Category: Timothy Geithner Page 2 of 3

Obama flexes his muscle

On March 17, 2010

And Kucinich caves and agrees to vote on HCR. Kucinich’s email is a piece of work:

I know I have to make a decision, not on the bill as I would like to see it, but the bill as it is. My criticisms of the legislation have been well reported. I do not retract them. I incorporate them in this statement. They still stand as legitimate and cautionary. I still have doubts about the bill. I do not think it is a first step toward anything I have supported in the past. This is not the bill I wanted to support, even as I continue efforts until the last minute to modify the bill.

Basically, he seems to have gotten nothing for his vote. Nothing. And he can’t even find a good reason to vote for it.

Obama is proving, again, that he is very good at arm bending. What I am hearing is that threats are being made to cut off all Democratic party support for many Reps who vote against the bill. Some blue dogs will be allowed to vote against, but progressives as a group, and even some conservative Dems are expected to bite the bullet, vote for the bill, and suck up the consequences.

This is the moment when Obama flexes his muscle, proves he has control of the party, and that he will use that control against those who stand in his way. It’s what he has to do, and progressives should take note, because this sort of hardball politics is what they’ll have to do if they ever get in power.

This is the second time Obama has really bent arms. The first time was the bailout bill, before he was even president, which would not have passed without his intervention, an intervention which I have been told was extremely heavy handed.

It’s a pity that Obama is only good at strong arming Democrats, prefers to strong-arm progressives instead of conservative democrats, strong arms for conservative bills which are giveaways to corporate interests and appears completely incapable of playing any sort of hardball with Republicans, but this is the President that Democrats wanted.

(Full text of Kucinich’s letter after the jump)

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Who does Obama think is going to support him in 2012?

By Ian Welsh

On March 11, 2010

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At this point Obama has

1) not stopped the Bush era raids against Hispanics which is totally at his discretion;
2) not lived up to his promises to gays, and he can stop DADT any time he bloody well wants to;
3) not been willing to protect women’s abortion rights
4) not shown any intention of passing EFCA (a bill helping unions organize)

Unions, women, latinos, gays…

Who does he bloody well think is going to support him in 2012?

Paul Craig Roberts Speaks For Me

By Ian Welsh

On February 10, 2010

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When he notes the US is a police state:

Siddiqui has never been charged with any terrorism-related offense. A British journalist, hearing her piercing screams as she was being tortured, disclosed her presence. An embarrassed U.S. government responded to the disclosure by sending Siddiqui to the U.S. for trial on the trumped-up charge that while a captive, she grabbed a U.S. soldier’s rifle and fired two shots attempting to shoot him. The charge apparently originated as a U.S. soldier’s excuse for shooting Dr. Siddiqui twice in the stomach, resulting in her near death.

On Feb. 4, Dr. Siddiqui was convicted by a New York jury for attempted murder. The only evidence presented against her was the charge itself and an unsubstantiated claim that she had once taken a pistol-firing course at an American firing range. No evidence was presented of her fingerprints on the rifle that this frail and broken 100-pound woman had allegedly seized from an American soldier. No evidence was presented that a weapon was fired, no bullets, no shell casings, no bullet holes. Just an accusation.

Wikipedia has this to say about the trial: “The trial took an unusual turn when an FBI official asserted that the fingerprints taken from the rifle, which was purportedly used by Aafia to shoot at the U.S. interrogators, did not match hers.”

An ignorant and bigoted American jury convicted her for being a Muslim. This is the kind of “justice” that always results when the state hypes fear and demonizes a group.

Siddiqui was an American citizen, by the way. Seized and held in a secret prison, tortured and raped. This is your America.

Your America.

Anyone can be next. Indeed, on Feb. 3 Dennis Blair, director of national intelligence told the House Intelligence Committee that it was now “defined policy” that the U.S. government can murder its own citizens on the sole basis of someone in the government’s judgment that an American is a threat. No arrest, no trial, no conviction, just execution on suspicion of being a threat.

