Banking Crisis (Continued)

Banking Crisis (Continued)

Robert Reich’s Blog

Robert Reich was the nation’s 22nd Secretary of Labor and is professor at the University of California at Berkeley. His latest book is “Supercapitalism.” This is his personal journal.
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* Why Citi Turned Around on Mortgage “Cramdowns”
* What Should Be Done With The Next $350 Billion of …
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* The Stimulus: How to Create Jobs Without Them All …
* Stimulus Plan: The Need and the Size
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Wednesday, January 21, 2009
The Banking Crisis (Continued)

The banking crisis is worsening as the economy continues to sink. It’s not just that bank balance sheets are still stuffed with “toxic” assets probably worth far less than what they’re listed for — subprime loans mixed up with all sorts of other things. It’s because more and more individuals and businesses that had been credit-worthy six months ago can’t make their payments. As a result, bank shares are plummeting. So what should the new administration do?

Set up an aggregator or “bad bank” to buy up assets the banks want to unload — along with the conditions I set out a few days ago designed prevent remaining shareholders, creditors, executives, traders, and directors from profiting off taxpayers.

One way to determine how much the government should pay is through the mechanism Hank Paulson told Congress he’d use back in late September, which he never followed through on — a reverse auction. It might work like this: The Treasury offers $10 million to any bank that wants to offload. Banks will compete with eachother to get that $10 million by offering securities they consider to be worth at least that much if and when they could ever be sold on the open market. They also provide the “auctioner” with whatever information they have — both about why their bids are credible and why the auctioner should be skeptical about the valuations of other bidders. Once the auctioner accepts one of the bids for $10 million, the auctioner then increases the offer to $25 million, and takes in a new set of bids for securities that the banks think are worth that amount. Banks that lost the first bid would add a new bunch of securities to their first-round entrees, and try to make their case. And so on.

At the end, the government (you and I) own lots of securities at firesale prices that have been competed downward. They’re put into the Bad Bank for safe keeping until they’re eventually resold on the open market — hopefully at a price that’s at least as much as they cost. And the banks have cleared up their balance sheets, which enables them both to borrow and to make new loans.

Sounds simple, but it’s not. For one thing, the prices the banks get on the securities they unload might be so low relative to their face value that the banks are effectively insolvent (this may be why Paulson gave up on the idea). For another, it depends on sufficient competition among banks to get the prices down, and some big banks are big enough to stifle competition. For another, it requires a Treasury staff (auctioners) sufficiently smart and large to effectively evaluate the information they receive. For another, in order to really clear bank balance sheets of junk, it may require far more than the $350 billion left under TARP.

Still, it may be the only alternative — outside a large-scale reorganization under bankruptcy. (The problem with the current bankruptcy laws as applied to banks is that changes in the law that went into effect four years ago don’t give banks enough time and resources to reorganize. Under the former law, Lehman might have been saved.)

posted by Robert Reich | 1:40 PM
98 Comments:

OpenID Nemo said…

Prof. Reich –

Um, so why not simply change the law to allow the bankruptcies to work?

The problem with the terms you outline is that no management or board would accept them. They would be better off (personally) entering bankruptcy and taking their chances. It would make more sense to nationalize outright, eliminate existing management, wipe out current shareholders, convert existing debt to equity, and proceed from there…
Wednesday, 21 January, 2009
Anonymous Anonymous said…

How does a reverse auction arrive at a price that couldn’t simply be negotiated otherwise?
Wednesday, 21 January, 2009
Anonymous Angry Citizen said…

Sounds like a plan that needs to be put into place YESTERDAY.

Is the new admin’s hands completely tied until Geithner is confirmed in another week?

Dr. Reich, I’m afraid to say that I don’t think your repeated message to get the deliberative process effing MOVING got through.

Pawlenty urged Republicans to get on with Geithner’s confirmation today, but it doesn’t seem that they’re willing to listen.

The more time we lose, the more costly will be the consequences for ordinary folks, and the more costly will be the stimulus amount.
Wednesday, 21 January, 2009
Anonymous silverfox said…

This banking thing has become a Gordian knot, far to complex for anyone to untangle. Ultimately the only answer is for a modern day Alexander to come along with a mighty sword and cut the darn mess open and be done with trying to untangle it.

In Washington’s dreaded fear of confronting the harsh choice ahead of them, they have “semi-nationalized” the banks and have entrenched a situation where the management, which is compensated in the multiples of millions of dollars, is only responsible when the banks are profitable, but they are not responsible when they lead the bank to failure ? Oh, and unlike classic free market capitalism where the “survival of the fittest” is the rule of thumb, our newly semi nationalized banks are required by law to survive even when proven they are the most unfit. And if they were “too big to fail” previously, now after Washington’s intervention they are very much bigger, so now I guess they are vastly too much bigger to permit failure, but of course the management still isn’t responsibile for that and must continue to receive the many millions of bucks.

A rose by any other name is still a rose, and a nationalized bank, by any other name,is still a nationalized bank.
Wednesday, 21 January, 2009
Anonymous Anonymous said…

A simple self-executing solution to the toxic mortgage assets would be a fee based program of federal mortgage insurance. For a fee of 1% of the face value of the mortgage any existing mortgage would be able to be guaranteed up to 30%; if the mortgage holder wished to go to 40%, it would be required to reduce principal by 10%; if the mortgage holder wished to procure a 50% guarantee, it would be required to reduce the principle amount by 20% and 60% for a 30% reduction. This approach would provide a floor value for mortgage assets and perhaps a market for the mortgage backed assets. The principle reduction combined with lowered interest rates would permit homeowners to stay in their homes. The lender would calculate the optimum guarantee/principle reduction formula to protect its interest thus limiting the government’s potential exposure. This would stretch TARP dollars- insurance has more leverage [bad word] than buying assets. The principle reduction amounts might vary based on region- e.g. Los Angeles 12.5%/ Cleveland- 10%,
Wednesday, 21 January, 2009
Blogger Gary said…

This is rather long, but is an interesting entry proposing a method to balance the public vs. private risk related to toxic debt on 1/20 by Jack McHugh posted on The Big Picture blog of Barry Ritholtz:

Good Evening: As 2009 dawned, most investors held out the hope that our capital markets could hold together or even rally into today’s inauguration of President Obama. Conventional wisdom being what it is (i.e. too conventional), it should come as no huge surprise that, a mere three weeks into the new year, the S&P 500 now sports a double digit loss in 2009. The culprits (the banks) remain the same ones as in 2008, highlighting the need for not only change but also for creative solutions to our escalating financial problems. I humbly suggest a matching gift program is one such possible solution.

While U.S. markets were closed yesterday in observance of Martin Luther King Day, markets in Europe were hit when continued woes at RBS and other U.K. banks moved that nation ever closer to a full nationalization of its banking system (see below). The heightened scrutiny of U.K. financial institutions moved across the pond this morning when State Street dropped a bombshell on its stockholders (see below). STT previously held itself out as a different kind of bank, involved mostly in money management and thus immune to most credit issues. The truth caught up with this Boston-based behemoth in the form of 59% hit to its stock price today, and the drop put pressure on its peers. Citi, Wells Fargo, and Bank of America were all hit for 20% or more, and the KBW Bank index dropped to levels not seen since the last great banking crack up in the early ’90’s.

Unfortunately, the undertow in the banking sector more than offset any wave of good will generated by Mr. Obama’s inauguration speech. Down 2% to 3% at the open, the major averages went sideways until most of the festivities in Washington were over. Once Mr. Obama signed off, the averages went into a slow and persistent tailspin that didn’t stop until the bell rang. The Dow (-4%) suffered least, while the Russell 2000 (-7%) was thumped the most. Oddly enough, Treasurys displayed little of the flight to quality that has consistently lifted them since mid 2007. Yields on the short end of the curve retreated a bit, but the long end saw yields rise as much as 10 bps. 2’s to 30’s steepened 12 bps, perhaps in anticipation of having to stomach all the spending being eyed in Washington. The only truly patriotic reaction to Mr. Obama’s swearing-in could be seen in the currency markets, where the U.S. dollar rose against all but the Japanese yen. The euro, for example, was tagged for a 3% loss, while the British Sterling took a 5.6% pounding. Commodities as an asset class were not spared the lash, though it should be noted that both crude oil and gold managed decent advances. The CRB index fell 2.4%.

Warren Buffett has probably offered more opinions and given more market advice to the public during the past 18 months than he had during the previous 18 years. His latest view is that the U.S. is in the midst of an “Economic Pearl Harbor”. Ever the optimist, Mr. Buffett sees our country eventually coming out of this crisis, saying, “it’s never paid to bet against America” (source: Bloomberg article below). Merrill Lynch, however, thinks this process will take years and that even Mr. Obama’s massive stimulus package will “do little more than provide a cushion to the blow the financial crisis is dealing the U.S. economy” (source: Merrill piece below). Other than offering that any healing will take time, neither of these viewpoints offers up much in the way of solutions for our financial ailments.

I would like to propose at least a partial solution, one that brings together the next round of TARP funding with an idea first proposed by Credit Suisse back in December and endorsed by this author at that time. To use a phrase that might appeal to the incoming administration, let’s create a hybrid of the CS idea and turn the TARP into a “matching gift program”. In its original form, the TARP was conceived to buy troubled assets from financial institutions, and I propose that at least some of the next $350 billion be spent in this manner. Rather than haggle over what prices should be paid for what financial instruments (which, as Hank Paulson discovered in October, is fraught with hazards and doomed the first $350 billion to be little more than a huge collection of bank C.D.s paying 5% to 8%), I believe we can let the prices be initially be determined by the banks themselves. Mr. Market will decide thereafter.

Before anyone hits the reply key with an angry riposte, let me say that the key lies in the Credit Suisse bonus pool plan I described back on December 23 (see: http://www.ritholtz.com/blog/2008/12/creating-mini-tarp-bonus-pools-would-help/). Recall, please, that C.S. proposed to set aside a large portion of its employee bonus pool as a fund to buy toxic assets from the bank. By itself, it is an elegant, though only partial, solution to moving bad assets off of bank balance sheets. But what if we broaden this concept by requiring any bank that has received TARP funding to set up a similar employee bonus pool? We could then turbo-charge the process by offering matching funds from the TARP to pay the same price for the bad assets that the employee bonus pool pays. TARP could match such funds on either a one to one, or even a two to one basis to provide true buying power in removing problem loans and goofy structures off bank balance sheets. If you think these bonus pools are small potatoes, think again; they represent the lion’s share of employee compensation at these firms and usually are the largest expense in the income statement. It is widely accepted that matching gift programs tend to engender more generosity, so let’s harness this force for the high purpose of rescuing our financial system from itself.

