Skip to comments.How to make sure we never, ever, ever bail out Wall Street again: Let the banks fail!
Posted on 05/18/2014 6:43:28 AM PDT by SeekAndFind
It's easy: Let the banks fail and give the money to American taxpayers instead
Are you still angry that Washington forced Main Street to bail out Wall Street during the Great Recession? Timothy Geithner can live with that.
In his new book, Stress Test: Reflections on Financial Crises, the former Obama Treasury secretary insists government needed to stop the panic by whatever means necessary. During a five-alarm inferno, the thinking goes, it's smarter to focus on extinguishing the blaze than punishing the arsonists. And to Geithner, dissenters are misguided purveyors of "Old Testament vengeance" and "moral hazard fundamentalists."
Geithner is only half right.
He's correct to assume that letting the megabanks collapse and doing nothing else might have invited a deflationary depression as bad as the one in the 1930s. Both innocent and guilty would have suffered. And America, like any modern democracy, doesn't really do mass suffering. So the politicians always blink. (Letting Lehman fail was the rule-reinforcing exception.)
But Geithner is wrong when he said, as he did to The New York Times, that Americans are "deeply confused and mistaken" if they think there was "a way to somehow protect people without doing things that looked like you were protecting the banks." Actually, there was an option that would have accomplished just that. There was a way to support Main Street, punish Wall Street, and avoid the terrible incentives for future recklessness that bailouts inevitably create.
Remember, what Washington did in 2008 was authorize the $700 billion Troubled Asset Relief Program. It eventually pumped some $400 billion of taxpayer dough into American financial institutions whether they wanted the cash or not. The politicians could have let insolvent banks simply go bust. True, such a move would have hammered an already weak economy. To avoid a terrible collapse in spending and investment, however, Washington could have deeply cut taxes or sent tax rebates to households and businesses. How to pay for all those checks? Borrow the money from the Federal Reserve, which, after all, owns the printing presses. Fiscal stimulus meets monetary stimulus.
Some of the money would have been spent, some used to pay off debt, some saved. But the net result likely would have been a far shallower economic downturn, especially if combined with a clear and explicit Fed promise to support spending no matter what. Former Fed Chairman Ben Bernanke recommended just such a "helicopter drop" of money to boost the stagnant Japanese economy back in 2003. Too bad he didn't make the same case to Team Bush and Team Obama five years later.
And what about the banks? For starters, a more modest recession and faster recovery would have limited bank failures. And the assets of the ones that did sink could have been purchased by stronger remaining institutions. Indeed, Geithner writes that legendary investor Warren Buffett told him that without TARP, "everything would have crashed, and I would have been the first to buy." Regulators also could have loosened rules to make it easier for startup banks to replace the failed old ones.
The U.S. has experienced a financial crisis, on average, every decade or so for nearly 200 years. Odds are the most recent one won't be the last one. Forcing banks to maintain a much larger capital cushion would go a long way toward avoiding future disasters. But if Big Finance should stumble again, Washington should let it fall. Wall Street banks won't need a bailout, but their Main Street customers will.
Make them return to being partnerships then we’d really see what level of risk they’d take with their own money.
I love the way Geither gets on his moral high horse—little turd. Haven’t read or heard from Pethokoukas in a while, he is good.
MEET THE KINGPINS OF CHICAGO CRIMINAL POLITICS IN OUR WH The malevolent parasitic strain of Chicago criminals wasted no time.....they had a stranglehold on the US Treasury from the getgo.
The minute Obama/Valerie/Rahm/Axelrod/Geithner, and that diseased bunch, landed in DC they did two things that were apparently crucial to their evil plans
(a) they took control of the US Census;
(b) Obama placed his COS Rahm Emanuel in control of the US Dept of the Treasury (the IRS).
THE SMOKING GUN---WSJ REPORT--On Jan 20, 2009 Timothy Geithner was appointed Obama's Secy of the Treasury. But within three weeks, the Obama White House tightened its grip on Treasury. Obama put his COS, Rahm Emanuel, in charge of Treasury---Rahm Emanuel's dual role was an unusual move.
When he got to Treasury, WH COS Rahm Emanuel was so involved in the inner workings of the Treasury that the phrase "Rahm wants it" had become an unofficial mantra among subservient govt staffers, prostrate in obeisance, scurrying to accede to Rahm's wishes, according to Treasury government officials. Reported by WSJ / 05/31/09
More here: http://online.wsj.com/article/SB124113406528875137.html
THIS MADE ME LAUGH OUT LOUD shortly after quitting his powerful WH job as Obama's COS, Rahm held a presser declaring he "just remembered" he really, Really wanted to be Mayor of Chicago. Then Rahm announced he had magically "raised" $10 million for his campaign in "just a matter of weeks." (waiting for hysterical laughter to die down). Ya gotta wonder how much Wall Street Rahm wired offshore when Obama put him in charge of the entire US Treasury.
