It is sad that most Americans do not understand how banks work and where money comes from. Banks do not have reserves, they create money on fractional reserves, thus creating money out of thin air via book entries. The book entry gets added so the M3, the overall money supply.
The US Government borrows money (that does not exist yet) from the Federal Reserve, which is NOT a federal agency and does NOT have any reserves. Again, book entries baked by Treasuries, then the printing press. But we all owe interest on that ‘federal debt’ for something the Federal Reserve never had to begin with.
It is mathematically impossible to ever pay off the US debt. No stimulus package or bank bailout will change that, as all that money comes again from the same federal reserve banking cartell, and we again owe all that back plus interest.
Banks have to stop trading for their own account, they have to stop lending on fractional reserves and they have to stop creating money on book entries.
Banks should become utilities, they should only be involved in booking savings and making local community loans. If they want to be traders (which is what got us into this mess we are in) then they should use their own money (of which they have none) and be classified as an investment house. They ran the exact same scam as Madoff did, but nobody wants to arrest CitiBank or BofA.
Read ‘The Web of Debt’, it should be required reading for every congressman and senator. If you never change the root causes, you will never change anything, no matter how much borrowed money you throw at it.
I say, let the banks that can’t stand up fall and watch the phoenix rise from the ashes. There will always be a phoenix.
Regulate – regulate – regulate.
Let the good, strong, honest banks stand up and the people will cheer.
I just read the article “Pandit Profit Pipe Dream” from a Fortune writer. I took notice when they talked about the $28.5 Billion in reported losses since their last profitable quarter in 2007. They go on to tell us that Citibank received $45 Billion from the banking bailout monies. Those numbers don’t match so my question is…what was the extra $19.5 Billion for and where did it go?
The problem continues to be: How do we save the economy without rewarding the bad behaviour of the bankers and financial salesboys who created the mess? If we let the banks fail then the whole economy suffers and possibly collapses. But if we do not we continue having to carry the CEO’s and salesboys making multi millions for nothing of productive value. Not only that but they continue blackmailing us, threatening to blow up the whole economy every time they do not get their own way. Most of them got their positions through family connections and cronyism, not talent, and have made a mockery of rising by merit. They are pulling so much out of the economy by their excessive compensation it is starving the economy for real, productive investment. People see that effort, talent, merit and hard work get you no where, quit trying except to find a get rich quick scheme.
The question becomes do we wreck the economy all at once by blowing it up to spite these lowlifes or do we let them slowly bleed us to death with their games? It is a hard question with no easy answer. The structural changes initiated under reagan are coming home to roost. Financial predators were unleashed and allowed to take over productive companies. They would then break them up and sell off the pieces for more than they paid, destroying a good company in the process. Anything that made money was acceptable no matter how destructive. We need to find a way to put these financial predators back in their cages.
Too much of our economy is based on salesmanship ,marketeering and other sleight of hand. The productive workforce cannot carry them anymore. Somehow we need to get back to the realization that there is more to running a business than making a profit. Holding a high position, whether business ownership, academic, financial or other, carries a degree of responsibility to the rest of out society. You did not totally get there by yourself no matter how hard you worked. And if you got there through family money you owe a huge debt. It needs to be paid in how you handle your responsibilities and how you treat others. The financial boys need to remember what fiduciary responsibility means. Business owners need to recognize they are part of a community. The government is there for a purpose. Laws against murder, theft and rape are necessary, just like financial regulation is necessary. Businessmen need to accept this. Perhaps the best answer is to maintain the banks but hold the leadership accountable through civil and criminal action. No more house arrest in penthouses and no more retaining golden parachutes or unearned fortunes.
Tim in Michigan. I like the way you think. Creating new banks, unencumbered by the baggage created by Citi and BofA would certainly have been better than what we have done. The trouble is that we didn’t do it when we could. The right time to do this would have been a year ago so that we had healthy institutions in place last September. But a year ago the banking lobby was still strong enough to kill any such move.
Matt in Columbus has it right. Build the future by reversing the mistakes that led us to this juncture. It was not too much government that caused this crisis, but ineffective government. Markets do not work without appropriate regulation. But did drwhiplash offer any advice on letting banks fail?
Chris Cantwell in Florida. The extreme right wing position that unrestricted markets protect us from all bad things simply is not born out by history. Bith the great depression amd the long depression in the 1800s occurred when there was much less regulation and oversight of markets, yet they were both much worse than what we have now. Further, as I mentioned above, the current crisis was cuased by ineffective government, not too much government.
I remember the deregulation that occurred in the 70s and 80s, specifically deregualtion of the airline and trucking industries. This deregulation was a good move because those regulations were written by the trucking and airline industries and passed were adopted by the government because of massive lobbying efforts. They were designed to protect a select few companies from competiton. Government regulation should never be designed to protect the few from the many, but to protect the many from the few. Our government serioulsy failed to accomplish this over the last decade when it comes to banking and related financial industries.
Back in the dark ages this country worked very hard to insure there were no monopolies so that all businesses had a fair chance at success. What we now see with these megacompanies — whether they are banks, insurance, etc — is that their sheer size is a large portion of the problem. I do not subscribe to the idea of letting Citi and BofA fail, rather, I think their various ‘parts’ should be divided and sold off to either healthier institutions or the government with one very large provisio — once it is sold they can never again get involved in that part of the business.
If a company is too large to fail, then they are too large. In a free market system where owners, investors, employees, and business partners benefit from a company’s success, they must also bear the burden of their failure. It is not the responsibility of government to provide those who financially benefit from their roles in big business with a safety net their shields them from the risks of free enterprise.
It is well time to identify those that are responsible for this crisis. AIG must disclose where and how our bailout dollars are being spent. Only then will the anger of the taxpayer reach the fever pitch and critical mass required to force the necessary action to stem further wealth destruction. This crisis is not as “complex” as they would have us believe. In the low interest-rate environment of the last ten years the financial services industry, seeking to profit on easy-money, offered, packaged, sold and ‘insured’ debt in ways never before attempted or tested. The story began as loan originators sold homeowners and new homebuyers loans that could easily be marked-up and resold to Wall Street investment banks. These banks would then bundle the loans, add their mark up, attach an insurance provision called a “credit-default swap” (CDS), and sell the products to investors, mostly overseas, as AAA-rated investments. The selling banks would then go to insurance companies (like AIG) and purchase similar CDS insurance to hedge against the very products they just sold. This became a profitable business and the market for credit-default swaps grew exponentially. It is the claims on those defaults that are the source and continuing reason for the current credit crisis.
