National day of protest for banking reform instead of bailouts
Tiffiniy sez, "AIG bonuses are maddening! It's time to break the power of the bankers. On April 11, national US protests will be organized to demand for a new way forward on the economy, a systematic restructuring of the financial institutions.
Nationalize, Reorganize, Decentralize. Protests are organized through Facebook, Twitter, and message board forums by people all over the US. So, who's going to jump the gun and organize one for their city?"
A New Way Forward (Thanks, Tiffiniy!)
It’s time to stop giving huge handouts to banks and start creating systemic change that helps everyone. We demand a new way forward now.We are sick of bailouts that are enriching bankers without restructuring a broken industry. Join us on April 11, 2009 as we rally for systematic change based in fairness and intelligent economics. Nationalize, Reorganize, Decentralize. If you don’t see your city or town listed on the right, please sign up your city to get it going.
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"Decentralize" as in eliminate the central banking system which creates these boom-bust cycles through expansion of the money supply using fiat currency and fractional reserve?
We don't really need "Nationalize" to cause the "Reorganize" to get to that point though; just financial cryptography for private money creating currency competition.
China's eventually going to see that the USA won't (or can't) pay its debt obligations, dump their T-bills, leading inevitably to hyperinflation of the USD. Just ask Peter Schiff.
I mean, if eBay / PayPal accept Canadian Tire Money...
c.f. economic secession, counter-economics
See how much our US Cities, States, Country and households could save on taxes if Marijuana were decriminalized, then sign the petition:
http://www.marijuanalobby.org: Change we can engage in...
Since American, the capitalist crusader has decided to go the way of socialism, why are they not bailing out the citizens by absolving their debts instead of fattening up the porker bankers?
People still owe debt but banks are getting double dippings and rolling in the excrement too boot. Way to go America.
very interesting, the grassroots anger level against banks and bankers looks promising. I would invest in glaziers and related businesses. Anyone can afford a half-brick and bank windows are everywhere.
I *really* need to see this "too big to fail" b.s. with AIG resolved. Also, I would like to see the suspension of further credit default swap underwriting until all current contracts are examined and the liabilities understood. Wishful thinking I know, and why I support this national day of protest. Certainly makes a million times more sense than going after Cramer.
What Would John Galt Do?
Pffft.
Personally, I think the cow's out of the barn, BUT if you're going to organize a protest, remember only one thing matters: Make it too big to fail.
Again, you're pulling up this Austro-mysticism. Why don't you answer Steve Keen's question before you go on:
http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/#_ftn6
You seem to think that money is created by printing it. It's not. Money is created by extending credit. The volume of money created by extending credit is orders of magnitude larger than the amount of actual physical currency.
It might be a good idea to switch economic models to ones that correspond to reality, one created by people who aren't anti-empiricists like Mises.
Last time I checked "jump the gun" - it still meant "screw up by starting too soon" It's a metaphorical referance to starting to run a race before the starting pistol is fired...
Daemon
It only means "screwed up" if you give a shit about the rules. Otherwise.. run run run!
I'd suggest withdrawing your money the day before for, say, 24 hours. Leave in whatever you need to cover checks, automatic payments, etc.--getting socked with bounced check fees would defeat the purpose--but take out everything else. It'd be a dry run for a bank run.
How stupid. Decentralization and nationalization are mutually exclusive. Anybody ever heard of the Community Redevelopment Act? It would be helpful to read about it.
Maybe I'm dense, but isn't nationalization the ultimate act of centralization?
Well, not exactly. Nationalization is the temporary measure. Going forward, we want less concentration of ownership, so "divestment," as with AT&T, is what is meant.
Unfortunately, that turned out to be temporary (ca. 25 years).
Bjacques@11: Already divested, thanks. (Credit unions anyone?)
Glad to see Austin is already on the list. I will be there with my big banker bells on.
> Maybe I'm dense, but isn't nationalization
> the ultimate act of centralization?
It is, but it can be the pre-cursor to a de-centralisation by sell-off of parts. Done correctly and with a little planning, nationalisation need not last longer than a month or two. During that time, self-dealing board members and incompetent executive managers are sacked, values are placed on assets, new buyers are lined up, and the pieces are sold off.
Of course, many of the buyers will be the same greedheads and myopic MBAs who still think that the times aren't a-changin', but we're not left with companies that are "too big to fail" (i.e. too big to exist). Diversification is a good thing.
The major impediment to this plan is that, under examination by potential purchasers, it'll have to be acknowledged that many of these financial services companies are insolvent--something both the government and the corporations are loath to admit. But again, done right, an orderly break-up can result in the isolation of toxic divisions from the healthy ones.
And a final note to the Libertarians out there: if you truly want government to act more like a business, then treating these distressed companies like any private acquirer would (as described above) is the way for the government to go. Otherwise, you're a Rotarian socialist (or, as they're more commonly known, crony capitalists) supporting corporate welfare queens.
That was my first reaction, too. But then I realized how much industry (incl. banks) have centralized on their own over the past 20 years.
Nationalizing at this point mainly shifts control from the private to the public spheres where there is a chance that some justice could be done.
I like the spirit of "reform" not "bailout" but on the other hand, I'm kind of afraid of the reform that would come out of the crisis that would no doubt degrade even faster if the current system wasn't propped up by a few bills! The kind of reform that, 5-10 years later, gives you "Oops...didn't think of that...err...yeah, I guess we were a bit freaked out when we decided that."
One reform I'd like to see is regulation that prevents companies so big that they are "too big to fail."
I always pictured nationalization as not involving compensation for those the asset was taken from. But I guess this is capitalist nationalization.
I would just like for someone to know that on the "anewwayforward" website, where text is provided for copy/paste to friends' emails (Subject: Time to push the bankers out of Congress), that it says the protest will be on "April 1th." It should say April 11th; this could be confusing to all recipients of the email.