What makes this plan work better than the original TARP plan is that the banks will have self interest in choosing a proper price for the assets purchased by their bonus pools and their TARP partners (i.e. us). If the banks try to low-ball the price of assets destined for their bonus pools, then taxpayers will also benefit from the cheap prices and high future returns generated by these assets. If the banks pick too high a price and try to stick it to the taxpayers, then they are also sticking it to themselves by having their bonus pool pay the same high price. Though somnambulant in previous years, perhaps some of the independent directors on each firm’s board could oversee the process of determining a range of possible prices for each pool of tendered assets.

In addition, I would hope than any attempt “claw back” previous bonus money from bank executives be sent to this same bonus pool cum TARP program. Instead of sponsoring legally dubious witch hunts, our regulators should ask that previous bonus payments made to top executives be used to buy up the troubled assets generated on their watch. Such a provision is not “fair”, but neither is it fair that these characters endangered our financial system and made tens of millions while doing so. Chipping in, say, 50% of their 2006 & 2007 bonuses is the best way to make the senior executives who should have known better pay up for their poor judgment. Besides, they’ll make it all back if the assets are as good as previously advertised to clients and shareholders. And please don’t tell me that each bank’s employees will bolt upon being required to join this scheme. Given the choice, and given short vesting periods, employees would much prefer a stake in these assets to the current cram-down equity programs already set aside for huge portions of their bonuses. They’ll welcome the diversification — just ask any LEH or BSC alumni. It’s over-regulation and/or the dilution created by the TARP thus far that are the real enemies of employee shareholders. Absent a plan like this one, more of both are most certainly on the way.

Yes, this idea can work. Employees, shareholders, and taxpayers will all shoulder similar burdens and should all receive similar outcomes. At once employing the carrot (no further dilution) and the stick (either a lot more regulation, no more TARP funding, or both), my plan is a marriage of Adam Smith’s invisible hand and the visible fist of government. Main Street will love this program, too, since taxpayers want to see Wall Street finally be forced to eat what they ill-advisedly cooked up. Taxpayers might even feel like “insiders” instead of feeling like the open-walleted chumps they’ve been until now. The average person will therefore understand this plan and will likely give it a chance to work under a new president. Heck, if the “TARP matching gift program” works, we can later dump the whole thing, gains and all, into Social Security.
Wednesday, 21 January, 2009
Blogger Peace,Love,Hope said…

Can’t we (the federal Government) just buy the foreclosed homes and rent them back to their former owners ( if they can afford it) ? Thus stabilizing the market and after maybe three years we could sell said homes back to the previous owners or on the open market. It seems to me the banks are trying to hide something. Maybe a glut of 125% of value A.R.M.s or worse? We really can’t have a “Run on the Banks” with a zero % savings rate can we? The cloak of complexity is just cover for the scam that lurks beneath the surface of this murky pond. Let’s drain it and pick up the assets while the pickings are still good. It’s economic Darwinism. It’s survival of the Fittest. The Government (us) can win this one !!
Wednesday, 21 January, 2009
Blogger lineup32 said…

“For one thing, the prices the banks get on the securities they unload might be so low relative to their face value that the banks are effectively insolvent (this may be why Paulson gave up on the idea). ”

Most of these firms that own large amounts of MBS are dead in the water. No reason at this point to stick it to the people by buying up their worthless paper and hanging the loss on us taxpayers.
We have a surplus of giant banks!!!
Wednesday, 21 January, 2009
Blogger Under The Radar said…

Gary - most people won’t get it, but good article. It points out how the currencies are moving.
See Anon Michael’s previous posts of the last few days. People get those. I did anyway. He mentioned the Bank of England, and here’s another:
Something I didn’t see in yours (I confess I spedread) Bank of England beat us to the punch again.
“Investors worry that Britain could end up fully nationalizing more of its banks, adding more pressure on its balance sheet. It already owns 43% of Lloyds and 70% of Royal Bank of Scotland and nationalized lenders Northern Rock PLC and Bradford & Bingley PLC last year.”
Bank of England
The Scots have had much control over Financial markets for centuries. The Brits consider The Bank of Scotland to be of great importance as they should, I believe it was historian Niall Ferguson (himself a Scotsman) in the “Ascent of Money” that credited a Scotsman with collapsing a futures market, and thereby collapsing Napoleon’s Army. Talk Radio host Glenn Beck was incredulous this morning over the Bank of Scotland, that it was so important. (Come on Glenn, catch up Dude). What else was said today ? Nothing I heard, but this should be considered major. We Americans are so closed sighted. Much the same way that small ethnic groups are forced to operate on the fringes (throughout history) have had a tremendous impact on the rise and fall of nations.
-Bottom Line: We need to pay better attention to what other countries are doing, and quit assuming we’re in front. Then we get front. But waiting, deciding what to do ? I thought a plan was ready. Other coutries are already executing their plans, and ours will still be only reactionary, rather than proactive.
- UTR sends
Wednesday, 21 January, 2009
Blogger SawdustTX said…

I can’t help but think that if Paulson had not given away the first $350B to his buddies, we would have more to work with now. But that smelly dead skunk is smack dab in the middle of the road and everyone will be driving around it for years.

A bigger problem in all of these discussions (including yours, Dr.)is that they all assume that the government can demonstrate creativity. That is like expecting the proverbial pig to proverbially fly…with or without lipstick.
Wednesday, 21 January, 2009
Blogger mark said…

I heard an NPR report a few months ago that a professor and his grad students put the reverse auction idea to a practice test using real dollar incentives for the students. The bottom line was that it worked beautifully. The cost came to almost the exact amount everyone was told was available for the entire exercise and all of the pretend toxic assets with their designated values were sold efficiently.
Wednesday, 21 January, 2009
Anonymous Anonymous said…

OK, so this may seem a bit silly…but this is a comment about how the bank bailout failed…we are (my hub and I) slightly nouveau riche…he is a brand new partner in the largest law firm in our state and makes big money, frankly. As a partner, he can get a company car, but can’t get a loan for less interest 12%…we have EXCELLENT credit and his firm is picking up the tab. My hub just made partner but is forswearing the requisite car because there IS NO LIQUIDITY.

I know this is not an anecdote about “how we are hurting”, but seriously, there just is no money floating around. What was that bank bailout about?
Wednesday, 21 January, 2009
Anonymous Anonymous said…

Anon,

The bank bailout was about rewarding poorly-managed companies at the expense of well-run companies and taxpayers. Make sense now? Fasten your seatbelt and hold onto your wallet because there will be more of the same.
Wednesday, 21 January, 2009
Anonymous Anonymous said…

No worries Mr. “Turbo Tax” Geithner will be given a free pass and will soon go to work on this Financial Crisis.

I’m afraid Robert, no one person will have a magic quick fix. Japan has spent 15 years working off their real estate bubble. Lets hope ours only last 5 years.

Given Mr. Geithner signed a document quarterly at the IMF saying he understood his FICA tax responsiblities I’d rather have you be the next T. S. American citizens who work at the IMF are screeming mad about Tim, saying he knew but came clean only after getting the nomination. So, Robert, I vote for you.

Mr Geithner’s tax problems arose when he left the US Treasury, where he served in to Clinton administration under Larry Summers, to take a job at the IMF in 2001.

He says that he did not realise that he was required to pay a self-employed payroll tax, despite signing a form every quarter from the IMF acknowledging that he was being paid compensation for the extra tax liability.

Despite the help of tax accountants, he did not spot the mistake until his tax returns were audited by the Internal Revenue Service (IRS) in 2006.

“I absolutely should have read it more carefully,” he said. “I signed it in the mistaken belief I was complying with my obligations.”

Mr Geithner said that he paid all the back taxes demanded by the IRS - although he only filed corrected tax returns for 2001 and 2002 when he was being vetted for the treasury secretary position in the autumn.

The total in all back taxes, including interest penalties, amounted to $42,000.

Republican Senator Charles Grassley said that it was worrying that the man who would become head of the IRS had not paid his taxes.

And Republican Jim Bunning said it was “hard to explain to my constituents who pay these taxes on a regular basis”.
Wednesday, 21 January, 2009
Blogger Under The Radar said…

Why is the Geithner being raised still? Because it bugs the daylights out of us. You and I know he’s going to be appointed. The Reps will vote for him too.
1. He knowingly employed an illegal
2. He cheated on his Taxes
3. He said he didn’t notice the Turbo Tax Warning

Is this guy’s Elevator working ?
Did he really go to High School ?
His bulb is burned out.

He obviously lacks Ethics and Moral character, yet he is still being considered. This is the perfect opportunity for President Obama to step up and pull his plug, and find a new nom for Sec Tres. But the Progressivism is too strong. See T. Roosevelt, W. Wilson, and H.Hoover.
The Kool Aid Crew on this blog will blather on about how smart Geithner is, and Obama’s plan, but the truth, Geithner is Morally defunct. And a Tax fraud. He didn’t screw up, he knew what he was doing; and if he did screw up, that was pretty ignorant, especially for someone who is going to run the IRS, and print US dolars. And oh yeah, he was the main guy behind TARP I, and NOBODY can figure out how much that has lost so far. Good move on that one. Let’s trust that guy (real smart, I don’t think so) I wouldn’t do business with someone like this, ever, (or even be around them) nor with anyone that thinks it’s OK.
So, get wise everybody. Stand up for something and quit thinking it’s OK to be a schmo.
-UTR
Wednesday, 21 January, 2009
Blogger Under The Radar said…

Anon Lawyer - Pay Cash.
If you can’t pay cash you can’t affard it.

That was easy……..
Wednesday, 21 January, 2009
Blogger Under The Radar said…

Well Mark,
NPR is Liberal, Most professors are Liberal. and most college people are liberal.
Bailouts have never worked.
Never. Not Once.
The Great Depression lasted from the Mid 1920s to 1954.
I want my Tax dollars back.
I told my Congress don’t do it, they did anyway, and I am still
PO’d. Interest rates were supposed to go down, and they didn’t. The Fed moved too slow, and had to change gears, and a bunch of us lost money. The big banks are still losing money.
More money will go to companies, and those companies will go under, losing more of our money, from taxes. Actually, the Feds just printed it, it’s your money and my great grandkids, and I don’t even have grandkids yet.
And then the Feds will Nationalize the Banks, like the Brits are, see my posts earlier for a link.
And the computer models are being run by guys in DC that change the Statistics for a Political answer they want you to have. Stay away from the Kool Aid, drink GatorAde. find your own answers. And read AnonMichael from the past few days about Treasury bills, and look at a good Treasury Index fund.

Keep the faith.
-UTR
Wednesday, 21 January, 2009
Blogger Under The Radar said…

And Oh By The Way - When It REALLY Hits The Fan, And the Feds Save us all, then we owe them. That’s the way it works, right ?

Here’s the way I think - The Feds do 3 things well: Parks, Highways, and the Military. DC isn’t going to save us. It’s up to us, take care of us.