Part of the attraction to these non sum-zero derivatives is that they could be carried off their owners balance sheets. Swaps offered investment banks the potential to generate profits by earning the spread between the premiums they paid and the premiums they received as there was no public exchange on which they were traded and a large amount of information about who-owed-what-to-whom was unknown. But in lax-regulatory environment under Alan Greenspan, that opaqueness became a time-bomb. Soon, issuers wrote more risk coverage than was represented by the underlying mortgages – CDS’ were sold ‘naked’ to speculators (hedge funds) who bought swaps to bet against the emerging housing bubble, but no one complained about the danger while everyone was making money.
Then, on September 15th of 2008, Lehman Brothers collapsed and the time-bomb was detonated – the resulting institutional run-on-the-banks triggered a cascading series of credit default claims. Credit began to freeze.
There are currently tens of trillions of dollars of CDS obligations outstanding. The amount at risk of default is a direct product of banker miscalculation and they are forcing taxpayers (via AIG, TARP bailouts) to stem both their current losses and even greater potential losses as they attempt to honor their CDS obligations (don’t forget, sub-prime loans were peddled for profit by bankers who felt confident they could pass on their credit risk via a product of their own creation: credit-default swaps).
The Bush administration’s bailout of AIG, together with TARP has so far resulted in little but a deep recession. The current administration must now increase government spending just to counteract the inevitable collapse of demand. But there is a solution that the Federal Reserve Bankers would prefer we not pursue – a Presidential Order nationalizing the key banks involved and limiting the liability on speculative credit default swap contracts. That single act would mitigate both the credit market freeze and the avalanche of lawsuit that would surely result from such an action under normal bankruptcy. Unless these key banks are nationalized and Congress declares some kind of limited-liability moratorium on CDS claims the underlying problem will not be addressed and we will continue to spend billions of taxpayer dollars covering the debts of a punch-drunk Wall Street gambling binge.
We recently had a scare in the peanut industry where one firm shipped contanimated peanut paste poisoning dozens of people and killing several. If the government had handled the situation the way they did the banks they would have subsidized the offending firm and tried to keep its products on the grocery store shelves. If the problem had been handled this way would you have been more or less likely to purchase peanut butter? This is the situation that potential bank investors are being forced into. By keeping these insolvent banks operating and concealing the true situation of their balance sheets potential bank investors are being frightened away when it is critical to recapitalize our financial system. For the good of the country, we have to dissolve these large insolvent banks in an orderly fashion so that capital can flow to the well run institutions that need it to grow and begin lending again.
CitiBank by itself holds about a fifth of the banking assets in the US and has huge operations worldwide. Allowing Citi to fail like Lehman Brothers might easily cripple the world’s financial system for years and plunge the country into a deep and lasting depression.
In a bank failure, we’re not just talking about wiping out shareholders, but seriously damaging bondholders as well. And those bondholders include pension funds, sovereign funds, university endowments, insurance company investments, corporate holdings, and on and on. We’re not talking about just a loss in confidence, but a real loss for people, organizations, corporations, and nations across the globe.
Perhaps the best solution is to nationalize these large banks, but it will take years and many billions of dollars to restructure them with causing more serious harm to the country and world. Keep in mind that the failures of the Great Depression caused political upheaval worldwide and eventually led to WWII.
I don’t believe we can afford to simply walk away and let them fail. On the other hand, it’s becoming clear that institutions of this size are dangerous to our nation and the world. They should be broken up into smaller entities, the way AT&T was a generation ago. In the future, no single institution (including a certain automaker) can be permitted to become so large that its failure can devastate the world’s economy for years to come.
An educated public is an essential ingredient of a free society. Ambitious governments would have far greater difficulty implementing schemes that undermine liberty and prosperity were they faced with an informed and vigilant population.
Not one aspect of the bailouts or stimuli address our monetary policy which is responsible for creating these “Bubbles”.
Free Markets should be steering this ship, however to get to a truly Free Market we would have to reject the interest rate being monopolistically dictated by a single private central bank, the Federal Reserve.
The public will continue to be robbed by inflation and devaluation of personal property and life savings unless we demand a Constitutional monetary policy.
Had our government operated strictly within it’s originally created Constitutional boundaries, this financial system collapse & 9/11 would not have happened.
I PROTEST that I OR MY CHILDREN should be held ACCOUNTABLE for any citizen’s or private business’ own INDEPENDENT, irresponsible decisions & behavior!!!
What makes this a free country?
Because the idea of the government forcing one group of citizens to surrender their time invested labor for the benefit of another group of irresponsible, private businesses & citizens is NOT my idea of a free country! That is TYRANNY!!!
No where in the Constitution does it require one group of citizens to surrender their labor for another group of citizens.
REVOLUTION.CAMPAIGNFORLIBERTY.RONPAUL2012.
What you meant to ask was:
“Is it time to accept that we can not save the big banks and stop selling our children trying?”
The banks absolutely should be allowed to fail. Furthermore it sickens me that there are people making money by purchasing these cdos for pennies on the dollar and amking a mint. The government should let the banks die and auction off all of the assets to the public just like treasury bills. Don’t let only the connected rich realize profits.
Well, what exactly is a CDO that was originated by desk jockies, or a CDS which was a phoney derivative, or any derivative worth? Is a CDS worth par? This is what I have heard the news media say that the Fed has paid on some. They said that Goldman Sacks sat in on some government committee deliberations.
Let them fail.
One thing that gets me is how we talk about re-establishing confidence in the markets by propping up the big financial institutions. Problem is, the average American KNOWS that they’re being supported by the government, and thus rely on such support to function at all. So how can we trust institutions that have no hope of existing without the government standing behind them? People already don’t trust the government, so why would they trust the banks the government is supporting?
