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Paulson: Still a Male Hysteric
Former Secretary of the Treasury Henry Paulson is still testifying before the House Committee on Oversight and Government Reform. You can watch it live on the intertubes right here. I'll update this post as interesting things crop up, but for now, it's good to see the old boy is still the greatest Chicken Little our country has yet produced.
"Had the crisis been left to unfold," Paulson says in his opening statement, "many more Americans would now be without their homes their jobs, their businesses, their savings, their way of life."
More interesting was Paulson's response when Rep. Paul Kanjorski (D-Penn.) asked him to define the "meltdown" that would have happened if he had not handed out $700 billion of other people's money:
One of the issues we dealt with at the time was concern that it would terrify the American people and lead to an even bigger problem. We didn't want to make it worse...
I try not to use hyperbole. It's impossible to prove now since it didn't happen.
I looked at it: In a world where information can flow, money can move with the speed of light electronically, I looked at the ripple effect, and looked at when a financial system fails a whole country's economic system can fail. I believe we could have gone back to the sorts of situations we saw in the Depression. I remember asking Ben Bernanke what he thought the world would look like, and he said "Well just take a look at what happened in the Depression."
I didn't spend a whole lot of time thinking about that because I knew it was going to be very bad, and I didn't want to experience very bad. I didn't want to ever get to the point where we could really understand it.
More to come. The testimony is focused on the Bank of America conspiracy theory, which in my view is mostly a distraction. Paulson was certainly the kind of official who, during a zombie outbreak, alternates between putting out bland statements urging the public to remain calm and screaming that all hell is breaking loose. But the key to his character is that he's absolutely sincere in his panic. (Although it turns out he did get in a good Colorado ski vacation in the middle of the crisis, which is more than I've managed in the last few years.)
Update: Explanation for using Troubled Asset Relief Program funds for every purpose except relieving banks of troubled assets:
Our approach was to buy those illiquid assets; that was our primary approach. We learned, as the situation began to crumble all around the world, and we needed to move quickly, we needed to change gears. And I made the decision that when the facts change you need to move quickly and change. My point wasn't that we came to Congress and asked for illiquid assets, but that, thank goodness when we came to Congress we asked for flexibility and the Congress gave us the flexibility. The people I care about are the same ones you care about, the American people, the people that are going to lose their jobs. The tragedy is that they didn't create the problem. It's the big banks that created the problem, it's a whole lot of... they didn't create the problem but they have to pay the penalty.
(He also points out, correctly, that illiquid assets have proven a lot harder to price than originally advertised.)
Update: What's good for Bank of America is good for America.
Update: All wrapped up. Thank you for joining us.
|7.16.09 @ 12:08PM|#
Did he discuss the possibility of Americans having to eat their
obese children?
Cuz, I'm still totally down with that.
Xeones|7.16.09 @ 12:18PM|#
Coyote, children might be delicious, yes, but as a father i can
tell you: they are filthy, germ-ridden creatures. You'd be better
off washing down an undercooked pork chop with a glass of day-old
raw egg.
Paulson is really invested in this tiger-repelling rock he's got,
huh?
|7.16.09 @ 12:24PM|#
But, I think it is pretty clear that Bush's appointment of Paulson will be viewed as a complete disaster. The biggest mistake of his Presidency. Ultimately when Paulson says "America will enter a Depression" he really means "my friends at Goldman Sachs might have to be ordinary millionaires."
Xeones|7.16.09 @ 12:33PM|#
The biggest mistake of his Presidency.
That's an awfully competitive category.
|7.16.09 @ 12:35PM|#
Xeones,
Long term, no one will remember Iraq. At best it is a footnote and
it might in the end be viewed as a positive for the Middle East.
But there is no defending Paulson. As time goes on TARP and paulson
and Bernake will be viewed as hug villians in all of this.
Paul|7.16.09 @ 12:45PM|#
It's impossible to prove now since it didn't
happen.
What couldn't this be applied to when considering any government
panic? I'll bet ya we'll someone will be saying this about Global
Warming in a hundred years.
|7.16.09 @ 12:48PM|#
You're a lot tougher than I am, Cavanaugh; I watched about ten
minutes of that, and had to turn it off. I did like the, "Is that a
yes?" exchange with Congressman Whoever-the-hell-it-was.
