Can we now officially shitcan the Great Progressive Hope bullshit theme that has been bought into so readily here* amongst other places?  Can the folks who rationalized left right centre upside down and backwards when Obama appointed a bunch of right wing assholes like Geithner and Summers—instead of progressives and others who were, you know, right—please produce at least one mea culpa amongst them?

Didn’t think so.

* - http://pandagon.net/index.php/site/comments/this_is_not_a_time/

I haven’t dismissed the idea that Obama listens, though, and I doubt Paul Krugman would be running the barnstorming tour if he had no hope, either.

I’m not going to go so far as to say that I hope that happens, because of course no matter how badly Obama screws the pooch, AnyRepublican will do it worse with glee, but I’m just sort of amazed that Obama has so little regard to his re-election chances.

I don’t understand why you think the country would move back right again in the face of further economic downturn.  If the ‘30s, ‘40s, and ‘50s have put forward any historical lesson, it’s that people in bad economic times don’t become more like Hooverite Conservatives.

On the contrary, I suspect if Obama keeps feeding the banks money and the economy keeps tanking, and unemployment keeps going up, then we’re going to see even louder cries to nationalize the banks, even bigger demands for windfall taxes on the richest of the rich, and even more aggressive government spending.  Because if the government is the only organization creating more jobs, and we need more jobs, why in the high holy fuck would we pick up the Republican banner of spending cuts, welfare cuts, and tax cuts?  Just because the GOP is currently the other big party on the block doesn’t mean people are only capable of choosing between the two.  By 2012, will could start seriously considering Dennis Kuccinich for President.

I’m just saying, the pendulum swings both ways.  Right now, we’re still way the hell to the right of where we need to be.

But yeah, whenever I get bent, I just think, “Well, could have been Clinton,” and then I realize our options for Great Progressive Hopes were 0.

If Nouriel Roubini, the guy who was even more right than Krugman, says he’s cautiously optimistic about Geithner’s plan, I’m not ready to slash my wrists just yet.

The whiplash is starting to get to me, too, but there genuinely doesn’t seem to be a consensus yet that the pooch has been screwed at all, much less irretrievably so.  When DeLong and Roubini join in with Krugman instead of arguing against his conclusions, that’s when I’ll be scared.

I think you’re unnecessarily pessimistic. I love Paul Krugman, but his weak point is that he’s constantly underestimated Obama. Which is not to say I’m happy with everything Obama’s doing, but I’m not worried about it impacting him in 2012.

Obama’s a long-term thinker. This isn’t a one-shot deal. He’ll keep working at the problem from multiple angles. And he’ll adjust course as necessary.

I wasn’t talking about Clinton v Obama, Amanda, I was talking about who Obama appointed.  His total “ruckoff ridiots” to the progressive wing of the party stood out a mile and we had to listen an awful lot of normally downright brilliant people on this blog spewing faith-based apologia for it.

We can’t get around one thing that Amanda notes: we are giving cash to the people who fucked up sooooooooo bad in the first place.  Not brilliant.

I’ve still got mixed feelings about Obama.  Though he was by far the best choice we had at the time, and he’s got his head on more straight than the typical US president, he’s still got these weaknesses that just shock me for how glaring they are.  Gay rights, religion, and a sort of corporatism by way of neoliberalism.  Showing some of my IT background:  Obama stood on stage with fucking Sam Palmisano, who IMHO is just a male Carly Fiorina.

I don’t buy that all this was Grand Chess Master stuff, I think Obama genuinely does not “get” the issues he is weak on.

Don’t forget bombing the shit out of Pakistan and expanding the war in Afghanistan.  I’d prefer LESS imperialism, not merely moving our empire a scootch to the side.

Meh.  I can see all the points about why whatever version this is of the Geithner plan is A Bad Idea.  But I also trust the technocratic impulse of most of Obama’s crew.  I don’t think they’re loath to “nationalize” because people will say mean things about them in an upcoming campaing; I think they truly don’t think it’s the best course of action, or, if they do, they’re trying to move slowly towards it rather than making big dramatic moves.  Are they right?  Fucked if I know.  But I’ve accepted that my personal moral-ethical compass does not pertain to the way things work in the financial sector.

I don’t understand why you think the country would move back right again in the face of further economic downturn.

Simple.  A lot of people who voted for Obama will not be inclined to vote at all when it’s a contest between him and Generic Republican.  They’ll sit it out, the right wing nuts will all show up, and there we’ll be.

