October 14, 2008: The Day the Economy as We Knew It Died
Almost everyone who believes in the Constitution and free markets properly considers October 3, 2008, one of the darkest days in U.S. history. It was on that day that the “Emergency Economic Stabilization Act” creating the Troubled Asset Relief Program (TARP) became law. A day later, I wrote that law’s passage, accompanied by tactics and threats which amounted to orchestrated blackmail, over the strident objections of over 150 economists from across the political spectrum, only days after its initial voter-driven failure, proved that Washington’s politicians and elites “don’t care what we think.”
Abhorrent as it was, the sickening saga of TARP’s enactment was nothing compared to what transpired less than two weeks later.
Everyone’s understanding of the legislation — at least publicly expressed — was that it would, quoting from the bill’s text, authorize the Treasury Department “to purchase, and to make and fund commitments to purchase, troubled assets.” Specifically identified “troubled assets” included:
(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability;
With that congressional authorization, everyone — again, at least publicly — expected Treasury Secretary Henry Paulson to begin buying up “toxic assets.” No one expected that this would be easy, or that settling accounts with affected banks involved would occur quickly.
Ah, but there was a catch in the law which immediately followed. It authorized the purchase of:
(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.
On October 14, Paulson, with President George W. Bush’s shameful capitalism-betraying acquiescence, morphed the program into a hostile government takeover of the banking system. If there’s one thing the ignoramuses in the Occupy Wall Street crowd and the American people in general need to understand, it’s this: Hank Paulson didn’t ask.
Instead, as the New York Times reported, Treasury’s Godfather called big bank executives into a meeting with no pre-announced agenda, made them an offer they couldn’t refuse, and created the unmistakable impression that every one else below them in the pecking order would have to fall in line:
The chief executives of the nine largest banks in the United States … were each handed a one-page document that said they agreed to sell shares to the government. … Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left.
… [T]he bankers … felt they had little choice but to go along with the Treasury plan to inject $250 billion of capital into thousands of banks — starting with theirs.
In a chilling exchange on CNBC that day delivered with a smirking, casual arrogance which has to be seen to be believed (still available for your viewing horror), Dylan Ratigan and Charles Gasparino described how it went down. Anyone who somehow believes that the banks had a choice should focus on the bolded text:
Ratigan: … [M]any of the banks didn’t want to be tainted with the government bailout funds because they didn’t want to be mistaken for a fool when they actually felt that they were the smart one that didn’t do it.
Well Hank Paulson said: “The heck with that.” He stuck all of them with some of the bailout money. And he said: “Listen, we’re going to reset the clock here and move forward.” Charlie, how are the banks that felt they basically didn’t commit the crime, as it were, of excess or reckless risk, uh, respond to the fact that even they will be stuck with this capital?
Gasparino: Well, y’know, they were all kind of stupid to some extent …..
….. the Treasury Secretary Hank Paulson put all these egos in the room, and basically put guns to their heads, forcing them to take the money to bolster the banking system.
Some of the firms say they didn’t want the cash, but it’s pretty clear that all of them did need to take the cash, given the continued upheaval in the banking system that crushed shares last week of Morgan as well as Goldman Sachs and just about everybody else.
So this is essentially, uh, Dylan, a case where, y’know, you can deny you have any problems. Even the best-capitalized banks have problems. They own this stuff. And Paulson at one point said, “Listen, if you don’t want it, it doesn’t matter, gun to your head, you gotta take it.”
For many the reason for the “sickening silence” is that current events are regarded as the inevitable consequence of paths chosen long ago.
To quote Von Mises, “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
It was obvious after the first few months of the Reagan Administration that there would be no “voluntary abandonment”. The answer to Reagan’s questions, “If not us, who? If not now, when?”, were “no one” and “never”, at least, not voluntarily.
The jockeying for position in the race for power has already begun. I speak of the power that will replace our late representative republican form of government. Though, like the Roman Senate, we will probably keep the figurehead institutions in place, we have already abdicated power. (The “Occupy Wall Street” folks notwithstanding, odds are not on the proletariat.)