I just want them to stop taking away for awhile, so I can catch my breath.
Wednesday, 21 January, 2009
Anonymous Anonymous said…

http://www.tickerforum.org/cgi-ticker/akcs-www?post=79668
Wednesday, 21 January, 2009
Anonymous Anonymous said…

Michael Says:

Dr. Reich;

With respect Sir you are still asking the same question. Your basically asking “what the hell should we do”? ( my understanding of your questions for the lets say last few days?)

I for one still can’t tell you anything more than to “repeat” till we have “Transparency” into the Financial ( were banks) , now???? Shells, there just can’t be any meaningful responce, we can speculate all to hell—and that is a waste of all our energy and time–

Look most investors with half a brain would never invest into something they don’t get to see—and that is “WHAT THE HELL IS REALLY ON THE BALANCE SHEETS OF THESE SHELLS”

Your asking what should we do? and then in so many words saying what problems there “could” be,–if the assets were not worth what the Shells hope or claim they are worth.How can this be given anything but a wild guess based on what ?—certainly not facts—Yet we as just the dumb public know that the treasury and the Federal Reserve should now ( hopefully) know exactly what is on these so called banks balance sheets–I repeat HOPEFULLY, and if they do why is it not public knowledge before public money gets used?

Dr. Reich

Please –This is starting to be–”You can fool “all the investors some of the time” But “you can’t fool all the investors all the time” game

TRANSPARENCY–When and it’s long over due

Today during the new SEC. of the Treasury hearing Mr. G. promised more Transparency, ???? hmmmm??? He said he is aware that there is a growing —number of people ( the tax payers, and remember this—-many of us do vote!!!)getting just pissed as hell—Those are my words –

The bank (shells) are broke , busted , gone, and if we hadn’t put the Tarp 1 money in them—they would be vanished, taken over by the FDIC for being insolvent.

Hello! we have gone thru a public price disclosure to what the assets of these ex-banks are—-it is called their stock price—and that only is not ZERO due to the TARP money—So lets stop with the question of price and any games to determine what those really are-

What has to happen for us as a Nation just to wake up?

The big bad scaryness of the Banks going into a Fed. Court for bankruptcy is not going to happen—we will Nationalize the Banks—thus preventing the bankrupcy being disruptive–The banks will remain open and checks clear–there are banks that can step up—true they are many smaller banks–The Federal reserve and FDIC, just don’t have enough people to take on such a massive undertaking—it will be a bit of a undertaking but we can handle it—they these “large ” shells now are not to big to fail—They have proved that—it is just a big job for us to sell off what they own if any thing—

Who issued all the credit? Credit on houses, credit cards, loans to everyone for everything? Where was the due diligence?

Gee I think it was the shells! due diligence–ha ha—

When we get credit we enter into a partenership with these banks—Check the fine print—the banks hold the first and get to foreclose—or force the debtor into Bankruptcy. Many people sadly got over extended in many many ways–Is not turn about more than fair?

Maybe the question shold be–What do you think about re-writing the U.S. Consitution to say of, for and by the Banks, or Stock market, business—Try and sell that one—But that is exactly what is being done currently!

The Piper wants paid and Mother Hubbard’s cabinet is bare–So what do we do?

Is this not easy to see? we follow what would happen to the average person and treat the banks just like the average person

The banks don’t want the assets they want the money instead—While we ask silly if not maybe insulting questions the banks will not for the public come clean with what the hell is really on their balance sheets—NO TRANSPARENCY–The government of for and by the people is not honoring the Constution

Instead we hear the government saying we need strong and sound banks—-Ok! and where do we find these mystical creatures of the governments imagination?

This is just a shell game over shells—

Try this–sit down with like a 8-10 year old and see if you can sell this shell game to them—

Explain that all the simple math they (maybe) have learned 2+2=4–is temporary different. Ask them to give you all their allowance for the next ten years with the promise you will “MAYBE” give them an ice cream cone 10 to 20 years from now—

As Wimpy said in the Cartoons “I would gladly re-pay you a week from tuesday if you would buy me a hamburger today”

Dr. Reich please either get some transparency as I for one will stand here on soild ground refusing to play the guess and speculation game of “WHAT IF”—

WE HAVE TO LIVE IN THE PRESENT—WE HAVE TO DEAL WITH THE PRESENT– Well at least I do, as I live in reality not never never land!

This is not the end–there are more shoes out their to fall—and some of them will fall–some may not—We will deal with them–based on Facts–

Obama signed today an order changing how we will with the Freedom of Imformation act–and over the next 4 maybe 8 years I expect lots of use of this!!

If this a poll here, to get feed back then ask me what I really think—

Michael
Wednesday, 21 January, 2009
Blogger Patrick said…

The economic stimulus package should attach an “ez-ira” element to any jobs it creates to usher in the next wave of investors. Similar to the Thrift Savings Plan that federal employees have now.
Thursday, 22 January, 2009
Anonymous Anonymous said…

Michael Says

This for utr

Tresuries were a good investment last year—that was last year—Unless the Tresury Dept and or the Federal Reserve start buying Treasuries or we go into a full blown depression Treasuries ( longer than 1-2 years may not be such a good investment currently!

I still own Tresuries –that is true–but they as I wrote were puchased 1984 and thru the 1980’s then Dec1995, Dec 1999 those were to build what is called a ladder–Yes I purchaced Treasuries in 2006 and 2007 but came way down in term for several reasons–I’m older now than I was 25, 20, 15 ,7, and even just 2 years ago —

and the yield was just 5.25 or so in 2007 and I use 6% as a level of what I will take for long term–this because minus the average 2% inflation I get 4% which is OK–and I get to sleep very good knowing everyone is going to go to work to pay me—this thru their taxes, or somehow that allows Uncle to pay me—If the Government can’t pay me–well that will be anothe r story—-but even then the little bit of gold and Plat. I own will get me thru for a few days—

I haven’t bought any gold since back in the 70’s and the same with Plat.–thou I did buy some more silver back in the 80’s–

I wrote the other day that my position had changed on the Treasuries—Last year in my investment account–meaning what I will hold till the right time comes and then I have to move the asset to my trading account and liquidate—I liquidated 35% of the short tern Treasuries I bought in 2006 and 2007—and purchansed some 6 month “Small” bank CD’s paying 4.2%—THIS IS WHY —THE LOW–5.25%

so I bought 2-5 year terms 2006 plus 2 years last summer and those bonds matured—The 5 year bonds still have 2.5 years about to go—to maturity—this year more bonds will mature—and in 2007 I added to the short term just filled in between the years so each about 6 months till 2012 X amount mature—since the Fed is at 0—I’m only really going to earn 1% left on these bonds so I took profits and now will get 4% staying very short term, I also hedged 1/2 of what had left or about another 35% By shorting the 10year bond in the futures market in Dec, and just like all last year the bonds moved with the stock market except as the stock market gained bonds lose–it doesn’t always work this way–but has for a while—anyway when I saw the bonds start to again start acting stupid I lifted the hedge–meaning I took profit —and the bonds wouldn’t come down in yield and then bingo they finally broke—right back on the ten year to resistance at 2.15-2.2 % yield and I put the hedge back on, every panic low we have gotten for the last year has presented a good time to put on the 10 year short as a hedge—each time making about 2-4 points meaning .2-.4 in additional yield—in stocks we call this trading around a core position–so by the end of this year I was able to trade around the long position and get about 1.3% extra over the original 5.25%, this means I really for last year got more than a 50% appreciation on the core position—-but all good things come to an end–I have put a very small amount of money in a new etf that actually is a short on the 30Year bond–meaning I’m thinking it will trade to a higher yield–and it has coming from 2.5 to now about the 3.1 area—if it breaks the 2.75 –so I’m now staying long only short term stuff—under 5 years( I’m going to hold the bonds purchased years and years ago to term) and have way lowered down the position—the risk reward not there—and this what I told you the othe day—-don’t just look to what the 30 year is paying–watch the spreads and they are all widening –meaning short term to long term—this is what I said when I said the curve was steeping and if you know what that means fine—but if you don’t then stay away—You write today and scare the crap out of me—-don’t you be telling anyone what they should be looking at to invest in–I’ve been trading for 40 years now and please lets be somewhat careful –OK—

We all have opinions —but this is a fairly scary market—-for some—If is a big word—If you bought Treasuries when the Yield curve went flat you made some nice dough—and when the yield curve went flat it was also a warning that for the next 2-6 quarters we could have a storm—well we got one—this was a warning to put your stocks away—means sell some—-and as this storm got worse sell more—you can’t just watch them drop 50%—you can’t watch them drop 10% without getting worried—-if you do then your running around outside with a metal pole during a lightning storm—Hope you are on good terms with the counter parties—The higher and Lower powers—

Know where you are in the bell curve-meaning The fed just reached 0 but it takes a while for the storm to pass–we may just be in the eye—and the back side of this storm may be a real butt kicker and wait patiently for the all clear—

Safe is where you want to be—getting 4% for just 6 months is safe—and guaranteed—

OK!

Michael
Thursday, 22 January, 2009
Anonymous Anonymous said…

Yes, let us all debate the finer points of policy while Merrill accelerates undeserved bonus payments (go read yves’ blog) to get $3-$4 Billion out the door before BoA closes on the purchase using tax payer money.

Deck chair rearrangement on the hindenberg was never practiced with more flair….
Thursday, 22 January, 2009
Blogger Under The Radar said…

Michael - my apologies to All.
You have been trading for a very long time. I in no way meant to say “Everybody invest in Treasuries”. You figured out by now, I’m Military, very soon to be former Military. We don’t have muct time to watch the stocks, we pretty much catch the news, and what everybody else catches, then discuss it. predictions can be one sided, and conservative. ConDem or ConRep. We stay away from Politics and Religion, at least us Old Guys do at work. As we get older, then we move more independently. Me, I’m a registered Independent, as a reflection of my dissatisfaction with the bickering. I’m big on morals, and personal responsibility. Which I why I appreciate you taking the time to educate us some.
I need to pull out the Textbooks.
My BS was Mathematics, minor in Liberal Arts. I need to study more on the Economics, and Finance.

At my level of understanding:
-pay the monthly bills from the checkbook
-Keep 3000 to 4000 in a passbook savings account
-6 month CDs
-Investment money for us went like this: We moved 401 money, from a growth and income fund, into a Treasury index fund, when the Dow was headed down. Performance on the Index fund was over 3% for the last few years. The G&I was abyssmal, due to last year.
The TSP someone mentioned, there are several different funds, many people went to the “G” fund, Govt bonds, awhile back.

My suggestion, for the avg dude/dudette like me, is to look at the index funds. It was our best choice, we were legal (moving within the 401), and we don’t look at it every day. That’s not what we do. The wife is a Teacher, and I’ll keep helping people find work, when I get out. We’ll leave the Trading to, and trust GOOD people like you.
Thursday, 22 January, 2009
Blogger Under The Radar said…

DR REICH - I HOPE YOU’RE READING THIS.