Think of it this way. For 700 billion in TARP money you could have capitalized 4 large new banks from scratch with proper regulation. Issued stock to recoup some of the cost and they all could be lending like hell. The market would force the others to do the same.
look , we are all looks like one family only thing we have to do is change HEAD OF HOUSHOLD! what that means is if we have to bailout all failed company then we already socialist country and goverment!.let them fall and file for BK m like regular person and find the way out to survive! here is how:
central bank buy any bank for thier face assest and manage them for short time and put them in market in divided ownership! atleat we have something for our money as tax payer ! if any one says we are socialisme now , let them be , temperary we can be what they say but near future is what we are going to be!
Yes Let them go under. These big banks took many risks with home mortgages. They also paid out billions in bonuses. This kind of action should have consequences such as new laws and regulation and if they make such big loans they must put 50% of that loan away in a fund at the FED. The money must stay in the FED until that note is paid off. All bonuses paid to bank executives should be made illegal. All bank Presidents and CEOs should only be allowed to make a total salary of $500,000 regardless of bank size in 1 year. This should also include all wall street executives and brokers. They are part of this greed that got us where we are. Put an end to golden parachutes and severance packages. Return these big profits back to the depositors in the form of reduced fees. Send a message you mess up you go out of business.
Lehman Brother’s collapse sent the financial market into a downward spin, letting a giant like BofAm or Citi fail, will cause a financial collapse of unequalled proportions that neither America nor the world can afford.
The decision to nationalize banks or to let them fail should not be based on economic ideology. Nor should it be based on a dsire to punish the banks for past errors. It must be a pragmatic decision aimed at doing the least harm possible. I think that we need to very clear about what the problems are and take a course of action designed to address those problems. We hear that this is a liquidity crisis. If we allow the banks to fail will it increase liquidity?. We hear it is a crisis of confidence. If we allow the bakns to fail will it increase confidence? I don’t know, but someone better have a real good idea before we embark on any irrersable course of action.
If we let BofA and Citi go bankrupt their assets would be sold off and the proceeds would go to satisfy their creditors. If all or most of these assets were bought by other large banks we would end up with fewer, larger banks. I don’t see how this could be good for the economy in the long run. On the other hand, if the assets were broken up into little pieces and sold to smaller banks it could be good for the banking industry and the economy.
Of course they should be ‘allowed’ to fail. that’s what capitalism is all about. we need to decide, either we’re capitalists and we’re willing to take the bad with the good, or we’re not… There’s no doubt it would be a bad thing for the economy, but that’s not the point. If we don’t want to have a feeble economy, then we need to stop being capitalists altogether. The choice is coming.
Close them down, and reopen them the next day under a new name. Same thing that happens with bankruptcies all the time. People go bankrupt and then start a new business under a new name without the debts of the old one.
The FDIC could operate the banks under new names (effectively nationalizing the banks), while letting their old corporate form legal entities go through bankruptcy.
Liquidating the assets in an orderly way would result, with the banks continuing to operate, while downsizing and selling off pieces. Pieces that would continue to operate under new ownership. – So what if it took a couple of years to do that.
Sure, the impact on other banks and hedge funds from the bankruptcy, would be great – but that’s reality and we can’t duck reality forever. We’re just delaying the day of reckoning.
Economic reality will assert itself, sooner or later.
Does anybody remember that these same guys were cheerleaders for letting these banks get “too big to fail” in the first place? “Too big to fail” means “too big a contributor to my campaign fund” to both parties.
taxing next generations of americans to help banks to pay billions in execs bonuses is more than simple crime, it is dangerous to american society as a whole. it discourages people TO DO GOOD WORK.
So what is the alternative? Having the taxpayer pay, and if one believes Bernanke generously, the shareholders and executives who got us into this mess and have the taxpayer shoulder the loss while the financiers keep any profit? The executives and the boards should get something at government expense – a nice room in a general population prison along with the other thieves – but nothing else! The feckless shareholders who did not supervise their investment deserve to lose their investment.
No! The economic impact on mutual funds and pensions would be disastrous as unrealized losses would be come realized. Patients is needed at this point in the economic slide. To have the banks be killed would cause a great distrust by future investors in stocks of any financial service company. A controled break up into small regional banking units after recovery would preserve shareholder investments and confidence. Additionally, assuming the Feds do their job in oversight, having small regional banking units would reduce the size of potential losses and the size of any nation economic impact, plus a breakup would create greater competition and lower fees which would be good for customers.
As posted by someone much smarter than I on another forum:
• Posted By: drwhiplash @ 02/12/2009 3:51:12 PM
Here’s the prescription to fix it now and forward – your platform on economics:
1. Reinstate Glass-Steagall. No more “Chinese Wall” nonsense. If you’re a commercial, government-backed bank that accepts customer funds (e.g. anything with an FDIC guarantee) you may not offer investment products of any sort (including insurance-style products such as annuities) nor may you have cross-ownership or control with a firm that does. Period. Banking – the fractional reserving of depositor funds and issued debt for the purpose of issuing loans – is a utility function and its plenty profitable (if a bit stodgy) when operated as one.
2. Drop the 10% deposit concentration cap to 5%, and give existing banks that are over the 5% limit three years to get under it by splitting off or selling off assets. This applies to fewer than 25 institutions, and it needs to happen right now to control systemic risk. Bluntly, if you’re too big to fail you’re too dangerous to the banking system as a whole. See #1 above – commercial/retail banking is a utility function and should be regulated as same.
3. Repeal the “Bankruptcy Reform” law. Consumers must have the same right to go bankrupt and discharge debts that corporations have. Banks and others who grant loans must have this Sword of Damocles over their head – you make a bad loan and the borrower can file Chapter 7 and stick you with it, without exception. This will immediately collapse the outrageously overpriced bubbles that remain and are credit-driven, including post-secondary education.
4. Remove the obscure little change made in the EESA/TARP legislation that allows Bernanke to set the reserve ratio to ZERO for banks, and set it statutorily to 8%. Enhance the law by declaring that ALL funds taken in by a bank irrespective of their source are subject to the 8% reserve requirement (thereby removing the “sweeps” exemption that started this mess.) This will force leverage in the regulated banking system to no more than approximately 12:1.