The only real question facing us is whether or not the major powers can avoid being dragged into mutual annihilation when, the Pax Americana having ended, the India-Pakistan and/or Arab-Israeli nuclear exchanges occur.
So it goes.
reagan? hello troll.
This is the SECOND time government gave banks this offer they couldn’t refuse.
The first time was the actual cause of the situation in the first place? Why didn’t you even mention this Tom??
Half of ALL home loans made (27 Million of them) were forced on lenders by government to redistribute wealth and racial ‘reparations’ behind America’s back
You can hear Clinton confess (bragging) before the manure hit the fan. Search for the 58 second video and hear it for yourself; Subprime Disaster: President Clinton Takes Credit
I’ld hand you all the many links of irrefutable proof but, Pajama’s Media won’t even allow a single link to be shared.
Nice point about the banks causing the problem in the first place.
Did you intend to leave “not” out of your comment, or do you have reading difficulties?
No need to be so rude. Yes, I did “not” out of my comment.
And I left “leave” out of that one.
Peter Wallison covered most of this in the Wall Street Journal on Wednesday.
Good point.
I don’t know what you mean by ” Pajama’s Media won’t even allow a single link to be shared,” though.
You can include links in your comments; you can even make them hot links if you know the HTML tags — if not you can find a how-to at this Hot Links Cheat Sheet.
I don’t know if PJM limits the number of links you include, as some sites do, but they don’t preclude them. I do think it would help if they used same bright blue color to distinguish them in the comments as they do within the main post.
Peter Wallison brought out many of the stats you cite and more at the Wall Street Journal on Wednesday.
I posted on it at BizzyBlog.
The preparations to resist the destruction of the Republic
go back at least to the Reagan era, and their execution is
in progress; When the collapse comes, power will devolve
to the solvent states, which will lead the recovery.
The federal government’s current clueless administration
is just becoming aware of this, and that they lack the power
to prevent it, hence their bad behavior, most noticeably and
recently Jesse Jackson Jr’s call for President Obama to treat
rebellious states as Lincoln did during the Civil War, using
extraconstitutional powers, in ignorance of the fact that
there is no chance tha the US military will obey such orders.
Thanks for the reminder! I remember thinking at the time that they sold us on a different idea and then turned around and did something else as if they had a hidden agenda all along.
I suspect that there’s a connection that hasn’t really been appreciated. You mention the TARP takeover of the banks and the Chrysler bonds, but you don’t connect them.
Obama wanted to give the auto companies to the unions. Ultimately a majority of the Chrysler bondholders “agreed” to put their interests behind the unsecured creditor unions. The smaller bondholders screamed bloody murder, but under law, if the majority of the bondholders agree to such an arrangement, the minority can be forced to go along. Which is just what happened.
Of course, the majority of the bondholders were the TARP banks, and that was what the TARP takeover was all about. The government didn’t take control of the major banks to “recapitalize” them – that could have been done with loan guarantees. The government took control of the major banks in order to force them to “voluntarily” nullify their auto industry bonds.
Since the large banks that “went along” lost a lot of money in the process, the administration made them whole by allowing them to borrow mountains of money from the fed at 0% interest and buy treasury bonds. Thus, instead of monatizing the stimulus bill by having the Fed buy treasury bonds, they put the TARP banks in the middle and gave them a little taste of the action — record “profits” not for doing what banks traditionally do — service the private sector with loans — but for doing nothing.
Now we have a banking system that does nothing for the private sector. It isn’t really their business anymore, and they are letting their customers know it. They won’t write loans and mortgages, and they are socking individuals with insultingly high fees to get rid of their far less profitable and riskier customers — the public, to focus on their only real client — the Federal government. They are completely captured by the government to this day.
The level of corruption that this administration *started* with is just mind-boggling.
