[Video]:
http://www.pbs.org/moyers/journal/10092009/watch.html
[Transcript]:
http://www.pbs.org/moyers/journal/10092009/transcript1.html
Excerpts:
MICHAEL MOORE: We're here to get the money back for the American People. Do you think it's too harsh to call what has happened here a coup d'état? A financial coup d'état?
MARCY KAPTUR: That's, no. Because I think that's what's happened. Um, a financial coup d'état?
MICHAEL MOORE: Yeah.
MARCY KAPTUR: I could agree with that. I could agree with that. Because the people here really aren't in charge. Wall Street is in charge.
...
MARCY KAPTUR: Let me give you a reality from ground zero in Toledo, Ohio. Our foreclosures have gone up 94 percent. A few months ago, I met with our realtors. And I said, 'What should I know?' They said, 'Well, first of all, you should know the worst companies that are doing this to us.'
I said, 'Well, give me the top one.' They said, 'J.P. Morgan Chase.' I went back to Washington that night. And one of my colleagues said, 'You want to come to dinner?' I said, 'Well, what is it?' He said, 'Well, it's a meeting with Jamie Dimon, the head of J.P. Morgan Chase.' I said, 'Wow, yes. I really do.' So, I go to this meeting in a fancy hotel, fancy dinner, and everyone is complimenting him. I mean, it was just like a love fest.
They finally got to me, and my point to ask a question. I said, 'Well, I don't want to speak out of turn here, Mr. Dimon.' I said, 'But your company is the largest forecloser in my district. And our Realtors just said to me this morning that your people don't return phone calls.' I said, 'We can't do work outs.' And he looked at me, he said, 'Do you know that I talk to your Governor all the time?' He said, 'Our company employs 10,000 people in Ohio.'
And I'm thinking, 'What is that? A threat?' And he said, 'I speak to the Mayor of Columbus.' I said, 'Why don't you come further north?' I said, 'Toledo, Cleveland, where the foreclosures are just skyrocketing.' He said, 'Well, we'll have someone call you.' And he gave me a card. And they never did. For two weeks, we tried to reach them. And finally, I was on a national news show. And I told this story. They called within ten minutes. And they said, 'Oh, we'll work with you. We'll try to do some workouts in your area.'
We planned the first one after working with them for weeks and weeks and weeks. Their people never showed up. And it was a Friday. Our people had taken off work. They'd driven from all these locations to come. We kept calling J.P. Morgan Chase saying, 'Where's your person? Where's your person?' And they finally sent somebody down from Detroit by 3:00 in the afternoon. But out people had been waiting all morning and a lot of people that's how they treat our people.
...
MARCY KAPTUR: Think about what these banks have done. They have taken very imprudent behavior, irresponsible. They have really gambled, all right? And in many cases, been involved in fraudulent activity. And then when they lost, they shifted their losses to the taxpayer. So, if you look at an instrumentality like the F.H.A., the Federal Housing Administration. They used to insure one of every 50 mortgages in the country. Now it's one out of four.
Because what they're doing is they're taking their mistakes and they're dumping them on the taxpayer. So, you and I, and the long term debt of our country and our children and grandchildren. It's all at risk because of their behavior. We aren't reigning them in. The laws of Congress passed last year in terms of housing, were hollow. Were hollow.
Foreclosures in my area have gone up 94 percent. And we know the basic rules of economics. Housing leads us to recovery. Housing was the precipitating factor in this economic downturn. Unless you dealing with the housing sector, you aren't going to have growth in this
...
MARCY KAPTUR: Congress has really shut down. I'm disappointed in both chambers, because wouldn't you think, with the largest financial crisis in American history, in the largest transfer of wealth from the American people to the biggest banks in this country, that every committee of Congress would be involved in hearings, that this would be on the news, that people would be engaged in this. What we're seeing is-- tangential hearings on very arcane aspects of financial reform. For example, now we're going to have a consumer protection agency to help the poor consumer, who doesn't understand all of this, rather than hearings on the fundamental new architecture of reforming the American financial system, so that we have prudent lending, capital accumulation at the local level again; that we encourage savings and limit debt by the American people. Our country needs this. Those aren't the hearings that are happening.