This shows how far the police state has advanced. A presidential appointee in the Obama administration tells an important committee of Congress that the executive branch has decided that it can murder American citizens abroad if it thinks they are a threat….

In no previous death of a U.S. citizen by the hands of the U.S. government has the government claimed the right to kill Americans without arrest, trial, and conviction of a capital crime.

Go read the whole thing.

And, if there is a God, may Barack Obama and Dennis Blair face him along with George Bush, because no, the difference isn’t enough to matter.

Certainly not to Siddiqui.

As Jesus said “as you do to these, the least of my children, you do to me”. I wonder how Jesus is taking being raped, bombed and tortured so regularly by Obama and Bush.

As for me, I won’t pretend that I don’t despise Obama almost as much as I despised Bush. Maybe more, since there’s evidence that George Bush is a brain damaged psyhcopath (he is known to have tortured animals as a child, one of the cardinal signs and recordings of him speaking in the early 90s show fluent speech without “Bushisms”).

Obama should know better, but if he does, he doesn’t care enough to do anything about it, to the contrary, he keeps making it worse.

Why Democrats Are Trying to Commit Electoral Suicide

By Ian Welsh

On January 3, 2010

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This question keeps coming up, so let’s tackle it. 45% of the Democratic base now says they aren’t going to vote in 2010 or are thinking of not voting. This is a direct result of Democrats in Congress and the Presidency doing things the base disagrees with or not doing things the base wants to see done. It appears politically stupid to act as they have, and yet, they did. So why?

Elected Democrats at the Federal level are members of the national elite. If they weren’t a member when they were elected, they are quickly brought into the fold. They are surrounded by lobbyists, other members and staffers who were lobbyists, as a rule. They learn they need to raise immense amounts of money in the off years when normal people aren’t giving, and that the only way to raise that money is for corporate interests and rich people to write the checks. They also receive the benefits of elite status, very quickly. It’s not an accident that the every Senator except Bernie Sanders is wealthy.

Whatever Americans think, whether they support a public option or single payer; whether they’re for or against Iraq or Afghanistan; whether they agree with bailing out banks or not, elite consensus is much much narrower than American public opinion. It starts at the center right and heads over to reactionary (repeal the entire progressive movement and the New Deal, taking America back to the 1890s).

The elites are convinced they know what has to be done. Not necessarily what’s “best”, but what is possible given the constraints they believe America operates under and the pressures which elected officials work with. So Obama can say, and mean, that if he were creating a medical system from scratch, he’d go with single payer. But he “knows” that’s impossible, not just for political reasons, but because there are huge monied interests who would be horribly damaged or even destroyed by moving to single payer. On top of that, he looks at the amount of actual change required to shift all that money away from insurance companies and to reduce pharma profits, and to change which providers get paid what, and he sees it as immensely disruptive to the economy. In theory, it might lead to a better place, but to Obama, the disruption on the way there is unthinkable.

The same thing is true of the financial crisis. The banks may be technically insolvent, but the idea of nationalizing them all, or shutting them down and shifting the lending to other entities would mean that the most profitable (in theory, not in reality) sector of the economy would largely be wiped out. Add to that the fact that Obama was the largest recipient of Wall Street cash of the major candidates for the Presidency, and the immense influence the banks wield through their alumni who are placed throughout the Federal Reserve, the Treasury and other departments, and the idea of actually radically reforming the banking system becomes unthinkable. Virtually every technocrat giving Obama or most Senators advice, will be against it.

Moreover they understand that with a few exceptions, the financial economy is the American economy. It’s what the US sold to the rest of the world: pieces of paper in exchange for real money which could be used to import real goods, so Americans could live beyond their means.

Shut that down and what’s going to replace it? How are you going to avoid an immediate meltdown of the US standard of living? How are you going to avoid a large part of the elite being wiped out? You or I may have answers to that, except to wiping out a large chunk of the elite, which is something which needs to be done, but those who grew up under the system, who believe in the system, and who ran the system don’t. What they’ve done all their lives is what they understand. And more to the point the system has been good to them. The last 35 years may have been a bad time to be an ordinary American, but the elite has seen their wealth and income soar to levels even greater than the gilded age. The rich, in America, have never, ever, been as rich as they are now.