I’m not sure who the banks’ customers are now. Even the Federal government is small potatoes considering how much money is still in credit default swaps, insurance and other derivatives. I think they just trade with each other and gamble on the markets. And expect to be bailed out if the bets don’t pay off.
That’s why all the angst over Europe on this side of the pond. No one knows what our banks’ exposure really is to sovereign default- at the very least, the Europeans have to figure out how much a “haircut” their banks can take without triggering credit default insurance or it will be 2008 all over again.
By feeding (attempting to feed) the super-exponential rise of debt the banks are serving the government for it is by this method that the economy is kept from collapsing, costing many feds their jobs. Formerly, they made the economy “grow” by this act.
Much of it has its roots in the “Humphrey Hawkins Full Employment Act” by which coercion the politicians took effective control of the Federal Reserve, “Nice little bank you’ve got going here, sure would be a shame to see something happen to it.”
By feeding (attempting to feed) the super-exponential rise of debt the banks are serving the government for it is by this method that the economy is kept from collapsing, allowing the feds to continue buying votes. Formerly, they made the economy “grow” by this act.
Much of it has its roots in the “Humphrey Hawkins Full Employment Act” by which coercion the politicians took effective control of the Federal Reserve, “Nice little bank you’ve got going here, sure would be a shame to see something happen to it.”
And just wait if Obamacare is upheld by the Supreme Court. Federalism will be dead and the Federal Government will literally own you. It will not only be able to tell you what to buy, but also how you’re going to live, what operations you can have, what medications you can take, what you can and cannot eat, how much you can weigh, and what doctors (if there are any left) you can see. If the government is paying for it, then it can literally tell you what to do, just like in TARP.
If the Supreme Court upholds Obamacare, it really may be time to move. But where? Maybe Texas really would be better off on its own.
When Obamacare was being argued about, I mentioned to my daughter and several friends that if it passed, the government would then be able to tell you and enforce ALL your activities. Anything and everything in one way or another affects ‘health’, from “what you can and cannot eat, how much you can weigh” to what you do or perhaps even DON’T do in your spare time. I’m happy to see I’m not the only one with that belief. It has already started in New York City with Bloomberg ‘outlawing’ salt (and don’t even get me started on smokers and the second hand smoke threat). If we all don’t wise up soon, we won’t have to worry about Iran’s nuclear threat since it won’t matter much under which repressive govt. we eventually ‘live’. Dare I say it? We are doomed (if we all don’t wise up soon)!
Coeurmaeghan in 29 Palms, CA
No CEO (or other single person) has the authority to obligate the sale of shares in a publicly traded company. It is easy to show that this was extortion, but one needn’t even do that. These transactions could be voided by any judge instantly.
Find a plaintiff with standing, and a lawyer and judge resistant to the sort of pressure the regime can bring to bear. Fat chance.
And, oh, yeah. “Not in societies best interests.” Many a crime has been dismissed with that comment.
Thank you for – in one short article – with references – explaining what has been going on with the banking system. I will admit ignorance. This explains very neatly what has happened and what is continuing to happen.
The only real questions are whether Paulsen and Bernanke were in on the OSoros scheme from the beginning or not. The whole thing was a setup and was detonated the very day that McLame took his first lead in Gallup.
The banks weren’t the only ones blackmailed. Dubya and many Republican politicians were blackmailed in a different way. Once Bush was somehow conned into appointing lifetime democrats Paulsen and Bernanke, the handwriting was on the wall. Because what are you going to do if the top two financial guys in the country run into your office and scream that the civilization would end tomorrow unless banks are socialized TODAY!!!!!!! (Curiously and suspiciously, both Paulsen and Bernanke had very publicly declared the economy was strong just a few months prior to the greatest financial crisis in human history.) I doubt if even Reagan would have said no if he had made the prior errors of the bad appointments. Once the two guys were appointed, anybody would pretty much have to take their “advice”.
