Scrutiny Starts For The ‘New Paulson Plan’

March 21, 2009

We reviewed the new Geithner plan, which we fairly called the The New ‘Paulson Plan, six days ago:

A complicate scheme which will give the investment banks lots of fees, allows overpayment for toxic assets and transfers the risk of the overpayment to the general public. What’s not to like with that.

Last year the Paulson plan to heal the banks balance sheets was to buy up toxic assets for too high prices and later Geithner planed similar schemes. Both planed to use treasury money for this and the general scrutiny about these programs prevented their implementation. But now the Fed will be abused to implement this.

Everybody was busy with outrage over AIG bonuses at that time and the plan did not get any real scrutiny. It took until today and a New York Times piece on it for others to look at it.

Yves Smith:

[The plan] appears to be consistent with (low) expectations: a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for crappy paper.

Calculated Risk:

With almost no skin in the game, these investors can pay a higher than market price for the toxic assets (since there is little downside risk). This amounts to a direct subsidy from the taxpayers to the banks.

Krugman:

The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.

…

This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.

More Krugman:

It’s basically a thinly disguised version of the same plan Henry Paulson announced way back in September.
…
Why am I so vehement about this? Because I’m afraid that this will be the administration’s only shot — that if the first bank plan is an abject failure, it won’t have the political capital for a second. So it’s just horrifying that Obama — and yes, the buck stops there — has decided to base his financial plan on the fantasy that a bit of financial hocus-pocus will turn the clock back to 2006.

The bold parts are the biggest problem here:

People hate these bailouts and they have said so to their representatives and senators in no uncertain terms. The A.I.G. bonus debacle has shown as much. The Geithner plan, if implemented, will ultimately fail. It is much too small to clear all bad assets, $8 trillion are lost as Dean Baker reminds us. It is prolonging the pain for the real economy. The full risk and costs in trillions are all on the taxpayers while the banks and their bond holders are made whole.

If the plan is implemented it will take a few month until the leaks come out and some enterprising reporter finds out who gets rich through this scheme. Then, when everyone starts to understand what is really happening, Obama will finally have to fire Geithner. But that may not be enough by then to regain any public trust in Obama’s capabilities. With a unruly congress then repulsing any new plan, the U.S. will be practically rudderless in very heavy see.

I still hope for much more public discussion on this plan now and hope that the pressure build by that will force Geithner to drop it and force Obama to fire him. It is time to give the Treasury task to someone competent.

Otherwise prepare for some really bleak times. First under Obama and then under a new republican administration.

Posted by b on March 21, 2009 at 18:36 UTC | Permalink

Comments

they are doing what they did to iraq to their own people. the sack of irak will now be coupled with the sack of america
& it would seem to me that when a president has to tell you over & over again, he is the president, then he is not – the simulacra as a stain
it is as someone has noted here – too late for the good intentions of an honorable young man who has no power, no power, at all

Posted by: remembereringgiap | Mar 21 2009 19:42 utc | 1

I have no great understanding of the economy, and I bow to b’s knowledge, and that of others. To me, it seems that the state’s resources (US, as other Europeans such as Britain) are being run through very quickly without a clear idea of where they are going. And there is going to be nothing left, when someone finally figures out what to do, and there is a real need.
However, I wonder whether anyone is really profiting from this, as opposed to not losing and remaining in place. According to Arthur Goldhammer’s French Politics blog, who has no particular economic qualifications either:

The loss of wealth incurred by American households in the crisis has been estimated at $11.2 trillion. Total French wealth is 12.15 trillion euros. what this means in terms of purchasing power parity is that the equivalent of one France has vanished as a result of the crisis–economically speaking, of course.

He was quoting Le Monde.
Is it not really the case that all the taxpayers’ money is disappearing into the black hole of “losses”, and Geithner-Paulson and their friends are simply not losing out, but not profiting either?
I am not, by the way, trying to exculpate those people. They are profiteers, and should lose. But the profiteering is more the negative one of not losing.