My theory (over and above my conviction that he is a duplicitous,
self-aggrandizing douche) about Paulson is this: If you spend your
life as an investment banker at Goldman Sachs, you come to believe
investment banking Goldman Sachs is the single most
important sector of the economy.
|7.16.09 @ 12:51PM|#
Medicare expansion gives Paulson and Iraq a good run.
Part D? Drug coverage was going to happen eventually. If you're
going to cover surgeries and procedures, it really is ridiculous to
not cover drugs that can be a cheaper method of treatment. The only
political alternative was an even more expansive program. If you
assume that, then Part D has been remarkably successful for a
Medicare program; it actually hasn't exceeded its cost projections
yet. Could've been better, of course.
I think it's difficult to compare Part D to things that truly
wouldn't have happened without Administration pushes, like Iraq,
TARP, the auto bailout, etc.
Part D is somewhat more like complaining about Bush and
agricultural subsidies, or any President and transportation bills.
See what happened when Bush vetoed the ag bill for spending too
much?
Russ 2000|7.16.09 @ 12:51PM|#
"Well just take a look at what happened in the Depression" is
code for RUN ON THE BANKS!!!!
The lengths the government will go to to avoid telling people that
the FDIC can't cover all the claims on insolvent banks is absurdly
entertaining.
phalkor|7.16.09 @ 1:02PM|#
Rep. Paul Kanjorski (D-Penn.) asked him to define the
"meltdown" that would have happened if he had not handed out $700
billion of other people's money:
"Could you describe the ruckus, sir?"
|7.16.09 @ 1:15PM|#
"My theory (over and above my conviction that he is a
duplicitous, self-aggrandizing douche) about Paulson is this: If
you spend your life as an investment banker at Goldman Sachs, you
come to believe investment banking Goldman Sachs is the single most
important sector of the economy."
Exactly. It is just a politer way of putting the same point I made
when I wrote "Ultimately when Paulson says 'America will enter a
Depression' he really means 'my friends at Goldman Sachs might have
to be ordinary millionaires.'"
|7.16.09 @ 1:17PM|#
I didn't spend a whole lot of time thinking about that
because I knew it was going to be very bad, and I didn't want to
experience very bad. I didn't want to ever get to the point where
we could really understand it.
Now I have the disturbing image in my mind of Paulson holding a
baby blanket and sucking his thumb.
|7.16.09 @ 1:18PM|#
One of the issues we dealt with at the time was concern that
it would terrify the American people and lead to an even bigger
problem
So, in September not terrifying the American people was the reason
for spending $700BB on the bailout.
By February, though, terrifying the American people was necessary
to pass the $800BB stimulus.
Got it.
|7.16.09 @ 1:19PM|#
When the hyperbolic phrase "collapse of the financial system" is
thrown around, I know they mean their "vital" roll in having the
first skim off of these huge, now officially synthetic banks where
everyone's money pools up in downtown Manhattan.
Its a funny lesson here...to have and truly control fiat money you
need a fiat bank to do it. Usually, you just create a bank to house
the printing press and give it a Big Name (Bank of England, for
instance). But the offending bank is inextricably tied to the paper
it pushes and there is a clear line of control to the beneficiary
of the inflation (the sovereign).
We Americans are apparently more sophisticated. We made not a bank,
but a cartel of banks, and a Federal Reserve "umbrella" that - on
the org-chart - obfuscates the beneficiary from the inflation quite
nicely. No wonder these banks can't fail, they're too big to fail
if you want to keep the same decrepit financial scheme in place.
Paulson's a tool in this obviously.
Goldman Sach's is always the offender that comes out on top. I
don't think its a coincidence to its "success" that so many of our
Treasury secretaries have come from this firm. Warren Buffett
plowed $3 bln into Goldy's last fall. He knows who's hand is down
who's shorts where in NYC like no one else.
Fluffy|7.16.09 @ 1:36PM|#
The BankAmerica issue is not a sideshow.
The Secretary of the Treasury admitted in sworn testimony today
that he extorted management of a public company to force them to
set aside their fiduciary duty. And then didn't leave the building
in handcuffs.
