And They All Fall Down
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Glad to get confirmation that my years as a financial analyst weren’t for notta. A few days ago, I wondered aloud whether it would be feasible and helpful to create a federal entity with oversight for home loan refinancing, an entity modeled on federal student loans program. Well… |
All five big investment banks have disappeared or morphed into regular banks. Is this bailout still necessary?
The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They’re called “loans.”
With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn’t, the FDIC has the bridge bank facility to take care of that.
Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund — a cosmetic gesture — and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary — as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can’t save everyone, and those investors aren’t poor.
With this solution, the systemic financial threat should go away. Does that mean the economy would quickly recover? No. Sadly, it does not. Two vast economic problems will confront the next president immediately. First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won’t be enough.
In Texas, recovery from the 1980s oil bust took seven years and the pull of strong national economic growth. The present slump is national, and it can’t be cured that way. But it could be resolved in three years, rather than 10, by a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished. Set it up like a draft board in each community, under federal guidelines, and get to work…
– James K. Galbraith – A Bailout We Don’t Need – washingtonpost.com
For a review of Galbraith’s book by The Journal of Economic Issues, go to the Economist’s View, a blog by Mark Thoma, Professor of Economics at the University of Oregon. More information on Galbraith’s book can be found at:
- Global Investment Watch
- Mefeedia Podcast – The Predator State: How Conservatives Abandoned The Free Market And Why Liberals Should Too – Posted using ShareThis
Nigerian Scam?
Forwarded to me today.
>Dear American:
> I need to ask you to support an urgent secret business relationship
> with a transfer of funds of great magnitude.
>
> I am Ministry of the Treasury of the Republic of America. My
> country has had crisis that has caused the need for large transfer
> of funds of 800 billion dollars US. If you would assist me in this
> transfer, it would be most profitable to you.
>
> I am working with Mr. Phil Gramm, lobbyist for UBS, who will be my
> replacement as Ministry of the Treasury in January. As a Senator,
> you may know him as the leader of the American banking deregulation
> movement in the 1990s. This transactin is 100% safe.
>
> This is a matter of great urgency. We need a blank check. We need
> the funds as quickly as possible. We cannot directly transfer these
> funds in the names of our close friends because we are constantly
> under surveillance. My family lawyer advised me that I should look
> for a reliable and trustworthy person who will act as a next of kin
> so the funds can be transferred.
>
> Please reply with all of your bank account, IRA and college fund
> account numbers and those of your children and grandchildren to
> wallstreetbailout@treasury.gov so that we may transfer your
> commission for this transaction. After I receive that information,
> I will respond with detailed information about safeguards that will
> be used to protect the funds.
>
> Yours Faithfully Minister of Treasury Paulson
What Doesn’t Happen In the US?
My students have been known to assert that stuff like this doesn’t happen in the US, and I often have to tell them otherwise. That the first amendment doesn’t enforce itself but requires our vigilance. Between the recent Inglewood incidents and this incident, the LAPD appears to be careening out of control.
Monday night along the tree-lined walkway entrance to the Hollywood Bowl, as Radiohead was closing the second of their two sold-out nights at the venue, Sean Carlson and Phil Hoelting, promoters of this weekend’s annual F Yeah Fest, were handing out flyers to exiting fans. Their friend Michael Reich, creator of the popular music video site Videothing.com, was recording the two for an upcoming documentary. As Reich shot, he noticed a scuffle occurring within his frame; in the background four security guards could be seen restraining a crowd member as they were ejecting him. The guards, employees of CSC Security, the company contracted by the Bowl to provide protection, were being overly rough with him, alleges Carlson. “They’re strangling him – brutally. He’s gasping for air.” Reich turned his camera directly on the action as the CSC guards continued to restrain the man. … The guard walked up to [Reich] and said, ‘What the fuck do you think you’re filming?’ and grabbed at the camera,” says one eyewitness who requested anonymity for fear of retaliation.Founders of F Yeah Fest and Videothing.com Allegedly Beaten by Security Guards After Radiohead Show – LA Weekly
This Los Angeles Times article provides an update on the Hollywood Bowl altercation.
I opine 
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