I scoured the website for some kind of contact info, but there is none (poor form, imo).
If you support these protests, consider promoting them on digg:
http://digg.com/business_finance/National_Protests_for_Banking_Reform_not_Bailouts
Within the Austrian School, there's basically two camps:
1.) Rothbard says return to a gold standard, or some other stable commodity.
2.) Hayek says private fiat currency is feasible (as in the Denationalisation of Money) because with competitive currencies, rather than a single monopoly on money within a currency zone, consumers will have a frame of reference to measure inflation relative to other currencies, and banks will be forced to buy back their currency relative to other banks' currencies to curb inflation.
Since the government itself is unlikely to return to a gold standard, and since the aim of a stable money supply is that it remain fixed, financial cryptography appears to solve this problem. The digital bearer bonds can be generated in a one-time way such that no further ones can be without being detected as forgeries.
Assuming you can convince anyone to exchange such bearer bonds for other currencies such as Dollars, Euros, Yen, etc. That's where explaining that it's a means of protecting value as other currencies slide due to debasement is required.
"Printing" is just a convenient shorthand; most money issued never becomes Federal Reserve Notes. When people refer to the "money supply" they mean "money and credit". The actual process of money creation by the Federal Reserve is more complicated, using "open market operations" which I'll let Robert P. Murphy explain:
Referring to the Methodenstreit, simply put, economics cannot be strictly empirical as with Newtonian physics is because of the observer effect. Economics has far more in common with communication theory and complexity theory.As for...
Accounting for the observer effect is the basis of positive economics.
The public sphere has the opportunity to see justice done now, why wait? Are we as Americans forgetting that the last 8 years DID HAPPEN and absolutely nothing has been done about it?
You know, if we nationalize these banks, we'd essentially be cutting out the middle man for the power mongers. Rather than paying high priced lawyers to design virtually indestructible legal defenses for their culture of loot and plunder, they can simple rewrite the laws themselves. If you want any idea what that kind of money is worth in Washington, just take a look at all these bailouts passing irregardless of vocal opposition from both the left and the right. They already own Washington D.C. After nationalizing they won't need any more bailouts cos it will discreetly be tacked on to the yearly budget.
Things are going to suck, they already suck big time. The only real solution for most of the people in the world would be to let these banks fail. Which isn't going to happen because the elite bankers and the congressmen are addicted to the idea of passing shit back and forth forever. These bailouts are already evidence that the people voting for these bills are on the bankers payroll. You must be incredibly naive to think that giving these swindlers more power is good for anyone other than them.
"Nationalization" means "the government is taking over here." The conditions of that takeover usually reflect what kind of government you're living under. In this case, one that gives rich capitalists anything they ask for.
Regarding Zuzu's comment @ #1, I echo the other responses that in this case "decentralize" means to temporarily nationalize the large banks and divide them into smaller ones that aren't big enough to drag down the entire economy if one of them fails.
For everyone claiming such intense skepticism of positive economics / the Austrian School, the "too big to fail" claim seems to have been accepted without any question at all. Why is that?
We already have a system to do what this nationalization would do: it's called bankruptcy. Let these banks fail, and new owners and entrepreneurs will buy up the assets which have been separated from their liabilities, and put them to productive use.
Fight over words, or fight for yourself:
http://www.youtube.com/watch?v=5QG4iImf8pY&eurl
It's worth pointing out that there are good arguments for paying the AIG bonuses.
I like the idea of a protest, maybe not so much the nationalization idea.
I don't trust large organizations.
Decentralization of the banking system is a nice idea, just like Ron Paul.
Remember, as far back as last fall, right after the first $700,000,000,000.00 was approved in a fit of apocalyptic fervor, too-big-to-fail recipients of the bailout money started buying other banks, becoming, one would presume, even too-bigger-not-to-fail.
Better hurry up with those protests; the banks are going to keep centralizing faster than you can decentralize them.
How is protesting going to make it better?
You're all just as guilty as the banks. NOW you want to do something about it?
Keeping the same system and merely subdividing the players doesn't really change anything. With telephone networks, what was needed was genuinely competitive infrastructure (like the Internet and cable companies, or ideally open spectrum). For banking, it's the central banking system that needs to be broken up; a return to free banking.
I always pictured nationalization as not involving compensation for those the asset was taken from. But I guess this is capitalist nationalization.
The compensation issue is almost beside the point for Republicans. What they really hate is the idea of the state controlling corporations -- not because the state isn't equipped to do so (which is open to debate), but because their worst nightmare is the American taxpayer, represented by someone like Fitzgerald or Spitzer (I know, hookers, ha-ha), acting as an activist shareholder.
That said, the same people more than happy for the state to give hundreds of billions of dollars to corporations with no accountability attached. It's only when you start bailing out or empowering the plebes that they start railing about "tea parties."
One reform I'd like to see is regulation that prevents companies so big that they are "too big to fail."
There was reform that could have mitigated this problem: Glass-Steagal. Unfortunately, Phil Gramm (who called average Americans "whiners" when the crisis got rolling) and his neoCon pals decided to push through its repeal. That's why a few big players like AIG and Citibank and Countrywide and GM (where the finance and marketing divisions wagged the manufacturing dog) were all so dependent upon and exposed to one another.
For everyone claiming such intense skepticism of positive economics / the Austrian School, the "too big to fail" claim seems to have been accepted without any question at all. Why is that?
The reason is that we understand the level of mutual exposure (across international borders) amongst these big financial services companies. Letting Citi and/or BofA or even AIG fail basically brings the whole house of cards down, and inspires a years-long global crisis of confidence in what assets everywhere are worth. What happens next?
Things are going to suck, they already suck big time. The only real solution for most of the people in the world would be to let these banks fail.