If you want a marker at the Federal level of how serious we are to get justice out of this financial crisis, look at the F.B.I. Look at the number of people who are really prosecuting and investigation mortgage fraud and securities fraud. It is so small
I've been one of the Members of Congress trying to increase by ten times the agents to get at the justice issues for the American people. For companies that have been hurt. For shareholders that have been hurt. Our government isn't doing it. That it's very easy to look at the budget of the F.B.I. in mortgage fraud and securities fraud and say, 'How serious is the government?' And until those numbers increase, we will not begin to get justice.
...
SIMON JOHNSON: Well, the final end of the last vestige of Glass-Steagall came in just now in August. Unnoted, but I think very significant. Goldman Sachs, you remember, was an investment bank, a securities company. Not allowed to be a commercial bank; didn't have access to the Federal Reserve and this ability to tap into the money supply of the country. Until September of last year, when the crisis broke, they were allowed a very short notice to convert to being a bank holding company. This was what saved Goldman Sachs in my opinion. Also Morgan Stanley. Which meant they could stay in the securities business. And they could also have access to the Federal Reserve. In August, just now, they converted to what's called a financial holding company. That may seem like a technical detail to you, but this means they can borrow from the Fed, at essentially zero interest rate now.
They can invest in, I mean, as far as we can see, from the outside, looking at their portfolio, anything they want, including, you're going to love this one, they just bought some stock, big chunk of stock in a Chinese automotive company. Okay? So, that's your money, that's your Federal Reserve, financing a highly speculative investment. And if it goes well, they get the upside. And if it goes badly, that's another one for us.
...
BILL MOYERS: Does President Obama get it?
MARCY KAPTUR: I don't think President Obama has the right people around him. The poor man inherited a total mess, globally and domestically. I think some of the people that he trusted haven't delivered. I urge him to get new generals. It's time.
SIMON JOHNSON: Louis the Fourteenth of France, a very powerful monarch, was famous for having many bad things, you know, happen under his rule. And people would always say, 'If only Louis the Fourteenth knew. I'm sure he doesn't know. If we could just tell him, he'd sort it out.' You know. I'm skeptical.
------
Exactly. As always with Moyers - dead on target. And Kaptur was a revelation! I don't know much about her, but to me she comes across as intelligent and full of passion for her work as a legislator. Johnson always worries me a little because of his IMF background, but he pulls no punches here.
And I'm skeptical also. I think Obama gets "IT." He just has a different agenda than you and I. He's a corporatist operative - politicians are all of a kind - and we are the disenfranchised.
I am a radical liberal.
We are in a post-constitutional era. By which I simply mean that we don't really have a rule book any longer. We are in the era of government by "winging it."
I am a champion of a hybrid economy because I think capitalism as we imagine it is utterly broken - and even if it wasn't broken it would be wholly inadequate to the task of being the economy for the future.
I champion socialized safety nets for the entire population. After all, it's exactly what the corporations and banks got - individuals certainly deserve at least what legal entities receive and even more.
I disdain the power of the corporations of the world. We have to knock them down to a manageable size. Corporations are the biggest problem of the post-constitutional era because the kind of capital power they represent was undreamed of at the time of the writing of the Constitution. Corporations are not only not individuals, the only true purpose of any corporation is to serve the public good as a servant of the people.
So many things are completely upside down these days that I'd have to start at a very elementary level to fully air my thoughts on any of these ideas, but that's the quick and short strokes of it.
It is good to talk of peace, but keep your sword to hand. It's a bumpy road ahead, folks!