That is a huge, huge story. It's the equivalent of Dick Cheney
showing up at the Congress, getting sworn in, saying, "I
deliberately set in motion a conspiracy to commit war crimes
because I thought it was important," and then leaving.
The story is that you can admit to a crime and no one cares, as
long as your job title is high enough.
|7.16.09 @ 1:40PM|#
Amen Fluffy Amen. Reason should know better than to dismiss that travisty as a sideshow.
somewhat confused|7.16.09 @ 1:46PM|#
Guys, didn't a whole bunch of libertarians make a career warning
about the "coming financial collapse" due to the Fed, printing
money, deficits, etc? So why is it now so hard to believe that
perhaps a panic and crash would have happened had not TARP calmed
things?
Didn't what they predicted would happen happen?
Do we wish, absent TARP, it would have happened?
Invisible Finger|7.16.09 @ 1:48PM|#
And then didn't leave the building in handcuffs.
That's what makes it a sideshow.
dfd|7.16.09 @ 1:55PM|#
Electricity does not move at the speed of light.
Of all the things to pick on Paulson about (and there is a
shit-load) that is pretty strange. For one thing, he never said
"electricity" moves at the speed of light. He said "money can move
with the speed of light electronically" and he is right about that
(and not much else). Electronic signals are carried by
electromagnetic waves which move, by definition, at the speed of
light. If your point is that individual electrons do not move at,
or even close, to the speed of light, then yes, you're right too
but that's irrelevant to the point he was making.
|7.16.09 @ 2:04PM|#
The story is that you can admit to a crime and no one cares,
as long as your job title is high enough.
Accountability is for little people.
Tim Cavanaugh|7.16.09 @ 2:09PM|#
The Secretary of the Treasury admitted in sworn testimony
today that he extorted management of a public company to force them
to set aside their fiduciary duty. And then didn't leave the
building in handcuffs.
That's a legitimate point, but as Paulson would say, I'm not going
to sit here an opine about what's illegal. It's Lewis who's got the
fiduciary responsibility. If he chooses to knuckle under to
Paulson's threats, he's still the one who's breaking the law. I
certainly don't think TARP funds put the Treasury in the position
of fiduciary responsibility. If anything, Treasury is in the
position of being an investor, to whom others owe that
responsibility.
A more fruitful line was the one Kucinich was following: that
Paulson conspired in what were at best deceptive omissions in BoA's
communications with the SEC and the various committees looking into
this business. From a strictly legal standpoint, that seems like a
more serious offense by a Treasurer than trying to mislead BoA's
shareholders. (Though from an ethical standpoint I'm not sure which
is worse.)
Once TARP existed, it was all uncharted waters, legally,
economically and in most other ways. So back to first principles:
We've already established what kind of woman you are; now we're
just haggling over the price.
T|7.16.09 @ 2:11PM|#
I've said it before, and I'll say it again: Hank Paulson needs
to STFU and eat a bowl of dicks.
Fluffy, you are exactly correct. Paulson should be in cuffs and an
orange jumpsuit. I'm still amazed there's been no BofA shareholder
suit against management and Treasury. If I was a shareholder
instead of just a lowly customer, I would have started lawyer
shopping for the class action months ago.
Fluffy|7.16.09 @ 2:17PM|#
If he chooses to knuckle under to Paulson's threats, he's
still the one who's breaking the law.
The one issuing the threats is engaged in extortion, which is its
own crime.
Lewis may have committed a securities crime in response to
Paulson's threats, but Paulson's threats were a plain old
felony.
|7.16.09 @ 2:19PM|#
A thought: On the one hand, we hear incessantly about the need to bribe "the best and the brightest" talent to stay put, but the threat of pushing Lewis overboard was enough to get him to completely turn his back on his responsibilities to his employers. Apparently, Lewis wasn't too sure about his prospects out in the cold, cruel world.
Tim Cavanaugh|7.16.09 @ 2:21PM|#
The one issuing the threats is engaged in extortion, which
is its own crime.
Your definition of extortion is a lot broader than mine.
Fluffy|7.16.09 @ 2:21PM|#
I certainly don't think TARP funds put the Treasury in the
position of fiduciary responsibility. If anything, Treasury is in
the position of being an investor, to whom others owe that
responsibility.
