Give Sheila Bair a big stick and a 50 cal. machine gun, or Paul Krugman.
James L Pinette
Mar 22 2009 - 12:49pm
Give Sheila Bair a big stick and a 50 cal. machine gun, or Paul Krugman.
James L Pinette
Mar 22 2009 - 12:49pm
While there are many excellent suggestions in this article and the comments about handling the current crisis, they are, in fact, patches trying to hold together a failed economic theory. The basic reason for transferring industries and jobs out of developed countries is to reduce the wages of ordinary workers in those countries. Since their wages and disposable income support two-thirds of Western economies, driving down their wages and taking away their jobs means the market disappears for even the cheapest products from overseas. Producing goods in countries with cheap labor who cannot afford to buy the products they make and trying to sell these products in countries that have no jobs is insane. This economic theory destroys markets and benefits no one. Since reducing wages reduces markets, it follows that increasing wages grows markets. Also, when economic or political power is concentrated in the hands of the few, any failure effects everyone. Therefore, economic and political power needs to be dispersed, so that failure in one part of the globe or country does not effect the whole world or an individual country. Development of national economies reduces the possibility of global collapse and, within countries, a decentralized economy reduces the danger of a national collapse. While industries can expand overseas, they must produce goods within a country, employing local workers who support that country's economy. This is how to build markets and not destroy them.
Development, in any country, only occurs behind trade barriers. Alexander Hamilton, Henry Clay and, yes, even William McKinley fought for tariffs that made this nation an industrial giant that supplied jobs and prosperity.
Frankly, I shared the Bush administration's ignorance of McKinley's position on tariffs, and only recently came to appreciate his insights.
Pervis James Casey
Mar 12 2009 - 3:05pm
I have watched with amazement as one plan after another has been implemented and failed. The failure leads to more and more market value loss, retirement value loss, job loss, increasing credit default swap payoff and more.
One loan modification plan after another, and not a single one actually benefits anyone, so it seems.
Rather than cram down loans, modify the calculated interest from the Rule of "78s" to simple interest on all loans and reduce all home loan interest rates to 4 percent.
Outlaw any future "78s" loans.
Roll back one year; this simply transfers the money paid from interest paid to the bank back to the borrower. The bank gets to modify taxes paid or take income reduction against future income.
1. Increases equity in all loans and puts the home owner on a path to equity.
2. More equity reduces toxic assets on the bank books
3. Which also restores value in banking stocks
4. Which leads to less credit default swaps failures
One example: current home owner with an interest-only loan; under a "simple" interest-converted loan, a payment of equal amount would actually have money towards the principal, thus reducing the toxic asset on the bank's books without wiping out the loan value.
Second example: Unsecured credit-card debt is out of control and will be the next "housing" default. Converting these will reduce the primary debt.
The upside for the banks: if a borrower retains the loan past the 50 percent loan time, nothing is lost in interest, the conversion simply reduces interest income during first half of loan but actually increases interest income in the second half of loan terms.
Second upside, on secured loans banks quickly move into an equity situation on upside-down loans and so do homeowners returning value to existing toxic and foreclosed homes.
D. E. Lester
Mar 9 2009 - 10:33am
Excuse me? What bank is making a loan or extending a line of credit? Could you please call either Toyota or Tollbrothers--I'm sure they'd like to know. For most of us, who can't sell our homes or find a buyer, those who can only make a cash offer, we'd sure like to know what bank you are dealing with. This situation is awful enough without dealing with all the liars and the lies that they tell. Maybe your relative got a $2K loan--good for them--but that's not what most of us are dealing with. Our economic system is in free fall & it's time to demand transparency, honesty, and to regain the collective spirit that made our middle class the greatest. And that came from the the spirit of the community and not from some faceless corporate giant. AIG is the poster child of the problems we are dealing with now on a global level. Let these crooks be identified and made to pay the price of destroying any economic stability.
Mar 9 2009 - 12:36am
Joseph Stiglitz has gotten to precisely the correct diagnosis and treatment of the problem in the core problem: looting by way of externality cost scamming, when he says: "There is a basic principle in environmental economics called "the polluter pays': polluters must pay for the cost of cleaning up their pollution. American banks have polluted the global economy with toxic waste; it is a matter of equity and efficiency that they must be forced, now or later, to pay the price of cleaning it up."
This needs to apply to asbestos, cigarette smoke, oil spills and now "debt bombs" (like AIG's CDSs--all $5.5 Trillion of them).
There's a new and "innovative" style of robbery by "negative externality cost displacement"--which neither Willie Sutton nor Charles Ponzi would have believed, because of its ability to be done right out "in plain sight" and perfectly legally, if the government is stupid enough to not recognize it as a crime.