Doing nothing and letting them fail is a U.S. ca. 1930 order of suckitude -- the "invisible hand of the market" will basically grab an invisible straight razor and try to slit its own invisible throat.
Right now, the government is the only major player that has anything close to a genuine interest in putting a fair value on assets -- otherwise it's information asymmetry city (AKA Dodge City). If you think that the responsible investor and entrepreneurial classes (or, more precisely, their money) have gone to the mattresses in the last two fiscal quarters, you'd see even more of that behaviour if they were asked to trust the sort of used-car salesmen who run AIG and BofA to estimate their own companies' value through a sale or bankruptcy process. At best it would be 5+ years of back-and-forth on the due-diligence before the company was sold off.
Let the government nationalise them and force something close to a real valuation of a company's assets, and you'll find the following: while taken as a whole, Citi and AIG are lemons, an examination of the parts will determine that some are valuable (even as scrap). The bad news is that taxpayers won't be made completely whole by the subsequent sale, because some assets are so toxic that they'll have to be written off. But with a level of accountability (absent from the Paulson TARP) a lot of misery and chaos can be avoided, and the taxpayers (or our Chinese debt-holders) will likely see the return of most of the principal (which should, by law, be applied to the deficit, not more knee-jerk tax breaks).
Now one might make a compelling argument that a hard landing is exactly what's needed to wake people up about the inherent problems in corporatism, globalism, and neoliberalism. But keep in mind that, in countries without universal healthcare and other social safety nets, this can speed up the spread of all sorts of nasty pathologies -- medical and otherwise. That would be a Germany ca. 1930 order of suckitude.
We need change, and the existing system is unsustainable. I'm all for financial cryptography and private/local currency. I love what people like Lessig and Malamud and Gillmor are doing on anti-corruption and transparency and media reform. I'm all for universal health care and the small companies it can enable. But open-source and entrepreneurial projects don't work very well when the "solutions" they're competing with are driven by the fear, ignorance, hording and scapegoating engendered by extreme economic and social chaos.
How does the government have any clue what the "real" value of those assets are?As for...
All they want to do is keep them overvalued just as they have been during the artificial boom.
Politicians don't want to actually solve this problem; they just want to make things like they were just before the crisis. They don't see that the boom was the problem, not the bust.
How is protesting going to make it better?
It'll cement the point that, if the taxpayer is bailing out these financial services institutions, he's going to demand accountability from his government representatives and from the companies he's helping get through the rough patch.
And guess what: we're not all "just as guilty as the banks." A significant portion of Americans don't make debt their lifestyle; a significant portion of American businesspeople are capable of looking beyond this quarter's numbers; a significant proportion of Americans understand the values of sustainability and thrift and true fiscal conservatism (which has nothing to do with supply-side fantasism). Those are the people who'll be showing up at these demonstrations -- the Americans (also a significant proportion) who are just as guilty will wait for the demonstrations that praise the bigCorps they worship and pin the blame on the Mexicans or the Jews or the Illuminati.
Obama may be a technocratic economic centrist, but he also seems to respond very quickly when a large number of citizens make a compelling and reality-based case for their displeasure (e.g. his response to the AIG bonuses). These protests will show some broad support for temporary nationalisation and dismantling of these dinosaurs, and will give those in government who want to do that some political capital to make it happen.
Prices drop to their true values, which is probably much much lower than they're currently stated. Regardless, "what happens next?" is exactly what markets are best at resolving -- it's the whole reason for having markets.
Except they don't drop to their true values in an environment of information asymmetry -- that kind of BS over-valuation can go on for decades. The market can't do it alone, and sometimes you need an outside regulator working in the broader interest to come in and force companies to state or provide evidence of an asset's true value.
Agreed, the major brake for banks fabricating infinite credit was removed with the Financial Services Modernization Act of 1999
It is important to note that Clinton signed off on that abomination. At the time, the DLC and triangulating Dems were invested in the same free market fantasy that the Republicans were.
How does the government have any clue what the "real" value of those assets are?
Ideally, they contract independent auditors, analysts and researchers to handle the job. This isn't a trivial issue, but there are a lot of B-school and CPA graduates with no immediate prospects out there. The labour costs? Pay a little in advance or pay a lot down the line. And one way or another, if the government is putting money into these companies there should be some level of accountability.
All they want to do is keep them overvalued just as they have been during the artificial boom.
Politicians don't want to actually solve this problem; they just want to make things like they were just before the crisis. They don't see that the boom was the problem, not the bust.
You hit on the deeper problem here. We saw this at the end of the housing bubble, as municipalities continued to over-value houses to keep their property taxes rolling in. And, as you say, from a philosophical many politicians and bureaucrats still don't see that we can't go back to the old ways of doing things.
That said, if it's a choice between the government performing the asset valuation or the market (in its current state) doing it, the government has more of an interest in performing as fair a valuation as possible. At this point, even the big accounting firms are tied up in this mess of interlocking directorships and investor conflicts of interest. That's why I keep going back to the crisis of confidence -- no party can be trusted, so we're left with the "least bad" option of the state.
MoveOn.org has a petition they are supposedly sending to Congress with questions to be asked of AIG executives, including Edward Liddy. For what it's worth, here's the one I sent:
I know, I know. You won. The rest of us have already been screwed by you and your colleagues, and there is essentially nothing we can do. No doubt you will extract still more scores of billions from us to distribute amongst yourselves. You won. You and the rest of the pretentious mobsters with your sappy "free market capitalism" claptrap have yet again stolen from the many to finance your sociopathic lifestyle. There is practically nothing that distinguishes you from soviet-style dictatorship and exploitation, other than the tone and outlook of the idiotic political and economic ideology you foist on rubes like us. "The market corrects itself." "The finance industry must be rescued to avoid a global economic meltdown." "We facilitate access to capital and make it more efficient." "We protect investors." How many stupid little stories to cover up the simple fact that you are thieves, liars, extortionists, war criminals, and social parasites.