Again, the real question related to the author’s comments is whether Paulsen and Bernanke were in on the con or were simply willing stooges. I lean to the latter, but it will probably be decades, if ever, before the truth is known. The scheme itself is undoubtedly the most brilliant hoax in American, perhaps world, history. Think about it:
- the con was setup in Carters term with CRP
- it was nurtered for 20 years by socialist thugs like Franks and Dodd
- the bomb was primed by Greenspan by holding interest rates artificially low after 9/11
- the bomb was set to go off anytime after the middle of 2007
- but it didn’t go off until the very day McLame took the lead in the polls
- and Soros and Goldman Sachs made billions for being the trigger men
- Paulsen, of course, was the former CEO of GS
- the artifical crisis made the adolescent Obama the first Marxist president, allowed the government to take-over the financial industry, and setup the auto industry to be taken over
- brilliant
And not a single member of the lips-are-sealed make-believe-media has even speculated about or seriously commented on one of the top 5 or 6 events in US history. It’s as if the economic meltdown never happened. From the media perspective, the depression is 100% due to George Bush’s economic policies…which of course, had nothing whatsoever to do with it.
It’s hard to make a case for conspiracy when there is so much history of human stupidity. Easy money advocates took over the Democrat Party in the 1890s (see: William Jennings Bryan – “Cross of Gold”). Once they got easy money they then got the Fed to stop taking away the punch bowl every time the party got out of hand (see: Humphrey-Hawkins). Once Reagan’s attempt to cut spending and entitlements collapsed it was obvious that almost all politicians, left and right, were “Keynesians now”.
Buying votes is just such an easy game, it’s hard to stop once one starts.
hello again troll. thank you highlighting the truth you fear. i’ve noticed that all statists accuse their enemies of the very actions they are taking or know they have taken. “me thinks thou doest protest too much.”
What in the world are you going on about?
Yeah, you’re not making sense pal.
You are close, almost there, but you have to ask, “What started this?” Google “electronic run on the banks 2008″ and video of Rep. Kanjorski details a run on the banks. The government was terrified by what was happening, and didn’t know how to respond.
Well, this would be a good article, except for an entire chunk of what Paulson did is missing from your commentary. BEFORE he ever held a gun to the heads of the banks, he was wielding that gun at Congress. As evidenced here in Congressional testimony, Brad Sherman describes what happened: http://youtu.be/HFstmclOQG8 . Later, he and others also spoke with various media outlets describing how Henry Paulson and Ben Bernanke threatened Congress with ‘riots’ and ‘tanks in the streets’ if the banks were not rescued.
So, Paulson didn’t just wield that gun once, he wielded it twice and the FIRST time that ‘bazooka’ (his own words), was aimed directly at Congress and he did that with the help of the ‘chief banker’, Ben Bernanke. While some banks didn’t like the idea of the stigma attached to the bailouts, they liked the idea of their insolvency being exposed to the world even LESS. If some of them balked later, it was merely for show, as not a single one of them declined the money – because they couldn’t and still survive.
THE BANKS REMAIN INSOLVENT TO THIS DAY. NOTHING HAS CHANGED. CONGRESS KEEPS DOLING OUT MONEY IN THE FORM OF TAXPAYER FUNDS EXTORTED OR BLATANTLY STOLEN THROUGH QE AND HIDDEN INFLATION AND THE BANKS REMAIN INSOLVENT. HOW LONG WILL TAXPAYERS WHO ARE LOSING THEIR JOBS IN DROVES CONTINUE TO SUPPORT THE BIGGEST WELFARE ENTITLEMENT PROGRAM IN THE HISTORY OF THIS COUNTRY? Welfare for bankers is a no more valid example of capitalism than welfare for individuals.
The link to “blackmail” identifies that aspect of what went down.
Well, at least those who have assigned the highest amount of credibility to the books of Michael Lewis, they will have learned from this: http://www2.macleans.ca/2009/05/05/gluttons-at-the-gate/
as well as this: http://www.edmontonjournal.com/business/Protests+mourn+life+that+gone+analyst/5548318/story.html
For a lot depends on what people do with their time.
