With very little fanfare, a bearded bureaucrat about my age recently committed a bigger crime than our entry into the Iraq War.
Ben Bernanke, whose title is Chairman of the Federal Reserve Board, is committing half your country’s capital — $400 billion — against securities he knows are bogus, home mortgages that should never have been made, collateral instruments that should never have been created. He compounded this crime yesterday by explicitly bailing out Bear Stearns, the investment bank which more than any other created this Big Shitpile.
The excuse, given even by liberals like Paul Krugman, was that Bear is "too big to fail."
Bullshit.
I am sick and tired of this crap about what "we" can’t "afford" to have
happen. As far as I’m concerned, Bear Stearns has lost the right to
exist as a firm and its leaders have lost their right to walk the
streets. (What does J.P. Morgan think it’s buying?)
You seize the firm, you appoint someone honest to oversee its
operations, and you announce that liquidation will take place in an
orderly fashion, over time, so as to minimize loss to the Treasury.
Then you appoint a special prosecutor to make certain those so-called
bankers do hard time.
Eliot Spitzer screwed a prostitute. The leaders of Bear Stearns screwed everyone. Who deserves jail more?
Even an orderly transition at Bear would hurt — a lot. There are
already too many sellers in the market, not near enough buyers, and
this would just add more sellers. Which is why you announce you’re
holding. You do put that $400 billion at risk, but you don’t toss it at
people you know are crooks.
And what’s at risk is, literally, everything. Bear’s crimes have put
the entire American financial system on the table, by creating trillions of dollars in
securities backed by adjustable-rate mortgages that were bound to come
apart at the first adjustment. Some will argue that Iraq itself is the
proximate cause of this — that the mass creation of phony money was
done to pay for the war. Irrelevant.
That $400 billion the Fed laid out this week is money that’s meant to protect your bank account, and mine, in case our banks fail. That’s the money backing the deposit insurance which keeps us from running downtown, passbooks in hand, like our grandparents did 76 years ago. When that money disappears, there’s nothing behind it — no "good faith and credit" left to the United States. Your dollars, my dollars, all our dollars, become nothing more at that point than worthless paper. Argentine Pesos.
Fact is, this latest stopgap is not going to stop the rot. We’re going
to take the hit anyway. We should take it on our own terms, and not
terms dictated to us by the criminals who got us into this mess.
When you bail out a criminal, you become a criminal yourself. Ben Bernanke has made us all party to the crimes of Bear Stearns.
Still just want to see Spitzer in jail?
bernanke is tripping if asked me, and I am no economist.
bernanke is tripping if asked me, and I am no economist.
I agree, this is pretty absurd. It’s corporate welfare for the wealthiest and most powerful – profits are private, and losses are socialized. I’m pretty sick of bailing them out with my tax money.
At the same time, they kind of have a point, in an evil way, about being too big to fail. If they were allowed to simply fall on their face and collapse, it would produce a disastrous seizure of the financial markets that underpin the entire economy. Institutional bankers are herd-mentality creatures. If they experience a crisis of confidence in the financial system (which would definitely happen if a large and hitherto trusted institution like Bear Stearns collapses), they will just stop lending money (to anyone). Across the country and around the world, companies that have nothing to do with this situation would go under right and left, because they wouldn’t be able to get lines of credit at banks to keep their cashflow going, or credit for any other purpose. The economy runs on credit, for better or for worse, and if it isn’t available, it will be a disaster for a whole lot of people who have nothing to do with the kind of malfeasance that is routine on Wall Street.
As their access to credit dried up, they’d lay off employees, who would then cut their personal spending, which would produce another wave of secondary layoffs and failures in service businesses that cater to them, and so on.
Simply letting the big boys fail as a suitable punishment for their crimes is basically what the federal policy was in 1929. They believed (with reason) that it is not the government’s job to protect large banks from their mistakes, and that market forces should be allowed to do their thing and weed the weak and bad banks out through business failure. The above scenario happened, credit dried up, and the Great Depression was the result.