But the TARP funds don't really have anything to do with it.
The threats made to Lewis weren't threats against BankAmerica, so
Treasury's gift of TARP funds to BankAmerica isn't really relevant.
They were personal threats directed at Lewis for
the purpose of forcing him to break securities laws and ignore his
fiduciary duty.
If I had photos of some CEO having sex with a goat, and I
threatened to expose those photos if that CEO didn't undertake a
merger against his shareholders' best interest, that is garden
variety extortion. TARP and the legal issues raised by TARP don't
have anything to do with it.
Sean Healy|7.16.09 @ 2:27PM|#
Does anyone here actually understand what was going on in September? There were many banks, all over the world, which had less than 24 hours of liquidity available. That's one of the few situations where where doing "something, anything" is the right move, even if ultimately it turns out not to have been the right move.
|7.16.09 @ 2:44PM|#
@somewhat confused
"Didn't what they predicted would happen happen?
Do we wish, absent TARP, it would have happened?"
TARP doesn't "save" anything or anybody. It just postpones the
inevitable that much longer. Its like a crack addict...eventually
withdrawal has to be dealt with to quit abusing the drug.
All TARP did was re-load the pipe...the addiction is the problem.
And TARP + Stimulus + endless special "facilities" the Fed is using
now proves that any addiction like this builds up tolerance in the
addict, and therefore requires ever-bigger "hits" to "feel better."
It makes the crash that much nastier and if carried on too long,
kills the addict.
Just sayin...
Space Fiend|7.16.09 @ 2:45PM|#
Not only did Paulson force BofA to neglect its fiduciary duty,
he also aided and abetted (at the least, I suspect "thought of and
encouraged" is closer to the truth) fraud on a massive scale as
BofA continued to lie to shareholders. Not only did BofA look the
other way, they acttively withheld information that they had.
Also, Russ 2000, the FDIC can cover all the deposits: they have
access to the printing press if it comes to it.
JB|7.16.09 @ 2:54PM|#
I love how ex Goldman Sachs employees used the Federal
government to bail out Goldman Sachs for stupid bets they made on
AIG and other places.
What a bunch of crooked fucks.
T|7.16.09 @ 2:57PM|#
Not only did Paulson force BofA to neglect its fiduciary
duty, he also aided and abetted (at the least, I suspect "thought
of and encouraged" is closer to the truth) fraud on a massive scale
as BofA continued to lie to shareholders. Not only did BofA look
the other way, they acttively withheld information that they
had.
Exactly. Paulson, e al, conspired with BofA to evade SEC
regulations. He's in charge of enforcing the rules and he's
actively trying to undermine them? Fuck him. Go to jail.
polio robot|7.16.09 @ 3:00PM|#
"Amen Fluffy Amen. Reason should know better than to dismiss
that travisty as a sideshow."
But..But...Madoff got 150 years, so now everything is OK,
right?
/Madoff was a stupid amateur, obviously he didn't pay enough to the
right people.
|7.16.09 @ 3:07PM|#
Guys, didn't a whole bunch of libertarians make a career
warning about the "coming financial collapse" due to the Fed,
printing money, deficits, etc? So why is it now so hard to believe
that perhaps a panic and crash would have happened had not TARP
calmed things?
Didn't what they predicted would happen happen?
Do we wish, absent TARP, it would have happened?
There are so many bubbles yet to be burst in our economy that TARP,
at best, postponed the inevitable at the low low cost of enriching
a bunch of Wall Street bankers and undermining our currency.
There are all the other credit derivatives still floating around
out there, no more sound, really, than the mortgage-backed
securities. There is a collapsing commercial real estate market.
Either of those can inflict damage the equal of the collapsed
residential real estate market.
polio robot|7.16.09 @ 3:18PM|#
"Does anyone here actually understand what was going on in
September? There were many banks, all over the world, which had
less than 24 hours of liquidity available."
July 16, 2008 Ron Paul addresses Congress about this very
thing.
Madam Speaker, I have, for the past 35 years, expressed my
grave concern for the future of America . The course we have taken
over the past century has threatened our liberties, security and
prosperity. In spite of these long-held concerns, I have
days--growing more frequent all the time--when I'm convinced the
time is now upon us that some Big Events are about to occur. These
fast-approaching events will not go unnoticed. They will affect all
of us. They will not be limited to just some areas of our country.