October 14, 2008: the day that all of George Bush’s mistakes started raining down on America and the ripple effects are still continuing to this day. It was the worst mess that any president in our political history had left behind and any president that was going to take over this mess was in for some great troubles ahead. It has proven rightly so.
For people who don’t suffer from ADD and realistic economists, we knew this huge mess would take quite some time to overcome because the riplle effects were going to compound itself. To somehow keep blaming a president who TOOK OVER this huge mess and who did not CREATE it is the biggest hypocrisy that will stand the test of time.
Dave — That’s vapid, substance-free horse manure. See Comment 10.
I did not intend to leave a vapid, substance free comment. Am I mistaken about the Kanjorski interview? It seems to be no longer available to view. Am I mistaken about the draw down? This seemed important.
As I read it, the “vapid” remark is to Dave, and your comment, Katherine, is being used to demonstrate to Dave a much clearer perspective on the situation. Your comment and example repudiates Dave’s feckless remarks.
@FcinNH Thanks for holding my hand.
Exactly what did Bush do to cause the crisis?
Subprime mortgages and credit default swaps were not created by some Executive Order.
Take a look at the Commodity Futures Modernization Act (passed by a Republican Congress and signed into law by President Clinton in 2000) if you want to see how that stuff got started.
There are, as one would expect, a whole lot of folks who want to force-fit this calamity into their preconceived notions, and play politics with it for all it’s worth.
But as historians begin sorting it all out, there is plenty of blame to go around:
Mortgage companies who issued subprime mortgages and packaged them up into securities which they sold to unsuspecting investors
Rating agencies like Moody’s, which deliberately overrated the safety of those securities in exchange for payment by the issuers of those securities (which in the recording industry used to be called “payola”)
Republicans in Congress who passed the Commodity Futures Modernization Act
President Clinton, a Democrat, who signed it into law
Bernanke, who drastically lowered interest rates after 9-11 and made investment in subprime securities look more profitable than it really was
And last but not least, Americans who took mortgages they couldn’t afford on as little as a few percent down payment
Bottom line:
America, as a nation, screwed up.
I was against the bailouts from the first time I heard them mentioned. I had a gut feeling that they would have little effect and that the money would basically disappear.
Imagine if we had taken our bitter medicine at the time, and let bad businesses fail. This is a tenet of capitalism- sound businesses prosper, unsound businesses fail. It’s like the occasional forest fire- it’s a brief intense calamity, but it clears out the dead wood and makes room for new growth.
I curse the polticians that have burdened America with debt. I despise them with the burning white hot intensity of a thousand suns.
No doubt it was a bad day, but the “CRIME OF THE CENTURY” was 1913 when the Congress abrogated its authority to coin and regulate money and sub-contracted it to the private Federal Reserve Bank. The seeds of the monumental theft that happened in 2008 were sown then. For a plan to recover all of those monies as well as the trillions looted from our Treasury over the last 100 years follow the link below or google; CLASS ACTION LAWSUIT AGAINST THE FEDERAL RESERVE BANK.
http://www.zerohedge.com/print/365866
It’s shocking how badly Tom Blumer misjudges the relationship between the TBTF banks and the Feral Government. While it may be true that Jamie Dimon pitched a hissy fit during that initial TARP meeting, that hardly makes Hank Paulson the leader of a communist takeover of the financial system. Bankers initially didn’t want to take the TARP money (or so we’re told) because they didn’t want any restrictions on executive pay (duh).
Regardless, most of the big banks were only required to hold the TARP money for a few months. And let’s not forget that AIG was used as a backdoor bank bailout fund: TARP money went in the front door of AIG to cover their CDS liabilities, which of course went right out the back door to the TBTF banks who began paying back TARP — with AIG’s TARP (i.e. OUR money). Let that sink in, the banks that “paid back” the TARP money in many cases used OUR money to pay us back. And AIG still owes us 50B in TARP money. So, while the bankers have “paid back” the money, the taxpayer is still short c40B on that deal, to say nothing of the c95B overall in TARP money still outstanding.