If we bail them out, we get a moral hazard. Other banks know they’re “too big to fail” and will take greedy and stupid risks, like Bear did, because they know a Fed bailout will save them in the end.
On the other hand, it is actually true that they’re far too ingratiated into the fabric of the economy to be allowed to fail. If just one bank the size of Bear Stearns is allowed to completely fail and default on its obligations, we’re all screwed, to put it bluntly (and mildly). With the vastly larger quantities of cash and much more complicated financial instruments in use today, as opposed to 1929, the magnitude of the economic fallout would be a hundred times worse than the Great Depression, and we would probably wind up in another World War to end it.
They have us between a rock and a hard place here, and, while unattractive morally, rescuing them is lesser of the two evils.
The only solution I can think of is to bring criminal charges personally against bank executives whose shady dealings lead to this situation, and I don’t mean “2 years in a country club minimum security prison with tennis courts” charges. They need to find the people who are responsible for this mess and make them pay. Take away their Bentleys and their bonuses and their summer houses, and send them to a real prison for a long time. If they want the privilege of being protected from total failure, they need to accept concomitant responsibilities; namely, they need to accept responsibility for not getting into situations like this, and they need to be punished if they shirk that responsibility.
Paul
http://www.economaton.com
I agree, this is pretty absurd. It’s corporate welfare for the wealthiest and most powerful – profits are private, and losses are socialized. I’m pretty sick of bailing them out with my tax money.
At the same time, they kind of have a point, in an evil way, about being too big to fail. If they were allowed to simply fall on their face and collapse, it would produce a disastrous seizure of the financial markets that underpin the entire economy. Institutional bankers are herd-mentality creatures. If they experience a crisis of confidence in the financial system (which would definitely happen if a large and hitherto trusted institution like Bear Stearns collapses), they will just stop lending money (to anyone). Across the country and around the world, companies that have nothing to do with this situation would go under right and left, because they wouldn’t be able to get lines of credit at banks to keep their cashflow going, or credit for any other purpose. The economy runs on credit, for better or for worse, and if it isn’t available, it will be a disaster for a whole lot of people who have nothing to do with the kind of malfeasance that is routine on Wall Street.
As their access to credit dried up, they’d lay off employees, who would then cut their personal spending, which would produce another wave of secondary layoffs and failures in service businesses that cater to them, and so on.
Simply letting the big boys fail as a suitable punishment for their crimes is basically what the federal policy was in 1929. They believed (with reason) that it is not the government’s job to protect large banks from their mistakes, and that market forces should be allowed to do their thing and weed the weak and bad banks out through business failure. The above scenario happened, credit dried up, and the Great Depression was the result.
If we bail them out, we get a moral hazard. Other banks know they’re “too big to fail” and will take greedy and stupid risks, like Bear did, because they know a Fed bailout will save them in the end.
On the other hand, it is actually true that they’re far too ingratiated into the fabric of the economy to be allowed to fail. If just one bank the size of Bear Stearns is allowed to completely fail and default on its obligations, we’re all screwed, to put it bluntly (and mildly). With the vastly larger quantities of cash and much more complicated financial instruments in use today, as opposed to 1929, the magnitude of the economic fallout would be a hundred times worse than the Great Depression, and we would probably wind up in another World War to end it.
They have us between a rock and a hard place here, and, while unattractive morally, rescuing them is lesser of the two evils.
The only solution I can think of is to bring criminal charges personally against bank executives whose shady dealings lead to this situation, and I don’t mean “2 years in a country club minimum security prison with tennis courts” charges. They need to find the people who are responsible for this mess and make them pay. Take away their Bentleys and their bonuses and their summer houses, and send them to a real prison for a long time. If they want the privilege of being protected from total failure, they need to accept concomitant responsibilities; namely, they need to accept responsibility for not getting into situations like this, and they need to be punished if they shirk that responsibility.
Paul
http://www.economaton.com