Posted by: Alex | Mar 21 2009 21:05 utc | 2

“I wonder whether anyone is really profiting from this, as opposed to not losing and remaining in place” (Alex)
I’d like to know how the net worth of financial firms’ CEOs,as well as major shareholders of all kinds of institutions, has changed over the past year. My thought is that they have taken basically the same bath as all of us whose 401K’s and pension plans have dropped 50%. Of course, they have other stuff, like multiple homes and boats, and gold stashed away, so they are hardly destitute. But to the degree that their net worth consisted of stock in their own companies, especially the financials, they’ve really taken a hit.
The bailouts, as opposed to bankruptcy — which was the other choice — did save the jobs of top management. It also saved the companies themselves. That could have been the intention of the bailouts in the first place — to save the companies at the top and let the rest fail. On the other hand, pressure from foreign investors (banks, states and sovereign wealth funds) to cover their losses was probably the main motivation.

Posted by: senecal | Mar 22 2009 0:12 utc | 3

the bailout will not be worth much once the Dollar gets devalued …

Posted by: outsider | Mar 22 2009 0:50 utc | 4

The Paulson Plan:

But if a surplus labouring population is a necessary product of accumulation or of the development of wealth on a capitalist basis, this surplus-population becomes, conversely, the lever of capitalistic accumulation, nay, a condition of existence of the capitalist mode of production. It forms a disposable industrial reserve army, that belongs to capital quite as absolutely as if the latter had bred it at its own cost. Independently of the limits of the actual increase of population, it creates, for the changing needs of the self-expansion of capital, a mass of human material always ready for exploitation. With accumulation, and the development of the productiveness of labour that accompanies it, the power of sudden expansion of capital grows also; it grows, not merely because the elasticity of the capital already functioning increases, not merely because the absolute wealth of society expands, of which capital only forms an elastic part, not merely because credit, under every special stimulus, at once places an unusual part of this wealth at the disposal of production in the form of additional capital; it grows, also, because the technical conditions of the process of production themselves — machinery, means of transport, &c. — now admit of the rapidest transformation of masses of surplus-product into additional means of production. The mass of social wealth, overflowing with the advance of accumulation, and transformable into additional capital, thrusts itself frantically into old branches of production, whose market suddenly expands, or into newly formed branches, such as railways, &c., the need for which grows out of the development of the old ones. In all such cases, there must be the possibility of throwing great masses of men suddenly on the decisive points without injury to the scale of production in other spheres. Overpopulation supplies these masses. The course characteristic of modern industry, viz., a decennial cycle (interrupted by smaller oscillations), of periods of average activity, production at high pressure, crisis and stagnation, depends on the constant formation, the greater or less absorption, and the re-formation of the industrial reserve army or surplus-population. In their turn, the varying phases of the industrial cycle recruit the surplus-population, and become one of the most energetic agents of its reproduction. This peculiar course of modem industry, which occurs in no earlier period of human history, was also impossible in the childhood of capitalist production. The composition of capital changed but very slowly. With its accumulation, therefore, there kept pace, on the whole, a corresponding growth in the demand for labour. Slow as was the advance of accumulation compared with that of more modem times, it found a check in the natural limits of the exploitable labouring population, limits which could only be got rid of by forcible means to be mentioned later. The expansion by fits and starts of the scale of production is the preliminary to its equally sudden contraction; the latter again evokes the former, but the former is impossible without disposable human material, without an increase, in the number of labourers independently of the absolute growth of the population. This increase is effected by the simple process that constantly “sets free” a part of the labourers; by methods which lessen the number of labourers employed in proportion to the increased production. The whole form of the movement of modem industry depends, therefore, upon the constant transformation of a part of the labouring population into unemployed or half-employed hands. The superficiality of Political Economy shows itself in the fact that it looks upon the expansion and contraction of credit, which is a mere symptom of the periodic changes of the industrial cycle, as their cause. As the heavenly bodies, once thrown into a certain definite motion, always repeat this, so is it with social production as soon as it is once thrown into this movement of alternate expansion and contraction. Effects, in their turn, become causes, and the varying accidents of the whole process, which always reproduces its own conditions, take on the form of periodicity. When this periodicity is once consolidated, even Political Economy then sees that the production of a relative surplus-population — i.e., surplus with regard to the average needs of the self-expansion of capital — is a necessary condition of modern industry.