The broader seminal issue, at heart, is that there is either no understanding, or no willingness, to address the prime issue that so-called investing, creating, building, financing and undertaking any economic activity must first and foremost be recognized as spawning two types of societal "externalities"--positive or negative. This simple, but essential truth of realistic political economy is the most important (but missing) factor in any serious and pragmatic decision making about what is "good" (i.e., will actually "fix" our economy--not just right now, but always).
Addressing one compelling economic activity, war, it can be simply seen, and proven, that war is the greatest "negative externality cost" producer of any possible economic activity--in that war is a 100 percent producer of "negative externality costs" and a zero percent producer of any "positive externality benefits."
Economic actors, producing war, cigarettes, or "debt bombs," are similarly close to 100 percent producers of "negative externality costs" against us, our country, our environment, our world, and zero percent producers of any "positive externality benefits."
This immutable truth of economics does not by any means mean that a specific economic actor (corporation, bank, hedge fund, private equity pirate) can not turn a handsome profit on war, cigarettes, "debt bombs," etc.--as is amply demonstrated today by the vast riches so produced and funneled to these private faux profit-makers, and also proven by the pure costs and losses, in both deaths and monetary pain, heaped upon us, our country, our environment and our small fragile planet.
Thus, the claim that "any" sort of investing, financing or economic "growth" is helpful is absolute lunacy.
What we (in the US most particularly, and the capitalist world generally) desperately need is a new kind of EPA--externality protection agency--that analyses and ranks the "negative externality costs" compared with any "positive externality benefits" of any public market-financed economic actions, and then uses regulatory, and/or tax policy to dissuade or incent such economic activity in the public interest. (The analyzing and cost assessing body could be purely governmental, but would be much more efficient, effective, and unimpeachable if it included governmental, academic, scientific and private experts.)
Lacking such a Hippocratic-like agency to insure that the pledge to "first do no harm" is enforced, the capitalist world, led by the ruling-elite "corporate financial Empire" nominally headquartered in the US and controlling our country by hiding behind the facade of its two-party "Vichy" sham of democracy, and supported by its equally Vichy propagandist media, will very likely and very soon destroy all of us, our families, our country, our environment and our small fragile planet--while blissfully and arrogantly reporting wonderful GDP growth, great return on investment and faux private profits right up to extinction.
However, with the right regulation and tax (incentives/disincentives), and the right terminology of banking "democratization" rather than "nationalization" a socially responsible political economic solution is still achievable.
Mar 8 2009 - 7:04pm
I’m a longtime fan of Nobel Prize winner Stiglitz who would like to see him immediately replace Timothy Geithner as treasury secretary. A Team Stiglitz could then replace Team Goldman Sachs.
This article by Stiglitz should be required reading by both the Obama White House and Congress.
I suspect there are tens of millions of Americans like me who know that nationalization is not a four-letter word.
There’s a parallel between America’s military and America’s financial system. Both are too important to be entrusted to private mercenaries.
Have we learned nothing from the last three decades, especially the last eight years? Reaganomics. Voodoo Economics. Deregulate. Deregulate. Deregulate. Are we nuts?
James A. Swanson
Los Altos, CA
Mar 7 2009 - 6:30pm
Stiglitz indeed has the answer for toxic debt. Let the original owners sell it! Why should taxpayers take responsibility for these huge losses?
Under the "Good Bank" scenario, the operations of the bank would be nationalized and the owners and creditors would receive these toxic assets as payment for their interest in the bank in a holding company. The toxic assets would be disposed of by the original owners, not the taxpayers and they would bear the loss, or, if you are naïve, the gain, from these sales.
This solution, whereby the original owners get the "Bad Bank" instead of the taxpayers the "Good Bank," is the only way taxpayers can escape trillions of dollars' worth of subsidies, kill the Zombie Banks and move forward with a solvent banking system.
Mar 7 2009 - 3:19pm
The author says banks are not lending. Not true. It is a question of demand. My brother, who earns a modest amount of money, was offered a bank loan with no interest for a year. He accepted.
The real problem is the underlying mortgage mess. This is what should have been and should be addressed with most of the TARP money. When people's balance sheets improve, they will start buying and demand will increase. Then the value of assets will rise and the banks will be okay.
gerald h. abrams
Mar 6 2009 - 8:22am
There have been successful "bailouts" for banks, and other for-profit corporations, indeed yes. They were called collateralized loans, and were made by individuals or corporations who took some risk to make some profit, and did not whine if the transaction went south into the loss column. Unfortunately, public, taxpayer funds exchanged for paper of dubious worth as valued by political persons having no clue whatsoever how to read a balance sheet, sources and uses of capital, or income statement, etc. etc. etc. wind up being played for the suckers they are at our expense since obviously it's OPM (that is, our money) a little caution or common sense gets in the way of making a headline. Let's keep in mind that when all economists are lined up they all point in different directions, and after all it all depends on whose ox is getting gored.
Big Bear, CA
Mar 5 2009 - 10:53pm