Making The Tough Choices To Save The Economy?
from the stop-giving-the-banks-everything-they-want dept
With the latest plan laid out last week on how to "save Wall Street" ("the Geithner plan"), there's a lot of back and forth over whether or not this is a good plan or not -- and while Planet Money had a decent "is it good or bad?" show, the folks there didn't get too deep into it (and even claimed that no one really thought the plan was all that dangerous (just that it could slow down the recovery). However, the more I read up on it, the worse and worse it seems. Simon Johnson has a long, but worthwhile writeup at The Atlantic, where he delves into how Wall Street has effectively taken over Washington DC, such that it helped both create the mess, and then set things up so that the "recovery plan" only benefits those who caused the problems in the first place. This echoes a piece by Andy Kessler last week, where he pointed out that we're effectively handing money to those who brought the collapse upon us -- and suggests that the better response is to simply stymie the plans of the hedge funds -- flooding the markets where they're looking to buy, rather than subsidizing them.Then, there's Umair Haque, who basically makes the same points, but suggests that this is an outright looting of taxpayer money by putting most of the risk on taxpayers, and encouraging the hedge funds to make increasingly risky loans (you know, like the ones that got us into this mess in the first place). The root of all of these stories is that the government seems to think that the only way to fix the problem is to reinflate the bubble, rather than letting the bubble deflate and moving forward from there. The problem with reinflating the bubble isn't just that it puts off the inevitable (though, it does), but that the inevitable is that much worse when it comes.
It's what we've done for the past couple decades -- effectively building an even shakier house of cards, and every time the cards start to fall... we just reinforce it with another layer of shaky cards to prop it up. At some point, the cards do have to fall, and propping it up with more leverage isn't going to help that.
Even if, as Richard Posner suggests, the current plan is about the most politically feasible, it's still problematic. The politics of the situation is troubling. On one side, you have populist anger, making it difficult to do certain necessary things. On the other, you do still have the influence of the bankers, who view the world as being one where we need to keep propping up that house of cards.
Why is it that no one is talking about carefully taking down the house of cards while building a sturdy house next door?
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Filed Under: bailout, financial crisis, politics, timothy geithner, wall street
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Not better, just different.
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There's not as much fast, easy money and wild growth in sturdy houses.
Building a sturdy house takes actual work, forethought that extends beyond just the next layer of cards, and restraint of greed.
Usually, risk evaluation keeps people from moving into a beautiful but shaky house of cards, but if everyone knows that the house of cards will be propped up again, the perceived risk decreases. Government backed flood insurance did the same thing with literal houses in hurricane zones. When the government started backing up insurance policies, it made more sense for people to build houses in places that get demolished every decade or so.
Unfortunately, too many humans can't resist a really beautiful house of cards.
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Bonus
I worked hard to skim those billions from hard working people.
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Many are. There is a drive to increase the regulation of the industry and all sorts of changes are being discussed. However, you still have to have a place to live while your sturdy house is being built. To do that, you have to keep whatever you have standing until that's done.
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Re:
That's like saying that in order to avoid suffering, a drug addict should just keep using until after he's kicked his addiction.
Sorry, it doesn't work that way.
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Nothing so barbaric for the Bush gang. Rather than open plunder, it prefers bureaucratic instruments."
Naomi Klein - http://www.guardian.co.uk/commentisfree/2008/oct/31/useconomy-banking
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I've a theory.
Simple: Capitalism prevents it.
Well, to be more precise, the revenues of a capitalistic source prevents it.
Mike, take a good look around. Every industry you've mentioned in the past year is based on the notion not a single one is willing to take a chance to change.
Why should they? Each keeps trying to maintain old business models, usually to the point the doors shut for good. They want the revenue to keep coming in and will do anything to protect it.
Give money to a business? Sure, and we all watch how the money gets wasted. Why don't these businesses try something new?
More importantly, why isn't a stipulation these businesses use part of the bailout cash to change?
I don't disagree with the statement Wall St. owns our politician. Hell, this is been evident for decades when bills are created to support these very businesses to protect their revenue.
Things aren't going to change until these businesses fail and new, innovative businesses take over. However, it's an illusion as these businesses will also grow to be large, falling into the same cycle as current businesses (the con of capitalism).
You often cite economic models for some of the topics, but where in economics is it written if a company is too large to fail, then so shall the taxpayers support it?
I can't find it anywhere, yet these "economic advisers" believe this is the only solution. Do they not believe in the very economic model they were educated with to understand failure is inevitable without innovation?
