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Dec 6th, 2017
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Here is a counterproposal by Senator Sanders of Vermont: Bush Bailout. Who Pays?Specifically, to pay for the bailout, which is estimated to cost up to $1 trillion, the government should:
a) Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would raise more than $300 billion in revenue;
b) Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and
c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies’ stock goes up.
(2) There must be a major economic recovery package which puts Americans to work at decent wages. Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy. Further, we must protect working families from the difficult times they are experiencing. We must ensure that every child has health insurance and that every American has access to quality health and dental care, that families can send their children to college, that seniors are not allowed to go without heat in the winter, and that no American goes to bed hungry.
(3) Legislation must be passed which undoes the damage caused by excessive de-regulation. That means reinstalling the regulatory firewalls that were ripped down in 1999. That means re-regulating the energy markets so that we never again see the rampant speculation in oil that helped drive up prices. That means regulating or abolishing various financial instruments that have created the enormous shadow banking system that is at the heart of the collapse of AIG and the financial services meltdown.
(4) We must end the danger posed by companies that are “too big too fail,” that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. Here is Senator Sanders speaking from the Senate floor: http://www.sanders.senate.gov/news/record.cfm?id=303204______________
Last edited by numan; 09/21/08 10:35 PM.
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Pooh-Bah
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From the linked article (man that is a long one): Historians have identified the causes of the 1930 Depression as:
1) Too much savings in relation to consumer power due to income disparity;
2) Over capacity due to excessive investment from surplus capital;
3) Over stimulation through the growth of debt through new intricate system of inter linked debt obligations;
4) Legalized price fixing through mergers and acquisitions; big corporations maintain price and cut production instead of lowering prices, resulting in massive unemployment;
5) Economic growth too heavily dependent of big ticket durable goods that cannot sell in a depression thus slowing recovery;
6) Exhaustion of public confidence and optimism; and
7) The collapse of international trade (Smoot-Hawley Tariff Act).
8) Irresponsible foreign lending (the US was a creditor nation with a credit balance about twice the size of the total foreign investment in the US.)
All of these causes are still present today at a larger scale and faster reaction time, with the exception that the US is now the world’s biggest debtor nation. Actually, Phil, the above is highly questionable. There were many causes to the depression. The above list contains some of the issues, but certainly not all the issues. And not even all of the most important issues. Even taking the details of the list... it is not true that today's situation maps well onto that list. 1) Too much savings in relation to consumer power due to income disparity; The American situation is largely the result of unsustainable excess consumption that (among other factors) drove excess production. If anything, our problems are driven by a lack of savings rather than excess savings. 2) Over capacity due to excessive investment from surplus capital; Over capacity was largely limited to real estate. And that was driven by excess credit, and not surplus capital. 3) Over stimulation through the growth of debt through new intricate system of inter linked debt obligations; This is true of our current situation but not necessarily something that historians have identified as a prime cause of the depression. 4) Legalized price fixing through mergers and acquisitions; big corporations maintain price and cut production instead of lowering prices, resulting in massive unemployment; It is not clear to me exactly how this maps on to our current situation... Massive unemployment?  Legalized price fixing through mergers and acquisitions big corporations maintain price and cut production instead of lowering prices, ..... Is someone seriously telling me that this is a parallel that is driving today's problems? 5) Economic growth too heavily dependent of big ticket durable goods that cannot sell in a depression thus slowing recovery; Again this is typical of today, but not something that historians would agree caused the depression. 6) Exhaustion of public confidence and optimism; and  Now there is a truely significant cause of the depression... and today's problems as well....  7) The collapse of international trade (Smoot-Hawley Tariff Act). Please provide a link that this has happened. Last time I checked, walmart and every other store was full of foreign goods. 8) Irresponsible foreign lending Surely the proximate cause of our current situation si irresponsible domestic lending--- what am I missing--- oh yes, I am missing the parallel. .............. You know, it is sort of interesting that such apparently brilliant analysis could turn out to be rather flimsy when you really look more closely. The main parallels I see with the depression are that It is a very serious situation that imperils both the domestic and world economy It involves lax regulation of wall street and the shenanigans that most often emerge when the folks on wall street are left to their own devices.
Last edited by Ardy; 09/21/08 10:31 PM.
"It's not a lie if you believe it." -- George Costanza
The whole problem with the world is that fools and fanatics are always so certain of themselves. --Bertrand Russel
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Administrator Bionic Scribe
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Administrator Bionic Scribe
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Points well made, Ardy.
I like Sen. Sanders proposals.