And if you’re a member of the elite, your friends, your family, your colleagues—everyone you really care about, is a member of the elite or attached to it as a valued and very well paid retainer. For you, for everyone you care about, the system has worked. Perhaps, intellectually, you know it hasn’t worked for ordinary people, but you aren’t one of them, you aren’t friends with them, and however much you care in theory about them, it’s a bloodless intellectual empathy, not one born of shared experience, sacrifice and the bonds of friendship or love.

So when a big crisis comes, all of your instincts scream to protect your friends, your family, and the system which you grew up under, prospered under and which has been good to you. Moreover, you understand that system, or you think you do, and you believe that with a twiddle here and an adjustment there, it’s a system you can make work again. Doing something radical, like single payer or nationalizing the banks or letting the banks fail and doing lending direct through the Fed and through credit unions: that’s just crazy talk. Who knows how it would work, or if it would work? Why take a chance?

And so, until disaster turns into absolute catastrophe, the elites will fiddle with the dials, rather than engaging in radical change. When the time comes when it becomes clear even to them that radical change is required, they are far more likely to go with their preconceived notions of what’s wrong with the US, which are very reactionary, than to go with liberal or progressive solutions.

So you’re far more likely to see Medicare and Social Security gutted, than you are to see the military budget cut in a third or Medicare-for-all enacted. You’re far more likely to see a movement to a flat tax (supported by idiot right wing populists) than you are to see a return to high marginal taxation.

To the elites, ordinary Americans are pretty much parasites. It’s not the bankers, with their multi-trillion dollar bailouts who are the problem, it’s old people with their Social Security and Medicare. The elites made it. They are rich and powerful. They believe that their success is due entirely to themselves (even if they inherited the money or position). If you didn’t, then that means you don’t deserve it.

Democratic party elected leaders, as a group, are members of this elite, or are henchmen (and some women) of this elite. They believe what the elites believe, and they live within a world whose boundaries are formed by those beliefs.

They have no intention of engaging in radical change which threatens elite, which is to say, their, prosperity and power. The financial industry must be saved, the medical industry must be saved. Social Security and Medicare, which they don’t need and don’t benefit from, not so much. The military, which funnels huge amounts of money to them, must continue to expand (in real terms military spending is now twice what it was in 2000.)

As long as elected Democrats at the Federal level are members of this elite, or identify with the elite they are not going to make fundamental changes against the interests of that elite.

And so, no, there is no “change” you can believe in from this class of Democrats. There is no “hope” of an America which is better for ordinary people.

That doesn’t mean things are hopeless, but it does mean there’s little hope for anything radical from this Congress or President.

As Adam Smith pointed out, there’s a lot of ruin in a nation. America’s going to have to endure a lot more of it before things actually change.

Oh Wait, the Freddie/Fannie Scam is Now Unlimited

By Ian Welsh

On December 24, 2009

Comments

Update: Go read Numerian.

Per Bloomberg:

The U.S. Treasury Department will remove the caps on aid to Fannie Mae and Freddie Mac for the next three years, to allay investor concerns that the companies will exhaust the available government assistance.

The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.

The Obama administration is “beginning to realize it’s not getting better and it’s not likely to get better” soon in the housing market, said Julian Mann, who helps oversee $5.5 billion in bonds as a vice president at First Pacific Advisors LLC in Los Angeles. “They don’t want the foreclosures now, so they’re saying, we’ll pay whatever it takes to continue to kick the can down the road.”

Basically, at this point, almost all mortgage lending is guaranteed by the federal government under the FHA, or it doesn’t happen. Private lending has pretty much dried up.