You're preaching to an audience which will not listen because they maintain the belief the business model is not flawed.
And until they fail, no new business can catch a break to offer innovative ideas. Patent lawsuits, copyright issues, and other legal tactics are quickly entered into play, giving little chance for these new businesses.
Yet the government supports these non-innovating companies with taxpayer money.
The truth comes down to this: Unless the taxpayer gets involved, change isn't going to happen.
To this day, I can not fathom how 200 million people can just sit idly by and do nothing except bitch about luxurious meetings and million dollar bonuses while dismissing the real problem.
Alas, these articles are always entertaining. It's like watching someone trying to shove a square peg into a round hole, neither giving into to change.
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Re: I've a theory.
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Re: I've a theory.
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Re: Re: I've a theory.
To the contrary, we've had capitalism run amok in the US for quite a while. Everything, including laws and politicians, can be bought and sold. It's the ultimate "free market".
Of course the capitalists cry "That wasn't us! Really! We wouldn't do that!" Yeah, right.
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Does anyone really have a solution?
All of this talk is great, but if no one knows how then it is pointless. We can bitch and moan all we want, but unless we have real solutions to the problem all we are doing is griping about the inevitable. I think the real problem is that all the people smart enough to figure out the answers are too enamored or invested in the old system to build a new one. Plus, getting 350 million people across the country to get in line with it would be a miracle. Let alone the 6 billion people across the world.
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Re: Does anyone really have a solution?
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Re: Re: Does anyone really have a solution?
Let them fail. It is their own fault. Ford isn't asking for a hand out.
If money needs to be injected into the system, give it to the people. They will then decide individually which companies recieve the benefit of their money.
Give it to the companies that are "too big to fail?" How does that benefit the people? Or rather, how many people will that benifit? A few top executives?
If there is a demand, someone will supply.
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Re: Re: Does anyone really have a solution?
The problem is that so many people in our society depend on those so-called "poorly-managed businesses" for their livelihood, both as a source of income and as a source of necessary goods and services. Allowing them to fail while other businesses thrive sounds fine economically, but what happens to our society in the interim? To say that this tight-rope walk is suddenly going to operate without a net could have dire consequences for society, such as increased unemployment, increased poverty, and increased crime. While I would applaud any ideas that would help us build this "sturdy house next door," as Dave said above, we have to have a place to live while that sturdy house is being built.
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Re: Re: Re: Does anyone really have a solution?
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Re: Re: Re: Re: Does anyone really have a solution?
Compare plots of CEO compensation and mean income over the past 50 years. How does the rest of society adapt to that?
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The Problem is...
The ones getting all this bailout money are not the ones that have to pay for the repairs for these shaky card houses. And then on top of that no only do they not have to pay for the repairs of said shaky houses they then manage to reap the profit generated by them. Very little risk to them (because as mentioned they can dip into our pockets like its petty cash) and very big rewards for them.
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There is someone that knows how to build a sturdy house next door. There is a POLITICIAN who knows it, his name is Ron Paul. I won't go on a rant for his sake, but go listen to him on youtube if you haven't.
My despair comes when main stream media doesn't want to give anyone with a radical idea or though process the time of day. In peaceful times that radicalism is not needed (per say). However in these times, numerous people have said "we need a radical solution", not to prolong the "house of cards" mentality of the past several decades.
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So the answer lies mostly in solidifying the house of cards, getting rid of the structures that didn't work, and reworking what is there to get the results all the while allowing business to continue. It's how we can make the money to afford to have a stronger house tomorrow.
@Matthew: If Ron Paul is the answer, I must have missed the question.
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Re:
Strengthening the hold of the people who put us in this situation is just going to make it worse. I don't need Mike to tell me that. It's common sense. Yes, we all need work, but holding up the failed businesses while building new ones isn't any more an answer than just propping things up to keep the status quo. New businesses will need employees, too, and while the old house falls, the new one can pick the cream of the crop to build themselves.
Economic and Social Darwinism?
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Do you want a justice story or to avoid systemic failure?
If you want justice first, then you should really dole out justice to all. Banks made bad loans, Wall Street packaged the bad loans and the ratings agency nodded their heads -- all true. However, borrowers (on Main Street rather than Wall Street) took loans they could not repay. No one held a gun to their heads. As adults, they agreed to borrow and repay an amount of money with a given set of terms. To my way of thinking, everyone in the transactions are responsible for the failures.
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Re: Do you want a justice story or to avoid systemic failure?
Blame the victims? That's easy, isn't it? Bull. I blame the money (con) men involved, not the victims.