5. Set the lawful leverage limit to 12:1 for all investment banks and other entities including hedge funds. Any firm that wishes to be domiciled or operate in the United States must comply. Period. I know what the counter-argument is – “they’ll go somewhere else.” Fine! Go blow up some other nation’s economy. We’ve had enough of it.
6. Said 12:1 leverage limits must apply to all assets. Yes, even US Treasuries. If you hold it at most (for the safest assets) you can gear it at 12:1. Period.
7. Ban all off-balance-sheet vehicles; no exceptions of any sort. If you have control of it or are responsible for it in any form or fashion you must consolidate it on your balance sheet. “Shell corporations” set up to evade this requirement that have no capital or assets of their own are deemed a fraudulent shell company. Close the SIV loopholes.
8. No more Level 3 anything may count as “assets”
As long as we try to revive seriously sick companys, and banks, we are prolonging our pain. OH, wait a minute, not our politicians’ pain though. Our elected officials are really unaffected by all this. We can have 20% unemployment and they will have their business, and their b.s. as usual.
Now hear this: I’ll tell you one company that absolutely, without question WILL NOT be allowed to fail, that’s AIG. Know why ? AIG holds the pension funds of our senators and congressmen. If your not one of them, you’re a sucker. Dont be late on your tax returns. Note to Tom Daschle, guess you don’t have to file one like the rest of us, you FAT PIG !
Absolutely! Our system is designed to allow for bankruptcy. It’s the healthiest way to go. As far as jobs lost, people are creative enough to survive and find work that they might enjoy more. Let them go, so we can get back on track faster.
They have already failed. Using mark-to-market valuation of their assets they are already insolvent. Let them die. Wasting more taxpayer money on them will enable them to ’survive’ but they will be unable to make loans or a profit. Remember Japan’s ‘zombie banks’ and their Lost Decade? Citi and BOA and many others committed suicide with their recklessness. They are dead. Bury them. Move on…
Company should stay where they are and needed to restructure, worker and their family are innocent as well as the firm who doing business with them. Thousand or million more will lost their job. Trun around the position. If you are working in this company, do you want the company fold and lost your job, I think you people won’t be that stupid to push this so hard. Think about the other, don’t just Yes-man! If you do, the next round could be your company will heartlessly send you a biggest pink slip your ever wanted and I’ll see you in the unemployment line.
Hasn’t anyone watched a zombie movie? The only way to kill a zombie is to cut of the head. Same principle when dealing with zombie banks. Cut the head off = let them fall. I think we need a complete restructuring of the banking system with regulation and control mechanisms, the old paradigm was a failure.
Transparency. The same thing that got us into this mess can get us out. People are waiting for these banks that are going throug tax dollars like breathing air, to become transparent. We would like to know where the money’s going. We want the specifics about the depth of bad loans, investment or whatever. If people are going to invest, then they will have to trust that their investments are not going to be squandered. Until investors believe they are not being lied to- they won’t invest. Because of the fraud being perpetuated in our banks and investment banks transparency is a major issue right now with investors.
I’ve said it before and I’ll say it again, there is no trust nor any confidence. Until the market prevails and the failures occur no one will have any trust.
If the government doesn’t get out of the way and let the market work then no one will have any confidence in any element of the banking industry anymore.
The same can be said for contract law. If Congress (in its Barney Frank blindness) attempts to circumvent contract law just to “attempt” to rewrite mortgages that will ultimately fail then the investor will not come back ever.
We really need to quit trying to reflate this bubble. The population has recognized that the game is over, but for some idiotic reason the government doesn’t want to give up on trying to bring back the “good ole days.”
The bubble cannot be reflated and we can’t go back to the overconsumption days of the past…it’s time to move on. If we would just let the system fail the market would work and we could go back to work. Until then it’ll be like a Vietnam quagmire and we will only continue to spiral downward.
Transparency. The same thing that got us into this mess can get us out. People are waiting for these banks that are going throug tax dollars like breathing air, to become transparent. We would like to know where the money’s going. We want the specifics about the depth of bad loans, investment or whatever. If people are going to invest, then they will have to trust that their investments are not going to be squandered. Until investors believe they are not being lied- they won’t invest. Because of the fraud being perpetuated in our banks and investment banks transparency is a major issue right now with investors.
Citi is a zombie bank. BofA is healthy. BofA execs have been quietly buying BofA stock. Citi is the opposite. BofA will get through this recession just fine. Mark-to-market accounting rules is what is causing all the doubts about BofA.
The two Republican senators are crazy like the moron, did they think about the worker and their family and all the business firm who had business connect with them. If it fail, millon more will lose their job because the crazy moron. If it fail, millon poeple around the global system will hurt and deep reccesson won’t be easy to cure. This is the revenge to Democrat cause they won this electon or they know no matter in what situation OR DEEP RECCESSON, they won’t even have to worry to lost their job, pay, pension and living COLA.
They should think about the other people, many senior are losing the dividen incoming, how much pain and panic did these two senators want to give it to the public? YOU’RE TOO… SELFISH (JUST LIKE THE SHELL FISH LIVING IN THEIR OWN WORLD)!!!!
The reason we are in this mess is because of lack of trust. Lehman failure lifted the false veil that no matter what Govt will not let the banks fail. Failure of WaMu shattered the trust further. Failure of Citi or BofA will surmount to complete failure of US banking system which will not be easy to overcome ever again.
Let them all fail! bailouts do nothing except kill the taxpayer. Let all the companies that are trash fail, wont effect me at all! I refuse to do business with any company that used bailout money.
It is evident the bank leadership needs to Go, like yesterday. Obama needs to stop messing around and take them over, auction off the bad assets and make the institutions write off their bad investments. If not this will be dragged out for a long time at the expense of the tax payer. Geithner and Summers while smart, are looking for excuses to keep the status quo. The people want results with significant change. We can not allow for any financial institution to manipulate the market for the sake of capitalism if it means irreparable harm to the overall economy. Even now the banks only care about profit instead of doing what is right.