Showing posts with label Simon Johnson. Show all posts
Showing posts with label Simon Johnson. Show all posts
Monday, October 12, 2009
Monday, April 27, 2009
Simon Johnson: "...They have won"
Johnson & Perino on Bill Moyers Journal
http://www.pbs.org/moyers/journal/04242009/watch.html
http://www.pbs.org/moyers/journal/04242009/watch2.html
http://www.pbs.org/moyers/journal/04242009/transcript1.html
SIMON JOHNSON: I would add on a proactive, going forward basis, ask the following question: Do we really need a banking industry that takes these kinds of risks? Professor Joe Stiglitz of Columbia, for example--
BILL MOYERS: Nobel Laureate.
SIMON JOHNSON: Nobel Laureate is proposing- proposed to the Joint Economic Committee in his testimony on Tuesday think about splitting financial services into two parts: a public utility model, which is where you put your money and where-- that's what handles payments. That doesn't take any risks. It runs like a utility. It's low risk, low return from an investor point of view. It's boring.
In fact Paul Krugman has a great line on this. Make banking boring again. And they're talking about that part of banking. But, at the same time, both Professor Stiglitz and Professor Krugman would emphasize, and I would absolutely want to second, that you need some risk takers. And you need some people to provide money to risk takers. And the good news is we have a very strong entrepreneurial sector in this economy. We have venture capital in this economy. And they've got a great attitude and maybe sometimes things go wrong. We have bubbles there. But, the dot com bubble and the bursting of that didn't do anything like the kind of damage that this debt finance bubble has done. Venture capital is about equity. Wall Street has been much more about debt.
And we need to be able to-- we need those entrepreneurs also to be able to go public. So, we need ability to raise capital, bring in investors, go public and sell your shares to people. That doesn't have to be part of the banking system. Boring banks and risk taking with the risk full disclosed. And maybe we have to work, you know, and that was the core idea as I understand it of the 1930's. A lot more disclosure around what are you selling exactly. And what are the problems-- potential problems and what are the conflicts of interest at stake.
More disclosure I would guess on the securities side. That's where you take the risk. We want the risks, this is an economy based and society based on risk taking. But, our banks don't have to be risk takers. In fact, it turns out, they don't understand the first thing about risk.
...
SIMON JOHNSON: I think there's an arrogance of power. They think they won, Bill.
BILL MOYERS: Even now--
SIMON JOHNSON: And actually they're pretty confident they won. And I think probably at this point, they have won. They got the bailout. They got the money they needed to stay in business. They got a vast line of credit from the taxpayer, both the top money, which gets a lot of attention. But, also the guarantees they have on their debts from the FDIC, which really helps them borrow more cheaply. And the money that they get that they can borrow from the Federal Reserve when they need it, all right?
So, they got everything they wanted. They came-- a couple of players got knocked out. The guys who remain are more powerful, okay? And their position is, "Look, if you want a recovery, if you want get your economy back, you've got to be nice to us." And I'm afraid that the government has blinked and then--
BILL MOYERS: So, they're not hearing any of this clamor? This rage? They're not hearing this--
MICHAEL PERINO: I think they are hearing it. I don't think it's reached the level that it reached, anywhere the level it reached in that period that we've been talking about in the 1930's. So, maybe it isn't quite strong enough yet.
...
SIMON JOHNSON: Another thing we've learned about Wall Street and the way it works is they didn't understand that their own risks. David Brooks wrote a column in the New York Times where he criticized me. And he said that, you know, thinking of these people as all-powerful oligarchs is wrong. The issue is not their power, the issue was just they were stupid, right? They didn't understand what they were doing to ruin their own business.
Now, that's kind of an interesting defense to use. But I think if you apply it to this and you take the point, take with Michael's earlier point about how Wall Street has become more complex, right? What if it's become too complex for the Wall Street titans themselves to control even within their own organizations? Maybe these banks, seriously, became too big to manage and that's why they failed.
...