My question: How can you possibly live with yourself and consider yourself a patriotic American?
"Give me the control of the credit of a nation, and I care not who makes the laws." -- Mayer Amschel RothschildWhy do people keep referring to the last several years as normal?
The people who are referring to the last several years as normal do so because it's in their own self-interest to propagate this meme to uncritical and uneducated information consumers (either that or they're self-deluded suckers like "JoeDuhPlumber"). They've been running this scam of an eternal, idealised 1950s since at least 1980.
Educated people understand that economic cycles come and go, and that change over time is the only real constant in these matters. More importantly, on the larger historical scale the last 50 years in America has been a major economic anomaly, with anomalous "externalities" to match. Now? Well, at the risk of being a major geek, I give the stage to BSG's Gaius Baltar, who's admittedly far better with words than he is with deeds:
Galactica has been more than our guardian. She's literally a vessel into which we've poured all of our hopes and dreams. And when she's gone -- when we can no longer derive the security from looking out her window and seeing her massive bulk floating by -- then this life will be over. And a new life will have begun. A new life that requires a new way of thinking.
Even though we differ on the details, I think most of the commenters here understand that the cracks in the old hull are too numerous to patch with conventional means or magic Cylon bio-glue. Time for that orderly decommissioning that should have happened years ago.
"Blaming this economic cataclysm on 'free market capitalism' is equally as ridiculous as the "Obama is a socialist" election rhetoric."
This is a laughable statement. The root cause of the issue is in fact the skewed version of "free market capitalism" in which wealthy and influential financiers could create and trade in securities that were practically guaranteed to collapse. I assume you are a die-hard laissez-faire capitalist with the religious belief that free markets are the holy land, but you are mistaken.
Free market notions are not in the least bit analogous to Coulomb's law, gravity, or thermodynamics. They are not natural laws or natural forces that operate in and of themselves. Markets are social institutions that depend on human behavior. In "free markets" supply and demand explanations are good models in the steady state. With any significant perturbation, all those simplistic notions are gone.
It is astonishing that people still defend "free market capitalism" in the face of its obvious failure. Whatever, Dude.
Both the central banking system (including fiat currency) and the Gramm-Leach-Bliley Act are acts of government, not free markets.
This economic meltdown was caused by the government.
hedgemionicon @27 - It's worth pointing out that there are good arguments for paying the AIG bonuses.
The 'good arguments' you link to are only good arguments if you willfully forget that 80% of it's market capitalization ago, AIG was fiscally bankrupt.
Now, IMHO, it's merely morally bankrupt, much like your point.
@ Zuzu #31:
I'm sure they will gradually re-consolidate over the coming decades if we don't pass laws to keep them from doing so. In which case we'll have to break them up again.
The biggest problem with the telephone companies was that there is impractical to have competing companies building parallel infrastructure systems running telephone lines everywhere, so to an extent they had to be a government-regulated monopoly.
I agree. That's why we need to break up any bank that's big enough to bring down the entire economy if it fails, and keep it broken up. That's what antitrust laws are for. No single private entity should be "too big to fail."
Saying that building parallel infrastructure systems is impractical is akin to saying that all competition is redundant and impractical. But it's that competition that provides customer choice, to discover what people really want and need at that time.
Anti-trust laws are a kludge for the fact that somewhere else another government regulation has empowered a company with a monopoly to begin with. It's like taking a drug to treat the side-effects of another drug; of course the second drug also has adverse side-effects, ad nauseam.Skinner: Well, I was wrong. The lizards are a godsend.
Lisa: But isn't that a bit short-sighted? What happens when we're overrun by lizards?
Skinner: No problem. We simply release wave after wave of Chinese needle snakes. They'll wipe out the lizards.
Lisa: But aren't the snakes even worse?
Skinner: Yes, but we're prepared for that. We've lined up a fabulous type of gorilla that thrives on snake meat.
Lisa: But then we're stuck with gorillas!
Skinner: No, that's the beautiful part. When wintertime rolls around, the gorillas simply freeze to death.
So, sorry, but no business ever needs a government-granted monopoly, and no business ever needs a government bailout. Those are just the hallmarks of corporatism.
I know, let's do something horribly disruptive to the financial industry to create a huge amount of fear, uncertainty and doubt in the markets in the middle of a global recession partly caused by fear, uncertainty and doubt in the markets!
That's a great idea!
Please. Everyone who complains about money "given" to these financial organizations needs to take a quick look at what is actually happening. We loaned the money to these financial organizations to deal with the fact that the credit markets were frozen and they couldn't raise money themselves. The credit markets were frozen because no one has any faith anymore in anything, but they are slowly coming back.
As soon as the credit markets return to some kind of normalcy, these institutions will be able to raise money through them and there will be little to fear about them repaying their loans. Heck, Bank of America is scheduled to pay down $500 million next month and no one believes it won't.
While there are no guarantees in any of this, it is possible that the US government will actually come out *ahead* with these loans. But that can only happen if faith is restored in the financial markets.
It would be great to be able to do massive restructuring of all of these companies and put down new rules and oversight, but we're in crisis mode here and the markets are running on pure emotion. Everyone needs to believe that we're in business as usual mode for us to get into business in usual mode. Once that happens, then sweeping reforms can happen, but not before.
So stop being so damned impatient.
@ zuzu #44:
No it isn't. There's a big difference between different companies building cars they hope I will buy and different companies building roads they hope I will use when I drive to work.
Do you honestly believe there would be a sane business model for building multiple, distict road systems leading to the same residence? How about multiple electrical, water, and sewage lines that you could switch between at will? Face it, some things lend themselves better to monopolies than others. Which is why every developed nation in the history of the world has made provisions for how to regulate those monopolies.