Basically, I doubt that “throwing money at the bankers” and hoping for the best is the entirety of what’s going on.  Then again, I do tend to trust wonks and experts when I know I’m out of my depth.

I’m less interested in examining who has this authority or that, and looking at that plus their arguments.  Krugman’s is right insofar as trusting bankers is the worst possible mistake ever.  Plus, the IMF has an SOP for dealing with situations like ours, which happen again and again—-nationalize the banks, fix them, resell them if desired.  The *only* reason we’re not doing that is American exceptionalism, an ideology that’s rotten to its core.

Definitely, seeker.  When the appointments started coming down was when my hopes took a wet bath.  If I didn’t blog it, it was mostly because I didn’t see the point.

But if the Republicans actually believed in right-wing populism as a winning strategy, I would have thought they would have tried it in November 2008.  Instead they had McCain voting for the original TARP thing… they have Rush Limbaugh and Mitch McConnell defending AIG bonuses…  They’re all over the place and incoherent.  Look at that “tea party” bullshit.  They have no idea what they’re doing, what the problem is, or who they’re mad at.  I don’t think they know how to do right-wing populism anymore.

First of all, it has only been a little over two months.

Secondly, he isn’t going to run against Generic Republican in 2012. He will be running against Batshit Insane Glenn Beck-esque Republican who will scare the Bejesus out of swing voters (suburban college educated white people).

Flip, don’t let wonks try to intimidate you by being wonky.  There is a fundamental human element here, and we’ve been policy wonked into fearing bringing it up.  That is this:

a) We was robbed.
b) The robbers are like, “We’re the only people who can put the money back, because we know where we took it.”
c) Obama administration: Okay.
d) People watching: Jesus Christ, you can’t put it in the vault yourself and throw these fuckers in jail?!

Krugman’s is right insofar as trusting bankers is the worst possible mistake ever.

OK, but there’s a difference between doing what’s right and doing what gets you through the crisis.  Sometimes you might have to eat your dead friends.

Ben, I’m not enough of a partisan to be like, fuck the country as long as the party does well.  99% of my concern is the country, and Obama’s re-election chances add color to the question of why he’s being so daft.

Also, Ben, FDR was already past the save the banks part and well into the damage control section two months in, if I remember my history correctly.  He had a lot more work on the damage control end, but he jumped in with two feet.

I don’t buy that all this was Grand Chess Master stuff, I think Obama genuinely does not “get” the issues he is weak on.

This.  As was said above, I don’t think he’s not nationalizing the banks because he thinks it is bad for his re-election chances, I think he’s not doing it because he thinks it is the wrong thing to do. This isn’t surprising.  I don’t think he’s not letting single payer into the health care discussion because he is afraid of being called a socialist, I think he’s doing it because he honestly thinks it isn’t a good idea.

I never thought he had the best domestic agenda, but I didn’t think his entire first few months was going to be dealing with the domestic agenda, so it didn’t bother me so much. I figured he would make things a little better while helping deal with our world standing. Then the bottom fell out.

Ok, fair enough. I was addressing the “one term President” part.

I share your concerns over the banking plan. But Obama isn’t stupid, and I think if (when) this doesn’t work he de facto nationali2s the banks and calls it something else.

It seems like right now his big thing is health care reform and he wants to spend his political capital on that.

Seems to me that nationalizing some banks too soon poses at least as much of a threat to Obama’s ability to get the rest of his agenda in place as does nationalizing too late or not at all. So, insofar as the Geithner plan is a cautious/political capital formation move, I can kinda understand it. I’m kinda with DeLong that there are structural issues (see Nelson, Ben) that make nationalization now either impossible or not worth the fight.

IOW what I’m saying is I too believe Obama isn’t far enough to the left yet, but he is open to being pulled in that direction.

Flip, and another thing that should make everyone suspicious is that the amount of money required to rec-capitalize the banks keeps going up.  The reason for this, if I understand correctly, is that they keep admitting how much of their asset ledger is tied up in worthless properties.  They won’t reveal it all at once, though.  It’s like, the market value could be 50% of the ledger value, 80%, 20%.  If you want to find out, perhaps more money would be nice.

Like I said, I feel like the Obama crew is basically technocrats, and they wouldn’t gratuitously choose to do something Stupid And Unfair over something Smart And Fair.  The Bush administration, OTOH, I was quite capable of seeing deliberately choosing the Stupid And Unfair course of action.