The world economy and political system will share in the chaos
about to be unleashed.
Though the world has long suffered from the senselessness of wars
that should have been avoided, my greatest fear is that the course
on which we find ourselves will bring even greater conflict and
economic suffering to the innocent people of the world--unless we
quickly change our ways.
America , with her traditions of free markets and property rights,
led the way toward great wealth and progress throughout the world
as well as at home. Since we have lost our confidence in the
principles of liberty, self reliance, hard work and frugality, and
instead took on empire building, financed through inflation and
debt, all this has changed. This is indeed frightening and an
historic event.
The problem we face is not new in history. Authoritarianism has
been around a long time. For centuries, inflation and debt have
been used by tyrants to hold power, promote aggression, and provide
"bread and circuses" for the people. The notion that a country can
afford "guns and butter" with no significant penalty existed even
before the 1960s when it became a popular slogan. It was then,
though, we were told the Vietnam War and the massive expansion of
the welfare state were not problems. The seventies proved that
assumption wrong.
Today things are different from even ancient times or the 1970s.
There is something to the argument that we are now a global
economy. The world has more people and is more integrated due to
modern technology, communications, and travel. If modern technology
had been used to promote the ideas of liberty, free markets, sound
money and trade, it would have ushered in a new golden age--a
globalism we could accept.
Instead, the wealth and freedom we now enjoy are shrinking and rest
upon a fragile philosophic infrastructure. It is not unlike the
levies and bridges in our own country that our system of war and
welfare has caused us to ignore.
I'm fearful that my concerns have been legitimate and may even be
worse than I first thought. They are now at our doorstep. Time is
short for making a course correction before this grand experiment
in liberty goes into deep hibernation.
There are reasons to believe this coming crisis is different and
bigger than the world has ever experienced. Instead of using
globalism in a positive fashion, it's been used to globalize all of
the mistakes of the politicians, bureaucrats and central
bankers.
Being an unchallenged sole superpower was never accepted by us with
a sense of humility and respect. Our arrogance and aggressiveness
have been used to promote a world empire backed by the most
powerful army of history. This type of globalist intervention
creates problems for all citizens of the world and fails to
contribute to the well-being of the world's populations. Just think
how our personal liberties have been trashed here at home in the
last decade.
The financial crisis, still in its early stages, is apparent to
everyone: gasoline prices over $4 a gallon; skyrocketing education
and medical-care costs; the collapse of the housing bubble; the
bursting of the NASDAQ bubble; stock markets plunging; unemployment
rising; massive underemployment; excessive government debt; and
unmanageable personal debt. Little doubt exists as to whether we'll
get stagflation. The question that will soon be asked is: When will
the stagflation become an inflationary depression?
There are various reasons that the world economy has been
globalized and the problems we face are worldwide. We cannot
understand what we're facing without understanding fiat money and
the long-developing dollar bubble.
There were several stages. From the inception of the Federal
Reserve System in 1913 to 1933, the Central Bank established itself
as the official dollar manager. By 1933, Americans could no longer
own gold, thus removing restraint on the Federal Reserve to inflate
for war and welfare.
By 1945, further restraints were removed by creating the
Bretton-Woods Monetary System making the dollar the reserve
currency of the world. This system lasted up until 1971. During the
period between 1945 and 1971, some restraints on the Fed remained
in place. Foreigners, but not Americans, could convert dollars to
gold at $35 an ounce. Due to the excessive dollars being created,
that system came to an end in 1971.
It's the post Bretton-Woods system that was responsible for
globalizing inflation and markets and for generating a gigantic
worldwide dollar bubble. That bubble is now bursting, and we're
seeing what it's like to suffer the consequences of the many
previous economic errors.
Ironically in these past 35 years, we have benefited from this very
flawed system. Because the world accepted dollars as if they were
gold, we only had to counterfeit more dollars, spend them overseas
(indirectly encouraging our jobs to go overseas as well) and enjoy
unearned prosperity. Those who took our dollars and gave us goods
and services were only too anxious to loan those dollars back to
us. This allowed us to export our inflation and delay the
consequences we now are starting to see.