That said, I don't think banks should be allowed to get big enough to reach the level of either "infrastructure" or "monopoly".
As for multiple electrical lines, that's not too dissimilar from how distributed generation and smart grids operate.
Private roads have even been suggested (and implemented) to solve traffic congestion problems.
If you don't think that a monetary system is part of the vital infrastructure, you're vastly underestimating its role in society -- global society.Trade (i.e. banking) is more important to our survival as human beings (beyond self-sufficient farming) than roads, energy, and military combined.
alouisious Heck, Bank of America is scheduled to pay down $500 million next month and no one believes it won't.
Speak for yourself.
I believe that fact remains to be seen.
@ Zuzu #48:
Say what you will about the phone system, but I like the fact that I can dial any other phone without worrying if the person on the other end is wired into Bell or AT&T.
I don't think any SINGLE bank should get big enough to rise to the level of "infrastructure". Food is pretty damn important too, but I wouldn't want any one farm to get so big that its financial ruin would lead to mass starvation.
#46 posted by Aloisius
"As soon as the credit markets return to some kind of normalcy, these institutions will be able to raise money through them and there will be little to fear about them repaying their loans. Heck, Bank of America is scheduled to pay down $500 million next month and no one believes it won't."
"While there are no guarantees in any of this, it is possible that the US government will actually come out *ahead* with these loans. But that can only happen if faith is restored in the financial markets."
Yow! This is right up there with "he kept us safe for seven years." Several trillion dollars have been lent out between the "bailout" and the Fed "credit window" over the last six months or so.
Aloisius: Please calculate the number of years it would take for the US financial institutions that received that aid to pay it all back, with interest, assuming they used all of their net profit to do so.
It will not be paid back in full, and there will be no profit for the U.S. taxpayer. BTW, the claim that we are in "a global recession partly caused by fear, uncertainty and doubt in the markets" is quite a stretch of the facts. We are in a recession because government-enabled sociopaths knowingly gamed the system into collapse in order to extract the maximum possible profit. Everything else is B.S., including Obama's deeply insulting pretense that he is "angry." Obama and his crew represent the establishment.
Both the central banking system (including fiat currency) and the Gramm-Leach-Bliley Act are acts of government, not free markets.
This economic meltdown was caused by the government.
Sorry, but that's like blaming the repeal of Prohibition (or liquor store owners) for alcoholism.
The government did indeed fail to prevent abuse of the market system it's supposed to legislate and regulate. That doesn't change the fact that the real bad actors here (who exacerbated a cyclical downturn beyond anyone's control) were a bunch of incompetents and greedheads working in private enterprise, and their low-info consumer marks.
And re: fiat currency, as long as you're not advocating a large-scale return to the gold standard like some of the Libertarian fantasists out there, I can buy the idea of alternative bases for currency (crypto or paper).
Anti-trust laws are a kludge for the fact that somewhere else another government regulation has empowered a company with a monopoly to begin with.
In the absence of someone inventing a time machine and travelling back to the 15th century, it's been a pretty good kluge. One of the great things about the U.S. is that its economic regulation cycle is basically: 1. introduce law that curbs bad/destructively selfish acts while not stifling good ones; 2. wait until some greedhead finds a workaround that allows bad/destructively selfish acts; 3. GOTO 1. Unfortunately, this time around Gramm and his fellow supply-side fantasists and extreme free marketeers went back and pulled a line of integral code.
before the Universal Service mandate, Dual Service was popular and robust.
Popular, yes. But the robustness wasn't going to survive the scalability issues that started rearing their heads in the late 1920s. I'm not a big fan of how the utilities regulators coddle the telcos, cablecos, and other chartered communications semi-monopolies, but I am a big fan of things like standardised protocols and Metcalfe's Law and Network Neutrality when it comes to large-scale communications infrastructure (no VoIP without the IP, if you will -- and IP and IPv6 are both de-facto public-sector standards). Most consumers of these services can't do mash-ups and DIY work-arounds like you or I can, but we need those consumers on the network none-the-less.
That's not to say that greedpigs and control freaks like Vail won't abuse that situation -- but it is to say that the standards bodies/regulators should be looking after the interests their real constituents: consumers and innovators.
And, by the way, dual service can be abused as well. For many years the cellular providers took advantage of their (often deliberate) lack of interconnecting standards to double-charge their customers. Regulation (and technological workarounds) has only recently changed this situation, and that came because consumers got fed up and appealed to the government.
I'd rather not get into a derail on the Universal Service topic, so I'll leave you with the last word if you care to have it.
[off-topic, do you use the blockquote tag to get the red quote marks?]
Street protests? Now THAT will help. (cf. Seattle.) No thanks.
Everyone who complains about money "given" to these financial organizations needs to take a quick look at what is actually happening. We loaned the money to these financial organizations to deal with the fact that the credit markets were frozen and they couldn't raise money themselves. The credit markets were frozen because no one has any faith anymore in anything, but they are slowly coming back.
Like the people promoting this protest, I took more than a quick look. What I've found is that, while the pretext for TARP was to restore liquidity to the credit markets, the real purpose was to keep insolvent financial services companies afloat, ensure executives got their bonuses, and avoid massive panic and a collapse of the international banking system.
No doubt related was that Paulson's intial TARP was handed out with no accountability or set goals for the distressed corporations. Given that this crisis is rooted in money being handed out with few real strings, not the best approach.
As soon as the credit markets return to some kind of normalcy, these institutions will be able to raise money through them and there will be little to fear about them repaying their loans. Heck, Bank of America is scheduled to pay down $500 million next month and no one believes it won't.
"Normalcy" as defined by what? The last 8-15 years? Sorry, that kind of "normal" is what brought us to this sorry pass.