Posted by: slothrop | Mar 22 2009 3:04 utc | 5

Hey. Poetry aint pithy.

Posted by: slothrop | Mar 22 2009 3:06 utc | 6

Frank Rich: Has a ‘Katrina Moment’ Arrived?

A CHARMING visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: “President Obama may not realize it yet, but his Katrina moment has arrived.”
…
As the nation’s anger rose last week, the president took responsibility for what’s happening on his watch — more than he needed to, given the disaster he inherited. But in the credit mess, action must match words. To fall short would be to deliver us into the catastrophic hands of a Republican opposition whose only known economic program is to reject job-creating stimulus spending and root for Obama and, by extension, the country to fail. With all due deference to Ponzi schemers from Madoff to A.I.G., this would be the biggest outrage of them all.

Posted by: b | Mar 22 2009 5:51 utc | 7

Can you say, a day late and a dollar short?
Oooh, oooh, oooh! I want to play the game where, by judicial fiat, you subvert the Constitutionally mandated separation of powers in the interest of partisan political expediency, leading to the near-autocratic 8 year rule of a corporate fascist cabal at the end of which the world economy collapses and the US becomes a torture state.
Where’s that game, Justice O’Connor ?
Justice Sandra Day O’Connor has a
web site, about constitutional rights. Sometime this summer they’re going to roll out two games for students to play to teach them about their rights under the Constitution.

Posted by: Uncle $cam | Mar 22 2009 7:42 utc | 8

Obama Administration: Constitution Does Not Protect Cell-Site Records
The Obama administration says the Fourth Amendment prohibition against unreasonable searches and seizures does not apply to cell-site information mobile phone carriers retain on their customers.

they are doing what they did to iraq to their own people. the sack of irak will now be coupled with the sack of america

without a shot fired..

Posted by: Uncle $cam | Mar 22 2009 7:48 utc | 9

More news that will generate outrage: Washington Mutual sues FDIC for over $13 billion

Washington Mutual Inc, the failed U.S. savings and loan, has sued the Federal Deposit Insurance Corp for well over $13 billion in connection with the loss of its banking operations, which was acquired by JPMorgan Chase & Co.
In a complaint filed with the U.S. District Court for the District of Columbia, the thrift’s former parent accused the FDIC of having on January 23 made a “cryptic disallowance” of its claims, prompting the lawsuit.
It also accused the FDIC of agreeing to an unreasonably low price in arranging the a $1.9 billion sale of the banking business to JPMorgan on September 25, when regulators seized Washington Mutual and appointed the FDIC as receiver.

Posted by: b | Mar 22 2009 10:42 utc | 10

Larry Silverstein wants bailout money for WTC

NEW YORK — The rebuilding of the World Trade Center site, already hobbled by years of delays and infighting, is facing fresh problems as private developer Larry Silverstein asks the government for crucial financial assistance, according to people familiar with the matter.
The result would be that the Port Authority of New York and New Jersey, the government entity that owns the site, would take on more of the risk of the project at a time when the agency already faces budget restraints to pursue its core transportation and infrastructure missions.
The Port Authority, eager to prevent the project from stalling, is considering helping to finance at least one of Mr. Silverstein’s planned three office towers, according to people familiar with the matter. Mr. Silverstein is requesting financing help on at least two of the three towers. The Port Authority would require concessions from Mr. Silverstein, including possibly giving up some of upside profits should the towers succeed in the long term.
The project, meant to be a symbol of the recovery after the Sept. 11 terrorist attacks, has been through years of costly delays and acrimony. The plan for the 16-acre site includes five skyscrapers, a memorial, a transit hub, a shopping mall and a performing-arts center. Much of that was recently expected to open between 2011 and 2013.
Those dates are in jeopardy and at least some elements are unlikely to be finished until the later part of the next decade. The memorial is set to open by the 10th anniversary of the attacks, but even it faces budget shortfalls and is pursuing federal stimulus money.