And forget Solyndra for a moment, the TBTF banks were subsequently subsidized by hundreds of billions of dollars in government-guaranteed loans through TLGP. JPM alone borrowed over 40B, Citi borrowed 65B, Bank of America borrowed c45B, Morgan Stanley 25B and Goldman borrowed over 20B. Over 300B guaranteed with the taxpayer credit card.
All the while (and ever since), the banks have been able to borrow from the Fed at almost 0%. That means when they buy Treasuries (which don’t pay squat), they can make that small spread as pure, risk-free profit. Over and over and over again. And we pay for it with our tax dollars. 0% interest loans from the Fed also means that you, me and grandma make almost nothing on our savings and bank CD’s. Another subsidy to the banks that costs savers at least 200B in lost interest for each of the last three years.
In April of 2009, rather than forcing banks to recognize losses they had on their books, Congress forced FASB to repeal FAS 157 so that banks could essentially lie about the value of assets. Had this not happened, Jamie Dimon and Lloyd Blankfein would NOT be collecting bonuses. Citi and BAC would most likely be spending some quality time with the FDIC had the rule not been changed.
But wait, there’s more… Even though that awful “socialist” Hank Paulson didn’t buy any toxic assets, Ben Bernanke at the Fed bought over 600B in MBS and GSE debt from the banks at inflated prices. In other words, the Fed performed the original function of TARP, but WITHOUT putting any restrictions or oversight on the failed banks who received the bailout. The bankers got to eat their TARP and have it, too.
Beyond the bailouts and subsidies, since the two Bear Stearns hedge fund managers were acquitted a couple of years ago, not a single senior (or even mid-level) executive has been so much as indicted for KNOWN instances of accounting and securities fraud. Not one. Heck, a Citi exec testified before congress this year that by 2007 over 80% of the loans they were putting into MBS were defective per the reps and warranties they were giving investors who bought them. 80%. Not only that (he he), but the FCIC even has a copy of the email that Citi exec sent to every single senior executive at the firm, including Robert Rubin, warning them of this fact. They ignored it. This is just one of several instances I can think of off the top of my head.
Given all this — the massive taxpayer subsidy of banker bonuses, the near total absence of indictments or even investigations, ongoing regulatory forbearance on assets, etc. — how can anyone really think that Washington owns the banks rather than the other way round? If Obama in control of Wall St., then why has he tied Eric HOlder to a fence post, and why, pray tell, is he having $35,000-a-plate fundraising dinners on Wall St.? Financial bloggers have been documenting this crap for over three years. It is simply amazing that at this late date someone out there actually believes that Washington has the bankers under their thumb. It simply doesn’t square with the facts.
The banks do not own the government, nor vice-versa. The relationship is an alliance as Ambrose Bierce defined over a hundred years ago, to wit:
Alliance, n. In international politics, the union of two thieves who have their hands so deeply inserted in each other’s pockets that they cannot separately plunder a third.
That’s clever, but has nothing to do with the present situation. Both government and banks are picking our pockets. (Are you sure you were replying to what I wrote above?)
I’m quite sure I was replying to you. To quote you, “how can anyone really think that Washington owns the banks rather than the other way round?”
To reiterate, neither owns the other, they have an alliance.
Pitchfork
Nicely done
Wait and see, when Europe finally meanders off the cliff they are heading for the crocodile tears will be flowing once again on Wall Street, this time about the trillion, or whatever fantastic sum, the “government” is forcing on them…..again.
Of course after the tears come the new yachts
Amen, Tom.
And the worst is yet to come. Because this was compounded by the Seven Seizures.
The leftists LOVE to point the finger at Bush, but he was a dupe in a shell game started long ago. He got snookered. Leveraged when he was at his weakest.