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Re: Do you want a justice story or to avoid systemic failure?
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too true crow man
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Re: too true crow man
Especially when the professional bankers told him that he could.
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TOO BIG ... (to fail)
Anything that is too big to fail, needs to be broken into smaller pieces which can fail and will be allowed to fail.
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Re:
That was a reality during the 18th Century when our governing document was the Articles of Confederation. States issued their own currencies back then, and problems arose regarding the valuation of each currency compared to another. It made trade very inefficient and caused states to act in ways that were protectionist. It was with this backdrop that the Founders constructed Article I, Section 8 Clause 5 of the Constitution, which give Congress the sole power to coin money and set the standards by which the value of money is measured.
So, aside from your proposed idea being unconstitutional, it would be economically inefficient to have private companies to issue their own forms of currency for us to use as trade. Doing so is tantamount to returning to the system of barter-for-trade. The benefits of uniformity far outweigh whatever perceived benefit competition would give in this arena.
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Do we have the nerve?
The former is the banana republic economic model. GWB set us well along that path. BHO has decided to double (or triple or quadruple) down.
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No Blame
"If we went around blaming individuals for every failure, it creates tremendous incentives not to take on the necessary risk to create those next breakthroughs."
- Mike Masnick ,2009
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Re: No Blame
"If we went around blaming individuals for every failure, it creates tremendous incentives not to take on the necessary risk to create those next breakthroughs."
Um. Wow. Nice total misinterpretation of what I said. I did not say we should reward those responsible, nor did I say we should prop them up or thank those that caused the problems.
What I said, quite clearly (I thought!) was that simply going around looking for people to blame and punish doesn't fix things.
My position is consistent. There's a world of difference between saying that we should be fixing the system and that we should be sending a populist crowd around to lynch those responsible. I think the latter is a bad idea. But fixing the system is quite important. My position has been entirely consistent on this from day one.
We don't need blame, we need constructive ways of looking forward.
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Re: Re: No Blame
Wow. Maybe you missed the quote marks. Only the part between the quotes was attributed to you. And it was a direct quote, not an "interpretation", "mis" or otherwise. And given with a link for context to boot.
There's a world of difference between saying that we should be fixing the system and that we should be sending a populist crowd around to lynch those responsible.
I agree that you can't continue to innovate from the end of a rope. And I didn't advocate that either. Nice straw man though.
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Re: Re: Re: No Blame
Didn't miss the quote marks, but it was clear from what you wrote that the first part was a weak and false attempt to incorrectly paraphrase what I said. It was a flat out misrepresentation, and then "supported" with my words taken out of context.
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Re: Re: Re: Re: No Blame
Read my lips: It wasn't an interpretation (or paraphrase). If you didn't miss the quote marks (AND separate paragraph) then you're the one doing the "total misinterpretation". Deliberately. At this point, since it was already explained to you, I would even say lying.
And like I pointed out, the context was clearly provided in a convenient, easy to click link to the entire article lest anyone get confused. What do you expect, for everyone to quote entire articles every time they post a quote? Well you sure don't do that yourself, do you? Freaking hypocrite. Maybe you think you're special and your you-know-what don't stink. I've got news for you.
Now go take a hike. I've got better things to do than deal with your distorted accusations (which I imagine will continue regardless).
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Re: Re: Re: Re: Re: No Blame
If it was a total misinterpretation, then what was the point of your post?
You clearly seemed to imply I was saying something I had not. If that's not what you intended, then please explain what you were trying to say?
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Re: Re: Re: Re: Re: Re: No Blame
"Never argue with an idiot. They'll drag you down to their level and beat you with experience."
We've been using that one A LOT at work lately ... ;^)
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It was not a house of cards that gets continually propped up. Instead, you have a government that continually produces regulation after regulation to address past problems (real or perceived) that merely create new crises. For example, consider how the actions of the FDIC, capital requirements and the CRA contributed to the current circumstances.
Build a sturdy house? How could you consider giving this task to the people who would currently have the authority to attempt it? Do you really want the Barney Frank National Bank, Nancy Pelosi Savings & Loan or Barack Obama Credit Union? These people could not qualify for the training program at a financial institution, let alone to design a new financial structure. It is scary enough that they, along with Geithner and Summers, are going to impose new regulations that will cause the next catastrophe. They have done a marvelous job of trying to destroy the current financial system. I can only imagine the success they would have building a new one.
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Re:
Couldn't be any worse than the George Bush GOP Financial Planning Services.
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The solution isn't all that difficult, but living with the results might be.
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Geithner's plan
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