PLEASE PICK UP THE PHONE AND CALL YOUR FORMER ASSOCIATE, OR CURRENT ASSOCIATE, OR FRIEND, AS THE CASE MAY BE,

LAWRENCE SUMMERS

AND TELL HIM THIS NEEDS TO GET MOVING
- WE KNOW IT DOESN’T MATTER WHAT WE THINK
-JUST DO WHAT THEY ARE GOING TO DO WITH THE ECONOMY
- THERE IS A LIGHT ON THE TRACKS, WE KNOW IT’S A TRAIN, SO WE’RE GETTING OFF THE TRACKS. EXCEPT ME. AND ANON MICHAEL. I’M GOING TO HOP A BOXCAR. AND THEN HELP HIM ON. ANYBODY ELSE ? We’re going to play Black Jack and 5 card stud. Old School penny ante.

When somebody keeps talking about something, like the TARP, and Transparency, over and over, that’s a sure sign that something is happening, many times what is not being talked about it.
Lawrence Summers is already working on this, I’m sure.

- And while you’re talking, would you please ask him tell Nap to send the illegals back through Arizona, (I don’t care where they are from, EXIT sign over Tuscon points South)
-And where is that list of Jobs ?
-And this guy Geithner ? Who taught him, and didn’t teach him better ? He needs Moral character, and more integrity apparently, and is now surrounded by the New Administration, who apparently thinks it’s OK. I was starting to trust them, and now ?
That’s a problem for me.

- Honeymoon is over. I thought all that Transition and Office of the PresElect stuff was working a solution. You have more solutions than them. You have received several on this blog, so use them.
Please call Summers. Economy fixed.

-And I sent some info on Army Medical Teams. I don’t think anybody noticed, just one guy. Jordan. I can set a leg break, start a dead heart, sew a wound, deliver babies. I am one of many. Everybody is supposed to be worried about health care as a major expense, and the answer is right in front of us, like so many other things. My help offer is pulled. Nobody really cares.

I think everybody just wants money.
Except me. I want to ride the rails, and beat AnonMichael at Black Jack. Wanna go ?
Thursday, 22 January, 2009
Anonymous Anonymous said…

Anon,

Congress is funding this deck chair rearrangement via TARP1 and TARP2. They didn’t have to reward those chumps with more money.
Thursday, 22 January, 2009
Anonymous Blurtman said…

The banks are bankrupt. If you have $1,000, and can borrow 30x that amount, or $30,000, and you invest the $30k but it loses half its value, you are -$14k. Bankrupt.

Here is one analysis of the situation from Mish’s blog:

There is roughly $6.845 Trillion in bank deposits. $2.605 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.845 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

Re: Geithner, he should not be confirmed. Where was he all these years when Wall Street was engaging in massive fraud? And why as the architect of the AIG bailout does he believe that taxpayers should payout on credit default swaps (CDS’) that AIG could not? Especially when a significant percentage of CDS’ are held by speculators who are not hedging risk exposure? This is beyond criminal.
Thursday, 22 January, 2009
Anonymous Anonymous said…

Blurtman,

Any bank with less than a 100% fractional reserve is teetering on insolvency anyway. The whole point of the Federal Reserve is to form a legislated cartel to prop up the banking industry and allow them to carry only 10% fractional reserves. Even then they use various tricks to go below that. Is it any wonder that this system is so fragile when government has colluded with them to help them take larger risks with everyone’s money?
Thursday, 22 January, 2009
Anonymous Anonymous said…

TARP should have been called TERP (Troubled Executive Relief Program)
Thursday, 22 January, 2009
Anonymous Anonymous said…

I am sure you aren’t a complete retard but the statements I heard coming out of your mouth on my friends PC today certainly made it sound that way. You should consider that some of us got where we are though hard work and not hand outs.
Greg
KCMO
Thursday, 22 January, 2009
Anonymous John Lawrence said…

Anyone wondering why the average 401k investor will end up getting screwed only has to read Michael’s post to realize that really knowledgable investors will always come out ahead at the expense of the average schlob. No offense to Michael, but I don’t understand a word of what he’s talking about, and I think I’m a fairly intelligent person. Knowledgable guys are staying up late nights figuring out how to make money off of money while average schlobs go to work and set aside a portion of their earnings in 401ks for mutual fund managers to manage. This is not what I’d call a level playing field - level with respect to knowledge I mean.

Most people just want the simple things - to work at a productive and meaningful job, to earn a living, to take care of their family, to have a secure retirement. Without all the financial hocus-pocus. Jeez, I’m wondering if the government making investors out of us all really accomplishes those objectives. I’m thinking the financial system and investing is way too complicated for the average person to comprehend so they are blindly putting their money at risk in the hopes that all the mutual fund advertising is really sincere and the experts know what they’re doing with our money. Instead the “wise guys” are really trying to take advantage of our money because it’s all a game and it’s all about winning and winning is defined as ending up with all the money while your opposing players - the counterparties - end up with nothing. The knowledgable will win and those entrusting their money to warm, fuzzy mutual fund managers will lose.

The stock market is a big game. The knowledgable ones will make money whether the stock market goes up, down or sideways. The unknowledgable will mainly lose. I don’t like this game. I’d rather expend my energy elsewhere - being productive, spending time with my family, traveling, swimming, making love. I don’t want to spend all day at the computer - trading!

Thoreau said “simplify.” Why we’re in this economic mess is that we’ve overcomplicated economic life to the point that it’s all coming down around us. The Chinese are laughing all the way to the bank. Jeez, how could a bunch of communists prosper while capitalism collapses like a house of cards. Ha. Ha. Ha. Ha. Ha. Ha. Karl Marx must be laughing in his grave. Give them enough rope and they’ll hang themselves. The Chinese will even sell us the rope! Ha. Ha. Ha.

The financial sector is run by a bunch of greedy b**stards who are out for all they can get and devil take the hindermost! Usury used to be a crime. Now it’s a noble profession. Greed used to be a sin. Now the ungreedy are mere suckers. Clinton’s adage that those who “work hard and play by the rules” should get ahead is a joke. Those who know how to work and game the system and play arcane and esoteric financial games get ahead. It’s all a big joke and, meanwhile, people suffer.

Seems like all the dreamers ran out dreams
And nothing seems the same
It’s such a pity
It’s such a shame
But the wheelers and dealers are hanging in tough
And keepin an eye on the action
They’re hawkin and talkin and moving that stuff
And feeling a fast satisfaction

Wheeling and dealing in various large and small things
Lying and stealing and letting the chips just fall
Signing and sealing and knowing the price of all things
And the value of nothing at all

Sure it’s little wonder we’re insecure
Just open up your eyes
It’s like a sweepstakes
Without a prize
But the wheelers and dealers are doing their thing
And telling us everything’s rosy
Lord only knows what tomorrow may bring
But don’t anybody get nosy

Wheeling and dealing in various large and small things
Lying and stealing and letting the chips just fall
Signing and sealing and knowing the price of all things
And the value of nothing at all

Soon we’ll all be zooming off for the moon
Like pioneers we’ll roam
to find some peace up there
And make a home
But the wheelers and dealers are gettin there first
And setting up shop in the craters
To eat beyond hunger and drink beyond thirst
Like unsatisfiable satyrs

Wheeling and dealing in various large and small things
Lieing and stealing and letting the chips just fall
Signing and sealing and knowing the price of all things
And the value of nothing at all.

Nothing at all. Nothing at alllll.
Thursday, 22 January, 2009
Anonymous Anonymous said…

John,

The 401k system is not perfect, especially since employers provide limited choices and receive incentives for limiting those choices to funds which have higher management fees.

Even so… what do you propose instead? Government controlling our money? Just give it to Tim Geithner? Bernanke? Paulson?
Thursday, 22 January, 2009
Blogger Steve said…

sounds like the start of another junk bond surge from the 80’s. can i let some of my 401K money ride on this next bibble investment vehicle?
Thursday, 22 January, 2009
Anonymous Anonymous said…

At the end, (you and I) own lots of securities at firesale prices that have been competed downward.”

NO. at the end we’ve been gamed again owning BURNT “securities” worth NOTHING.

“the prices the banks get on the securities they unload might be so low relative to their face value that the banks are effectively insolvent (this may be why Paulson gave up on the idea)”

YA THINK BOB??!!

Another reason Paulsen MAY have given up….It just wasn’t LUCRATIVE enough for his buddies. Why diddle around with millions when you can get a pipeline for billions/trillions into taxpayers pockets with the help of innocent shills like Reich?

“For another, in order to really clear bank balance sheets of junk, it may require far more than the $350 billion left under TARP”. Hmmm. Gosh. Duh.

Prof Reich, i used to admire you in the Clinton admin. but i was a younger man then……you are a clueless bastard leading sheep slaughter.
Thursday, 22 January, 2009
Anonymous Frank Thomas said…

Dr. Reich,

We have gotten into this banking MESS by lack of transparency, controls and snake-oil complicated financial products. Let’s not get out of it by complicated solutions placing a premium on our transparency and oversight skills — skills we either don’t have, are very poor at, or have a habit of finding ways of undermining.

In short, Dr. Reich, I think your proposal for Tarp II is too complicated and unrealistic; Gary’s “Matching Gift Program” is less complicated and deserves close analysis; Anonymous’ (#5) Insurance Leverage Program is by far the least complicated and deserves equally close consideration.

I’m stunned to hear that “Employee Bonus Pools” for most banks represent such a large share of bank employee income. I´m curious to know exactly how large these pools of funds are? Such a cultural US banking tradition may have been another major silent contributor to our crisis by encouraging speculative, irresponsible banking practices. But, there’s another contradictory factort behind Gary’s “matching gift” idea. If the employee bonus pool represents such a large share of employee income, will employees be so ready to invest it in their own bank’s “Toxic” assets? Are the Tarp II Matching funds a sufficient incentive for employees to accept such a program?

From the very start, our Treasury experts and most economists, have grossly misunderstood just how INSOLVENT many of our banks had become over the 2002/07 period of “Bubble-Party” overleveraging in all directions. We all know the Party was fed by a deadly combination of what Bernanke has called “the global savings glut” (China, Singapore and Persian Gulf oil producing states) and very low US interest rates. And with an unprecedented mountain of liquidity seeking higher yields, capital flowed into risky products and weak borrowers camouflaged by “flaky” lending practices.

So,it was no surprise to me that the first $350 billion of Tarp went toward the banks´liquidity and partly to their solvency problems and not to loosening up the crunch on their ability or interest to start lending to each other as well as to qualified borrowers again. Many banks no doubt still have solvency pressures.