When a course of action seems obvious to me, and yet it’s not happening, I start to think, “Hmm, maybe there’s something I’m missing.”  I can’t immediately jump to saying, “Fuck, the fuckers fucked me again, and it would have been so easy to stop them!”  I’m not that confident.

Define “they”.  I think Obama wants to do the right thing, but he’s been lured into hiring advisors who will always put the interests of their rich friends over the country, and who are also ideologically wed to anti-nationalization views.  Obama thinks he’s doing the Smart and Fair thing, because he’s got people who are telling him the wrong thing.

If he wants to nationalize, I fail to see why he should flush hundreds of billions of dollars down the toilet to bide time.  If that’s his master plan, it’s fucking stupid.

Also, I’m more than a little alarmed at the cult of personality “trust in Obama” stuff.  He’s better than most politicians, which is saying that he’s a less bite-y snake.  He’ll still get you, but less often.  But that doesn’t make him not a snake.

” Instead of bailing banks out, I could see a situation where we work to buy up some of the assets and try to make something of them, perhaps taking a loss on most of them, but accepting that was a loss that was going to happen either way.  “

We tried that. It was called the Paulson Plan. It took about 3 weeks to realize that wasn’t going to work.

“If he wants to nationalize, I fail to see why he should flush hundreds of billions of dollars down the toilet to bide time.  If that’s his master plan, it’s fucking stupid. “

Because you don’t want to seize more institutions than you have to, and you really don’t want to nationalize banks that are operating at the margins. Nationalization is costly, with most of the cost upfront, and it can take some time. If you can dump some money into a firm for some equity and shore it up, that’s preferable to the cost and time requirements nationalizing the firm would require. And it’s politically easier as well.

It’s worth noting that the more we put our trust in him instead of riding his ass, the further he’ll drift to the right, since those are the people who are in fact riding his ass.  I suspect that’s what’s going on—-liberals don’t want to criticize, conservatives are pulling out all the stops, and since he’s a politician, he’s splitting the difference.

Bite me, John.  I don’t live in a world of ideological purity. This has nothing to do with that.  In fact, you’re only resorting that in your typical tantrum-throwing method, as a way to avoid a real debate.  I’m not pro-nationalization out of some socialist purity.  I said I’d be fine with breaking up the banks and reselling them in a smaller form, didn’t I?  I just want what works, because I don’t want to see people fucking starve.  Jesus.

Shit, I don’t even why I argue with you.  I’ve seen you do this before—-you can’t even listen, you just flail.

Brien, I see no evidence that Paulson did much besides funnel money to his old employer.

“It’s worth noting that the more we put our trust in him instead of riding his ass, the further he’ll drift to the right, since those are the people who are in fact riding his ass.  I suspect that’s what’s going on—-liberals don’t want to criticize, conservatives are pulling out all the stops, and since he’s a politician, he’s splitting the difference.”

That makes no sense relative to the Geithner plan. It doesn’t really make any sense relative to anything Obama has done so far really.

liberals don’t want to criticize, conservatives are pulling out all the stops, and since he’s a politician, he’s splitting the difference.

I do think that’s also part of what’s going on. While I do think he has blind spots, I also don’t think he’s an evil, malicious bastard with a closed mind. I think he can be ridden and shown other ways. I think he’s smart enough to get it if it’s shoved in his face.  So yes, I think the “don’t criticize him” idea is bad. We should damn well call him out on stuff we think is wrong. 

If what he’s doing is so smart, he can explain it to us clearly. We can try to convince him, and he can try and convince us. It’s part of his job.

Nationalization is costly, with most of the cost upfront, and it can take some time. If you can dump some money into a firm for some equity and shore it up, that’s preferable to the cost and time requirements nationalizing the firm would require. And it’s politically easier as well.

Maybe, and I pray you’re right and I’m wrong.  But I doubt that it will shore up equity.  Right now, the sleaziness about admitting how bad the ledgers are inclines me to think that any trust whatsoever is a bad idea.  I fail to see why it’s politically easier to flush money and buy time.  It would have been well-received if Obama had been like, “Bankers, you fucked this up.  You’re fired.”  Conservatives would have howled, but guess what?  They will do that no matter what Obama does.  You can’t operate in fear of them.

Now, he’s running a strong risk of losing the good will that will make nationalization harder, not easier.

You have a pont there, Amanda.
People to the left of him should be riding his ass. The best way to do this, I think, is to get the people in the Senate who are to the left of him on economics (people like Sanders, Webb, Feingold, etc) to band together in the same manner the more centrist fiscal Dems have done and pressure him.