But it was never destined to last, and now we have to pay the
piper. Our huge foreign debt must be paid or liquidated. Our
entitlements are coming due just as the world has become more
reluctant to hold dollars. The consequence of that decision is
price inflation in this country--and that's what we are witnessing
today. Already price inflation overseas is even higher than here at
home as a consequence of foreign central banks' willingness to
monetize our debt.
Printing dollars over long periods of time may not immediately push
prices up--yet in time it always does. Now we're seeing catch-up
for past inflating of the monetary supply. As bad as it is today
with $4 a gallon gasoline, this is just the beginning. It's a gross
distraction to hound away at "drill, drill, drill" as a solution to
the dollar crisis and high gasoline prices. Its okay to let the
market increase supplies and drill, but that issue is a gross
distraction from the sins of deficits and Federal Reserve monetary
shenanigans.
This bubble is different and bigger for another reason. The
central banks of the world secretly collude to centrally plan the
world economy. I'm convinced that agreements among central banks to
"monetize" U.S. debt these past 15 years have existed, although
secretly and out of the reach of any oversight of
anyone--especially the U.S. Congress that doesn't care, or just
flat doesn't understand. As this "gift" to us comes to an end, our
problems worsen. The central banks and the various governments are
very powerful, but eventually the markets overwhelm when the people
who get stuck holding the bag (of bad dollars) catch on and spend
the dollars into the economy with emotional zeal, thus igniting
inflationary fever.
This time--since there are so many dollars and so many countries
involved--the Fed has been able to "paper" over every approaching
crisis for the past 15 years, especially with Alan Greenspan as
Chairman of the Federal Reserve Board, which has allowed the bubble
to become history's greatest.
The mistakes made with excessive credit at artificially low rates
are huge, and the market is demanding a correction. This involves
excessive debt, misdirected investments, over-investments, and all
the other problems caused by the government when spending the money
they should never have had. Foreign militarism, welfare handouts
and $80 trillion entitlement promises are all coming to an end. We
don't have the money or the wealth-creating capacity to catch up
and care for all the needs that now exist because we rejected the
market economy, sound money, self reliance and the principles of
liberty.
Since the correction of all this misallocation of resources is
necessary and must come, one can look for some good that may come
as this "Big Event" unfolds....
Doug Stevens|7.16.09 @ 3:29PM|#
Does anyone here actually understand what was going on in
September? There were many banks, all over the world, which had
less than 24 hours of liquidity available.
So what? There were a lot more that were doing just fine. What you
meant to say was "There were many politically connected
banks...".
Russ 2000|7.16.09 @ 3:37PM|#
Also, Russ 2000, the FDIC can cover all the deposits: they
have access to the printing press if it comes to it.
Yes, but it still has to be actual legislation. There was a run on
IndyMac when it was closed and the FDIC had the funds to cover it.
But the depositors got checks that other institutions still held
for 10 days.
The bigger problem is shutting down a bank the size of Citi would
take months, the FDIC would have to get the funds transferred
first, and people would cause a run on deposits to avoid having to
wait weeks to be made whole. As Paulson alluded to, telling people
they have to wait a few weeks to withdraw money from their demand
deposit accounts would be an ugly scene. You can quell a lot of the
panic by telling them the FDIC has access to the printing press,
but the more leveraged you are the higher percentage of depositors
must be quelled. They don't want to risk it. That what "too big to
fail" means.
Sean Healy|7.16.09 @ 3:50PM|#
So what? There were a lot more that were doing just fine.
What you meant to say was "There were many politically connected
banks...".
That matters less than you think. The problem in September was
liquidity hoarding on a massive scale. Even those banks that were
not choking on crappy mortgage bonds or whatever depend on the
interbank lending market, and it basically stopped functioning.
Fundamentals are meaningless in a panic.
Doug Stevens|7.16.09 @ 4:04PM|#
That matters less than you think. The problem in September
was liquidity hoarding on a massive scale. Even those banks that
were not choking on crappy mortgage bonds or whatever depend on the
interbank lending market, and it basically stopped functioning.
Fundamentals are meaningless in a panic.