Congress is also scared to do what is right because they have taken a lot of money for the institutions that are at the root of the problem. We need to nationalize these institutions, restructure them into smaller and leaner institutions, and GET RID OF THE EXECUTIVES.
I hope Obama is listening; he’s a dog on a sheep farm full of wolves that look like dogs. The treasury needs to know he is serious about fixing things. The banks need to know their time is limited because the tax payer’s patience is wearing super short.
These banks are bankrupt….they need to go away in some form of court ordered restructure. The perfect example is Citi is taking taxpayer money, Right….But they are paying certain employees a 5000.00 bonus because they cannot go to the Bahamas. Because their trips were cancelled. Because the big bad taxpayer screamed loud enough for the Feds to slap the hands of the corporate executive. No trips while taking taxpayer money for the executives…..Okay well How bout we just cut them all a check for 5 grand each because they cannot go..Talk about an despicable insult to the citizens of our country…I would like to work for a company with a share value of almost zero receiving welfare from the good folks of the USA to keep the lights on and get a bonus check for my cancelled trip…DISGUSTING… I work or should say worked for a company that if we did not make a profit we got the BOOT
What happened to our anti-trust laws over the past 50 years or so? How can any government official utter the words “too large to fail”?? No one business should have ever been allowed to become “too large to fail”. If this question is ever answered, we will be one step closer to finding out the root of the banking failure and fixing it for the future.
Let them fail. This is the only way we will ever know the true extent of the damage these banks have done to themselves. It is also the only way to get rid of all the bad debt and malinvestment that is plagueing the system right now. There is no sense in throwing in good money after bad if we do not know the true extent of the black hole these institutions call their balance sheets. I doubt that life will end with the failure of Citi or BofA.
Those two stupid Republican Senators are merely playing up to their constituents. You can no more let Citi and BoA fail than permit two states of the union fail.
CITI and BofA, as well as others, have already failed. That much is clear. What isn’t clear are the consequences/ramifications of letting them crash and burn. It would be simple if the United States could contain the resultant damage within its borders, but “universal banking” is just that – global in scope. Hence, the disruption to markets extends beyond the United States as do its consequences. Does anyone think Sec of State Clinton’s visit to Asia – China and Japan – was coincidental? More likely, there was an airing of views regarding what was expected… And for the Chinese and the Japanese any shock of the sort caused by a major US bank failure is simply not feasible or even to be considered. Given that both the Chinese and Japanese governments are much more “dirigiste” than the US, they probably would prefer a step-by-step de facto nationalization of CITI and BofA rather than an outright market failure. In their eyes, better to control the sinking/scuttling of a ship, than to torpedo it, blowing it out of the water. Too much structural damage and uncertainty involved in the latter. And since they are major “stakeholders” in this ménage a trois, their interests have to be taken into account by the US government. Unilateral action by this country is a thing of the past rendered obsolete by the very globalization we have promoted. Recent calls for global regulation of financial markets and concerted action by the G20 only reinforce this position. This is something “economic nationalists” are going to have to learn to live with. Isolationism and unilateralism are not an option.
As far as domestic politics, the Obama Administration will be reluctant to provide its right-wing critics with any more ammunition that enables them to portray its proposals as “socialist.” Hence, outright nationalization is out of the question as is outright market failure. TARP hooked the Obama Administration onto an incremental approach in resoving/unwinding this financial debacle. Letting CITI and BofA fail now without “stress testing” will likely roil markets even more. And what about the billions of taxpayer monies already thrown at both institutions? Are we simply going to write it off without any accounting of where the monies went? The “bad bank” scenario at least holds out the possibility that the taxpayer may get some of his/her monies back. Not that I’m counting on it…
Perhaps its time to admit that we simply do not have government personnel with sufficient experience to handle a banking crisis of this size. The FDIC is small potatoes. Why is an altogether different question. We are in uncharted territory and until someone can clarify what the consequences of allowing CITI and BofA to fail are in real terms both here and abroad versus the present course, however nebulous, it’s little more than ideological grandstanding. Six months ago we were told by a Republican Administration that the consequences of doing nothing was not an option and the result was TARP – not NATIONALIZATION! Now six months later, IMPATIENCE and political opportunism by many from the same camp impede the Obama Administration’s attempts to formulate a coherent approach to the resolution of this banking/economic crisis – short of NATIONALIZATION. If it took US more than 30 years to get into this mess, what makes anyone think letting CITI and BofA fail now will resolve it overnight? And last but not least, who will pay for letting them fail? Shareholders have already. There’s more at stake than just the shareholders.
I invest in US stocks actively. These negative news now and then coming from banks is dragging down the whole financial system. This is making us as investors nervous.
Yes, let them die. This 90 billion is just a waste. If these funds would have deposited in a fresh created bank , the system will be in place by now and this could have eased the credit line. Surely topping up and up funds in these 2 banks…it will lead nowhere….just back to square one. I just have think twice to invest in US stocks or not. Boy…cannot keep on losing our money…men..
Let the BIG BANKS FAIL? No.. Let the banks Board, Management, CEO’s etc. pay up. Let’s sell all of their assets (multi million $ homes, Retirement funds, Investments etc.)first before asking the public for another penny. Let them stand in the unemployment lines for janitor jobs like many are doing. They all put these banks in this situation, let them pay for their greed and stupidity.
Then hire the guys that are running the good banks take over management and show them how it’s done. Asking the little guy to bail them out is outrageous! We are the ones that gave them the money in good faith and then they ripped us off. Call it what you like, but a thief is a thief no matter what kinds of clothes they wear. As the song says..”Some rob you with a six gun, others with a fountain pen.” Well THE PEN IS OUT OF INK! They shouldn’t be coming for a refill from the taxpayer. If they fool us once it’s there fault, if they do it again it’s ours. Let’s see…Savings and Loans bailout, Enron, how many do we need for the general public to figure this out. We are being lead politically and privately by a bunch of scoundrels.
Solutions? Vote Republican, Vote Democrat or Vote Independent..JUST DON’T VOTE INCUMBENT! THE SHEETS ARE STAINED and they can no longer lie about it.
