Corporate Welfare

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.

NEXT: Big Candy vs. Big Snowman

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Did he discuss the possibility of Americans having to eat their obese children?

    Cuz, I’m still totally down with that.

  2. 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?

  3. 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.”

  4. The biggest mistake of his Presidency.

    That’s an awfully competitive category.

  5. 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.

  6. Medicare expansion gives Paulson and Iraq a good run.

  7. 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.

  8. 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.

  9. 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?

  10. “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.

  11. 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?”

  12. “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.'”

  13. 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.

  14. 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.

  15. Human sacrifice, dogs and cats living together… mass hysteria!

  16. 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.

  17. *raises fist* GOLDMAN!!! I’ll get YOU!!!

  18. Goldman. What an ironic name for a passer of counterfeit fiat money.

  19. Electricity does not move at the speed of light.

  20. 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.

  21. Amen Fluffy Amen. Reason should know better than to dismiss that travisty as a sideshow.

  22. 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?

  23. And then didn’t leave the building in handcuffs.

    That’s what makes it a sideshow.

  24. 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.

  25. 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.

  26. 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.

  27. 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.

  28. 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.

  29. 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.

  30. The one issuing the threats is engaged in extortion, which is its own crime.

    Your definition of extortion is a lot broader than mine.

  31. 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.

  32. 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.

  33. @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…

  34. 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.

  35. 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.

  36. 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.

  37. “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.

  38. 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.

  39. “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….

  40. 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…”.

  41. 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.

  42. 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.

  43. 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).

  44. Excuse me, but the title of your article is sexist and offensive. Please change it!

  45. 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.

  46. 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.

  47. 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?

  48. 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.

  49. 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.

  50. 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.

  51. 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.)

  52. nice post…
    ___________________
    Britney
    The best place for the best ENTERTAINMENT

Please to post comments

Comments are closed.