Posted by: Uncle $cam | Mar 22 2009 11:08 utc | 11

Now Yves is really getting it:

Folks, this IS even worse than I thought, and you know I have a constitutional predisposition to take a dim view of things (although it was clear from the get-go that the introduction of private parties to give air cover to the Treasury would make the exercise more costly without adding any value).
I suggest you write/e-mail your Congressmen, and more important, any of you who have MSM media contacts, call this to their attention. There will no doubt be useful further grist on this thread and on the post on which this comment first appeared. But the analysis above is damning on its face. I’d like to have someone have Geithner try to explain why it WON”T work like that, and how this abortion solution is in our collective best interest.
AIG bonuses are a sideshow (as offensive as they are, don’t get me wrong on that one, the symbolism is awful). It is diverting attention from the real crimes and serving to get nay-sayers branded as populists, which is code for “jealous of their betters”.

Posted by: b | Mar 22 2009 11:34 utc | 12

from economicrot:
New Integer Discovered!
PALO ALTO, CA – An international mathematics research team announced today that they had discovered a new integer that surpasses any previously known value “by a totally mindblowing shitload.” Project director Yujin Xiao of Stanford University said the theoretical number, dubbed a “stimulus,” could lead to breakthroughs in fields as diverse as astrophysics, quantum mechanics, and Chicago asphalt contracting.
“Unlike previous large numbers like the Googleplex or the Bazillionty, the Stimulus has no static numerical definition,” said Xiao. “It keeps growing and growing, compounding factorially, eating up all zeros in its path. It moves freely across Cartesian dimensions and has the power to make any other number irrational.”
Jean-Luc Brossard, a researcher with the European consortium CERN, said the number is so staggeringly large that it is difficult for even mathematicians to grasp, let alone lay people.
“The number itself is incomprehensible by human minds, and can only be theoretically understood in a fractional parallel universe which we refer to as the DC dimension,” said Brossard. “The best way to understand a stimulus is to imagine a dollar sign followed by a packed string of hexidecimal nanodigits, wound into a triple helix, woven into a dodecahedron, and stacked on top of one another. Now imagine you were a black hole on the far edge of the universe, trying to escape the stimulus at 30 times the speed of light. The stimulus would still catch up to you and ram your black hole with such furious, repeated force that it would cause your entire reality itself to collapse.”
Xiao said the team discovered the number with the help of an international network of 24 nitrogen-cooled Cray Ultracluster supercomputers, the CERN particle accelerator, and “three pounds of Humboldt County Chronic.”
“The exciting news is that with more powerful computers and drugs, we believe we are on the verge of discovering an even larger number, which we refer to as a ‘stimulusconferencebill,'” said Xiao. “Speaker Pelosi has already promised us the funding.”

Posted by: Rick | Mar 22 2009 13:20 utc | 13

Geithner and Bernanke (and Greenspan before them) are all addicted to the bubble. Call it Bubble Nostalgia if you will.
Anyway, a good bubble will fix any financial problem. If the last bubble hadn’t popped, even Madoff might not have been discovered.
So let’s start calling the Geithner/Bernanke/New Paulson Plan what it really is–the Bubble Restoration Plan. Nothing more is accomplished by having the government guarantee bad loans.

Posted by: JohnH | Mar 22 2009 15:14 utc | 14

It is much too small to clear all bad assets, $8 trillion
This seems incorrect if you believe in the plan as the pitiless asshole Brad Delong does.
I don’t know how this “leverage” business works.
Can someone explain?

Posted by: slothrop | Mar 22 2009 15:16 utc | 15

Bubble Restoration Plan, or BRP.
So all this baby needs is a good burping…. Heh.