As John, Silverfox, Art and others have constantly been saying, how can we come up with the best Bailout solution for taxpayers, bank shareholders, and employees wihtout knowing the real dimension of the so-called “Toxic” asset severity?

I agree with Gary that the pain should be fairly spread but the potential cash recoveries should also be fairly structured in any final solution.

Taking the option of allowing major banks (like Citigroup) go “Belly-up”, given the Global Interconnectedness of such banks today, carries the concommitent high risk of escalating the magnitude of this crisis worldwide to panic depression levels. This doesn’t mean some banks should go bankrupt but two more Lehman Brothers could be disastrous.

That’s why intelligent caution is critical in arriving at best solution and sub-solutions that BOLDLY address banking liquidity-solvency dilemma and offer the best chance for stabilizing our financial implosion … and controlling the fallout to world financial markets.
Thursday, 22 January, 2009
Anonymous Anonymous said…

So Dr. Reich are you saying that nobody has a clue how to put humpty dumpty bank back together again and that the we’re all basically screwed?
Thursday, 22 January, 2009
Anonymous Anonymous said…

I just heard that MicoSquish laid off people, got to be a serious recession for that to happen. Can you address how we can demand moving again?
Thursday, 22 January, 2009
Anonymous John N. Winn said…

Chapter 11 bankruptcy (BK) provides the institutional framework for reorganizing these behemoths while maintaining their continued operation. The Federal government’s principal role should be to supply debtor-in-possession financing. The CDS market on Citi/BAC, e.g., will take the same type of hit it did on Lehman, where these contracts paid off with little fuss (some CDOs derived from the these CDS’s will be hit also).

Once BK is recognized to be imminent for an entity, counter-parties will cancel derivative contracts, leading to a rapid collapse of the investment banking unit: this is not a “run on the bank” a la 1932 deposit-taking institutions; the IBank collapse is a DESIGNED feature of the BK laws and one vigorously lobbied for by Wall Street in order to protect the counterparties.

With Chapter 11, shareholders, management, and board are wiped out/replaced while bondholders and deferred compensation/bonus pool recipients take a haircut: not a morality tale, merely an affirmation of the expectations of the private parties accepting excess returns in the first place. The FDIC still guarantees depositors and the PBGC still guarantees the pensions to within the legal limitations of their respective liabilities in each case.

Multiple, SIMULTANEOUS bankrupticies are the bogeyman here, not the BK of any one institution. TARP funds should be restricted to supplying the finance (e.g., DIP) that will permit an orderly market in the dispensation of assets. To enhance stability and to help prevent a domino-induced bogeyman effect, a “bad bank” capitalized by TARP and private capital can stand willing to pay up to, say, 30 cents on the dollar for the most illiquid assets (Tier III, e.g.), where the value of the asset and its illiquidity classification is per the last audited financial statment.
Thursday, 22 January, 2009
Blogger Steve said…

i wish i knew how to post images here, but a review of the stock market performance from inception to date shows an uncanny upward ride starting about Reagan’s time. this to me was when 401K’s-IRA’s started to become very common place for trhe average person.

this inflow of cash to stocks started the new “demand” that finance people were then able to exploit.

over the years this manipulation continued and now we’re in a bust that has stocks dropping back toward that general stock market pace.

we’ve had accounting issues come along for years as regulations try to chip away at these manipulations.

recall the early 90’s when laws were passed to FORCE companies to actually make 401K matching deposits, not just keep records of what they are supposed to be. recall how the big boys took huge losses in those years as they came clean on their deposits.

we saw the junk bond kings of the 80’s come and go. we saw serious cooking of the books with Enron and others. i swear there are still more very serious book balancing issues with companies and this bust is bringing them all down.

and they need to come down. we’ve had artificially false increases of values for the past few decades. now that true root value is being shown, no one has any. so their stock goes to ziltch.

the only real value is from companies making “stuff”, from banks holding loans for “real stuff”.

until we get back to that mentality we’re only trying to hold these false values as proper values.
Thursday, 22 January, 2009
Blogger goodepic said…

It’s been mentioned a bit above, but could you comment on why you think this purchasing of assets is better than outright temporary nationalization of banks that can’t make it? The stark differences in moral hazard and fairness to tax payers are quite convincing for me. IE, buying up assets that banks own because their mangers made incredibly poor decisions gives much different incentives for the future and for shareholder oversight than does wiping out the shareholders, nationalizing the banks, and then selling off the good parts so the whole system doesn’t disappear. Not only that, but the buying up of bad assets seems a give-away of taxpayer money to shareholders of a poorly managed company, not something I want my tax dollars going to…
Thursday, 22 January, 2009
Anonymous Anonymous said…

Even if the bad loans the banks made are removed at taxpayer expense, banks still don’t have enough deposits on hand to meet domestic credit demand. Banks were brokering loans for resale overseas, and no one will buy their products anymore. Credit will remain shut down until banks regain foreign trust, or nationalization of banks provides a public guarantee for new loans banks broker.

The alternative of encouraging citizens to deposit savings in the bank is apparently unthinkable.
Thursday, 22 January, 2009
Anonymous Anonymous said…

I have never really cared for you as a politician but until today, I didn’t realize why it was fundamentally the most accurate position I could have taken:

1. You are an elitist academic;
2. “Berkeley” speaks volumes;
3. Your opinion made today:
…” But if there aren’t enough skilled professionals to do the jobs involving new technologies, the stimulus will just increase the wages of the professionals who already have the right skills rather than generate many new jobs in these fields. And if construction jobs go mainly to white males who already dominate the construction trades, many people who need jobs the most — women, minorities, and the poor and long-term unemployed — will be shut out.”…makes me sick. You, Sir, are a racist of the first order. Have you perhaps given thought to the problems with having construction work done by the unskilled? You might want to ask Jimmy Carter what is happening with many of the “homes” his charity “built” using much unskilled labor. And, how often have you been in a “construction” zone? You would be surprised to see far, far fewer “white” males than you suppose run the industry.

A typical Uberleftist that considers white people the worst of mankind. Oh, you don’t use those words, but I often wonder if your politics allows you to forgive yourself because of your color.
Thursday, 22 January, 2009
Anonymous Frank Thomas said…

Dr. Reich,

Sorry, correction: next to last paragraph and last sentence:

This doesn’t mean that some banks should NOT go bankrupt but more Lehman Brothers…
Thursday, 22 January, 2009
Blogger Art A Layman said…

Anonymous:

Still mulling, but I think I like your idea very much.

Absolutely makes sense to limit the amount of funds the government has to commit up front and a small fee for guarantees isn’t expensive and should make some of these assets(?) more stable.

Good thinking!
Thursday, 22 January, 2009
Blogger 911truthfarmer said…

When are we going to have the debate about either FEDERALizing the FED, which is a private banking cartel, or abolishing it? The Constitution, that g-d piece of paper, clearly states CONGRESS must coin and regulate the currency. Until this is done, we are merely rearranging deck chairs on the Titanic. It can’t be saved with any amount of tinkering! We need to declare the debt PAID IN FULL. The Congress and the Treasury need to be wrested from the hands of Rockefeller and Morgan and made to do the bidding of the people.

Read WEB OF DEBT and watch THE MONEY MASTERS and AMERICA: FREEDOM TO FASCISM. Can be seen on youtube. And visit www.monetary.org

“We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.” - David Rockefeller

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” Thomas Jefferson

“Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits (money), and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for
this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers
and pay the cost of your own slavery, let them continue to create deposits.” Sir Josiah Stamp (1880-1941) President of the Bank of England in the 1920’s, the second richest man in Britain.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford

We SHOULD be rioting in the streets. We get the government we deserve. There was a time when Americans actually cared and talked about this stuff. We are so dumbed down by the media and our failing educational system, we don’t stand a chance unless we hit the streets. Voting is a joke, and Obama ain’t gonna save ye.

From a speech by John Taylor Gatto: “Between 1906 and 1920, a handful of world famous industrialists and financiers, together with their private foundations, hand picked University administrators and house politicians, and spent attention and more money toward forced schooling than the national government did. Andrew Carnegie and John D. Rockefeller alone spent more money than the government did between 1900 and 1920. In this fashion, the system of modern schooling was constructed outside the public eye and outside the public’s representatives. From the very first report issued by John D. Rockefeller’s General Education Board: “In our dreams, people yield themselves with perfect docility to our molding hands. The present education conventions of intellectual and character education fade from their minds and unhampered by tradition we work our own good will upon a grateful and responsive folk. We shall not try to make these people or any of their children into men of learning or philosophers, or men of science. We have not to raise up from them authors, educators, poets or men of letters, great artists, painters, musicians, nor lawyers, doctors, (he’s really covering the whole gamut of employment isn’t he?) statesmen, politicians, creatures of whom we have ample supply (whoever the pronoun we is meant to stand for there). The task is simple. We will organize children and teach them in an perfect way the things their fathers and mothers are doing in an imperfect way”.”
Thursday, 22 January, 2009
Anonymous Angry Citizen said…

For the Anon who called Dr. Reich a racist:

A stupid man’s report of what a clever man says can never be accurate, because he unconsciously translates what he hears into something he can understand.
– Bertrand Russell
Thursday, 22 January, 2009
Anonymous Lauren said…

Thanks for that Angry Cit.

Well done
Thursday, 22 January, 2009
Anonymous Anonymous said…

Dear Prof. Reich:
The pity is that the “insecurities” which the banks will want to unload will be worth nothing.
All we have to do is count up the total of real estate-based derivatives, hedge funds, and risk swaps, ETC., and we will most likely see they exceed the value of all the land on the planet, including the fantasy that the oceans are also land, plus Mars.
So we should quit the charade and let it blow! This volcano is all gas and hot air!
Hope you are reading this: you have the pulpit. No one listens to me, but i do know of some great smaller banks–too small to bail?–
that could begin to make loans if there was only anyone to loan to…not many want to borrow since borrowing is contingent upon belief in future growth.
Nevertheless, those well-run, sanely managed banks will become our new financial giants some day.
[See Grameen, Kiva, for a new wave of banking.]
All of this will become meaningful only after, AFTER, the government inspires us all with a jobs program that is relentless and overwhelming in its magnitude. We shall need cement by the shipload. Asphalt. Copper. Wind turbines. Solar choices. AND…this is very big…electric meters on every home, which can run backwards and actually PAY the homeowner for energy donated into the grid by home solar and wind power. (We could simply mandate that one.)
WE are only at 8-10% unemployed–it’s been worse. Many of our jobs are now overseas, and no one wants many of them anyway. But we could decide to empower American factories with tariff protection in selected fields.
Like Automobiles. Just matching China’s 22% rate would be interesting. Or Japan’s.
And we could increase sales of green cars by moving the tax break from SUVs to small green eco-vehicles.
We could also remove the tax credit for children born from now on. And tighten the border with Mexico…but of course, then we’d be left with an aggravated unemployment problem down there.
It is past time for a new viable social movement in Mexico anyway, so maybe we should let it run it’s course into their Nth revolution. Will the aristocrats ever let their people free?!
Nothing except the truth will out.
No gimmicky quick-fixes within the old paradigms will achieve the old American Dream anyway. We’d need six planets for that. We only have one. We have to share.
We have to reconsider growth as a valid mantra.
Hope you read this.
Thursday, 22 January, 2009
Blogger Josh said…

Prof. Reich,

Eventually, shouldn’t we be moving folks out of using credit the largest economic mover? It seems to me that by inflating credit, we have driven ourselves to the edge of our productive value. I mean, credit is not based on current production, but on future production. However, our compensation for current production hasn’t kept up with our current expenditures + our payments for fronts on production (our monthly debt payments). All of this talk about removing toxic assets may be important for the short-run, but our economic perspective lately seems to be turned upside-down. We should be discouraging credit as the means of economic movement, and encouraging appropriate compensation for production.