MICHAEL PERINO: You can't help but hear the echoes from back then, now. It's certainly the case. I want to go back to a point you made before and Simon's point about criminal enforcement.
There's no question that when we find criminal wrongdoing we need to vigorously prosecute it. There's absolutely no doubt about that. Criminal enforcement gets people's attention. If you want to create deterrents for that kind of activity, then that's the way to do it.
On the other hand, we need to recognize that not everything that-- not every behavior that was inappropriate, that was excessive risk taking, that was imprudent amounts to criminal conduct. And we have to recognize, have some humility for, the role that those kinds of criminal statutes can play in preventing these kinds of excesses.
SIMON JOHNSON: I think that's exactly right. And what I would say, Bill, is having a commission, having independent investigation, really drilling down is going to show you perhaps some things that were criminal. I'm not saying very many. But a lot of things that, you know, when you shine this light on them, a very, very bright light, they look inappropriate, unethical, or at least things we're not comfortable with going forward.
And then there's another set of issues which may be totally ethical. Perhaps you don't have a problem with them from a legal, moral point of view. But as an economist I'm going to come in and say, you know, this creates danger for the system. This is where the origin of "you're too big to fail" is.
And you got to remember the dynamics. Maybe we'll be-- maybe we can, you know, rejigger things a little bit so they'll be okay, two or three years, we'll be comfortable. But remember where this goes. Remember Mr. Hoenig's point. Anything that's too big to fail is going to lead to oligarchs. Right? Maybe they're not oligarchs right away. But they're going to become too powerful because a big difference from the '20s is what happened in the '30s.
We create an FDIC. There is a government guarantee implicitly available to many aspects of banking. And we've actually extended that massively in the past two years under severe duress. So that makes the "too big to fail" and "too connected with government to fail" even more of a problem going forward.
...
MICHAEL PERINO: We have to be humble about what law can and cannot accomplish. There is no magic bullet out there. We could have the most intensive hearings in the world find out the precise causes of all of the problems, enact whatever reforms that we see are the ones to enact, it's not going to prevent the next bubble. You can't legislate against those kinds of-- Keynes called it the animals spirits in the marketplace. But you can lessen them.
------
This segment is really great on shedding light on the historical context of our current problems. Solutions from the past can point to future solutions. Well worth watching...
http://www.pbs.org/moyers/journal/04242009/watch.html
http://www.pbs.org/moyers/journal/04242009/watch2.html
http://www.pbs.org/moyers/journal/04242009/transcript1.html
SIMON JOHNSON: I would add on a proactive, going forward basis, ask the following question: Do we really need a banking industry that takes these kinds of risks? Professor Joe Stiglitz of Columbia, for example--
BILL MOYERS: Nobel Laureate.
SIMON JOHNSON: Nobel Laureate is proposing- proposed to the Joint Economic Committee in his testimony on Tuesday think about splitting financial services into two parts: a public utility model, which is where you put your money and where-- that's what handles payments. That doesn't take any risks. It runs like a utility. It's low risk, low return from an investor point of view. It's boring.
In fact Paul Krugman has a great line on this. Make banking boring again. And they're talking about that part of banking. But, at the same time, both Professor Stiglitz and Professor Krugman would emphasize, and I would absolutely want to second, that you need some risk takers. And you need some people to provide money to risk takers. And the good news is we have a very strong entrepreneurial sector in this economy. We have venture capital in this economy. And they've got a great attitude and maybe sometimes things go wrong. We have bubbles there. But, the dot com bubble and the bursting of that didn't do anything like the kind of damage that this debt finance bubble has done. Venture capital is about equity. Wall Street has been much more about debt.
And we need to be able to-- we need those entrepreneurs also to be able to go public. So, we need ability to raise capital, bring in investors, go public and sell your shares to people. That doesn't have to be part of the banking system. Boring banks and risk taking with the risk full disclosed. And maybe we have to work, you know, and that was the core idea as I understand it of the 1930's. A lot more disclosure around what are you selling exactly. And what are the problems-- potential problems and what are the conflicts of interest at stake.