I’m going to be terse with my response. Yes. While I do understand that the banking industry is an intricate part of an economic system, simply tossing money to these industries will produce failed attempts in boosting confidence. Instead, they are boosting fear, and confusion as to whether these bailouts will in fact remedy the situation.
Banking is a business. Some businesses fail. It is a cycle that is inevitable and must run its course. Yes, let the banks (even the major ones) fall to their demise, and hopefully, this will be a learning experience for the future stability of our economy.
the big banks should not fail at all. Actually they need to become strong again. Big banks should not become nationalize.
A number of comments hit the nail on the head some of these big banks are dead and need to be put out of their missery. The only way private investmetn will go back into these big banks is once the toxic assets are gone. TARP didn’t do it because no one wanted to figure out a book value. So let them be taken over, clean the books, fire the boards and CEOs. If TARP had done what it was supposed to in the first place this wouel be over with. They should have bought the toxic assets for 25 cents to the dollar(there’s your value). And if bank did not participate. Well they would be on their own. Once again why did it fail? Greed the banks wanted par value or more to make a profit off this mess. They never wanted to admit they you know what.
Keep it simple because its “not” as complicated as some would want you to believe. If a bank becomes insolvent they should fail. Due to the reasons that a bank may become insolvent: bad loans, bad investments, corruption, etc. Common sense tells us “Do we really want a bank like that around handling our financial affairs?” The answer is “NO” let them fail.
The free market will operate only if we allow it. The problem lies in the fact that too many of these big banks got friends in big goverment and they are allowed to “steal” billions more in tax dollares on their way out….sad but true. If the big banks fail there are plenty of smaller banks, the ones that where prudent, that will be more then willing to fill the void left behind when the big banks that are failing finally die.
Nobody is going to kill the big banks, they did it to themselves.
I happen to work for JPMorgan Chase Bank (This doesn’t make me an expert), but in college I remember taking an intro to business course. In this course we learned that many business need capital to function and that investors need to look carefully at the business model before investing. On the final exam, if I had known that investing in a big company meant that the US Government (not part of the business) would financially back the company, I would probably failed my exam.
The US Government backing any company (especially banks), without changing their business model, is financially irresponsible and outrageous.
What the government could do is heighten and/or establish regulations and guidelines for the banks to follow with regards to households’ financial situations.
Yes, they are already costing more to the tax payers then if you had just let them fail. Everyone keeps pushing through B.S bailouts by fear mongoring they say do this or else the world will end. Sorry, if these companies had done what real legit companies do (a little forgotten thing called underwriting and risk assesment) they wouldn’t be in this position and to just prop up companies because of the fear they will lay off employees, i’ve got news for you, they take the money and just lay everyone off enyway.
There should be no such thing as a government bailout because too big too fail should equal too big too exist.
Banks are a consequence of our wealth, they are NOT the source of our wealth. Politicians seem to forget that. While certain individuals have become filthy rich through banking our society is on the best way to bankruptcy. You can not create wealth by pushing debt from one pile to another. No amount of financial alchemy can actually create wealth. Right now we have a huge over capacity in banking. It’s time to thin the herd as banking itself is an unproductive endavour and therefore should be kept to a minimum not to be too much of a drain on the rest of society.
I think the better question, and one that can prevent events like this from happening in the future, is “Should giant banks like Citigroup and Bank of America be allowed to exist?”. My answer, of course, to the original question is clearly yes. We must not place a safety net underneath companies that we deem “too large to fail”, as there will only be a race across all industries to consolidate for the sheer sake of size in hopes that government will subsidize outrageous risk.
Contrary to the point of the article, I would argue that the failure of the banks would increase confidence. Take a look at the comments here for a sample. Allowing banks to fail would be seen by many people (myself included) as a move in the right direction – let them crash, then let the healthy ones take over.
As it is, the current bailouts can have only two ultimate effects. The banks will either fail eventually anyway, only costing a lot more. Or, worse, they can survive as extremely expensive and inefficient institutions kept artificially alive at a great cost to the future economy (with the added bonus that future bankers will be careless with investments, knowing that “they won’t be allowed to fail” no matter how badly they run their business).
Its easy for the Republican leaders to play to the crowd on this since their views are essentially irrelevant. If the banks are allowed to fail and the economy goes further south, no one is going to hold Shelby and McCain responsible. Nor should they.
What is most disturbing about this is that, despite an election for change, nothing has really much changed. The current policies could just as easily be coming from a McCain administration or Bush for that matter.
It seems that our political and economic systems are captives of Ivy League educated cronies who are mostly distinguished by whether they went to Harvard or Yale and what fraternities they pledged. The ones that go into banking fund the campaigns of the ones that protect their interests in Washington. And they all did very well for themselves, even if they wrecked the world economy in the process.
There is a good reason we spent billions to bail out Goldman Sachs, but very little to bailout those folks out in Las Vegas who are under water on their mortgage. And it isn’t because Goldman Sachs is more the linchpin of the American economy than people who work for a living.
Bill in Philadelphia. Bravo!! There is someone out there that actually undertands who got us in this mess to begin with. That also leads to the real reason that we keep thowing money at these people to prop them up. The Financial industry threw 5 billion at these people in Washington over the last ten years in lobbying efforts to keep from being regulated. Bank of America, Merryl Lynch and Citicorp being the biggest contributors. The banks made the loans because Fannie Mae and Freddie Mac (Government Sponsored Enterprises) were driven by our Congress to buy them and take them off of their books. This was done to promote the effort to make “home ownership available to everyone”. Mr. Dodd was one of the recipients of many personal “special low interest rate loans” from some of the crooks in the industry. Anthony Mazoli who was chairman of bankrupt Countrywide Credit Corp had a seperate office set up to write loans for “freinds of Tony”. So you need to understand how the crooks in Washington work to understand why we keep doing the things that we do. All you have to do is follow the money trail and it will lead you to your answer.
We should of let them fail from the beginning. It would have been painful, but we would have been halfway home right now instead of constantly prolonging the agony. Besides the fact that Timothy Geitner who the press has built up to be this financial genius apparently does not have a clue. I think Jim Cramer said it best when he said “everytime he opens his mouth he thows the drowning man another anvil”. We are at the mercy of a bunch of hypocrites and rookies right now. Not a good thing when the man is drowning.