Lincoln wouldn’t have changed his position on slavery from non-interference where it existed to abolition in three years if the people to the left of him hadn’t pressured him like hell.

In a way, Krugman is playing that role but fiscal liberals in Congress need to get organized, too.

“Brien, I see no evidence that Paulson did much besides funnel money to his old employer.”

Right, because it became pretty apparent after a couple of weeks that the issue wasn’t one of liquidity, but one of solvency, and the original plan to buy up a bunch of toxic assets wasn’t actually going to do anything for credit markets if the issue was one of solvency, and so we went through a few months of no one knowing what to do for a Plan B. Which is unfortunate, but it’s not really fair to blame Obama for that, or to go back to the original idea.

Brien, I think that’s because no Republican is willing to create the bureaucracy necessary to actually deal directly with assets.  But Democrats should welcome that challenge, and not be weenies about it.  It’s a chance to prop the banks up for a time while we actually do something to help the people that have been completely forgotten about—-the people who need housing help during a housing crisis.

So keep riding his ass, sure. But don’t despair and assume he isn’t open to being pulled to the left if he is lobbied hard enough.

Well, yeah, I do think he’s open.  I’m going to a protest next weekend, something I never did under Bush.  Protesting Bush always struck me as a self-indulgent bit of theater, because Bush doesn’t give a shit what you think. But we have a real opportunity to change Obama’s mind.

“Maybe, and I pray you’re right and I’m wrong.  But I doubt that it will shore up equity.  Right now, the sleaziness about admitting how bad the ledgers are inclines me to think that any trust whatsoever is a bad idea.  I fail to see why it’s politically easier to flush money and buy time.  It would have been well-received if Obama had been like, “Bankers, you fucked this up.  You’re fired.” Conservatives would have howled, but guess what?  They will do that no matter what Obama does.  You can’t operate in fear of them. “

I’m not afraid of Republicans in any sense for at least the rest of this year. The public hates the GOP, and they’re going to keep hating them for a little while longer. But what could make nationalization quite a hard sell is the large upfront cost involved with seizing a large financial institution, to say nothing of seizing quite a few at once, and knowing you’ll be eating a loss on it. And credit markets will remain rather stagnant through much of restructuring.

No one thinks the Geithner plan will fix the entire thing, it’s not really designed to. But what people like Roubini, Delong, and (less impressively) I think it *can* do is to clear up the marginal firms from the truly fucked ones, giving us a better idea of who truly needs to be seized, who can get by with a capital injection, and hopefully shore up at least a couple of firms altogether. That will lessen the number of firms you have to nationalize (and let you do it all at once, which will make nationalization much more effective), limiting the upfront cost, and greasing credit markets a bit will help recovery along, which will help Obama politically in th short run as well. But it’s not a one stop process.

There are several good reasons to delay, at least right at the moment:

1) A nontrivial portion of our political establishment remains psychotic.  Obama does have to work with the people he has.

2) Treasury is currently institutionally incapable of nationalizing the banks, both due to statute and due to outright staffing limitations.

3) The Bush Administration was so fundamentally criminal that acquiring the banks would probably unravel into some insane financial scheme hidden in the books, which would almost certainly come to light, which would then put even more pressure on Obama to prosecute.

There are some okay reasons to delay:

A) They really really want for things to not be as bad as they are, and they’re going to temporize for a bit to see if they’re wrong.

B) Obama would like to devote some energy to pulling us out of Iraq sometime in the near future.

C) Torture is going to be a thing, and it would be nice to not be completely enmeshed in a gigantic undertaking when it’s time to take it on.

liberals don’t want to criticize, conservatives are pulling out all the stops, and since he’s a politician, he’s splitting the difference.

I guess that explains why Bush was pulled to the left while in office.  Although, according to the most deluded wingnuts, that is what happened.  Bush wasn’t a “real” conservative.

