The End of the Financial World as We Know It

[Danascot]

An excellent two part article by Michael Lewis and David Einhorn in the NY Times today:

Excerpt:

Weeks after receiving its first $25 billion taxpayer investment, Citigroup returned to the Treasury to confess that — lo! — the markets still didn’t trust Citigroup to survive. In response, on Nov. 24, the Treasury handed Citigroup another $20 billion from the Troubled Assets Relief Program, and then simply guaranteed $306 billion of Citigroup’s assets. The Treasury didn’t ask for its fair share of the action, or management changes, or for that matter anything much at all beyond a teaspoon of warrants and a sliver of preferred stock. The $306 billion guarantee was an undisguised gift. The Treasury didn’t even bother to explain what the crisis was, just that the action was taken in response to Citigroup’s “declining stock price.”

Three hundred billion dollars is still a lot of money. It’s almost 2 percent of gross domestic product, and about what we spend annually on the departments of Agriculture, Education, Energy, Homeland Security, Housing and Urban Development and Transportation combined. Had Mr. Paulson executed his initial plan, and bought Citigroup’s pile of troubled assets at market prices, there would have been a limit to our exposure, as the money would have counted against the $700 billion Mr. Paulson had been given to dispense. Instead, he in effect granted himself the power to dispense unlimited sums of money without Congressional oversight. Now we don’t even know the nature of the assets that the Treasury is standing behind. Under TARP, these would have been disclosed.

There are other things the Treasury might do when a major financial firm assumed to be “too big to fail” comes knocking, asking for free money. Here’s one: Let it fail.

Not as chaotically as Lehman Brothers was allowed to fail. If a failing firm is deemed “too big” for that honor, then it should be explicitly nationalized, both to limit its effect on other firms and to protect the guts of the system. Its shareholders should be wiped out, and its management replaced. Its valuable parts should be sold off as functioning businesses to the highest bidders — perhaps to some bank that was not swept up in the credit bubble. The rest should be liquidated, in calm markets. Do this and, for everyone except the firms that invented the mess, the pain will likely subside.


Part 1 - The End of the Financial World as We Know It

http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?em

Part 2 - How to Repair a Broken Financial World

http://www.nytimes.com/2009/01/04/opinion/04lewiseinhornb.html?em

... and in case you missed it "The End" by Michael Lewis from about a month ago:

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

[lostnotforgotten]

1. And Why Are The American People Not Outraged And In The Streets Over This Crime?

One wonders?

[CoffeeCat]

5. Because they don't get what's happening...

...and that's exactly how the powers that be want it.

There isn't as much suffering, when people are prepared for the disasters these sociopaths cook up.

:angry:

[terisan]

9. The Democratic congress, including Obama, passed the legislation and took credit for it.

In fact Pelosi, Frank, and many others kept insisting that Republicans needed to sign on. Made speeches and screamed about it.

The Democratic congress will still be in power in January, Bush is gone. Unless citizens hold the Dems accountable for their rush to hand over their decision-making power to a dictator, nothing will change. I think they have consistently given up their power and they intend to continue. They want to be super rich and they do not want to be accountable to the people.

I have spent years making excused for their grandstanding and lack of courage. No more. It is time to demand accountability.

[unlawflcombatnt]

11. Exactly

You're right on target with that.

It's the Democrats who provided the majority of votes for the bailout of Wall Street Welfare queens, not the Republicans.

And Obama had more influence on members of Congress than any other legislator, getting most of the Congressional Black Caucus to vote "yes" on Corporate welfare.

The bailout is nothing but a handout to the most affluent members of society, in the alleged hope that they'll share some of it with the rest of us.

[rhett o rick]

16. Our representatives in Congress don't seemed upset. They should know and tell us.

Besides, what can the American people do?

[Double T]

2. The Greatest Heist in American History courtesy of bushco.

[terisan]

10. ....and Schumer ...and Pelosi.....and and Frank.....unfortunately the Dems jumped to bail out the

bankers and and seemed quite happy to expect no accountability from Paulsen or the bankers.

Pelosi is a multi-millionaire as are many Dem senators and reps---the vote their economic self interest and they don't like to use their own money to get re-elected. I don't foresee major changes unless we face the facts about our own party.

Incidentally, the Obama campaign only raised 50 percent of their money from small donors.

[DogPoundPup]

3. Swindler's List - SEC warned about Madoff November 7th, 2005!

http://online.wsj.com/documents/Madoff_SECdocs_20081217.pdf

[rhett o rick]

17. I am surprised that Madoff didn't get a bail out. nm

[aquart]

4. Yes. AND hang Paulson.

But first waterboard him to find out where our money went.

I'm out of patience.

[CoffeeCat]

6. ...and it's appalling that these companies...

have no problem saying, "We're not going to tell you what we're doing with the bailout money. We don't have to."

I've always pondered...what "event" would cause the uprising and unrest that BushCo has been anticipating? They've
got the legal ability to declare any of us "enemy combatants." They can detain us indefinitely, and they don't
have to charge us for any crime. They can keep us without informing any of our friends and relatives, and they
can also beat us or do anything they want--as long as they don't cause death or organ failure.

No one sets up a classy trap like that...for no reason. The trap is set, and now it feels like a total economic
collapse--combined with their in-your-face larceny--will be the catalyst that lures the mice into the box with the
really sticky floor.

[Tandalayo_Scheisskopf]

7. Well, now we're talkin'!

Enough of this vast rewards for gross ineptitude and unethical behavior. If there are not penalties that smart in this process, the same sociopaths that got us here will do the same insane things again, in the hopes the outcomes will change.

[dixiegrrrrl]

8. I very strongly recommend "The End" by Michael Lewis

if you have any interest in the insanity of Wall Street.
He explains things very clearly.

Leaves me with the feeling of " I kinda knew it was all BS...why didn't Congress?"

Scary thought...lotta big guys up there on the Hill really don't know WTF they are doing. except doing what they are told to do and trying to look intelligent.

[bertman]

12. Dixiegrrrrl is right. Read "The End"

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

You're exactly right that they don't know what they're doing. That's why they have lobbyists to tell them what to do.

[Hissyspit]

14. To quote Calvin of 'Calvin and Hobbes:'

"Sometimes I think adults only act like they know what they are doing."

[Danascot]

15. Calvin nails it

[rhett o rick]

18. Most in Congress don't know shit. They totally rely on their lobbyist to tell them what to do. nm

[Warpy]

13. Wiping out shareholders is never a good idea

but while a firm is temporarily nationalized, all trade in the stock should be forbidden. It would just sit in the portfolio doing nothing until such time as the firm turned enough of a profit to pay its debt and be restored to the private sector.

Don't forget there are a lot of old folks out there who invested in their stock precisely because they were so large. Large means safe to a lot of folks out there and it was a conservative investment. You'd be wiping out a lot of what they survive on and hope to pass to their children.

Nationalizing a corporation to destroy the corporate culture that led to its demise is a great idea, but not in perpetuity. Government appointees tend to become just as corrupt as private management over time, and should know that the arrangement is temporary.

However, yes, the economy built on a lot of debt churned into fantasy profits for the wealthy is dead. Let's hope we can raise another rational economy on its ashes. Let's hope we can keep it this time.