Being from an automotive state you might be surprised but I say let GM go into bankruptcy and restructure into a form that will allow them to prosper. Right now msot of their suppliers are going bankrupt because they are struggling with weather to sell to them. Thier own auditors have come out and said that they are currently not an ongoing entity in their present form. What more proof do you need!! Watch what happens, we will throw billions more at them as a pay back for the union vote. They still won’t be competitive after it is all done. Bankruptcy does not mean that the company goes out of business. It just allows them to make the structured changes that are needed to come out a stonger company while continuing to pay thier bills. Lets get on with it. The govenment needs to lead, follow, or get out of the way.
Citi is going to cost the taxpayer a bundle either way. If it goes down, the ripple affect will be tremendous, any business with a line of credit would be SOL and they would start to collapse and so on. Not to mention the amount of taxpayers money that would be needed for the unemployment funds and medical care.
I think it may be time to take over Citi and nationalize, with would cause pain to the stockholders, altho with stock price at 1 dollar it should not hurt too bad. Then Citi could become the zombie bank and other banks could sell some of the bad assets to Citi, plus, the government could control the money loaning process of Citi which would hopefully, cause competition to the other banks and they would start loaning again.
I think that allowing banks like BofA and Citi should not be allowed to go under. I am no expert on this topic, so I am going by what I know. Let’s look at it this way. Allowing BofA or Citi to go under is a lot like allowing the Big Three to go under. If the Big Three went under you would have to deal with the corporate HQ, factories’, suppliers and the dealerships. And all of those add up to countless number of jobs that would be lost and raise the unemployment rate. Also if the Big Three were to go under, what would you do with all of those unsold cars? So if the US Government allowed banks like BofA or Citi to go under you would have deal with credit card companies that have deals with the large banks, the various branches around the US if not the world and that too would raise the unemployment rate. Not to mention the people who have accounts with such big banks like BofA or Citi. Where I live there are two CitiBank Branches within walking distance from my house and there are also a few BofA branches as well. It is funny, this past New Years I went to Germany to see some of my cousins and I found a CitiBank branch in the town where my cousin lives. I thought that was nice because I did not have to go to a Douche Bank branch to take out Euro’s and having those out of bank charges against me.
The auto industry has to take some of the blame. For example, the Big Three were making cars that people did not like. I don’t know, maybe it was the MPG, how they looked or maybe the reliability. Since the Big Three were not making quality cars that they once made people started to buy or lease cars from the foreign market. Or maybe like the Big Banks handing out loans and/or mortgages that people could not afford, dealerships were giving car loans to people who could not afford them. Both the banks dealers were trying to make a quota. The other part of the blame should be the people. They took out huge loans for a house or for a car and they probably knew that they could not pay them off but they figured that no one would notice.
I think it takes a few rotten apples to spoil the whole bunch. But like I said before the Big Banks like the Big Three are too big to fail.
You are not asking the right question. The largest banks are already insolvent. Withholding the truth and lying does not, nor will change that. The real question should be “Is it time to kill the FED”? The answer is YES, it’s long overdue.
Wow, a lot of born again Libertarians here.
There should never been any bailouts period, the government should have held onto what resourses it had to help the people, not the Crooks of banking, wall street, and real estate.
Yes, they should be allowed to fail. If it is not a good business model, why should they continue to operate? Every company should be allowed to fail. I know I would be allowed to fail if I ran a company so poorly. Us little guys think the big coorporations and Banks are in bed with the Government now? You think we have dirty politicians getting rich instead of looking out for the interest of the taxpayers now? Just wait until the Banks are Nationalized.
Financial company bailouts have been a bad idea from the start. They should’ve been allowed to die last Fall.
Now that we are further down the slippery slope of bank nationalization, it’s becoming increasing clear that there’s no amount of capital injection possible to cure these banks. I include AIG in this group, too.
Bankruptcy is painful, but it allows bad management to be replaced. We have to flush the economy of these failed institutions to recover. That’s the essence of capitalism.
Mark Fiore, a political cartoonist out of the San Francisco Chronicle, has a great animated cartoon, “Hoping Mad”, that pretty much sums up how we got into this mess:
Mark Fiore, being from the SF Chronicle, is generally very liberal, but he has a knack of cutting a humorous core to the problem.
LOL, ROFL
Citi Group,Bank of America, Wells Fargo, Chase, New York MetLife are all bankrupt. The pharse too big to fail is code for too big to save. The FDIC let those banks get too big to be able to save them. So it is up to Americans to stop the flow of money from our tax dollars to plug the $500 billion bad credit card and business loans Citi did in Asia which will never be paid back. Heck they can not even find the businesses and people to even try to get the money back. It’s time everyone takes their money out of these big banks before they fail and depositors are left with nothing as FDIC is too broke to back the money in these banks.
And these banks will fail and they are not even lending money to local businesses. So if you want to keep your job and your money support your local banks by taking out your money from the big guys and putting it where they will lend it to your business.
The job you save may be your own.
Let the banks that are failures fail. Since when has govt done a better job at utilizing resources than free markets? What message is it sending to future risk takers? Is it easier or cheaper for the government to clean up these messes than to let free markets do it? IndyMac is their best success story…
Speaking of free markets, I can’t even bring myself to invest in stock right now because I do not know how to evaluate opportunities with the government acting as they are. I can analyze and make intelligent choices in a free market scenario, but investing now is a big crap shoot. I simply don’t trust the markets to behave as free markets when the fed is throwing so much weight around. I’d guess others feel the same, which may explain why the markets continue to tank. I also believe this lack in clarity as to what the govt will and won’t do has paralyzed the housing and other markets as well.
Still, we are stuck with continued government intervention, 1) because “we have to do something!!!” (which isn’t necessarily better than doing nothing at all–I’d argue much worse), and 2) if we change course now there will have to be some admissions of failure. Politicians cannot recognize sunk costs and move on. They like to show commitment, even if it is for the worse.
No more bailouts. Rather than propping them up, we should be taking them down.