More disclosure I would guess on the securities side. That's where you take the risk. We want the risks, this is an economy based and society based on risk taking. But, our banks don't have to be risk takers. In fact, it turns out, they don't understand the first thing about risk.
...
SIMON JOHNSON: I think there's an arrogance of power. They think they won, Bill.
BILL MOYERS: Even now--
SIMON JOHNSON: And actually they're pretty confident they won. And I think probably at this point, they have won. They got the bailout. They got the money they needed to stay in business. They got a vast line of credit from the taxpayer, both the top money, which gets a lot of attention. But, also the guarantees they have on their debts from the FDIC, which really helps them borrow more cheaply. And the money that they get that they can borrow from the Federal Reserve when they need it, all right?
So, they got everything they wanted. They came-- a couple of players got knocked out. The guys who remain are more powerful, okay? And their position is, "Look, if you want a recovery, if you want get your economy back, you've got to be nice to us." And I'm afraid that the government has blinked and then--
BILL MOYERS: So, they're not hearing any of this clamor? This rage? They're not hearing this--
MICHAEL PERINO: I think they are hearing it. I don't think it's reached the level that it reached, anywhere the level it reached in that period that we've been talking about in the 1930's. So, maybe it isn't quite strong enough yet.
...
SIMON JOHNSON: Another thing we've learned about Wall Street and the way it works is they didn't understand that their own risks. David Brooks wrote a column in the New York Times where he criticized me. And he said that, you know, thinking of these people as all-powerful oligarchs is wrong. The issue is not their power, the issue was just they were stupid, right? They didn't understand what they were doing to ruin their own business.
Now, that's kind of an interesting defense to use. But I think if you apply it to this and you take the point, take with Michael's earlier point about how Wall Street has become more complex, right? What if it's become too complex for the Wall Street titans themselves to control even within their own organizations? Maybe these banks, seriously, became too big to manage and that's why they failed.
...
MICHAEL PERINO: You can't help but hear the echoes from back then, now. It's certainly the case. I want to go back to a point you made before and Simon's point about criminal enforcement.
There's no question that when we find criminal wrongdoing we need to vigorously prosecute it. There's absolutely no doubt about that. Criminal enforcement gets people's attention. If you want to create deterrents for that kind of activity, then that's the way to do it.
On the other hand, we need to recognize that not everything that-- not every behavior that was inappropriate, that was excessive risk taking, that was imprudent amounts to criminal conduct. And we have to recognize, have some humility for, the role that those kinds of criminal statutes can play in preventing these kinds of excesses.
SIMON JOHNSON: I think that's exactly right. And what I would say, Bill, is having a commission, having independent investigation, really drilling down is going to show you perhaps some things that were criminal. I'm not saying very many. But a lot of things that, you know, when you shine this light on them, a very, very bright light, they look inappropriate, unethical, or at least things we're not comfortable with going forward.
And then there's another set of issues which may be totally ethical. Perhaps you don't have a problem with them from a legal, moral point of view. But as an economist I'm going to come in and say, you know, this creates danger for the system. This is where the origin of "you're too big to fail" is.
And you got to remember the dynamics. Maybe we'll be-- maybe we can, you know, rejigger things a little bit so they'll be okay, two or three years, we'll be comfortable. But remember where this goes. Remember Mr. Hoenig's point. Anything that's too big to fail is going to lead to oligarchs. Right? Maybe they're not oligarchs right away. But they're going to become too powerful because a big difference from the '20s is what happened in the '30s.
We create an FDIC. There is a government guarantee implicitly available to many aspects of banking. And we've actually extended that massively in the past two years under severe duress. So that makes the "too big to fail" and "too connected with government to fail" even more of a problem going forward.
...