Rahm Emanuel takes over Chicago / May 16, 2011
EDITED EXCERPT .... an exciting time in the inbred world of Chicago Democratic politics.... Democratic don, Richard M. Daley ruled for 22 years, inheriting the mayoralty from his father, Mayor Richard J. Daley who held on for a generation. Now the ex-chief of staff of Chicagoan Barack Obama (once a state Senator, now president) was installed. US Treasury Secy Tim Geithner was there, and so was Chicagoan David Axelrod, an O team player.
BTW, Mayor Daley's former chief of staff, Valerie Jarrett, hired Obama's wife, Michelle, to work in Chicago City Hall.
Jarret is now ensconced as Obama's chief policy advisor. In Chicagoland vernacular, "chief policy advisor" means "wire-transfer artist".
Mayor Emanuel's innovative ways commenced early on---his organization was getting $50G's for the best seats at the inauguration (mmmm........that accounts for another couple million scammed from Treasury).
The mayoralty (and its--cough--"benefits") is a job Emanuel has coveted since he was a machine go-fer back in the 1980s.....before he became Bill Clinton's national campaign finance chairman and then a dual role as senior White House aide and Goldman Sachs lobbyist and then (gasp) becoming a multi-millionaire, thanks to a measly few months at a local investment firm...then a (gag) Congressman for four terms---then White House chief of staff for Obama that helped create the 2010 Republican House landslide.
MARK THIS WELL Obama's handmaiden since Chicago days is Valerie Jarrett---then Mayor Daley's henchman---who hired Michele to work in Daley's office.....decent salary, perks, and all you could steal.
Valerie's official WH title is "senior deputy advisor"-------in Chicago criminal politics parlance that means "wire transfer artist."
The purpose of TARP wasn't to bail anyone out. It was to prop up the value of the U.S. dollar by maintaining face value for the hundreds of billions of dollars in mortgage-backed securities that were held by investors all over the planet.
You don't remember history correctly, he's helping you out here.
The price tag for the Wall Street bailout is popularly put at $700 billion---the actual size of TARP--the Troubled Assets Relief Program. But TARP is just the best known program in an array of more than 30 overseen by Treasury Department and Federal Reserve that have paid out or put aside untraceable money to bail out financial firms and inject money into the markets.
To get a sense of the size of the real $14 trillion bailout, see MJ chart at web site. A guide to the pieces of the puzzle includes massive untraceable Treasury Department bailout programs.
In September 2008, the US Treasury (controlled by Obama/Emanuel) announced that it would insure the holdings of publicly offered money market mutual funds. According to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), these guarantees could have potentially cost the federal government more than $3 trillion [PDF].
Public-Private Investment Fund: This joint Treasury-Federal Reserve program bought toxic assets from banks and brokeragesas much as $5 billion of assets per firm. According to SIGTARP, the government's potential exposure from the PPIF is between $500 million and $1 trillion [PDF].
TARP: As part of the Troubled Asset Relief Program, the Treasury controlled by Obama/Emanuel made loans to or investments more than 750 banks and financial institutions. $650 billion has been paid out (not including HAMP; see below). As of December 21, 2009, $117.5 billion of that has been repaid.
--SNIP---LONG READ---go to web site to read more and checkout the shocking financial charts.
Musta been one hefty payday for the Chicago criminals. They all promptly jetted off on another celebrated multi-million dollar tax-paid vacation to elite island paradises. Places to open offshore accounts, where know-it-all prog/liberals sip and whine about the the terrible burden they bear, controlling the levers of the US government, AND knowing whats really, really good for us peons.
The best bet would be a “downgrade soft landing”, that is, to create an anti-oligopoly law that sets a limit on bank and investment house size before they automatically are divided in two.
Importantly, this division must be done by an outside agency, to insure it is 50/50 with their assets, not spinning off their less profitable parts.
Exclusivity rules also apply, preventing major shareholders, board members or proxy ownerships. They must be cut into two competing companies.
The law must also have a “de facto” rule, that the split must happen within a time frame, which cannot be strung out with litigation.
The way money center banks operate now, it is as if the Philosopher’s Stone had finally been discovered.
They are the critical support system for vote-buying, bribery as campaign “contributions”, and they are the sole reason most Members of Congress retire as multi-millionaires on their $174 000 salaries.
They cannot and will not be allowed to fail.
Little Timmy’s analogy of fire and arsonists means something different in his virtual reality of economics than it does in the real world. In the real world the fire would have been put out, and the arsonists would be punished, not rewarded with incentives to start another fire.
In reality, most banks didn't want the money, had to take the money and paid the money back. It was the small "community" type of banks the lent money to people who weren't qualified that didn't pay the money back.
All the other big banks were made to be involved as a scape goat for the "community" type of banks
They need to restore Glass Steagall. They need to raise the bank reserve rate. And they need to make sure that any foreign bank plays by our rules not us by theirs.
Congress was right to bail out the banks. They did let the weaker banks fail. But not the big ones and not nearly as many as would have otherwise.
The reason Congress had to bail out the banks is that the Federal Reserve no longer had any flex room. They had already lowered the bank reserve ratio in non-crisis times, so they couldn’t respond when a real crisis hit.
