Paul Krugman: The B Word

[marmar]

from the NY Times:




By PAUL KRUGMAN
Published: March 17, 2008



O.K., here it comes: The unthinkable is about to become the inevitable.

Last week, Robert Rubin, the former Treasury secretary, and John Lipsky, a top official at the International Monetary Fund, both suggested that public funds might be needed to rescue the U.S. financial system. Mr. Lipsky insisted that he wasn’t talking about a bailout. But he was.

It’s true that Henry Paulson, the current Treasury secretary, still says that any proposal to use taxpayers’ money to help resolve the crisis is a “non-starter.” But that’s about as credible as all of his previous pronouncements on the financial situation.

So here’s the question we really should be asking: When the feds do bail out the financial system, what will they do to ensure that they aren’t also bailing out the people who got us into this mess?

Let’s talk about why a bailout is inevitable.

Between 2002 and 2007, false beliefs in the private sector — the belief that home prices only go up, that financial innovation had made risk go away, that a triple-A rating really meant that an investment was safe — led to an epidemic of bad lending. Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs.

....(snip)....

According to late reports on Sunday, JPMorgan Chase will buy Bear for a pittance. That’s an O.K. resolution for this case — but not a model for the much bigger bailout to come. Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this. ..........

The complete piece is at: http://www.nytimes.com/2008/03/17/opinion/17krugman.html?_r=1&hp&oref=slogin

[Neshanic]

1. You knew this was coming. Sickening.

[tabatha]

2. A caller on Sam Seder's show had it right

profits are privatized

bail-outs are socialized.

[marmar]

4. I believe corporate types like to call those "externalities".....

Socialism for corporations and the wealthy; A stocking full of soot for everybody else.

[keep_it_real]

5. Socialism for the rich but no socialized health care for the poor.

[DemBones DemBones]

7. Yes, and if a human being has catastrophic medical problems,

and is even allowed to file for personal bankruptcy, s/he still has to re-pay all his/her credit card debt.

But they take our tax money to bail out companies whose CEOs fucked up and then bailed out with golden parachutes worth millions.

What's next? Debtors' prisons?

[lonestarnot]

12. Yes.

They are making rooms with bars for all of us. :evilgrin:

[Flatulo]

9. That is both memorable and quotable -- thanks for sharing. nt

[keep_it_real]

3. Public funds to rescue the U.S. financial system? Hell no

Let' em all good to hell. Enough with our tax dollars bailing out the rich!

[bushmeister0]

6. All that money they're going to spend is backed up by the full faith and credit

of the United States. If no one has any faith in the credit of the US anymore, that ink isn't worth the paper it's writen on. One slight fly in the ointment.

[peacetalksforall]

8. Will the criminals get away? Want a more gentle word - perpetrators?

"As I said, the important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose. "

[AdHocSolver]

10. It is a bailout of the perpetrators of this Ponzi scheme, not the economy.

In a Ponzi scheme, success for the insiders requires that they get their profits out BEFORE the scheme collapses. In this case the crooks running the scam were so inept, they couldn't sell out in time.

The apparent drop in stockholders equity from $1.1 trillion to $236 million, what JPMorgan paid to buy out the company, is really just smoke and mirrors. This is just another failed Ponzi scheme just like Enron. The $1.1 trillion figure was just an inflated and manufactured value. If there really were that much value behind the stock price, then the price would never have dropped so far so quickly.

Letting JPMorgan buy the company so cheaply at the same time that the Fed is injecting billions of our tax dollars into the company is just adding more theft of our tax dollars to JPMorgan. In a real economy, that injection of billlions of dollars into Bear Stearns would increase its real value and therefore its stock price should go up to much more than $236 million.

Injecting the billions into the company and THEN letting JPMorgan buy it so cheaply is merely another scheme to rob the taxpayers by JPMorgan. So, what else is new.

Moreover, letting JPMorgan buy Bear Stearns merely increases the concentration of wealth in the hands of fewer people. In other words, it increases monopoly power in fewer corporations. How is this good? It isn't good. It just rewards the crooks and makes real economic reform and economic recovery even more difficult and less likely.

What should occur is that the government should be busting up all of these merged banks and investment companies and reinstating the Glass-Stegall Act of FDR's New Deal which forbade this kind of concentration in the financial industry.

[magellan]

11. Hear hear! Reinstate Glass-Steagall TODAY!! n/t

[marmar]

13. Who ended Glass-Steagall anyway?

n/t

[lonestarnot]

14. Clinton replaced it with ?

[marmar]

15. Ugh. Unlike Carter, Clinton's presidency looks worse in hindsight.

Sad.

[magellan]

17. It was being dismantled for decades, since the 70s I believe

By the mid-90s it was so riddled with holes that financial entities began merging in outright defiance of Glass-Steagall. The 106th Congress (Republican majority) finally wrote the Bank Modernization Act which Clinton signed into law in 1999.

There were culprits on both sides, and it was a long process. My view on Clinton: he shouldn't have done it. However, by the time he signed the Repub bill, there were no teeth left in Glass-Steagall anyway.

[Hannah Bell]

19. I believe there was one tooth left, at least.

The one that disallowed resale of bank loans.

[Yavin4]

16. Fuck Those Sick Kids In The SCHIP Program

Wall Street needs it bonuses. Empire club girls aint cheap.

:sarcasm:

[Ichingcarpenter]

18. The obscene wealth and power they wield

over the middle class and nations must be regulated
to the extent that their multibillion dollar parachutes
and bonuses should be equal to 10 to 20 times that of a
middle class American as it was in the 30s -70s.

The system is showing its disease and malfeasance
and some of the putrid parts of the beast need to be removed
before the gangrene destroys the whole animal.

The animal should be a servant of the people
but alas, we are the beast of burden to the animal right now.