Posted by: jawbone | Mar 22 2009 15:21 utc | 16

Mavercon (Prof. Buiter, wonkish) Fiscal dimensions of central banking: the fiscal vacuum at the heart of the Eurosystem and the fiscal abuse by and of the Fed

If, as I consider likely, the US Federal government will not be able to commit itself credibly to future tax increases or future public spending cuts of sufficient magnitude, US public debt will, during the next two or three years, build up to unsustainable levels. When faced with the choice between sovereign default and inflating away the real value of the public debt, there is little doubt about the alternative that will be chosen by the US Executive and the US Congress. The Fed will be instructed to inflate the public debt away. Either Ben Bernanke or a more pliable successor will implement these instructions.
It is surprising that even at a horizon of 5 years or more, the markets are not yet pricing in a distinct possibility of double-digit inflation in the US. The announcement of QE in the US did weaken the external value of the US dollar, but long-term sovereign interest rates fell for the maturities targeted by the Fed (two to 10 years) and did not rise materially for longer maturities. At some point, probably not too far into the future, the future inflation expectations effects of QE that is unlikely to be reversed when required to maintain price stability, should overcome the immediate demand effect of the Fed’s QE on the prices of longer-term nominally denominated US sovereign debt instruments.
…
I consider this use of the Fed as an active (quasi-) fiscal player to be extremely dangerous and highly undesirable from the point of view of the health of the democratic system of government in the US.
There are two reasons for this. First, it undermines the independence of the Fed and turns it into an off-budget and off-balance sheet special purpose vehicle of the US Treasury. Second, it undermines the accountability of the Executive branch of the US Federal government for the use of public resources – tax payers’ money.
…
The opaqueness of the financial operations of the Fed in support of the financial sector (which are expanding in scale and scope at an unprecedented rate) and the lack of accountability for the use of tax payers’ resources that it entails, threaten democratic accountability. Even if it enhances financial stability, which I doubt, democratic legitimacy and accountability are damaged by it, and that is too high a price to pay.

Posted by: b | Mar 22 2009 15:27 utc | 17

@slothrop – This seems incorrect if you believe in the plan as the pitiless asshole Brad Delong does.
DeLong is trying a salesperson pitch, a bad one. His specially is economic history. He is good at that. He is not good at today economic or economic future.
The $8 trillion is from the Dean Baker piece linked next my quote of the number: Treasury Officials Who Missed $8 Trillion Housing Bubble Still Haven’t Noticed It
As for leverage – which one do you mean?

Posted by: b | Mar 22 2009 15:57 utc | 18

Now evident that the US is run by an oligarchy, or simply by whomever has the impulse and charisma (or blackmail oppos..)
Bernanke and Geithner and their associates are masterminding the show. The banksters paid out small sums to corrupt pols to have Glass-Steagall repealed, and thus de-regulation set in, oversight was abandoned, the bandits could make out with their casino capitalism, speedily incomprehensible to practically everyone, and needing no explanation to those in the halls of power who lined their pockets, a great example of trickle down that stops at a certain high level.
Few wanted, tried to stop them.
Those that perceived dangers, or objected, or saw disaster looming were sidelined, excluded, mocked.
The media see to it that ordinary ppl are sent into a narcissistic coma, don’t participate in their own lives (or that of their co-workers, neighbors, family, etc.) in any way that could benefit their well being. Competition (‘free market’) and being top dog etc. as a way of life lead to acceptance of authority, in whatever form, and covert aggression towards peers, in the form of legitimate profiteering. The Mafia at least is straight-forwardly parasitic on another system; but when racketeering and large scale murder are the legitimized hallmarks of the most powerful country on the planet, some re-set is long due.

Posted by: Tangerine | Mar 22 2009 17:09 utc | 19

America is known for its great second acts, and we may be witnessing the curtain rising on Spitzer’s.