I nominate AIG and C as the first takedowns. Don’t just let them lurch towards collapse like Lehman; take them over, like FNM and FRE. Then, cut them up and sell off the pieces.
We have 8,000+ banks, and most of them are healthy. Let’s work with them. It’s much cheaper than raising the dead.
Yes. It is time for the banks to fail and for the government to put people in charge of these banks that know what they are doing. I think Pres. of smaller banks who are actually showing a profit should be put in charge of overseeing and restructing these big banks that are failing. Stop giving them MY HARD EARNED MONEY. They are doing NOTHING to help those who need it and the continue be a drain on our economy. GET RID OF THEM!
Let the big banks die. Have FDIC pay-off the insurance and have all debts owed to these banks disappear. To hell with them! They are the ones who made this mess in the first place, and frankly, their corp. officers should be in prison.
This is costing a fortune, and it doesn’t look like we’ve reached bottom yet. Let’s get the pain and uncertainty out of the way as quickly as possible. Let those banks that can return the TARP money they claim they don’t need. The banks that need welfare to survive should become the property of the Treasury. Is anybody seriously worried that the government would run Citi worse than the geniuses at Citi have?
I would give BofA special credit for having been forced to swallow Merrill. They weren’t bleeding too badly before that.
I think the we should make a stand and withdraw our money from the banks and send a strong message to those in government that they are suppose to be defending the principles established in our Constitution specifically a Constitutional government, sound monetary policy, a non-interventionists foreign policy, free markets and individual liberty.
I think resetting government by withdrawing our time invested, labored money out of the banks would be the loudest voice we could have collectively.
After the mercy killing of say…. Citi………..do I still have to pay off the balance of my Citi Credit Card?
Why on God’s green earth is what these people do referred to as an “industry”? They produce nothing. They are parasites. They have done nothing but siphon wealth from the productive sectors of society and now want to be protected from the results of their failures. Not only should these banks be allowed to fail but there should also be prosecutions with hard jail time and no home detention or bail.
So let me get this straight. Senator Dodd wants to bailout, no matter what you call it that’s the end result, the FDIC who will in turn “bailout” the depositors of these large banks, and this will be achieved by the Fed Reserve creating even more money out of thin air? Wake up America!!! It’s not the banks and Wall St you should be worried about. It’s the morons sitting in DC that are destroying our economy and profiting off of it. Where were they before the bust happened? I’ll tell you. They were all advocating for the very policies that they are now claiming to be the direct cause of this meltdown. Just another example of how our “government elected by the people for the people” has let us down once again.
Here”s a news flash for you! They have already FAILED!
Now we just have to figure out what to do with the debris. I say the government should take over, then create smaller banks – ones that will never be allowed to become “too big to fail”.
Lets try not to go back to the way it was; lets do something new.
If there is no risk and no possibility of failure then why is there a profit? Also if the government will bail them out and no executives are fired, sued or prosecuted then what is the justification for the grossly high salaries? With the huge upside these guys have seen, we should not be protecting them from the downside.
Yes. Letting big banks fail would be devastating… But, they are already failing, albeit in slow motion and with incalculable added costs accruing. The point is, things are going to get worse anyway but the cash infusion is at the expense of more potentially benefical things – and at the expense of the taxpayers. I loathe agreeing with the Replublican Senators but I’m forced to agree with them at this stage. And I’m not insulated from this economy. I lost my job last month; no savings.
At least in the case of B of A, the government should step in and help them out without allowing them to go under. Afterall the governemnt pretty much forced them to take Merrill when they wanted to back out. It would have been smarter to let Merrill go under instead. It just seems that B of A got a bum deal and could not even back out of it when they knew it was a bum deal.
It is not the big banks that failed.. it’s the Federal Reserve.
Get rid of the Federal Reserve that just duplicates the U.S. money and lends it at interest… we can create our own U.S. money, without the Federal Reserver, without the interest and without the debt.
“fractional reserves” and the ‘impossible contract’ of debt owed to the Federal Reserve are the culprits. The FDIC is just another arm of the FedRes, ‘borrowing’ the same money from the same banking cartel, in essence changing nothing. If the FDIC takes over every bank in the U.S., nothing changes. You have to look at the source of the money to understand the banks.
Large banks can not be allowed to fail. Reiterating what was stated in the article – this would kill confidence and a bailout would then be needed of the FDIC (not just a bank). The ‘bailout’ should also include modifications to the regulation of the financial industry to demonstrate that we have learned from our past/mistakes.
And this discovery comes after how many Trillions of dollars in Bailout funds have been give out?
Did they all the sudden have and Epiphany while they were sleeping?
The banks and other financial institutions are part of the G&A costs to the overall economy. These costs have become bloated and a drag on manufacturing and other parts of the service sector. Any company that lets its G&A expenses get too high is in trouble. These expenses cannot be eliminated but a company that says its business is growing because it hired 100 new accountants is in trouble. Likewise, we have been counting growth in the financial sector as growth in the economy. It is time to get that sector down sized to match the rest of the real economy. This will be painful but necessary.
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My question is: Why are the banks “legally” allowed to give these execs bonuses. The banks have supposed “contractual obligations” to pay them the bonuses, per the bank’s lawyers. However, any imbicil with a little common sense would know that by definition, a bonus is a “reward” for exceeding one’s job requirements. NEWS FLASH!!! If you’re bank is failing and you need to be bailed out by the government, than you’re not exceeding your goals and are, therefore, not exceeding your job requirements. When the government gave, and gives, these companies bailouts, there needs to be an absolute understanding that if you’re borrowing OUR money, than you are subject to OUR rules and the government should be as stringent as possible in letting them use the money for anything other than loaning it or profiting from it as a company, not individuals!!! Furthermore, I’d like to know why the banks, especially JPMorgan/Chase, who started this whole organized ring of fraud and theft, aren’t being brought up on RICO charges. How is the banks behavior any different than the mob’s?!?!?!? For that matter, SOMEONE in our beloved government MUST’VE known what was happening, as well, which also begs the question, why isn’t are own government and/or political parties being brought up on the same charges for allowing this? This government, these corporations, and our own people need to start learning the definition of responsibility and accountability!!!