Since there’s no way Freddie and Fannie took unlimited losses, one has to wonder what all this money is going to be used for. Is it to make up losses they don’t want to admit? Is it to make future bad mortgage loans? Is it so they can take bad debt from the banks and put the government at risk for it?

Notice also how they’ve made an unlimited commitment without consulting Congress. You only need Congressional approval to spend money on wars and healthcare, when it comes to bailing out banks, apparently the Presidency controls the power of the purse all by itself.

It’s also interesting that this is unlimited till the end of 2012.

(See also the earlier post when it was just a 400 billion increase, not unlimited.)

Health Care Reform Update: Who’s Selling Out and Why

By Ian Welsh

On November 9, 2009

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It’s time to evaluate where health care reform stands at this point.

Guaranteed Issue: The best thing about the bill is unquestionably the fact that insurers have to issue policies to anyone who can pay. No one can be denied coverage, no matter what pre-existing conditions they have. This is a big deal. While it can help people of any age, it is most important to older people, who are more likely to have pre-existing conditions. This also helps people who are stuck with very expensive insurance because they have pre-existing conditions and if they cancel their insurance wouldn’t be able to get new insurance.

Individual Mandates and cost sharing: An individual mandate forces people to buy insurance whether they want to or not. Insurance works better when everyone is covered and in the same risk pool. It also shares costs throughout the population. Individual mandates seem unfair, but they are generally instituted as part of changes to the system which reduce overall costs significantly. For example, relatively speaking, Canadian GDP/capita costs were reduced by one third compared to what they would have risen to otherwise during the ten years after changing from a US style system to single payer.

If there is no cost reduction due to systematic changes in the system, however, all that an individual mandate does is share costs through the entire population and direct profits to private insurers and medical providers of various kinds by giving them a captive consumer based, forced by government mandate to buy their services.

People who don’t have insurance right now are primarily younger people or those who feel they can’t afford it. What individual mandates will do, then, is subsidize older people’s insurance costs and the price of guaranteed issue, which is very costly since it forces insurers to cover people who are very likely to get sick. The people who subsidize this are, generally speaking younger and poorer.

If subsidies were adequate, then in fact, it would be the government subsidizing the costs, through progressive income tax and corporate taxes. However, since the subsidies in the various bills do not cover the full cost, poorer and younger people will subsidize older people. Since many of those people didn’t buy insurance because they are right on the edge financially already it means that some of them will go without food, not be able to pay tuition, or lose their homes as a result. Many people are already on the edge already, this is one more burden for them.

No Robust Public Option: A robust public option is one that is large enough and with enough pricing power to force down costs, and one which is available to everyone. At this point, the public option will likely have between 5 to 9 million enrollees (the CBO says 6 million, but we’ll be generous). As such it will be smaller than most private insurers and will not have pricing power. If it were linked to Medicare and could use Medicare’s clout, it could reduce costs, but the Medicare +5 amendment, which would have had it paying providers at Medicare rates +5% was defeated.

The Congressional Budget Office has stated that the public option insurance plan premiums will be higher than equicalent private plans. This is likely because of denial of care issues, insurer cherry-picking and lack of clout mean it won’t be able keep reimbursement rates low relative to private insurers who have more customers and thus more pricing clout with doctors, hospitals and other providers. If the public option costs more than equivalent private plans, it goes without saying that it will not reduce costs.

Reduces Practical Access to Abortion: The Stupak amendment, passed Saturday evening, makes it illegal for any plan offered on the exchanges to finance abortions. Any woman who wants abortion access, after being forced to buy insurance that doesn’t include it, will have to buy it elsewhere. The practical result of this is a reduction in access to abortions. This, of course, primarily affects young, childbearing age women though their family members, boyfriends and so on will likewise be effected.

The Bottom Line: Who’s Getting What, and Who’s Paying

This bill does not contain a robust public option which will contain costs. It will give guaranteed issue and force cost sharing through an individual mandate. Older people will disproportionately benefit, and the people who will disproportionately pay are younger poorer people, and especially younger women, the poorer ones of whom will lose practical access to abortions.