And, then came the seizures. So, let’s give unto Seizures that which is Seizures…TARP planted the anti-capitalist flag…the seizures have prepped the battlefield, and the conspiratorial media has covered over the land mines.
Even if Shellacking II wipes the senate clean and takes the White House…we will be stepping on land mines for decades to come.
I cannot for the life of me figure out a way to rip the band-aid off the banks’ wounds, without taking a tremendous hunk of flesh and causing massive hemorrhaging. Maybe it is better that the American public does not know what is on those books currently. It would make the scariest horror film…starring Freddie and Fannie Kreuger. Barney Frankenstein and Count Obacula will obfuscate a little more…covered by the flying monkey press.
No, Tom…I think it is better that the public doesn’t know how frightening the truth really is, let’s just give them enough truth to buy some garlic to string around their necks. You agree?
“but he was a dupe in a shell game started long ago”
Not to defend Bush, but I think he was, in this case, more a victim of circumstances than a dupe. The super-exponential growth of debt has required greater and greater doses of “medicine” to postpone the inevitable collapse.
“I cannot for the life of me figure out a way to rip the band-aid off the banks’ wounds, without taking a tremendous hunk of flesh and causing massive hemorrhaging.” – That’s because there is no way.
Consider the changes in demographics since the “Great Depression”. We are now an urban nation with a majority of the population completely dependent on the economy operating at a very high level of activity – a level that has existed in the past decades due to continually expanding debt. We are approaching a singularity in the rate of debt expansion and there is nothing that can be done to maintain it. Once the debt expansion stops the economy will collapse.
“The leftists LOVE to point the finger at Bush, but he was a dupe in a shell game started long ago. He got snookered. Leveraged when he was at his weakest.”
Really?
“I’ve abandoned free market principles to save the free market system”
— Bush, December 2008
Doesn’t sound like a dupe to me. Sounds like he knew what he was doing–taking emergency measures that (he hoped) would only temporarily violate free market principles.
And even if he was a dupe, a President who is a dupe is incompetent.
We don’t excuse a President for being made a fool of.
We need to stop making excuses for politicians “on our side” who screw up.
Remember Lotion Man? http://www.youtube.com/watch?v=1N-GvrmZ-E0&feature=share
He’s so not an anti-semite. He’s just a confused kid looking to get famous.
Tom, I have a huge project this week that prevents me from replying at length, but Karl hits all the right notes in his rebuttal. The banks are not victims here, they initiated this idiocy, and excessive leverage was the reason the banks went down. Barry Ritholtz has also covered the same subject at great length and is worth a long read on the issue.
http://market-ticker.org/akcs-www?post=195994
My main quibble with Denninger is that he says this has been going on for 30 years. This debt cycle started in 1961 with JFK (this is not original with me, I got it from Ashby Bladen in the pages of “Forbes” in the ’70s). As he often pointed out, once JFK got the ball rolling by leaning on the Fed to open the spigots, we were headed for this disaster because no other politician would ever let the spigots be turned off for long enough to purge the speculation out of the system (his career would end at that point and the people would elect someone to reopen the spigot, so why do it?). He was right about that, but wrong about the timing, probably because he did not see the monstrous extent to which the derivatives would grow.
The problem is not in the stars, but in our selves, the consequences of a debt-fuelled expansion are too far out for the majority of people to appreciate, while its “rewards” are close at hand, and the consequences of its end are waaay too painful for the leveraged majority to voluntarily take.
To repeat the quote from Von Mises, “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
One could write volumes, but it really is that simple.
For the meat of Barry Ritholtz on the matter, I recommend these three by Jennifer Taub to start:
http://www.ritholtz.com/blog/2011/02/truth-about-financial-crisis-part-i/
http://www.ritholtz.com/blog/2011/02/truth-about-financial-crisis-part-ii/
http://www.ritholtz.com/blog/2011/02/the-truth-about-the-financial-crisis-part-iii/
Barry has written innumerable essays and a book on the subject, and his facts are pretty stubborn. I agree with Taub that Wallison is dead wrong on almost every count.