MICHAEL PERINO: We have to be humble about what law can and cannot accomplish. There is no magic bullet out there. We could have the most intensive hearings in the world find out the precise causes of all of the problems, enact whatever reforms that we see are the ones to enact, it's not going to prevent the next bubble. You can't legislate against those kinds of-- Keynes called it the animals spirits in the marketplace. But you can lessen them.
------
This segment is really great on shedding light on the historical context of our current problems. Solutions from the past can point to future solutions. Well worth watching...
Saturday, February 14, 2009
Jump You Fuckers! Part Two
Simon Johnson on Bill Moyers Journal
http://www.pbs.org/moyers/journal/02132009/watch.html
BILL MOYERS: Are you saying that the banking industry trumps the president, the Congress and the American government when it comes to this issue so crucial to the survival of American democracy?
SIMON JOHNSON: I don't know. I hope they don't trump it. But the signs that I see this week, the body language, the words, the op-eds, the testimony, the way they're treated by certain Congressional committees, it makes me feel very worried.
...
BILL MOYERS: ...I mean, when I watched the eight CEOs testify before Congress at the House Financial Services Committee earlier this week, I had just finished reading a report that almost every member of that Committee had received contributions from those banks last year. I mean in a way that's like paying the cop on the beat not to arrest you, right?
...
SIMON JOHNSON: I have no problem with poachers turning gamekeeper, right? So if you know where the bodies are buried maybe you can help us sort out the problem...
...
SIMON JOHNSON: I have no idea. Of course, the administration, the new administration, has a lot of rules about lobbying. And they have rules that basically say, I think, as understood the rules, when they were first presented, I was very impressed. They basically said, "We're not going to hire lobbyists into the administration. There has to be some sort of cooling off period."
BILL MOYERS: And the next day Obama exempted a number of people from that very rule that he had just proclaimed.
SIMON JOHNSON: Yes. It's a problem. It's a huge problem.
BILL MOYERS: So here's the trillion dollar question that I take from your blog, that I read at the beginning, quote, "Can this person," your new economic strategist, in this case Geithner, "really break with the vested elite that got you into this much trouble?" Have you seen any evidence this week that he's going to be tough with these guys?
SIMON JOHNSON: I'm trying to be positive. I'm trying to be supportive. I like the administration. I voted for the president. The answer to your question is, no, I haven't seen anything. But you know, perhaps next week I will. But right now, as we speak, I have a bad feeling in my stomach.
My intuition, from crises, from situations that have improved, the situations that got worse, my intuition is that this is going to get a lot worse. It's going to cost us a lot more money. And we are going down a long, dark, blind alley.
...
SIMON JOHNSON: That's where you go and you check the bank's books, and you say, okay, not only do we use market prices, not pretend prices, not what you wished things were worth, what they're really worth, okay, in the market today. We use that to value your loans and the securities that you have, your assets, right?
And we also assess what will happen to the value of the things you own if there's a severe recession. So that's the idea, it's a stress test, like when you go to see the doctor, they put you on a treadmill, and make you run to see how your heart is going to behave under stress.
So you're looking at how the bank's balance sheets will look under stress. And then you say to them, "This is our assessment of the amount of capital you need to cover your losses, and to stay in business, and be able to make loans, through what appears to be a severe recession."
And, as the president said, we may lose a decade. So we've got to be very hard headed, and all the officials forecasters are still too optimistic on that. This is the amount of capital you need. Now you have a month, or two, to raise this amount of capital privately.
And when this was done in Sweden, by the way, in the early 1990s, they did it to three big banks. One of the three was able to go to its shareholders, raise a lot more capital, and stay in business as a private bank, same shareholders. That's an option. Totally fine. However, the ones that can't raise the capital are in violation of the terms of their banking license, if you like.
We have no problem in this country shutting down small banks. In fact, the FDIC is world class at shutting down and managing the handover of deposits, for example, from small banks. They managed IndyMac, the closure of IndyMac, beautifully. People didn't lose touch with their money for even a moment. But they can't do it to big banks, because they don't have the political power. Nobody has the political will to do it.