My naive, simplistic proposal:
1. Increase the minimum wage by $7/hr., with the feds. paying this amount to businesses with fewer than x employees for a period of 6-9 months (to help small businesses handle the initial hit);
2. Allow banks to fail - let FDIC save those who would be hurt the most by this, while encouraging individuals to go to medium and small banks;
3. Institute federal usury laws, which will dry up credit for many who are less trustworthy debtors, yet the $7/hr. raise they just received should give them hope and reason to save, simultaneously curbing hyperinflation and opening up credit in the longer term by recapitalizing banks with savings from actual productive value;
4. End the resale markets for mortgages - that is, force creditors to keep the mortgages they made with lenders. This, coupled with the rise in use of small and medium sized banks may help alleviate the run to bankruptcy, while keeping money circulating in smaller concentric circles.

Ultimately, we should stop relying on credit as our primary money mover - the opportunities for cheating people are too great, and the return on future production too uncertain. Instead, pay people fair, give them a chance to save and buy.
Thursday, 22 January, 2009
Anonymous Frank Thomas said…

Josh,

Your “Pay people fair, give them a chance (incentive) to “SAVE and BUY” is part of the precise formula to correct our Zero Savings and Overconsumption economic paradigm that gets us repeatedly into our self-destructive, excessive Debt cocaine.
Thursday, 22 January, 2009
Anonymous Anonymous said…

Banking should become a utility owned and managed by the government.
Banks borrow tax payer money and then add 3% to loan it back to taxpayers.
Why do we need these middle-man scraping the wallets of Americans wanting a home for their family?
Government needs to save jobs and homes.
Greed and investor protection is still driving decisions in Washington.
Too many over-educated economists trying to over-engineer a broken financial model while America is sinking.
The solution should be based upon K.I.S.S.
KEEP IT SIMPLE SUPID

Anonymous DWP
Thursday, 22 January, 2009
Anonymous Angry Citizen said…

…Reading up on the bad bank proposal.

In the past, I’ve come across folks who proposed the idea–some of whom thought that “bad” and “good” banks should have been immediately set up. Now, I see that even the likes of Paul Krugman view it with skepticism and as another very bad Paulsonesque idea.

David Roche over at the Wall Street Journal seems to think that a bad bank can solve our problems, but others still view it as a black hole and another way to shaft the public and shift even more wealth to the wealthy.

This kind of debate is essential to have, as is a debate about full nationalization of the banks, and a debate about nationalizing the Federal Reserve.

The decision-makers must work quickly, for sure, but must also carefully consider the options and consequences that could follow.

As an aside, there was an economic stimulus hearing yesterday by the appropriations committee that I watched on C-SPAN. A lot of good discussion occurred, though I do admit to being angered by the way that a couple Republicans with solid concerns were treated by the committee chair. Petty ideological arguments should be immediately shut down; genuine questions and concerns should not be. I hope that more Americans are tuning into C-SPAN to see how these people are going about doing OUR business.
Thursday, 22 January, 2009
Anonymous Frank Thomas said…

Angry Citizen,

Quite agree with your plea for cool, objective heads and analysis Tarp II bailout options.
Thursday, 22 January, 2009
Blogger Steve said…

“End the resale markets for mortgages”

a very useful proposal. if a bank wants to lend, fine, but have the decent business sense to lend to people who can pay. if you, as another bank, want to buy those assets, buy the bank. not just the fake paper.
Thursday, 22 January, 2009
Anonymous Anonymous said…

What incentive would you leave for private persons to make loans that big lenders would not touch if a cramdown would cut their investments down?
All you would do is make it more difficult for a prospective borrower to get funding.
But, then, this does not occur to you?
Thursday, 22 January, 2009
Blogger Emmanuel said…

As a world we should do away with the monetary system it will solve all the issue and greed that this world has come to see.

www.thezeitgeistmovement.com
Thursday, 22 January, 2009
Blogger Ted Seeber said…

My own bills suggest that the federal government has already chosen their “bad bank”- JP Morgan Chase is buying up everything in sight.
Thursday, 22 January, 2009
Blogger Linda said…

I don’t know why we have to get so fussy and cautious. There is no question about what needs to be done: the investment banks have to go, hedge funds should be outlawed, along with shortselling and all these wierd things the new financial instruments do…the only reason they exist is to find a way to gouge more money from the lower and middle classes for the benefit of a few very greedy people.

It is very, very simple.

All these poor investors with no place to put their capital…let them eat cake!!! Let them donate to charities, let them contribute to Uncle Sam, let them support health care, education, music and the arts…but don’t let them steal from the rest of us anymore!!!

Jordan…am missing your input.

I haven’t had much time to post here lately because I’ve been very busy contributing to an important cultural event in my community which is helping us get to know each other and establish a regional identity and perhaps even the regional economy!

I am a contestant in a local Project Runway and I have two gowns and two models to show on Sunday..wish me luck! I only play to win!

Art, John, Fox, Radar, Angry, Jordan…waving to all of you. a lot of time here…just time to skim quickly and make a post.
Thursday, 22 January, 2009
Blogger Linda said…

Frank, Seve..waving to u and the rest of the gang too.
Thursday, 22 January, 2009
Blogger Emmanuel said…

I still say that the Monetary System should be gone. The Government in the early 1900’s fed the public that greed was the way of life. The way of life should be free education, expanding minds of all humans, evolution should take over. We as one person are united.
As Dr. Martin Luther King Jr. Said,”"I believe that unarmed truth and unconditional love will have the final word in REALITY.”
Peace, Love, and Progress!

www.thezeitgeistmovement.com
Thursday, 22 January, 2009
Anonymous DanyBoy said…

The aggregator bank is “The Bum’s Dream”!
Just like the hobo in the song “On the Big Rock Candy Mountain”, (from the depth of Depression folklore), we can fantasize about “the buzzin of the bees in bubble gum trees and the soda water fountains” or why not a giant vacuum cleaner that can make all our problems disapear! Sucking up all those rotten stinkin papers that show how our banks are sooo bust that it hurts just to think of it!

Then for more fantasy, these securities could be out-of-sight, out-of-mind in a giant box until we regain the zenith of the prior gogo bull market when we might break even unloading million dollar mortgages when houses go for billions and pigs can fly! Yeah, right. Oh and did I mention we’ll all go home with our pockets filled with cash so we can buy more SUVs and McMansions?

Reality is, as you can probably imagine, a good deal darker.
First:
-The sheer amount of reckless asset-backed securities question would put the US sovereign balance sheet in jeopardy at a delicate time. We still will need to borrow more money to do such inconsequential things as : run the federal government, fight a war or two, keep up a military, fund medicare and medicaid ohh and I almost forgot social security for millions of retiring baby boomers! Small details.
As I write this China is unloading 30 year treasury bonds.

Second:
Since the process of “aggregating” involves some form of price discovery (using a reverse mortgage for ex) we would be inadvertantly exposing the big lie: that institutions throughout the country and the world have been assigning fake values in order to avoid insolvency. So by this very process we will bankrupt any holders of mortgage-backed securities who’s numbers don’t add up using the new price.

Third:
The derivatives on the aggregated assets dwarf the assets themselves. The obscene amount of over 60 trillion dollars has been estimated for crdeit default swaps alone.
By assigning new low values to the original securities we disrupt an entire house of cards built on more optimistic numbers.
The holders of these derivatives are not part of the evil empire: CDO’s are held by municipalities all over the US, pension and retirement funds, endowments at major universities, charitable organizations and foundations and foreign banks etc etc
And a new round of massive de-leveraging would inevitably take place just to unwind and settle the credit derivatives thereby causing forced sales of other assets to raise cash. A viscious cycle.

Nope. There’s a reason we have been approaching the problem piecemeal and ad-hoc. Not because the scope of the problem was poorly understood but precisely because it WAS understood all too well. Chilling.
Thursday, 22 January, 2009
Anonymous Lauren said…

Anon : I voted for John Mc.Cain

There’s your problem!
Thursday, 22 January, 2009
Anonymous Anonymous said…

If you think this housing crash is bad just wait until the baby boomers start to die off and there is no one to buy the excess houses. There simply are enough people being born to buy these assets in the near future. This housing crash is only going to get worse.
The government can’t buy everyone house, it can’t make these banks solvent, it can’t build an economy, government responses to these types of issue are only going to make things worse. The failed companies need to go bankrupt and new one will emerge. The only roll the government should play is to regulate and oversee.

People keep saying it was greed that caused these banks to go under, no it wasn’t. It was dump decisions, it was congress mandating these banks make high risk loans, it wasn’t greed. Please name one government program that is under budget, one agency that is efficient (maybe the post office, but that is the exception). Do you really think government could run the banking system? Who will oversee the government running the banks, the government? Wasn’t that its job already?
Thursday, 22 January, 2009
Anonymous Anonymous said…

I would like to point out that I think it is wrong that there is so much emphasis made on “getting the banks lending again”, or “getting credit flowing”. This to me seems to be the wrong goal. We really shouldn’t be trying to go back to doing exactly what got us into this problem in the first place: too much debt.

We’re not going to solve anything by trying to go back to an economy that depends entirely too much on debt and not nearly enough on creating real wealth through manufacturing and providing jobs that pay a living wage.
Thursday, 22 January, 2009
Anonymous Anonymous said…

Michael Says

Lauren you don’t have to defend yourself against small, sad, and pity deserving people from any walk of life–

Here is CLASSIC example of just TO feel PITY for someone—or I guess consider the source and just let them wander thru life wondering why, why they are alone, why they are sad, why they are bitter, why why why—such a waste isn’t it—Nothing to do but walk away–as they are so enraged with themselves they are beyond speaking too–

Michael
Thursday, 22 January, 2009
Blogger Luz, Adelia’s Closet said…

I heard a great comment today. Give each tax paying American million dollars and let it trickle UP to the banks.