Again, sorry I cannot jump in myself on this one, but I couldn’t let this essay pass entirely.
Our lousy bundled (worthless) mortgage paper was purchased throughout the world as buyers had guarantees of the full faith and backing of the United States government.
Government’s immersion in markets has brought nothing but woe.
At least one truth has come to light…
The (No)CLASS Act
Last night, in its Friday dump, the administration refused to turn over all communications about Solyndra to Congress.
Money is broken, all over the world, and all the king’s horses and all the king’s men can’t put it back together again.
I hope that we soon return to true capitalism with real money not subject to whim and centralized planning. It can’t happen soon enough. That is our best and ultimately only hope – Atlas is both shrugging and being mugged. The game is coming to an end.
The Joy of Creeping Corruption
When the late economist-philosopher Friedrich Hayek coined the term “creeping socialism” in The Road to Serfdom, he couldn’t have envisioned the great socialist leap forward this America has witnessed under President Barack Hussein Obama. To complement the soaring socialism, Obama and his administration are now proving they are as guilty of creeping corruption as they are of perpetrating socialistic schemes.
It may all be a good thing.
In 2008, Obama was painted by his mainstream media as Mr. Clean, free of political contamination perhaps in part because he was so inexperienced in politics, and in everything else except community organizing. Perhaps, too, that cleanliness feature was on the mind of then-Senator Joe Biden when he described his future boss as “bright and clean.”
For the most part, the president somehow eluded significant scandal for two years but in the third year of his reign the dirt has hit the executive fan big time.
To be sure, there were relatively minor dings in Obama’s armor during his first two years. However, the out-of-control EPA and TSA, the WikiLeaks leaks, the black racism demonstrated at Eric Holder’s Justice Department, etc. and Obama’s scandalous mishandling of the economy weren’t comparable in gravity to the overt instances of corruption playing out now in both the White House and DoJ.
First came the “Fast and Furious” fiasco, the botched gun-running sting which resulted in the ATF furnishing some 1500 weapons to Mexican cartels which were then used to kill a U.S. border patrol agent and in countless crimes south of the border rather than achieving the planned aim of arresting Mexican criminals.
Close on the heels of Operation Fast and Furious came the Solyndra and LightSquared messes, the administration’s favoritism toward so-called “green” companies. Playing favorites is a time-honored if sleazy feature of politics but when the administration wasted hundreds of millions of dollars of scarce taxpayer money and the good buddies repaid that largesse by generously funneling millions back to Obama’s campaign war chest, favoritism entered the realm of impeachable corruption.
If anything, the corruptive nature of the LightSquared seamy involvement with the presidency actually eclipsed the Solyndra boondoggle.
What may turn out to be the ultimate irony in the deceit, misrepresentations, and outright lies of Eric Holder and Barack Obama relating to the administration’s growing record of corruption is the fact that most of it was avoidable had the president not adopted the Nixonian approach to being caught: deny, deny, and deny again. . .
(Read more at http://www.genelalor.com/blog1/?p=5724.)
What the essay really illustrates is that none of those bankers—not one—had a spine, except in the anatomical sense. They could have said no, called a press conference, and told America what Paulson was up to and what he had threatened.
This could not have happened under a genuine American Conservative president, either. Only a liberal Republican such as George Bush would have condoned this kind of thing. Or have kept in office a Democrat Secretary of the Treasury.
How can you buy for a second the premise that they “did not need the money”
If that premise is wrong in the first place, which it is I believe, then why argue about all these other issues.
They NEEDED the money!
To support my claim Id say look up Warren Buffets quotes about buying Goldman Sachs warrants and preferred at that time, he said he did it because he “thought they would be bailed out”
If Goldman needed to be bailed out, the implication should be clear that they all needed a bailout.
I could source that quote by Buffett but lifes too short so………..
We are arguing over whether they were forced to take money, they cried about taking money, yet they NEEDED the money.