For a long time I’ve read that the bright red line for many progressives was a robust public option. None of the bills, including the House bill, have a robust public option. In addition, the Stupak amendment removes practical access to abortions for many women.

It appears that the bright red line was not a robust public option. The bright red line was, and is, guaranteed issue. As long as a bill has guaranteed issue (in exchange for which insurance companies insist on an indvidual mandate, aka, cost sharing and forced customers) any other sacrifice is acceptable.

This health care “reform”, if passed in this form or worse, which it will be if it is passed at all, will blow apart eventually, because it will not contain costs or ‘bend the cost curve” and the US economy simply cannot indefinitely afford health care costs wich rise faster than inflation or wages. But for as long as it lasts, it will help some people at the cost of other, generally younger and poorer people.

If progressives really meant that a robust public option was their minimum requirement, when Medicare +5 failed they would have gone into opposition. They didn’t, therefore it wasn’t their minimum requirement. It remains to be seen if enough progressives really will vote against a final bill which still contains the Stupak amendment. Given progressives failure to live up to their threats to pull support if no robust public option was in the bill, I am forced to suspect that if Stupak is in the final bill, the final bill will pass.

The last couple weeks have been very revealing as to what various people, including politicians, progressive bloggers and activists, are really willing to fight for, and what their bottom line really is.

I would suggest that if progressives ever want their threats to be taken seriously by anyone again they go into opposition against this bill until such a time as it both has a robust public option and the Stupak amendment is out. Failure to do so will show that their threats were always hollow, that they are willing to sell out child-bearing age women, and that they prioritize the interests of older people over younger and poorer people.

In negotiation against a good negotiator, you get the minimum you are willing to settle for. Progressives have shown that their minimum is not a robust public option. It may not even be practical abortion access. They will not get a robust public option if they will not oppose the bill over it, and if they won’t oppose the final bill over the Stupak amendment, that too will most likely remain.

Obama and the Democratic leadership’s bottom line is they must pass some bill called “health care reform”. Unless you threaten to take away their bottom line, they will take away anything that isn’t progressives bottom line – and that includes practical abortion access, and a robust public option.

Some inconvenient truths

By Ian Welsh

On September 2, 2009

Comments

Glenn Greenwald:

Last year, after I wrote critically about a well-known journalist who frequently appears on the TV and is considered “liberal,” he emailed me (after first asking me to agree that our conversation would be private) to warn that I should be more “careful” about attacking “allies” if I wanted to expand my platforms and get on television. That’s how the culture works. Those are the weapons which politicians — and journalists — use to try to punish those who criticize them and reward those who refrain from doing that.

This is the way the world works. I haven’t seen that it’s limited to journalists and politicians though.

It’s not just about attacking “allies”, though.

A gaffe is when you tell a truth that isn’t socially acceptable. There are a lot of those, including the truth about Obama, especially early in the year (he’s not a progressive, never has been and sells out liberal interests any time he can, and this has been clear for a long time.)

The truth about healthcare is that Obama and the Dem leadership just want to find a way to close the Medicare “D” loophole, and in exchange for being allowed to, they are offering a mandate. This is taxation by another name (being forced to buy a product you wouldn’t otherwise buy is just a tax), and a regressive tax at that, but Americans don’t want to be taxed directly so they are taxed indirectly.

It is also a crass sell out of Millennials. Old folks will get their “no recissions” and “guaranteed issue”, while youngsters will be forced to buy insurance they can’t afford to use (while at the same time the combination of first time home prices and tuition loans already have them crushed and have priced the lower and lower and middle class almost completely out of post-secondary education.)

As for the fundraising to reward public option people in the House, folks forget that money is fungible. Every dollar raised for them is a dollar more than party organs and fundraisers can, and will, spend on Blue Dogs. Why? Because most progressive Reps are not in swing districts, they don’t need a lot of money.