Life is a banquet -- and most poor suckers are starving to death -- Auntie Mame
You are born naked and everything else is drag - RuPaul
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Pooh-Bah
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Pooh-Bah
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I like Sen. Sanders proposals. Yes, they are mostly good ideas I would not go along with ) We must end the danger posed by companies that are “too big too fail,” that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. I am willing to allow big companies to exist. But if a company is "too big to fail".... then the government has a responsibility to see that the company does not fail. And if the government has that responsibility, then the government also has the obligation to provide sufficient regulatory oversight as to pre-empt the possibly of failure. Moreover, to the extent that the government provides insurance against failure, the government should also participate in the profits of the enterprise as well as regulation of executive payout schemes so that there is no incentive for those executives to take excessive risks.
"It's not a lie if you believe it." -- George Costanza
The whole problem with the world is that fools and fanatics are always so certain of themselves. --Bertrand Russel
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Here is commentary by RIA Novosti in Russia: World Economy: Philosophy of ApocalypseExperts are sure the series of bankruptcies will not stop. They also forecast the closing of hundreds and thousands of financial companies.
Former U.S. Federal Reserve chairman Alan Greenspan has called the current crisis in the United States "the most wrenching since the end of the Second World War." Western futurologists of the 1980s created a theory of the postindustrial society - a market alternative to communism. They thought that scientific discoveries and technological breakthroughs would solve a number of economic, environmental and demographic problems as well as adjust most social differences. The key values of the information society were education and science, whereas the main part of its economy was not an industrial company but a university, research center or, using modern language, technology park.
But everything went the wrong way. Banks and stock markets became the heart of the economies of the postindustrial countries, though the utopian capitalists thought it would be a technology park. Financial traders, not scientists, became the main economic agents.
The end of the 20th century saw galloping growth of the financial component in the U.S. economy. It resulted in a great number of credits and the growth of a financial bubble - a system where profit does not depend on real production, but is a result of sophisticated financial transactions.
The industrial ballast, that did not experience the anticipated technological stimulus, was transferred to regions with cheap work force, like Southeast Asia. Having distributed its industrial potential all over the world, America retained control over the cash flows coming into the national budget and became a bottomless market for industrial goods.
There lies the main danger for the U.S. itself, as well as for all the countries whose economies are tied with the American one. The warnings about the possibility of a financial collapse were frequent. However, it was very profitable to make money out of money, thus the funds in the bubble surpassed the real economy. The current financial crisis may result in a loss of control over the periphery economies, as well as a decline of demand in the U.S. that will result in overproduction crises in the countries that supply it and collapse of raw economies. ___________
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Administrator Bionic Scribe
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Administrator Bionic Scribe
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I like Sen. Sanders proposals. Yes, they are mostly good ideas I would not go along with ) We must end the danger posed by companies that are “too big too fail,” that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. It seems to me that "too big to fail" should be a major consideration when companies merge under Anti-Trust law. All of these are conglomerates that are only too big to fail because they dominate the market and/or financial system. I am willing to allow big companies to exist. But if a company is "too big to fail".... then the government has a responsibility to see that the company does not fail. And if the government has that responsibility, then the government also has the obligation to provide sufficient regulatory oversight as to pre-empt the possibly of failure. Moreover, to the extent that the government provides insurance against failure, the government should also participate in the profits of the enterprise as well as regulation of executive payout schemes so that there is no incentive for those executives to take excessive risks.
Life is a banquet -- and most poor suckers are starving to death -- Auntie Mame
You are born naked and everything else is drag - RuPaul
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Joined: Jun 2004
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Administrator Bionic Scribe
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Administrator Bionic Scribe
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Ultimately, what could prove to be the most expensive aspect of the bailout spree is the message the government is sending to firms in which the market has lost confidence. Prudent management, it seems, will be punished, while the status quo - however unhealthy - must be maintained at all costs.
The strong stock-market rally of the past two days aside, intervention that fails to foster a shakeout of weaker firms will only delay the reckoning that must occur before a sustainable economic recovery can take shape.
"We continue to believe that the financial sector is in need of massive consolidation because the sector simply has too much lending capacity left over from the credit bubble," Merrill Lynch investment strategist Rich Bernstein writes Friday. "History shows well that consolidation is the primary driver of post-bubble economies."
Life is a banquet -- and most poor suckers are starving to death -- Auntie Mame
You are born naked and everything else is drag - RuPaul
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old hand
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Ardy said: But that said, the idea to do nothing as a means of economic catharsis is frankly crazy. This was in reference to my comment that we should "do nothing" which was followed by my reference to obeying the law. I dislike word games, and leave that to the politicians. The basic problem with the bailout is that once started, there may be no end. Pushing the end game is a cheap shot, which means that the final solution may be many times today's cost. $700 Billion is a bad guess. With $1.6 Trillion at risk...(already spent plus the $700 bn) this comes to $15,000 per U.S.Family... and that's IF everything goes as Paulson "hopes". Consider this (partial quote): He cites research by Citigroup London analyst Matt King, penetrating the smoke and mirrors in the last accounts of the five big New York investment banks.