Never understood the bailout. Banks are just repositories of assets; if one fails, it gets carved up and eaten by others. Life goes on. Plus, failure cleanses the industry of corrupt executives.
another symptom of big Govt advocates. FDIC changed Bank problems from a run on Indiv. poorly run banks....to a monster that allows basically a run on the entire USA economy via bank bailouts, Clintons relaxation of Glas-seagul that allowed banks to trade derivatives gave birth to the Fannie Mae debacle.
Anything “too big to fail” needs to be broken up.
The Federal Reserve and an Unsustainable Empire
Big bad government more like it.
They should never have bailed out the banks, especially if, as you say, they didn’t even need or want it.
SOMEONE wanted it and wanted is real bad .... and it wasn’t the citizens who were overwhelmingly against it.
And they wonder why we don’t want to keep sending MORE money in taxes.
“Never understood the bailout. Banks are just repositories of assets”
No. No, NO!
Banks create the “money” that politicians use to buy votes. All their other functions are dispensable, but that one is not.
Make sure your money isn’t in the bank when the bailout
becomes a “bail in” and your deposits are confiscated
by the bank.
Thanks James, we’ve been saying that here on Free Republic for ten years or so now...
I have to quibble with you. Any hard limit, or some squishy equivalent, is more regulation, and it’s regulation of an industry that spends many hours and many dollars to get around them anyway.
Plus, size by itself is not the problem, the problem is that they know they’ll always get bailed out because they always have been bailed out in the past. Let them collapse under their own weight and the ones remaining will learn a thing or two about proper risk.
One solution is to require proportionately higher reserve requirements the larger the bank becomes. This will tend to make their size self-limiting.
We must not allow any fractional reserve bank to get so large that its collapse threatens the rest of the financial system, or could trigger a cascade of other failures.
Too big to fail, too big to exist.
Lurk, the banks were forced by the courts and politicians to make bad loans to people who had no means to pay them back.
Let me ask you. If the courts ordered you to make $100 loans to people, and you’d never get it back, would it hurt you financially?
Okay, and if you then went belly up and had to declare bankruptcy, would it then be okay if everyone referred to you as a corrupt individual?
Barney Frank and other politicians from both sides of the isle participated in this, and sat back and watched the whole thing cave in on itself. They didn’t life a finger.
Not only that, guess what they forced the banks to do after this all went down. Why they forced them to distribute tarp funds and sell the ball in motion again, for massive failed loans to people who still can’t pay them back.
This is all going to take place again.
And then folks who mean well will drop by to reference the people in the banking industry and on Wall Street as crooks.
The Crooks are located on Capital Hill and at the White House. They are also located at court houses all over this country. They sit in black robes there.
I am not convinced the banking industry or Wall Street were the major problems folks reference them as being.
It’s just too easy to pass up for some people, evil bankers and those unknown kings on Wall Street.
The Leftists have worked their magic.
‘Some of the money would have been spent, some used to pay off debt, some saved.”
Priming the pump by putting money in consumer hands no longer works like it did before our national obsession with free trade. When we had a consumer manufacturing base (pre 1990), tax cuts or rebates to the public were spent by consumers on products made in American factories by American workers. Demand increased, the factories hired unemployed workers, and the newly hired workers bought more goods as well as paid taxes. Today when government puts extra money in the hands of consumers, to the extent they spend the money it goes to increase employment in the foreign factories that make the consumer products.
Policy has consequences.
I remember all of the too big to fail talk. Well... That is how it works. If firms are too big to fail, they have become too big! If they fail, more competent people buy their assets at a good price and the economy is stimulated.
Lots of wise voices at the time were saying that all of the bailouts and stimulus would just cause the downturn to be significantly longer and more painful. How come after all these years of living thru it, nobody talks about that any more? That would be the most perfect talking points. Is the GOPe concerned that their complicity in it would reflect poorly on them?
A great solution S&F, that’s why it was not, and will never be done. The moneys (FED, big govt, banks, insurance companies) are all in bed together, the citizens (peasants) are not a part of that.
The CATO Institute claims that without government propping them up, at a particular point corporations will self destruct. While possibly true in pure economics, the impulse of government is to prop them up: both from lobbying by the bloated corporation, but also from not wanting to “rock the boat”. Not wanting to risk catastrophe.
What disproves this are the large number of oligopolies that are jamming out economy right now. Not just banking and finance, but the media, big pharma, interstate trucking, agribusiness, energy production, etc. And not just US corporations, but multinationals who want to sell in our market, but neither produce here nor to pay our taxes.
Busting these up would do our economy wonders.
“Priming the pump by putting money in consumer hands no longer works like it did before our national obsession with free trade. When we had a consumer manufacturing base (pre 1990), tax cuts or rebates to the public were spent by consumers on products made in American factories by American workers. Demand increased, the factories hired unemployed workers, and the newly hired workers bought more goods as well as paid taxes.
Today when government puts extra money in the hands of consumers, to the extent they spend the money it goes to increase employment in the foreign factories that make the consumer products.”