Another unpleasant truth is that the way the bailout is being paid for is simply another hidden tax. Banks are allowed to keep their bad loans on the books, and not write them down. They receive money at concessionary rates while they have increased the rates they lend out to consumers. Those increased rates lead to the money that will be used, over a decade or so, to pay down the bad loans. It’s done this way rather than just raising taxes, because Americans won’t pay taxes. And because doing it this way is regressive, instead of having, say, significant increases in progressive taxation, so that the rich pay for their own bailout (which is what should have been included in the first stimulus bill.)

Finally, on stimulus, the only effective stimulus that Obama is going to be able to get through going forward is military stimulus, and that’s why the Afghan war is not going to end any time soon. Obama had his chance to do it properly, at the beginning of his term, he chose to waste his capital on an ineffective tax cut and a dog’s breakfast of a stimulus bill which established no real direction for the economy, didn’t deal effectively with underlying economic weaknesses, and which failed to bail out the states properly. From now on, stimulus must be run through the Pentagon, since Blue Dogs and Republicans can’t vote against military spending.

I may discuss these issues at greater length later. Or I may not. Who knows. It’s pretty clear there’s little appetite for the truth, either at the elite level, at the blogging level, or at the popular level. People want to be told comforting lies and contrary to the old saying about how in the land of the blind the one eyed man is king, in the land of the blind, the one eyed man is very, very unwelcome. Getting things right, repeatedly, is exactly what most pundits avoid like the plague. Virtually every major pundit has been wrong about the majority of important issues, the majority of the time.

I guess that’s what people want.

No Banks Means No Banking Crisis

By Ian Welsh

On August 29, 2009

Comments

Joseph Stiglitz, the Nobel Prize-winning economist, is suggesting we let banks fail.

This is a slightly more radical version of what I’ve been saying* for some time:

We don’t need the current banks.
If they won’t lend, let them go under.
If the Fed can lend to banks, it can lend directly to banks and consumers.

The following article was originally published Feb 2, 2009. I am reprising it here because the reminder seems necessary.

No Banks Means No Banking Crisis

Banks exist to act as intermediaries between central banks and those who need credit. Banks are given the ability to create (yes, create) money through fractional reserve money, and they also have the right to borrow money at rates that no one else can receive.

Image by Twolf

If you could take your money, multiply it by 10 (that’s not the exact number, but as an example) and lend it out, do you think you could make a profit? If you could borrow money at 1- 5% and then lend it out for more than that, in some cases 15% more, do you think you could make money? That’s how banks operate.

Banks are thus given an incredibly valuable privilege by governments. It’s really hard to overstate how easy it is to make steady returns as a bank as long as you don’t get greedy.

In exchange for the right to create money and borrow it at rates no one else gets, banks are expected to add some value to the equation. Specifically, banks are expected to figure out who is a good credit risk, and where money should best be loaned and used. There are two sides of this arrangement:

Money should be loaned where it has a high return.
It should also be loaned to people who can pay it back. And it should be invested in the same way, return averaged with risk.

Banks have not been doing this.

Banks have been seeking out the highest return without taking risk into account . Instead, they have been seeking out high risk for high returns. They haven’t been adding value. They also haven’t been performing the taks of getting money to the people who can use it best. Banks took the money and invested in securities which were essentially fraudulent, in a bubble that any idiot could see would not last, in non-productive financial industries. They didn’t invest in manufacturing, by and large, or new technologies or alternative energy, or anything particularly useful. They didn’t use money to actually grow the economy—GDP was going up, and profits were going up, but the illusion of growth was based on multiple financial bubbles that weren’t sustainable and didn’t indicate any real prosperity underneath.

And when it came to loaning to ordinary people, in many cases, they were lending at usurious interest rates. (What’s your credit card’s interest rate?)

In exchange for the very valuable privilege of creating money and borrowing at lower rates than anyone else get, banks weren’t creating value for the economy; they were destroying value.