Citizens will pay off mortgages, pay off credit card debt and save any of the money in a BANK!!

comments?
Thursday, 22 January, 2009
Anonymous Tom said…

I-just-love-hearing-b.s.-from-the-elitists-who
control-our-gov’t/economy!So-Paulson-”changed-his-mind”on-who-gets-the-money.Yeah,sure-he-did.Nice-try,Bubbela.
Thursday, 22 January, 2009
Anonymous a_penny_saved said…

Luz,

There were 185 million taxpayers in 2007, according to wikipedia. Multiply that by $1 million and you get $185 trillion. The entire 2007 US gross domestic product was only $13.8 trillion. Where will $185 trillion come from?
Thursday, 22 January, 2009
Anonymous Anonymous said…

To a penny saved

We will borrow it ( the 185 trillion, heck make it 200 trillion –for the tip) from the banks just before they file BK and then it will all be OK—-

Once upon a time in a land far far away!

The thought and motive in the right place thou!
Thursday, 22 January, 2009
Anonymous Angry Citizen said…

Anon,

I have a (gay) friend in Iraq, a friend in Kuwait, a brother-in-law on his way to Iraq, and a nephew joining the Army in a week, but that’s beside the point. The point is that your read of Dr. Reich’s old post was a tragic misreading.

All,

It appears that Britain is edging closer to bankruptcy and Gordon Brown is looking to President Obama to save the day. Seeing as how even our people aren’t sure how best to proceed, that’s a pretty tall order for the Obama administration.

In all of this, I still wonder if the “sophisticated” financial gurus who have spread their ingenious products across the globe have created a black hole that absolutely can not be bailed out. Maybe the question we should try to answer is: If it is the case that there’s not enough money in the world to bail out the global Ponzi scheme, what do we do?

On another topic: how does our Government expect us respond when it appears that our leaders are playing favorites with bail out money?

Exhibit A) Barney Frank gets TARP money to a local bank.

Exhibit B) Corporate lobbyists are paying $25,000 a head to party with House Republicans next week at a resort. Anyone wonder if the GOP will be lobbied for TARP2 money?

This stuff drives me insane. I’m grateful that we have President Obama in the White House, yet even I can’t have any more confidence in government or in the economy when crap like this is going on. And it really doesn’t help any with confidence to see people like Mayor Daley of Chicago do idiotic things to further damage the future of his people and city– the guy is leasing out/privatizing Chicago assets to temporarily assist with his budget with absolutely NO concern for its consequences. It’s really starting to feel like we are ALL constituents of all of the mayors, governors, and legislators in the country and have to keep an eye on what each of them is doing, because what they do will affect all of us in one way or another. Perhaps it’s a good thing that a lot of us are unemployed, because keeping tabs on all of them is a freaking full-time job.

Lastly, an open question: How do folks think our great lender–China–will respond to charges from Obama and Geithner that China is a “currency manipulator”?. Of course well all know–or most of us do–that China manipulates its currency for its own advantage, but can we just say that and expect them to keep financing our debt indefinitely?!
Thursday, 22 January, 2009
Anonymous Blurtman said…

So the American people are sacrificing - losing jobs and savings as a result of this crisis and collectively assuming more and more public debt to bail out the investment banks that caused this crisis. And the American people will be asked by Obama to sacrifice even more.

But when we see John Thain’s spending to outfit his office, we see another symbol for this whole crisis. Wealthy white collar criminals who have sucked massive funds out of the economy, who have committed crimes by selling fraudulenty rated securities, who expect to be paid again on the bets they made against these very securities, and instead of a special prosecutor jailing these criminals, instead of the FBI investigations, we continue to pay these criminals and appoint them to cabinet posts.

It is as if instead of hunting down and bringing to justice those responsible for 9/11, we instead welcome their lobbying efforts, and appoint their leaders to the cabinet positions.

America has more than ever turned into a corrupt utterly morally bankrupt country, and now financially bankrupt as well.

Where is Elliot Ness when you need him?
Friday, 23 January, 2009
Anonymous Lauren said…

Eric Hoffman, people like you are the reason so many whites. like me, elected a black man as President.

I hope people like you continue to speak out, because it will help guarantee another Democratic landslide in 2010.
Friday, 23 January, 2009
Anonymous John Lawrence said…

Anon said:

The 401k system is not perfect, especially since employers provide limited choices and receive incentives for limiting those choices to funds which have higher management fees.

Even so… what do you propose instead? Government controlling our money? Just give it to Tim Geithner? Bernanke? Paulson?

What I propose is that the US government follow Norway’s example and establish a Sovereign Wealth Fund (SWF) and enlarge social security to a full size pension system. And, BTW, pension funds and university endowments should be barred from investing in derivatives and other exotic financial instruments because they’re always given as an excuse why we can’t let investment banks fail.

I know that the idea of government wealth as opposed to government indebtedness (the US model) comes as a shock to some but some other countries are following notions of fiscal prudence and responsibility just not the US.

Here’s the link. And here’s some explanatory material:

Norway’s Government Pension Fund-Global (GPF) has a number of exemplary features that could serve as a model for other SWFs. The GPF is one of the largest and fastest-growing SWFs in the world, with total assets amounting to $373 billion at end-2007, or close to 100 percent of Norway’s GDP. size aside, the Norwegian GPF is mostly known for its features, which in many ways are considered best practices by international standards:

• The GPF’s stated aim is to support government saving and promote an intergenerational transfer of resources. The fund facilitates the long-term management of the government’s petroleum revenues. Given the expected population aging in Norway, it serves to pre-fund public pension expenditures.

• The GPF functions as a fiscal policy tool, which, together with the fiscal guideline, serves to limit government spending. The fund’s capital consists of revenues from petroleum activities. The fund’s expenditure is a transfer to the fiscal budget to finance the non-oil budget deficit. The fiscal guideline, introduced in 2001, calls for a limit on the non-oil structural central government deficit of around 4 percent of the assets of the GPF. Since 4 percent is the estimated long-run real rate of return, this rule amounts to saving the real capital of the fund and spending only its return (akin to an endowment fund).

• The fund is fully integrated into the budget.The net allocation to the fund forms part of an integrated budgetary process. This process makes transparent the actual surplus of the fiscal budget and the state’s use of petroleum revenues.

• It pursues a highly transparent investment strategy. The Ministry of Finance—the fund’s owner—reports regularly on the governance framework, the fund’s goals, investment strategy and results, and ethical guidelines. The Central Bank—the fund’s operational manager—publishes quarterly and annual reports on the management of the fund, including its performance and an annual listing of all investments. Detailed information on the fund’s voting in shareholders’ meetings is also published.

• Its assets are invested exclusively abroad. This strategy ensures risk diversification and good financial returns. Moreover, it helps to shield the non-oil economy from shocks in the oil sector, which can put pressure on the exchange rate (so-called “Dutch disease” effects). The GPF has small ownership shares in over 7,000 individual companies worldwide (the average ownership stake at end-2007 was 0.6 percent, against a maximum allowed of 5 percent).

• Its high-return, moderate-risk investment strategy has been hitting the mark. Currently, the fund is adjusting its portfolio to its new strategic benchmark of 60 percent of assets in equities and 40 percent in fixed income. There are plans to move gradually into real estate, to improve the risk-return tradeoff. The investment strategy has produced a healthy 4.3 percent average annual real return during the past decade.
Friday, 23 January, 2009
Anonymous Lauren said…

Blurtman: So the American people are sacrificing - losing jobs and savings as a result of this crisis and collectively assuming more and more public debt to bail out the investment banks that caused this crisis. And the American people will be asked by Obama to sacrifice even more.

Well, the American people have conducted themselves poorly in the last 3 decades by repeatedly voting for politicians who promised they would not have too sacrifice and who lied to them that by ruthlessly cutting taxes and eliminating tariffs and borrowing endless sums of money from foreigners would somehow bring us great prosperity.

This economic mess is a direct result of our collective greed–voters and politicians and businessmen alike.

Wallstreeters are not the ONLY greedy Americans. is every American who voted for Bush though we were warned BEFORE HIS ELECTION that his tax cuts would cause 100s billions in annual deficits.

So is every American who supported the Iraqi invasion blunder and who ignored warnings by such Republicans as Larry Lindsey that the invasion would cost 100s billions.

So is every American who voted for McCain though only weeks before he announced the economy was good, he announced the economy was “sound”.

Look in the mirror America. You caused this mess just as surely as Reagan, Bush, Clinton, Gingrich, Graham, and the Congress.

Now it’s time to sacrifice to make things right, and what do we have? More whining by those who created the problem in the first place! THE VOTERS.

So stop your sniveling and take your long overdue medicine.

Obama didn’t cause this mess, but he’s the first person in 3 decades who will start to address the fundamental issues that cause it.
Friday, 23 January, 2009
Anonymous John Lawrence said…

And, BTW, I think we need to get over this meme that the US is “the world’s wealthiest nation.” We’re not. We’re the world’s most indebted nation with a broken down economic system, hence the world’s poorest nation. Just because we have a lot of flashy cars and McMansions does nor make us the world’s wealthiest nation. Just makes us the world’s largest tinseltown.
Friday, 23 January, 2009
Anonymous Anonymous said…

John,

Sounds great. Isn’t my 401k just my own personal sovereign wealth fund? And doesn’t it already have some government-guided rules on it? So why should I let the government manage that money for me?
Friday, 23 January, 2009
Anonymous Anonymous said…

Lauren,

You forgot to list Greenspan Bernanke. Just sayin’.
Friday, 23 January, 2009
Anonymous John Lawrence said…

Lauren:

Hear. Hear. You are exactly right. The collective greed of Americans voting for lower taxes and electing Republicans is a direct cause of the economic shape we’re in today. Especially the ignoramuses in the red states. Need I say more?
Friday, 23 January, 2009
Anonymous Anonymous said…

Lauren,

What if it turns out that Obama doesn’t know any more than the others? What then? Do we sit by and watch him drive train over a cliff?
Friday, 23 January, 2009
Anonymous John Lawrence said…

Anon,

Maybe you should check to see how Norway does it. They seem to be successful at it. Don’t ask me. Ask them.
Friday, 23 January, 2009
Anonymous Lauren said…

John Lawrence, I like your blog. Very nice. I shall read more of it as I get the chance.
Friday, 23 January, 2009
Anonymous John Lawrence said…

Thanks, Lauren.
Friday, 23 January, 2009
Anonymous Lauren said…

Anon :What if it turns out that doesn’t know any more than the others? What then? Do we sit by and watch him drive the train over a cliff?

Then we are all screwed. By electing Obama we threw the dice. But by electing McCain we were GUARANTEEING more of the same Reaganomic lunacy from a professed Reagan soldier.