As for BofA, no-one believes they'll default until, like GE, they're forced to admit that a teeny-weeny-itty-bitty portion of their loan assets are toxic. Then watch what BofA's execs do once the market reads between the lines and their market cap heads toward Lehman territory: "Oh Mister Obama, we need another half-bil. Pretty please."
While there are no guarantees in any of this, it is possible that the US government will actually come out *ahead* with these loans. But that can only happen if faith is restored in the financial markets.
You come out ahead in an deal memo or loan note when you have exotic clauses in place like "terms" and "expectations" and "conditions." I don't see many of those.
It would be great to be able to do massive restructuring of all of these companies and put down new rules and oversight, but we're in crisis mode here and the markets are running on pure emotion.
That's why temporary nationalisation is the best (i.e. least bad) solution. The markets always run on pure emotion, because no-one trusts whether business intelligence is good or bad. And the fact remains, "too big to fail" = "too big to exist."
Hell, Cory just wrote about the Android Calling Card a week ago.
What do you call the Federal Reserve, then? How would you describe monetary policy? What if the issue wasn't striated along a "single company", but along a "single crop" or a "single farming technique"?Street protests? Now THAT will help.
You don't go to a protest to help.
You go to a protest so you know how alone you aren't.
Street protests? Now THAT will help. (cf. Seattle.) No thanks.
Unless ANSWER is sponsoring this effort, I don't think that the Anarkiddies (and the Keffiyah Krowd, and the Free Mumia bunch, and the puppet guy) will be showing up for this one. The kids who sport Che t-shirts don't know enough to be angry, and the people who actually know something about Marxism will stay home and quote Chernyshevskii: "The worse, the better."
Which is what your telephone should work out for you -- just as modern dialing plans do for Voice-over-IP (VoIP) today! In other words, smart terminals and dumb networks.
Except, if the bigCorps had their way, the networks would be "smart" (i.e. filtered up the wazoo), too. And if you read this site, you know that the big carriers are still constantly pushing for the "walled garden." And in semi-monopoly situations, they have the power to enforce that despite the objections of consumers.
Well if they only used their net profit to do such a thing then it would take someone like AIG about 12 years if their revenue was what it was 2 years ago. Of course it isn't right now and probably won't be for some time.
The loan to Bank of America would take significantly less time - a couple of years, if they were seeing the profit they had a couple years ago. In fact, a good number of the smaller loans to banks look like they would take less than 5 years worth of net income to pay back.
I don't really see a reason why these loans have to be repaid immediately. Paying them over the course of 30 or 50 years would mean a significant amount of interest paid to us.
Of course companies aren't only limited to repaying these loans with net profit. They can raise money through private channels and use that money to repay loans. Bank of America and Wells Fargo are two companies that will probably do this in order to get out of the extra government restrictions attached to them while they have TARP money.
They can raise money through private channels and use that money to repay loans. Bank of America and Wells Fargo are two companies that will probably do this in order to get out of the extra government restrictions attached to them while they have TARP money.
If that's all they were doing, you wouldn't be seeing these protests. The outrage is aimed at corporation that took the TARP welfare, and at the government that places minimal restrictions and accountability on how how those funds were to be applied.
"...the people who actually know something about Marxism will stay home and quote Chernyshevskii: 'The worse, the better.'"
I hope this isn't the early 20th century all over again.
Though I agree that "greedy" bankers were complicit in the moral hazard of the Commonize Costs–Privatize Profits Game (CC-PP game). The problem is, they bet on the government bailing them out in the event of failure, and they were right!
Isn't that just a market opportunity for profit? I own a dual-WAN router, for instance. I suspect that problem's more attributable to the FCC acting as if radio spectrum were scarce, which it's not. This is an artificial barrier to entry that allowed existing telecoms to maintain their CDMA / TDMA / GSM walled gardens without threat of further competition.Hell, Verizon does that now with FiOS by not traffic shaping the way Comcast does -- and that's just with duopoly competition (which I don't trust in the long-run, however -- once Verizon has most of Comcast's sweet sweet television profits).
Holy shit, can you even imagine the world in 30-50 years from now?! I wouldn't even gamble that the United States of America still exists in 50 years. What makes you think AIG or any of these other banks will?@59
"...if their revenue was what it was 2 years ago...if they were seeing the profit they had a couple years ago."
You mean, at the height of one of the worst financial bubbles of all time?
"I don't really see a reason why these loans have to be repaid immediately."
Unless, of course the inflationary, deficit, and other costs of having that amount "lent out" are crushing the economy.
Aloisius, you are defending the indefensible. We are fucked, backwards and forwards, for quite a while. We have been reduced to a banana republic. Something almost unimaginably large will have to occur within the next 12 to 24 months to compensate. Regardless, we will still pay for it.
Bad Quant, No bonus!
@62
"...they bet on the government bailing them out in the event of failure, and they were right!"
This is an often overlooked issue. It is very hard to believe that the near certainty of a bailout wasn't part of the plan. Nobody knowingly jumps out of a plane at 15,000 ft without the expectation of near certain safety. These people are not suicidal.
Could anybody be that reckless?
Really? I'm pretty sure these protests are because you have a whole lot of people are angry and confused and the news about some bonuses which were disclosed over a year ago finally pushed them over the edge to where they need to vent their frustrations.
The second you realize that creating the perception of normalcy and stability has more impact on the financial markets than any other thing the fed or treasury could do, what the fed and treasury are doing starts to make a whole lot more sense.
Heck in some cases, the money loaned to these companies is barely touched! The act of loaning the money and the knowledge that the government is going to keep a company from going under is what mattered. It kept runs on the banks, everyone under the sun from dumping the stock and their credit rating from dropping to nothing - all of which keep the system propped up long enough for us to get past this panic-driven environment.
