
The bad bank will be the mother of all slush funds in my estimation.
That doesn't solve the problem of the looming future defaults and the $15 trillion in CDS that will blow up with them.
This has been a bail out for swindlers. A lot of people should be going to jail.
Jail time not bail time.
Few of us understand the system. The so called professionals the media trots out don't even understand the monetary system. Alan Greenspan for Christ's sake admitted he didn't fully understand the system.
The problem is that we need to talk more about the system and what parts we understand and don't understand. Honesty is the key to that discussion as well as journalistic integrity.
We have no choice. We have to figure this issue out.
Too many people invest their emotional well being into touting the integrity of the financial system as it is and all the free market rhetoric they've learned to defend. Too few have humility to admit they don't know shit and are as helpless as anyone else. It's being proven to be the case though as things go to hell.
The banking class is stealing everything they can and then leaving the average American with the tax bill. First they create the crisis through illegal and immoral banking practices, then they force the best Congress money can buy to pass the TARP legislation which basically left them running the country. This "bad bank" idea is just another unloading of toxic assets onto the taxpayer in exchange for valuable assets for the criminals.
This is rape of the American treasury, plain and simple, people, and they have our media -- who undertalks the issues involved deliberately in my mind -- covering for the bankster class.
There is likely going to be a mighty crack heard around the world soon when the dollar finally collpases, and when it does, watch out! When people lose everything, then they will finally wake up and confront the outright theft of their country that has been taking place right under thier/our noses. Will it be too late to do anything about it, I wonder?
the riots haven't started yet in North America. The economy is actually in worse shape than the depression right now, and riots are occuring in Europe. Here is an excellent article on the Great Depression. Read the numbers closely.
http://www.pbs.org/wgbh/amex/rails/timeline/
Those poor bankers are struggling to survive. They are going through a very rough time right now.
Dating A Banker Anonymous (http://dabagirls.wordpress.com), a blog started by two New Yorkers, has made waves on the blogosphere this week with its tales of woe.
Dodd says he'll refinance Countrywide loans
HARTFORD, Conn. (AP) - Connecticut Sen. Chris Dodd says he'll refinance two mortgages that he received through a VIP program from Countrywide Financial Corp.
Dodd told reporters Monday that the mortgages for his homes in Washington and East Haddam, Conn., will be refinanced with a different company.
Dodd has acknowledged receiving mortgages in 2003 through a VIP program at Countrywide, which was sold to Bank of America Corp. earlier this year and has been the focus of allegations that it gave favorable loan terms to lawmakers.
http://www.breitbart.com/article.php?id=D963I...
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