Stiglitz is right. There’s no reason to keep banks around, at least not this bunch of banks. Let private investors take their losses, guarantee deposits, do a clean up as best you can and create new banks. Or in the case of the US, maybe not…

Instead, what needs to be done is to just have the Fed lend directly to consumers and businesses. Let everyone switch their credit card to a Fed card, and as a one time thing everyone can switch over up to a $10,000 balance. The interest rate? How about the top end of the Fed Funds rate +4%? Right now, that would mean a 4.25% interest rate. If people default, well, garnish their wages. You’re the government.

Start lending to businesses. Base lending it off credit ratings after you take over the ratings agencies, or force reform, because the rating agencies demonstrated they are worthless when they rated much of the junk that’s now imploded as great credit risks.

In time the central bank makes these loans conditional—you can borrow money from the Fed only for certain things:

Want to buy a house to live in? Sure, you can borrow the money in one of 5 standard mortgage styles.
Want a vacation home or an investment home? Go to a commercial lender.
On your credit card, want to buy food? Great.
Want to put a vacation on your card? Forget it.
Want to buy a fuel efficient car? Sure.
Want to buy a gas guzzler? Get your financing somewhere else. (Not that this is much of an issue, given the low rates car companies give.)

Of course, the Fed may not want to be in the business of looking into too many things too deeply. So something like banks is useful for when folks do want that vacation, or that second home, or to borrow money to start a business as opposed to just a credit line for one that’s ongoing.

Fortunately there is one group of financial institutions in the economy which has done a good job as banks, even though they aren’t called banks: America’s credit unions.

Help credit unions expand, offer them better credit, get them together to set up wide ranging ATMs so folks can get their money anywhere. Use the one part of the system which, because they aren’t stock companies driven by quarterly results and don’t expect multi-million dollar bonuses, didn’t get involved very much in the greed driven stupidity of the last few decades.

As for the banks, if they can survive on their own, great. If they can’t, nationalize the banks and slowly wind them down. It may take years, but so be it. Wipe out the shareholders completely (they took the money in the good years). Give the creditors what they deserve, if there’s anything left for them. Move the deposits over to healthy banks or credit unions.

Stop throwing good money after bad. Something like $8 trillion has been spent, loaned and guaranteed so far and it hasn’t stopped the crisis. Take the losses, find out where the bottom is and build a new system.

This will also lead to a more vibrant society in the long run. Banks have been abusing the privileges they received and as a result credit for the things America really needs has dried up. Wanted a loan for a hedge fund? No problem. Wanted a loan for a new company employing hundreds that would only make 5% to 8% a year? Probably not.

But it was the hedge funds returns that were fake. And it was the small businesses that never started because they could only make 5% a year which could have produced real value and lasting jobs. If you want people to start new businesses, if you want consumers to spend, then giving them credit at reasonable rates, and making that credit available, is what has to be done.

At the same time, due diligence has to come back into the equation. Everyone in America needs a credit card. Might as well just give them one. Without it you can’t rent a car, stay in a hotel or really interact in a modern society. But eveyone doesn’t need or deserve the same credit limit. And everyone doesn’t need a home equity loan, in fact very few people do. Let the Fed do the drop dead easy lending “you have an income of $50,000 a year, you want a mortgage where you will pay $10,000 a year, that’s under 30%, you can have it”. Have the credit unions and the few remaining banks do the more speculative lending, but watch them like hawks. And take the credit bureaus and the ratings agencies under government sway, and either nationalize them or regulate the heck out of them, so that the ratings they give mean something.

Add in some federal anti-usury laws (no interest rates above fed funds + 15%, on anything, including fees) and you’ve got yourself a full new banking system where credit is available to those who need it at reasonable rates, while reasonable oversight is occuring. And because so many investors and lenders were wiped out, well, the lesson will have been learned, for a couple generations, that if you do really really stupid things, the government won’t just bail you out.

No more privatizing profits and socializing losses.

*For more on this topic

Fed: Screw the Federal Debt Cap, FireDogLake, Dec 11, 2008
Instead of nationalizing banks, Fed is becoming the national bank, FireDogLake, Oct 8, 2008