The fact of the matter is this mess is really really complicated and no one is going to the general public why because no one will be able to understand it. Instead we'll see some token measures delivered in very simple language that may or may not have any real effect.
Eventually real changes will happen, but it'll take time to get right because this stuff is complicated. In the mean time, feel free to march around and demand whatever you want. At least it'll make you feel better.
-- Adam Curtis, The Power of NightmaresAloisius, if you honestly support what you're saying, you're part of the problem.
Really? I'm pretty sure these protests are because you have a whole lot of people are angry and confused and the news about some bonuses which were disclosed over a year ago finally pushed them over the edge to where they need to vent their frustrations.
Yes, really. This is just the latest and most prominent piece of straw in a massive bale on the camel's back. That bale hasn't vanished or become invisible, and the organisers of the protest want to make that fact clear to the government.
The second you realize that creating the perception of normalcy and stability has more impact on the financial markets than any other thing the fed or treasury could do, what the fed and treasury are doing starts to make a whole lot more sense.
Again, a large part of the problem is that the definitions of "normalcy" and "stability" that operated a little over a year ago are no longer valid, if they were back in 2007-2008 (I'd argue no). That seems to be the other goal of the protest: normal is no longer "too big to fail."
Heck in some cases, the money loaned to these companies is barely touched!
Ah, but the pretext was that the funds were to be applied to get credit (esp. commercial paper) flowing (that making more loans was a bad idea is beside the point here). The reality, as we're discovering, is that it's being applied to patching holes in what few authorities want to admit are insolvent and grossly over-leveraged financial service companies, and paying the salaries and bonuses of the incompetent greedheads and fantasists (and, yes, the naughty techno-utopian quants) who brought the companies and the global economy to the brink of ruin. The protests are saying, in part: if the money is untouched or being used improperly, give it back now.
Oh, rubbish. It can be explained to anyone who's interested and willing to listen, but there are few parties who both can do so and also want to do so -- least of all the financial propaganda arm of GE (which you know as America's trusted source of financial news, CNBC).
I'm just a realist and maybe a little cynical.
The average person simply doesn't have the time, inclination, experience or judgment to understand what is happening in the financial markets (or frankly, most other issues). That's why we're a Republic. We elect people we trust to make decisions we can't. We can only trust that our judgment about who we elect is good enough and put enough checks into the system to keep us from harming ourselves.
The problem is we don't trust what's going on and we don't trust that the people we elected know what's going on. Plus we've been living with a nightmare of a government for the last 8 years and a lot of us have forgotten what competence looks like.
So if you don't believe that the Obama administration a) knows more than you not the least because they have access to far more information b) has better judgment than you because they have actual experts and c) is capable of executing, then you're pretty much screwed until this thing is over because there is going to be a whole lot of thing you don't fully understand happening over the next 4 years.
Fasten your seat belts. As usual, most people (myself included) live in a great deal of denial that what was "normal" and "acceptable" even a year ago -- even if it was "normal" and "acceptable" for decades or centuries -- is no longer such. Beyond the degree of denial, the difference between Aloisius and myself is that I acknowledge the denial exists, while he goes on about trusting the government and corporations to return us to normalcy and stability. That's about as far as you can get from cynicism.
An old woman has a box of jewelry on her dresser. There is over $3,000,000 worth of jewelry in there, because this woman was beautiful, smart, crafty, and rather slutty, well into her forties.
A man several houses down manages to learn of this, and devises an extremely high-tech hand-made robot in his garage. It is a quadruped, about the size of a cat, and is in constant contact with a rack of servers in the man's garage. He embarks on a several dozen missions with his little robot, patiently learning how to skulk around at odd hours of the morning. Repairs, modifications, and endless rounds of software development are needed, but he eventually gets his robot into the woman's house, and over several hours is able to steal all of the jewelry without leaving a trace.
Aloisius, of post 67, defends the man saying:
"The fact of the matter is this loss is really really complicated and no one is going to tell the court how because no one will be able to understand it. Instead we'll see some token measures delivered in very simple language that may or may not have any real effect."
So, if the mechanism of a theft is complicated, like a high-tech robot, then we must pretend that the theft is too complicated to understand and must simply accept that it happened.
This is one of the predominant memes going around, that if we can't understand the details of the elaborate securities or other implementation details, we can't point out that fraudulent lending occurred to feed securitization of loans, etc. etc. This is absolute rubbish.
One of the purposes of this protest is to inform the government that it still has control over the outcome of this cynical bet.
Yes, it is a market opportunity. As we see time and time again in this blog, though, that sweet router is the kind of device that gives the service providers conniption fits. Make it plug-n-play easy enough for Grandma to run, and they'll be running to the FCC demanding it be banned.
No FCC? Then they'll make their pipes smart enough to detect and undermine or cripple the device. Even a company as progressive and innovative as Apple engages in this shoddy game.
First, there are real barriers to entry -- cell tower infrastructure isn't cheap. And I understand the need to pay off such an investment, but the carriers got greedy and agreed to do some double-dipping as well. And yes, the FCC and other regulators rubber-stamped those rates, but the exhorbitant rates would have been there, regulation or not.
As to the artificial scarcity of spectrum, I'd only ask cui bono? Besides a couple of beard issues like military/first responder spectrum and elbow room in consumer frequencies, the main benefactors were the government (which got auction revenues) and a handful of large incumbent corporations (who got to profit at the expense of new-entrant entrepreneurs).
My point (and it seems to be yours as well) is that all too often government regulators are more concerned about the welfare of the industries they regulate than the consumers and citizens they're supposed to serve -- Michael Powell's tenure as FCC Chair is only one example of many.
Where our difference lies, is that you believe in less government, I believe in better government working on behalf of actual citizens (as opposed to corporate entity "citizens"). Sometimes those concepts are at odds, sometimes they work together.