So you need to take an FDIC-type process. You scale it up. You say, "You haven't raised the capital privately. The government is taking over your bank. You guys are out of business. Your bonuses are wiped out. Your golden parachutes are gone." Okay? Because the bank has failed.
This is a government-supervised bankruptcy process. It's called, in the terminology of the business, it's called an intervention. The bank is intervened. You don't go into Chapter 11 because in that's too messy. Too complicated. There's an intervention, you lose the right to operate as a bank. The FDIC takes you over. I think we agree, everyone agrees, we don't want the government to run banks in this country.
------
Here's what I want to be understood in the most crystal clear way that is possible to imagine: we know exactly what to do and we must do it.
I've been blathering on about the solution for over two months privately and I even blogged about it here:
http://thebloodofpatriotsandtyrants.blogspot.com/2008/12/what-should-have-happened.html
There is no fucking mystery in what we need to do. None. Zero. Anyone that tries to claim that we don't know what to do is completely and hopelessly full of shit. Got that?
Most reasonable economists agree that we need to do something like the Swedish solution. Krugman supports it. DeLong supports it. The list is quite expansive really. Those people are not idiots despite what people may say about their political leanings. And despite all the empty rhetoric about how "left-leaning" these economists may be let's be clear about what they want to do: they want to save capitalism and the status quo in this country as you know it. For this they are branded heretics, leftists, and even socialists.
The extreme right - completely blinkered and as spent as a used condom - wants more deregulation and tax cuts to boot. The market will correct this problem. I really can't address that kind of thinking because it is too cruel and asinine on its face. Thousands will die while these morons figure out that they are dead fucking wrong.
Personally, I am extremely disappointed in Obama already. It may be that he is in the midst of the ultimate clever economic brinksmanship against the GOP...maybe...we can hope. Hope is cheap. Hope is usually in vain and achieves nothing. Or it may simply turn out that despite all of that uplifting campaign rhetoric Obama is a mere stooge for the elites that control him.
We are in deep shit. Not because the outlook is so bad economically, but because there is no political will or ability to do what must be done.
We are in the grip of the lootocracy.
http://www.pbs.org/moyers/journal/02132009/watch.html
BILL MOYERS: Are you saying that the banking industry trumps the president, the Congress and the American government when it comes to this issue so crucial to the survival of American democracy?
SIMON JOHNSON: I don't know. I hope they don't trump it. But the signs that I see this week, the body language, the words, the op-eds, the testimony, the way they're treated by certain Congressional committees, it makes me feel very worried.
...
BILL MOYERS: ...I mean, when I watched the eight CEOs testify before Congress at the House Financial Services Committee earlier this week, I had just finished reading a report that almost every member of that Committee had received contributions from those banks last year. I mean in a way that's like paying the cop on the beat not to arrest you, right?
...
SIMON JOHNSON: I have no problem with poachers turning gamekeeper, right? So if you know where the bodies are buried maybe you can help us sort out the problem...
...
SIMON JOHNSON: I have no idea. Of course, the administration, the new administration, has a lot of rules about lobbying. And they have rules that basically say, I think, as understood the rules, when they were first presented, I was very impressed. They basically said, "We're not going to hire lobbyists into the administration. There has to be some sort of cooling off period."
BILL MOYERS: And the next day Obama exempted a number of people from that very rule that he had just proclaimed.
SIMON JOHNSON: Yes. It's a problem. It's a huge problem.
BILL MOYERS: So here's the trillion dollar question that I take from your blog, that I read at the beginning, quote, "Can this person," your new economic strategist, in this case Geithner, "really break with the vested elite that got you into this much trouble?" Have you seen any evidence this week that he's going to be tough with these guys?