Eliot Spitzer is back and he’s talking. The thought of this, no doubt, brings a small shiver to the boardrooms of some of the perps walking around trying to figure out how to hide the money this week. Today Edward Liddy testified that there have been death threats made to or about executives who received bonuses, so no names will be put on the record, but these anonymous players must know that the jig is up in the land of easy-money. Isn’t what to do a no-brainer for these great Americans?
Spitzer may be as “disgraced” as any anonymous sex loving Republican loser, but America is known for its great second acts, and we may be witnessing the curtain rising on Spitzer’s.
Today in Slate Eliot Spitzer has a short op-ed that speaks volumes about what is going on, and indirectly, if you follow the money, what happened to him. Plainly stated, Spitzer brings the AIG Ponzi Scheme one step closer to the revered establishment when he explains how the bailout money was funneled straight into the top players, with Goldman Sachs being the name that comes up again and again. These top players already got bailout money, and Goldman is looking at zero losses at this point, while regular Americans are being asked to make concessions or just plain losing everything. here are the biggest financial entities in the world, making billions on what appears to have been nothing but air traded back and forth, and having gutted the American people they are walking away with 100% return to their stockholders. In return AIG seems to think that its appropriate to pay themselves bonuses with the leftover funds. This leaves AIG still a wobbly shell with no plan of how to go forward, and the threat of the collapse of all of the world’s financial markets still up in the air. So, what was all that bailout money for? Apparently to make sure that no one at Goldman or the other few top firms in the hand-out-line lost anything!
The relationship between AIG and Goldman goes back long enough that one would think that Goldman would know, having bought so much of this “insurance” or whatever it was, whether the “products” were …er…real or feasible at all. Indeed, Goldman and AIG almost merged a few years ago, but Spitzer notes that the unknown black hole of AIG’s business practices were probably what prevented it. Still, that didn’t stop the incestuous dealings; it almost makes one think that this whole thing was a setup.
This is country that Spitzer is familiar with; he has been a terrible liability to entities that, under the Bush administration, were allowed to literally gut the country and its citizens. All of this seems to have been part of the Bush Administration’s own Ponzi Scheme, which figured that the illusion of an ownership society, terrified of the “terraism” and steeped in the me, me, me, culture would look the other way while they finished clearing out the vault. Beyond that, it’s clear that the media hyped housing bubble encouraged the house flip mentality and the idea that anyone could be rich. The idea of the lottery dropping on our own heads made us more protective of the rich, because we might one day be one….or look, we could be one with no money down, if we could just balance that on this, and flip that house!!

Posted by: Uncle $cam | Mar 22 2009 17:20 utc | 20

I don’t understand the mechanics of “leverage” beyond the usual idea that even though I have only $100 in assets and debt, some sucker will loan me $1000 hoping my rate of return on investment exceeds the rate of interest on the loan. I have “leveraged” x the amount of my possible wealth based on an (expected!) profit.
But, when does “leverage” become ponzi scheme? What Delong claims as “public investment” sounds great if the “toxic assets” are worth something in a future in which housing recovers its bubble-era values. So, explain how this leveraging is supposed to work for public investment in a collapsed housing and credit bubble, without re-inflating the bubbles? And remember, our “leverage” exists in that pretty atmosphere of “equity” riding high above the colossal payments needed to service the accruing debt.
It would just be easier to wipe out these “swaps” and tax the shit out of the capitalist class.

Posted by: slothrop | Mar 22 2009 18:03 utc | 21

duh. The baker article says the same thing. Answer: no. No, the fed cannot “leverage.”
“Leverage.” Financial bling.

Posted by: slothrop | Mar 22 2009 18:10 utc | 22

It’s just no use to implore congress and O to stop feeding the capitalists. The moment for “hope” has clearly passed.

Posted by: slothrop | Mar 22 2009 18:26 utc | 23

@sloth – see the Mavercon, linked in a comment 17 above:

The Fed does not have a full indemnity from the US Treasury even for its outright purchases of private securities. It has no guarantee or indemnity for private credit risk assumed as a result of its repo operations and collateralised lending.
For the Fed’s up to one trillion dollar potential exposure to private credit risk through the TALF, for instance, the Treasury only guarantees $100bn. They call it 10 times leverage. I call it the Fed being potentially in the hole for $900 bn.