Critics of Obama are missing one very important point: if we all unite behind any well-conceived economic plan, it will work, it will work big, and it will work fast. The plan doesn’t have to be perfect. But it has to get us moving in the right direction.

Obama’s plan is a bottom-up investment plan. It is not a top-down Reagan plan where huge sums of money are given to wallstreet of big corporations in the silly hope they will share it. Obama’s plan is more like FDR’s New Deal, and most honest economists will tell you the New Deal helped end Great Depression. Obama’s plan will create jobs, jobs will create confidence and new tax revenues, and those jobs will spin-off new jobs and new confidence and new tax revenues. Obama’s plan will invest in NEW MANUFACTURING capabilities for the USA. Some believe that GREEN ENERGY has the capability of making the internet revolution (and its corresponding positive economic benefits) seem tiny in comparison.

Because of Reagan and Bush(es) and others, we are now at a perilous time of do or die, sink or swim.

Obama IMHO is saying exactly the right things. He is trying to attract moderate GOP voices. He understands that we need to create manufacturing NEW capacity and put in place mechanisms to prevent their future outsourcing. He understands this economic malaise is a war we must win, and that we must not surrender or sit back and do nothing.

You better hope knows what he is doing, because he is the one charging out of the foxhole with a a machine gun, running toward the enemy that is about to engulf us. If he is shot down, we all will be lost. But if we provide covering fire, he just might knock out that enemy pillbox that is murdering us.

But if we shoot down Obama, we will surely be dooming ourselves. And it’s not his fault we are in this position. He’s just the one willing to stick his head out (and I guarantee you there’s a lot of Republicans and others willing shoot it off).
Friday, 23 January, 2009
Anonymous Angry Citizen said…

Veering off-topic: Bloomberg is reporting today that the Yen has nearly approached a 13-year high against the dollar.

This news is nerve-wracking. Check out Part1 and Part2 of these videos on the Carry Trade and you’ll see why.

Who is going to bail out THAT mess?!
Friday, 23 January, 2009
Blogger Emmanuel said…

All this bickering and complaining is what the government wants us to do so we can take our eyes and ears off of the real issues. Poverity and disease are the real issues. All this money we use to help to make the richer, richer and poor even more poor is the cause of greed. The monetary system is no good and its old concept that our founding fathers came up with. We should use all the resourses in our wonderful world we live in and progress, not continue to kill each other. We are all human and all barriers should be torn down in order to progress. Any country dividd is no counrty at all!

www.thezeitgeistmovement.com
Friday, 23 January, 2009
Blogger Jordan said…

Linda
GOOD LUCK, even i think you do not need luck just even handed judges.
Sorry for being away for a while, I was replaced by obvious bunch of angry citizens who are missdirected by all those false public representatives who represent only themselves. There is a long way for newcommers to learn what we learned on this blog, but welcome to all. I wish that all of you will enjoy the growth of this blog to represent more then just a blog, to be a voice to president.
John. Linda, Lauren, Frank, UTR and ini please welcome new blogers and give them time to learn what we were able to learn in our discussions. Lets become bigger and stronger in our voice with numbers not only with our witt and knowledge. Lets open to and welcome new group of bloggers. Do not be affraid of being pushed out by loud antagonistic voices but keep your witt and calm as we used to.
Thanks
Friday, 23 January, 2009
Anonymous Anonymous said…

Jordan

“I was replaced by obvious bunch of angry citizens who are missdirected by all those false public representatives who represent only themselves. There is a long way for newcommers to learn what we learned on this blog, but welcome to all. I wish that all of you will enjoy the growth of this blog to repsent more then just a blog, to be a voice to president.”

Thank god and praise Ali our messiah Jordan has return. All hail King Jordan.
Friday, 23 January, 2009
Blogger Shorebreak said…

Why all of the smoke and mirrors? Just take the damn money from the voters, buy up the banks and the assets, and turn the economy into a state controlled entity where all economics is under the thumb of a large centralized buearacracy.

That’s ultimately what we’re talking about with all of the finessing and wordplay. If you people really have the gonads to do it, just do it and quit trying to BS your way into it. Now that corporate interests have 100% control of the Administrative branch of our government, give the administrative branch 100% control of the economy. It’s the perfect monopoly.

To me, all of the dancing around the topic is indicative that you people who are manipulating our government and our economi futures are cowards. It’s painfully obvious that your goal is nationalization. Your tapdancing makes it painfully clear that you know how liberty-loving Americans will respond when you try to take our economic freedom away. So you do it with lies and manipulations.

Take my advice: Grow a pair. We won’t respond any differently, but at least we’ll respect the fact that you were honest, rather than being creepy, sneaky, and traitorous bastards.
Friday, 23 January, 2009
Anonymous Frank Thomas said…

Linda,
Good to hear your critical voice again! Hope I haven’t contributed to any penury with my advice about ING Bank? If you didn’t or did buy, you should continue to do so as the current price is pure panic share price dynamics, although some pessimistic analyists are saying that the Dow could drop to 7,000. ING’s large Real Estate division is causing pressure on the stock. In one or two years time, the share price will recover dramatically. Am trying to protect with utmost integrity that possible reunion one day with you in NY City. Best wishes,
Frank Thomas
Friday, 23 January, 2009
Anonymous Anonymous said…

Shorebreak,

See a psychiatrist as this blog’s participants are trying in the main to speak with substance, impartiality, imagination, and with minds clear of the ideological cliches and hatred junk reasoning you mouth … ultra-right hogwash that has been robbing all middle-class Americans of real economic freedom the last 29 years! A true coward is one who cannot admit obvious mistakes and continues to mouth wacky, sterotyped dogmas such as your claim of belonging to select group of fellow country-men that has a monopoly on being
‘liberty loving Americans.’ What crap you speak! Do us all a favor and leave this blog. Are you sure your name isn’t ‘Shortbrain’?
Friday, 23 January, 2009
Anonymous Anonymous said…

Robert Reich is just an extension of the socialist agenda to control all Americans. His recent comments about giving work to unskilled workers and non cacausians doesn’t do anything to stimulate the economy. Just where are these workers going to spend their mediocre pay other than big wheels on their cars and wine. The socialist goverment is quickly on it’s way to destruction of American Capitalism like no one has ever seen. Reich is just a liberal puppet in the scheme of things
Friday, 23 January, 2009
Anonymous silverfox said…

Shorebreak:

Your bluster does a very poor job of covering your ignorance. What you fail to appreciate, along with probably most everything else in the world, is that if our economy continues to tank as it appears to be doing now, and some 15 or 20 million working class folks find themselves losing jobs, homes, savings and the ability to support their families, they are not going to care a rat’s butt what characters like you think. They will vote the devil himself into office if it appears he can give them jobs and a meal on the table.

Your idealism is appropriate for bar room drunks and college freshmen, but in the real world when things get nasty people like you will be expendable.
Friday, 23 January, 2009
Anonymous BMW said…

Dr. Reich’s

Given all the debate over what should be done and Japan’s 20 year battle with recession and real-estate bust It’s not clear what policies will or will not work. But it’s always clear the more people employeed the more people spend and the more taxes government can collect. So, I’d say put the greatest effort into job creation.

Plenty of effort has already been put into financial institutions. T.Sec. Paulson’s “Big Bazooka in the Pocket” theory (TARP) didn’t keep the market from falling nor banks from lossing money. The FDIC Insurance Increase was the one most valuable accomplishment preventing a run on banks. But even the right-wing Cato institute saying let the bad banks fail -plenty of good banks left.

John,

John said “What I propose is that the US government follow Norway’s example and establish a Sovereign Wealth Fund (SWF) and enlarge social security to a full size pension system.”

Sign me up -I can buy into this type of prudent fiscally responsible SocialCapitalism. Unfortunately for us our government shut down a key source of possible funding for our SWF in the 70’s. And Norway is bessed with less than 5 million people -total. Doesn’t look like their are many illegal aliens wanting work in the cold Norway winters.

Norway is an excellent example of a country with high enviormental standards that expanded offshore drilling just as America closed it down. Norway became a leader in deepwater offshore drilling in the 80’s. Norways export revenues from oil and gas have risen to 45% of total exports and constitute more than 20% of their GDP.

I’ll bet many on this blog would like their two types of personal tax system 1) income tax and 2) wealth tax are direct taxes Income tax is paid directly as a percentage of income, whereas wealth tax is a tax on things you own. Not sure if its a flat tax or progressive rates. But based upon less than 5 million population they must have no EIC tax incentive for the number of children unwed teen mothers have.
And I wounder if they make their King pay the annual Wealth Tax or if he gets a special exclusion.

John, I’m with you on the fiscal responsible prudent Vikings Soc. Sec. System. Unfortunatly we are missing the oil exports and small 5million population.
Saturday, 24 January, 2009
Blogger Patrick said…

Why do you hate white men?
Saturday, 24 January, 2009
Anonymous Anonymous said…

Granted this is ancient history by now but I have to ask…

If Mr. Reich was Secretary of Labor under Clinton and at the same time someone who understands economics, could it not be said that a big part of the problem that the banking industry is currently facing is due, in some part at the minimum, to the Community Reinvestment Act?

I’m nowhere near an economist. As I’ve stated elsewhere on this blog, I work at a pawn shop. Within five minutes of working with a customer, we can usually tell who is going to come and pay us back and who is going to default. If the government had stepped in and told us we had to take their pawn, even though we know the risk of being stuck, we’d be belly up by now too.
Saturday, 24 January, 2009
Anonymous Anonymous said…

Lauren,

Thank you for at least admitting that we are are indeed screwed if Obama doesn’t know what he’s doing. It’s unfortunate that we have allowed our government to become so big and powerful that we are now in a position such dependence on one person.

Carry on with your usual partisan finger-pointing…
Sunday, 25 January, 2009
Blogger Gardener of the mind said…

Prof. Reich, thanks for giving the clearest account I ever saw of how reverse auctions work. Could you specify what change in the bankruptcy law you refer to? this is a very important public policy matter. Thanks.
Monday, 26 January, 2009
Anonymous Anonymous said…

Why isn’t there more of a focus on the demand side versus the supply side of the banking situation. I would be a big proponent of a government guaranty system with companies paying 2-3% to get insurance on bonds based on underlying valuations to take an illiquid bond and make it marketable. You build a reserver for bad debt, you still have the underlying securities and trading in these bonds can continue.

I also am curious on the local bank issues in different parts of the country. What is driving the chill at this level? They don’t have a bunch of securities that cloud their performance. I would be interested in getting primary regulators to get in front of congressional hearings to see what they looking at and if to see if their actions are helpful or harmful given the unique situation in the marketplace. I felt this from the beginning when there were big write-downs prior to corresponding performance on these bonds and now it seems to have migrated to smaller and smaller institutions. Just an observation and I don’t hear a lot of comments this.
Monday, 17 February, 2009

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