SIMON JOHNSON: I'm trying to be positive. I'm trying to be supportive. I like the administration. I voted for the president. The answer to your question is, no, I haven't seen anything. But you know, perhaps next week I will. But right now, as we speak, I have a bad feeling in my stomach.
My intuition, from crises, from situations that have improved, the situations that got worse, my intuition is that this is going to get a lot worse. It's going to cost us a lot more money. And we are going down a long, dark, blind alley.
...
SIMON JOHNSON: That's where you go and you check the bank's books, and you say, okay, not only do we use market prices, not pretend prices, not what you wished things were worth, what they're really worth, okay, in the market today. We use that to value your loans and the securities that you have, your assets, right?
And we also assess what will happen to the value of the things you own if there's a severe recession. So that's the idea, it's a stress test, like when you go to see the doctor, they put you on a treadmill, and make you run to see how your heart is going to behave under stress.
So you're looking at how the bank's balance sheets will look under stress. And then you say to them, "This is our assessment of the amount of capital you need to cover your losses, and to stay in business, and be able to make loans, through what appears to be a severe recession."
And, as the president said, we may lose a decade. So we've got to be very hard headed, and all the officials forecasters are still too optimistic on that. This is the amount of capital you need. Now you have a month, or two, to raise this amount of capital privately.
And when this was done in Sweden, by the way, in the early 1990s, they did it to three big banks. One of the three was able to go to its shareholders, raise a lot more capital, and stay in business as a private bank, same shareholders. That's an option. Totally fine. However, the ones that can't raise the capital are in violation of the terms of their banking license, if you like.
We have no problem in this country shutting down small banks. In fact, the FDIC is world class at shutting down and managing the handover of deposits, for example, from small banks. They managed IndyMac, the closure of IndyMac, beautifully. People didn't lose touch with their money for even a moment. But they can't do it to big banks, because they don't have the political power. Nobody has the political will to do it.
So you need to take an FDIC-type process. You scale it up. You say, "You haven't raised the capital privately. The government is taking over your bank. You guys are out of business. Your bonuses are wiped out. Your golden parachutes are gone." Okay? Because the bank has failed.
This is a government-supervised bankruptcy process. It's called, in the terminology of the business, it's called an intervention. The bank is intervened. You don't go into Chapter 11 because in that's too messy. Too complicated. There's an intervention, you lose the right to operate as a bank. The FDIC takes you over. I think we agree, everyone agrees, we don't want the government to run banks in this country.
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Here's what I want to be understood in the most crystal clear way that is possible to imagine: we know exactly what to do and we must do it.
I've been blathering on about the solution for over two months privately and I even blogged about it here:
http://thebloodofpatriotsandtyrants.blogspot.com/2008/12/what-should-have-happened.html
There is no fucking mystery in what we need to do. None. Zero. Anyone that tries to claim that we don't know what to do is completely and hopelessly full of shit. Got that?
Most reasonable economists agree that we need to do something like the Swedish solution. Krugman supports it. DeLong supports it. The list is quite expansive really. Those people are not idiots despite what people may say about their political leanings. And despite all the empty rhetoric about how "left-leaning" these economists may be let's be clear about what they want to do: they want to save capitalism and the status quo in this country as you know it. For this they are branded heretics, leftists, and even socialists.
The extreme right - completely blinkered and as spent as a used condom - wants more deregulation and tax cuts to boot. The market will correct this problem. I really can't address that kind of thinking because it is too cruel and asinine on its face. Thousands will die while these morons figure out that they are dead fucking wrong.
Personally, I am extremely disappointed in Obama already. It may be that he is in the midst of the ultimate clever economic brinksmanship against the GOP...maybe...we can hope. Hope is cheap. Hope is usually in vain and achieves nothing. Or it may simply turn out that despite all of that uplifting campaign rhetoric Obama is a mere stooge for the elites that control him.
We are in deep shit. Not because the outlook is so bad economically, but because there is no political will or ability to do what must be done.
We are in the grip of the lootocracy.
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