Posted by: b | Mar 22 2009 18:46 utc | 24

Matt Taibbi has an interesting take on the situation in Rolling Stone.

Posted by: Sgt Dan | Mar 22 2009 20:32 utc | 25

Do we need banks? I ask because the people in charge, for whatever reason, really seem to believe that the collapse of the banking system is too dangerous to entertain, and are taking the necessary steps, as they see them, to prevent such a collapse.
I have absolutely no way of knowing whether they’re right, and even if I knew about finance (alas I do not), I suspect that knowing about finance might not help me understand the magnitude, range, and intractibility of the current disaster.
Do we need banks? The question leads to another problem that I hadn’t thought of: though the things I read here about the blundering misdeeds of Geithner & Co. are plausible, I can’t begin to judge their pertinence. For if we don’t need banks, then corrective steps would call for entirely different approaches, where Geithner & Co. would not pertain.
It would be good to have Marx’s thoughts on the subject. Yes he believed in banks, but I’m told that he didn’t write about money (volume III of Capital being the handiwork of Engels). I regret this.
|

Posted by: alabama | Mar 22 2009 23:31 utc | 26

The whole of chapter 3 of vol I of capital is about money. About the role of central banks in the capitalist mode of production, these are institutions needed by capital to regulate the supply of money and availability of credit. Of course our fed does a lot of the first, but little of the latter, in this age of “derivatives” created by the shadow banking system.
Marx, in a footnote to that chapter, alludes to this dual role of “moneyed capital.”

Posted by: slothrop | Mar 23 2009 0:31 utc | 27

Also, the long quote I supplied above is so apropos of what we experience today, from the point of view of production. As investment in production no longer offers capitalists the customary returns, capitalists simply withdraw from the market. Why? The costs of variable capital are too great.
Some ways to improve this state of affairs. First, reduce wage-rates by slowing the absorption of labor. Second, create a ponzi finance scheme which robs pension funds. Third, socialize the costs of “recovery” and pauperize the workers. Fourth, when production resumes, inflate away the debt.

Posted by: slothrop | Mar 23 2009 0:47 utc | 28

When the repubs get back, that’s what they’ll do. Forget all the effective demand bullshit.

Posted by: slothrop | Mar 23 2009 0:50 utc | 29

Spent the last four hours of a sunny Sunday afternoon figuring out how many
$10,000’s I owe to the IRS, with ‘No $M Bonus for You!’ Sunday Morning pundits
pablumry still ringing in my ears, hit Save, not Save As, lost the entire four
hours of tax preparation work, along with my sunny Sunday, so feeling frisky:
Neo Lord’s Prayer
Our Father, Which art in Riyadh,
Hollowed be our name;
Thy Kingdom come, Thy Will be done,
in Riyadh, so on Wall Street;
Give US this day our daily crumbs,
Forgive US our debts,
As we bailed out the Bankers;
And lead US not into repossession,
but deliver US from usury,
for Thine is the Sheikdom, and
our’s Perpetual Peonage, Forever.
Amero
Hey, if you can’t laugh, the bastards got your Soul too.

Posted by: Tom Terrific | Mar 23 2009 1:11 utc | 30

Preparing for tomorrow’s second helicopter drop, fearing the Neo-Pharoahs may begin
printing their own money, now that all audit and accounting has been thrown to the
wolves, the US Treasury made a joint announcement today along with the Fed of their
new $100 bill with no nominal value.

Posted by: Paul Getti | Mar 23 2009 1:28 utc | 31

To rephrase the question more exactly: granted that “banks are institutions needed by capital to regulate the supply of money and availability of credit”, why must capital’s needs to “regulate” anything be met at all? What is the meaning of the word “need” here? If banks, real or “shadow”, were dissolved, would capital also dissolve, and if it did, what other forms of circulation (other than barter) might take its place?
Or to put it another way: has anyone really tested the need to meet capital’s “needs”? And how has capital ever, for the least part of a decade–since, let us say, the South Sea Bubble–ever “regulated” anything?
I can imagine the day when banks go the way of the newspaper. They did, after all, come into being at the same time.