There’s a lot more going on here than just shoring up the banks.  The IMF can easily go into a third world country and take over the banks, because the rest of the world doesn’t give a shit about the fall out in that country.  The entire economy is getting dragged down by failing banks, even industries that are still productive and aren’t directly related to the financial sector;  I think that offers a hint as to what can happen if the financial sector is nationalized, namely an investor panic.  I personally think the risk is worth it, but I can understand why politicians are wary of it.  Also, the IMF nationalizing a couple relatively small banks != nationalizing several gigantic financial institutions, not to mention dealing with all the dozens of smaller banks that are currently teetering on the edge.

he’s been lured into hiring advisors who will always put the interests of their rich friends over the country

That’s the David Sirota approach.  I don’t buy that.  I’m not even sure who Geithner’s “rich friends” are supposed to be; I think that’s a purposeful misreading of the press on Geithner as having been friendly (not friends) with the corporations he dealt with as head of the NY Fed.  I think being worried about “rich friends” is an overly personalized, overly literal, and essentially conspiratorial view of how policy works.  I don’t think Geithner and Summers are actually part of any “rich friends” i-bank-exec crew except by a degree of separation from Robert Rubin.  They could all easily be a bunch of colossal fuck-ups, but I don’t think they’re literally looting.  Sirota, I think, does.  But that’s when I worry that left-wing populism is starting to sound a bit like way the wingnuts do when they talk about George Soros.

I agree about protesting under Obama vs. Protesting Bush.

That’s why protests for Civil Rights under Kennedy and Johnson succeeded—they were politicians who were open to improving Civil Rights. I think Obama can be persuaded the same way on banks.

“Brien, I think that’s because no Republican is willing to create the bureaucracy necessary to actually deal directly with assets.  But Democrats should welcome that challenge, and not be weenies about it.  It’s a chance to prop the banks up for a time while we actually do something to help the people that have been completely forgotten about—-the people who need housing help during a housing crisis. “

No, it won’t work because the problem isn’t liquidity. If it were, then yes, the original assumption (which I shared at the time, for what it’s worth) behind the logic of TARP would be sound. Trading the toxic assets for free cash and getting them out of the system would have unfrozen credit markets, much like towing an accident off the highway lets traffic start moving again. But the problem isn’t one of liquidity, it’s one of solvency. Even if you buy up the toxic assets, banks were over leveraged and underwriting liability with junk. They simply don’t have the assets to cover their liabilities, certainly not enough to meet their capital requirements. And so they’re not lending, either to consumers or to each other. Buying the assets won’t help that, unless you’re proposing to buy them for a truly outrageous sum of money.

That makes sense, but I’m completely and utterly unconvinced that the hundreds of billions we’re spending is cheaper than those substantial costs.  I’m also forced to point out that they could know what they need to by tying stronger “show us what the assets are REALLY worth” strings to the money.  Why spend money bailing out banks in the hopes that it may making a triage easier, when you could start auditing right now?  Here’s the other thing—-I think pretty much every bank getting money is beyond reckoning, and thinking otherwise is being way too optimistic, a level we can’t afford right now. 

Most of all, I feel like what Wall Street wants is getting taken seriously, when everything they claim they want should automatically get a negative ten compared to other options because they’re full of shit and will lie to you in a heartbeat.

My quick take is that I think the whole banking sector is fundamentally and irredeemably corrupt and based on phantoms and lies.  The question is, if that’s true, how do you fix it?  And would tearing the whole muthafuckin’ thing down for long-term justice be worth the immense short-term pain?  It’s never going to be the right time to wipe the financial system and reinstall from scratch; everything is going to be piecemeal, patches, and half-measures.  This may be the best of a range of truly awful options.

Banking runs on ignorance.  If we understood what was going on, the whole thing would probably collapse.  But we’ve gotten used to it.  If we knew how little everything was _really_ worth, or how little anyone actually knows about how little everything is really worth, I think there’d be a shockwave across the entire world economic system.

” I’m also forced to point out that they could know what they need to by tying stronger “show us what the assets are REALLY worth” strings to the money.  Why spend money bailing out banks in the hopes that it may making a triage easier, when you could start auditing right now?”

But the mistake you’re making is assuming that you can just attach a value to the assets. In fact, the “value” of the asset is simply the point of intersection between what the buyer is willing to pay and what the seller is willing to sell for. But in a marketplace where buyers are extremely risk averse and sellers are fearing insolvency, those trades simply aren’t happening, so there’s no way to figure out that value. This is the biggest point of the Geithner plan; that if you protect buyers from the toxic assets, they’ll show a more “normal” level of risk aversion, and you’ll be able to see where everyone stands on the assets. Some of them will be fine, some firms should be able to shore up their sheets by acquiring good assets, and some others for swapping their assets for capital. And some firms simply won’t be able to sell assets because others won’t be willing to pay their needed price. And then you’ll know that those firms really are insolvent and need to be nationalized. You’ll also know which assets are toxic and which are fine, which will create more confidence in lending markets. Again, it’s not a one stop fix, but it’s a good first step, provided the underlying assumptions about the situation are correct. Krugman doesn’t believe the assumption is correct but, to be charitable, he has absolutely no way of knowing that in meaningful sense. He’s simply throwing a blind guess out.