Hell, Verizon does that now with FiOS by not traffic shaping the way Comcast does -- and that's just with duopoly competition (which I don't trust in the long-run, however -- once Verizon has most of Comcast's sweet sweet television profits).
And you're smart not to trust them -- given the short-term mindset of the MBAs who make the decisions at these companies, that situation could be reversed 6 months from now. I'd argue that proper government regulation can mitigate that kind of problem.
Whoa. I said that the average person couldn't understand it, but I never meant to imply that we shouldn't analyze the problem, figure out what went wrong and come up with solutions.
I just happen to think that doing anything to further destabilize and already unstable market is dangerous and certainly doing something as rash as nationalizing every institution that received TARP money, firing the executive staffs and breaking them into pieces that we hope to sell or spin off falls into destabilizing bucket.
Realistically what I see happening is:
*) Continuing to pump money into financial institutions until investor confidence is above non-existent and the institutions can raise money on their own to cover their short-term liquidity needs
*) Over the next few months, a lot of publicity regarding financial institutions repaying their loans (either on schedule or ahead of schedule) to calm down the public
*) Over the next few months, significant revisions to financial risk models will happen which should push investor confidence higher
*) Sometime before the end of the year, drafts of financial regulation reform bills will probably begin circulating probably with a 1-2 year delay in enforcement
*) Over the next few years, a lot of hype about how the economic stimulus is working (regardless if it is)
I'm pretty patient about this stuff. I don't see the point in trying to force congresses hand especially when anything they try to do will be rushed and reactionary. I want them to spend time thinking about how best to solve the financial crisis.
Now if there is no progress in a year or two, well... then there is a problem.
@74
Now if there is no progress in a year or two, well... then there is a problem.
And there's the rub, eh?
I don't think your vague and rosy predictions are credible. For one thing, the equity markets are not reliable indicators of anything in particular. Their fluctuations have more to do with gambling in the short and medium term, and anything more takes months or years to be discernible. The credit markets will not recover until unstable institutions have either stabilized or have been dismantled or auctioned off.
A lot of people marching in the streets will not further destabilize the markets for any significant period of time. For a few days the usual talking heads and shock jocks will prattle on about it, but past the weekend it will be forgotten just as everything else is always forgotten between Fridays and Mondays.
The markets will stabilize when the big players are satiated, or conclude that they have recovered about all they are ever going to recover of their gambling losses. On our dime, of course.
Continuing to pump trillions of dollars into financial institutions at the expense of everything and everybody else is foolhardy and self-destructive. It will not work, aside from the fact that it rewards criminality, incompetence, and government corruption.
After the government and the financial sector start crowing about recovery, sometime this fall, we will be hit with the hangover. Shock jocks and talking heads will fling up their arms and drop their jaws in shock, shock I tell you!, at the ferocity of inflation and recessionary backlash from having thrown so many trillions of non-existent dollars down a rat-hole. "It defies reason! It was entirely unexpected! It is a surprising, counter-intuitive result!" they will say, or some such. Some of today's zombie banks will collapse anyway (BofA? JP Morgan? Citi?) because no amount of money, at least no realistic amount of money, can save them.
By chance you will stumble upon this post, as you grimly review your own posts from way back in March 2009, and think "Jesus, it really was obvious..."
Zuzu, Alouisious, Rick, Gracchus -
more please, very interesting stuff all around.
My skepticism with what you believe is possible -- that public interest can override special interests (although I was hopeful when this was part of Obama's campaign message) -- derives primarily from Public Choice Theory.
Simply put, vested interests can afford lobbyists, and the general public can't. So really it's the campaign contributions and "consulting" by big business that has more value to politicians for re-election than the public's votes actually do.
This includes the problem, as you said,
This phenomenon -- called regulatory capture -- is explained by Public Choice Theory:
My conclusion from this is, if government isn't given regulatory powers to begin with, then vested interests can't capture that regulatory agency to slant the market landscape in their favor.
While non-regulation may have drawbacks, they seem to ultimately be less harmful than regulatory agencies captured by business -- i.e. the government-business partnership, aka Fascism or Corporatism.
Regulatory capture is just another example of the principal-agent problem.
While non-regulation may have drawbacks, they seem to ultimately be less harmful than regulatory agencies captured by business
So letting businesses do whatever they want without limit is better than regulating them with the knowledge that they will skew the regulations in their favor?
It's precisely the capture of government power (ostensibly, the "monopoly on the use of force") that allows businesses to exceed those limits.
I think an important thing to keep in mind as we go forward with these protests is that this isn't about "public opinion" the same way that a presidential election or some other political issues are. It's about the basic underlying power structure of the country and, honestly, most of the world.
Therefore, showing that we're upset and pressuring our elected officials is not an effective strategy. Certainly it can't hurt, but solutions will not be gained this way. They will be gained by directly disrupting the power of the institutions which are responsible for the depression: government, banks and other financial institutions. And I don't mean passing laws to reduce bonuses. I mean doing sit-ins, boycotts, invading/shutting down shareholder meetings, reclaiming bank property, and generally making it as expensive, chaotic and unpleasant as possible for them to get away with the bailouts.
These institutions speak a language of power and money. If we start costing them money or undermining their power, they will come to the table, ready to be reasonable. Otherwise, they will ignore us. I hope these protests will be the beginning of waves of direct action which will put the corporate capitalists on the defensive. We don't need to petition them, we need to fight them. Let them come to us and beg for compromise.
To quote R. Buckminster Fuller,
@zuzu, Then I guess we both have our work cut out for us :) I'm not so worried about how we undermine the corporate/government elite so long as we get to work doing it in real ways. Whether you organize a community currency or smash up the local Bank of America branch, it's all part of a bigger strategy to force these parasitic institutions out of society.