This shows that while they had a combined $US1.6 trillion in finance secured by collateral on their balance sheets, the total blew out to $US3.5 trillion by the time off-balance-sheet transactions are included. The off-balance-sheet transactions are mainly collateral they have received in "repo" deals, but then on-lent to someone else (repos, or repurchase agreements, are essentially short-term secured loans).
King explains how this funding disappears from the balance sheet. The investment broker sells a hedge fund $100 million of stock in Company A, providing a margin loan to finance it.
The hedge fund then short sells $100 million of shares in Company B, and uses the proceeds to pay off the margin loan. The investment bank now records no change in cash and no net receivable from the client, so there is nothing on the balance sheet.
The investment bank needs to borrow the second stock so that the hedge fund can deliver on its short sale, so it pledges the first, which it is holding as collateral. The investment bank makes a margin on the transactions, coming and going. So... let me clarify the "do nothing" by amplifying the use of the law to handle the divestment of bad debt from bankrupt corporations. Instead of guaranteeing the bad debt, the government should oversee the disposal and determine the residual value. The ensuing "chaos" will last until the wiser members of the financial community find a way to maximize the value according to the law. I would suggest that the FED should use whatever "Treasury/Taxpayer" dollars that are needed, be used to make whole the innocents who have been harmed. Hedge Funds and Derivatives have been at the fore of Government advice to investors as high risk. As to the resolution of AIG... the proposed "controls" on AIG were stipulated before the bailout was proposed. In effect, the bailout precludes the so called "controls". This is a very intense situation, and, I fear, what we see is just the tip of a very large iceberg. The derivative problem and the CDS's that ballooned between 2003 and 2007 are the unknown quantity. Stereoman remarked on the comment about banks trading the same security three times, through swaps. This actually happens as the identity of the artificial insurances becomes blurred... each time, with the brokers taking commission, and each time adding to the banks/brokers on or off the book assets. Remember the $1.4 quadrillion notional value of the derivative trade. While the industry uses this as a measure of trading volume, it really isn't. I haven't seen any responsible industry leader place an estimate on the actual value. A closer reading of the cited article above will bear this out. This bailout is surely a done deal... with the only pushback coming from politicians who pursue their own interests without understanding the problem in the first place. Am afraid I just don't understand the "keeping people in their homes" argument.
Life is Good!
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Nothing is "too big to fail," including the country. Who pays? Whom do you think pays? And they won't even kiss you afterward.
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old hand
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Let me take a shot at the discussion about the Henry Ck Liu article. Phil picked up on the 10 depression similarities. 1) Too much savings in relation to consumer power due to income disparity;
2) Over capacity due to excessive investment from surplus capital;
3) Over stimulation through the growth of debt through new intricate system of inter linked debt obligations;
4) Legalized price fixing through mergers and acquisitions; big corporations maintain price and cut production instead of lowering prices, resulting in massive unemployment;
5) Economic growth too heavily dependent of big ticket durable goods that cannot sell in a depression thus slowing recovery;
6) Exhaustion of public confidence and optimism; and
7) The collapse of international trade (Smoot-Hawley Tariff Act).
8) Irresponsible foreign lending (the US was a creditor nation with a credit balance about twice the size of the total foreign investment in the US.) I don't wanna drive this into the ground, but I'd like to frame the points in the way that I think Liu intended. Even though I don't know much about economics, I've been reading most of Liu's works as far back as 2001, and I think that some of his statements are being misread. 1) Too much savings in relation to consumer power due to income disparity;
2) Over capacity due to excessive investment from surplus capital In both of these statements... based on knowing Liu's philosophy, he is NOT talking about the Nation, but the income disparity that leaves excess non working and non controlled monies of the very rich to remain underutilized. Henry Liu understands the concentration of wealth in the hands of a very few, and the quantum growth of this wealth, that occurs without risk, without management, and without direction. He is saying that the very rich (perhaps the top 1/2 of one percent, is stashing away money and not cycling it into the economy. This is obviously true, in that the net assets of the world's billionaires grew by 35% last year alone. This was also happening in the late '20's. The second point is a little more difficult to understand. I believe that the comment meant that an excess of capital was going in search of profit without serious management. This probably seems like knit picking, but it's important to the whole situation with today's financial crisis. Just as the leaders of Enron placed themselves above the intent of the law, so have the leaders of the financial institutions pressed and exceeded the letter of the law, to create the phantom wealth that haunts today's economy. While liu pointed to parallels to 1929, I don't believe he intended the 10 points to be the heart of the article.
Life is Good!
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