Posted by: alabama | Mar 23 2009 1:29 utc | 32

What We are being asked, no ordered, tomorrow to $T bail out for a second time these naked short sellers, is perpetual debt by fiat and, in and of itself, an act of high treason, to deliver our nation’s citizens’ hard-earned blood and treasure over to overseas foreign gamblers and speculators, without at least a promissory script IOU.
$10T in their dot.con, now $10T in their credit.con, it’s torches and pitchforks time!
Hey, hold this, and go long!

Posted by: Sayed Aintso | Mar 23 2009 1:47 utc | 33

DEEPCAPTURE.COM
THE TEST: ARE YOU FORBIDDEN FROM UPDATING WIKIPEDIA WITH THIS INFORMATION?
I know that to many this [naked short selling by foreign hedge funds which the US Fed is set to hand a second $2T tomorrow and the dew is on the newscasters’ lips] can be a maddeningly complicated issue, and it may not be easy to know who or what to believe. So I propose that you, the reader, conduct an easy, simple test, using the articles cited above. You can do it in about 2 minutes:
* Wikipedia is allegedly an open-communal constantly updated people’s medium;
* Log on to Wikipedia (if you do not have an account you can create one);
* Go to the article on Naked Short Selling;
* Attempt to edit the article with any information regarding events, data, or quotes from any of the articles you have read about naked short selling.
You will find that it is forbidden for you to add any information, data, or quotes from those numerous articles, or to correct any of the glaring omissions and laughable spin of the current article.
If you try, your edits or additions will be removed nearly instantaneously. In fact, you may find yourself banned from Wikipedia while all proof that you even made an edit disappears.
On “The encyclopedia that anyone can edit”, a resource that updates in seconds at the passing of a celebrity or the gaffe of a politician, you will find that you cannot insert quotes on this one topic, even when those quotes come from SEC Chairmen, economists, presidential candidates, Congressmen and Senators, G-20 regulators, and Wall Street leaders, even when those quotes appeared months or years ago in The Economist, Reuters, DowJones, Associated Press, or Bloomberg.
Two million English-language articles work by one set of rules, but this article on a grave financial crime turns out to run on a secret set of rules controlled by an unknown cabal of watchers at the gate of knowledge.
And that, dear reader, is the stutter-stepping black cat that should wake you to the synthetic Matrix reality you inhabit. Tomorrow you will become its slaves.

Posted by: Pish Tosh | Mar 23 2009 3:59 utc | 34

@alabama – do we need banks?
My view: To a certain degree yes. To accumulate individual savings and allocate credit is of value to the society as well as making it easy to transfer money from a to b. But that can be done by local community banks with a few upstream banks owned by those community banks.
“Investment banks” have no real economic value and are not needed at all. Derivatives etc. are meaningless without the underlying real produce.
The only valuable “financial engineering” product of the last 30 years is the Automated Teller Machine.

Posted by: b | Mar 23 2009 6:43 utc | 35

Krugman: Financial Policy Despair

If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.
…
It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

Posted by: b | Mar 23 2009 6:46 utc | 36

b, @36: this suggests to me that a world-wide system of credit unions, linked by ATMs to larger, hub-like credit unions could service the world’s needs for savings and for credit-allocation. It would also answer to Marx’s call for a “central bank”, and require (perhaps) a single, world-wide currency. I’m no better at science fiction than at finance, so let’s leave it at that, with the understanding that we might have to go through four or five more cycles such as the current one before the system could work itself out.
The value, for me, of such an hypothesis (almost a comic-book view of things), is that it can show how utterly insane, arbitrary and fantastic our system has become.
And thank you for the point about the ATM. It sounds right and feels right and probably is right. It helps, and we need help.

Posted by: alabama | Mar 23 2009 9:55 utc | 37

b @35, that is.

Posted by: alabama | Mar 23 2009 10:58 utc | 38

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