The folks at my local bank would have a good laugh at that
sentiment. They were well positioned to start buying other bank's
assets (and in fact did buy the assets of one of the smaller banks
that failed).
|7.16.09 @ 4:32PM|#
Excuse me, but the title of your article is sexist and offensive. Please change it!
Tim Cavanaugh|7.16.09 @ 4:33PM|#
There are so many bubbles yet to be burst in our economy
that TARP, at best, postponed the inevitable at the low low cost of
enriching a bunch of Wall Street bankers and undermining our
currency.
Who was the commenter a while back who said something along the
lines of...
"The bailouts are like a guy who's puking but still trying to hold
it in his mouth."
Stand up and take a bow, whoever wrote that.
Tim Cavanaugh|7.16.09 @ 4:40PM|#
There were a lot more that were doing just fine. What you
meant to say was "There were many politically connected
banks...".
I believe you'll find those two subsets overlap to a striking
degree. In finance, big is better than small, for basically the
same reason rich is better than poor.
Tim Cavanaugh|7.16.09 @ 4:45PM|#
And a question for the group: Does anybody have a guesstimate on
how much the FDIC shortfall would have been without TARP? (I admit
it's a little like determining how Spartacus would have done if
he'd had a Piper Cub.)
When the FDIC liquidates a bank, it generally (even now) gets off
with paying only a portion of the total deposits figure. So, has
anybody done a worst-case version of how much cash Uncle Sucker
would have had to pump into the FDIC to liquidate X number of
banks?
Doug Stevens|7.16.09 @ 4:51PM|#
So, has anybody done a worst-case version of how much cash
Uncle Sucker would have had to pump into the FDIC to liquidate X
number of banks?
I don't know the answer but would also like to bring up the issue
of terms of repayment. I imagine that there's something in place
that will allow them to pay off over a fairly long period of time
if they want. I don't know if that's true (but would be very
surprised if it wasn't) and would be interested in knowing how that
all works.
Russ 2000|7.16.09 @ 5:53PM|#
Does anybody have a guesstimate on how much the FDIC
shortfall would have been without TARP?
A few months ago I looked at the top 50 banks by deposits and there
were around $5 trillion in deposits. I think the FDIC had something
like $40-50 Billion in its coffers. I'd have to take swags at how
much of the $5 Trillion was insured deposits, but most of the top
50 banks were TARP recipients - whether that means they merely
wanted the TARP money or needed the TARP money would be another
swag. But it's not much of a swag to think that assets were/are
overstated by at least half when you look at the drop in house
prices with a relatively constant interest rate. So my bottom line
guess - the FDIC needed at least 2 trillion and maybe 4
trillion.
Probably better to do that kind of work via the Fed - I can't
defend a word of what Bernanke says publicly but he is doing what
Milton Friedman would do (quantitative easing - the methods may not
be the same). I think if you close banks by the hundreds you risk a
depositor (creditor) panic. But the downside of not closing the
banks is that, because of the fact that in a fiat system the
advantage of the new money goes to the first recipients, bad banks
get propped up at the expense of the creditors. If the bad banks
were closed, the new money would go to the creditors first and
they'd get the advantage. In my opinion, the government is
essentially a bad bank (and a bad insurance company, and a bad
pension fund) so the new money was never going to go to the
creditors first.
Ben Franklin was right - neither a borrower nor a lender be. But in
a fiat system you are forced to be one or the other.
Russ 2000|7.16.09 @ 6:10PM|#
When the FDIC liquidates a bank, it generally (even now)
gets off with paying only a portion of the total deposits
figure.
In the last year or so, there have been a couple closures where the
FDIC can't find a buyer (or won't take the offers) so the FDIC eats
the whole thing minus whatever they can recover from the
assets.
They were having a heck of a time finding a buyer for Corus Bank,
imagine the difficulty involved in finding a buyer for Citi when
BofA, W-F, JPMC, etc are in similar situations.
|7.16.09 @ 6:33PM|#
I believe you'll find those two subsets overlap to a striking degree. In finance, big is better than small, for basically the same reason rich is better than poor.
And the recently failed CIT is the exception that proves the rule.
Big, but not politically connected. Feds let them fall.
(They lent to businesses, retail, mostly.)
|7.17.09 @ 6:05AM|#
nice post...
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