Also, the IMF nationalizing a couple relatively small banks != nationalizing several gigantic financial institutions, not to mention dealing with all the dozens of smaller banks that are currently teetering on the edge.

Anyone who thinks it would be easy in any way to unravel Citibank or Bank of America needs to listen to Act 2 of last week’s This American Life.  It took three days and hundreds of people working around the clock to close a small bank and smoothly transition it to re-open under new management.  This was after months of planning and negotiations with the bank that was going to take it over.

Bank of America is about 6,000 times larger than the Bank of Clark County.

Not to mention that, in that episode, they mention that FDIC employees are absolutely forbidden from discussing their work with anyone, even their spouses.  They travel under false names.  They secretly arrive in the city where the bank is being closed down and descend on them en masse before the bank knows what’s happening.

Can you imagine what would happen to the stock market if the barest whisper of taking over Bank of America or Citibank came out before it was actually done?  It would make the post-Lehman Bros. crash look like a trip to Disneyland.

This is the kind of nuts-and-bolts stuff the administration has to think about that Krugman can ignore because it’s not his job to think about it—it’s their job.

I have to go, but one last comment:  at this point, everyone—including the administration—knows that some nationalization is going to happen.  There’s no other way out.  The only question is, do we give the patient a little anesthesia first or just start sawing away at the leg?

I think the request for new seizure authority confirms that. Which is another thing that I think too often gets left out of the populist, for lack of a better word, response; most people seem to agree that the government simply doesn’t have the authority to seize Citi, and certainly doesn’t have the authority to seize AIG.

oblahblah really cant do anything right, could he.

Mnem, all that strikes me as all the more reason that these banks need to be nationalized and resold in smaller bits, with strong regulation to keep them from ever getting that big again.  They’re using their size to stop this from happening.  We need to stop them from employing such a sleazy tactic.

Whatever, John.  You couldn’t be more wrong about me or my motivations.

Flip, I wouldn’t worry about that too much—-the good news is that we have a standard protocol for tearing it down and starting over, i.e. nationalization.  It’s done over and over in countries all over the world by the IMF.  We didn’t invent capitalist bubbles that destroy the economy.  There’s a procedure at this point, as depressing as that is.

But the mistake you’re making is assuming that you can just attach a value to the assets.

Dude, I’m not dumb.  Seriously.  There is a value—-they’re just scared to find out what it is, and much of the machinations of this process is an attempt to put off that pain for as long as possible.  They keep hoping the housing market will right itself.  I keep hoping the quit screwing around and realizing it won’t.

“Dude, I’m not dumb.  Seriously.  There is a value—-they’re just scared to find out what it is.”

There’s no market value when there’s no market at all.

Mark Thoma had the best way to understand it, I think. Imagine for a second that you have a car dealer with 100 cars on the lot. 50 of them are perfectly fine automobiles, bt the other 50 have some fatal defect that will cause them to break down beyond repair as soon as you take them off of the lot. The problem is there’s absolutely no way to tell which cars are fine and which ones are junk, so no one’s buying anything whatsoever from this dealer. Maybe someone comes in and offers to take all 100 cars at a bargain basement rate, knowing half of them will blow up but expecting to make a profit on the other half for buying so low, but the problem is they’re simply not willing to pay a price that will keep the dealer above water, so the dealer can’t sell at the maximum price this very risk averse market is willing to bear. That’s basically the problem you have now in the credit markets. As long as no one can tell just which assets are toxic, and are unwilling to trade at prices banks can accept, there’s no way to assign a market value worth the paper you write it on. And you can’t set up a situation in which you value assets absent the toxic ones without removing the toxic assets, but then you’re in a catch-22 because there’s no way to find out which assets are toxic without trading them and seeing which ones bust.

Well, that depends on thinking that houses themselves are shit, which is probably not true, don’t you think?  The question is what their value is an investment, and I do understand why people don’t want to buy something that’s going to lose value.

That’s why I think they need to quit hoping the value will come back up.  I don’t see how to avoid another run of devaluing of houses on the market, because someone is going to have to foreclose on these houses eventually.  It seems to me that if they’d taken a bottom-up approach, we’d have a better idea up front about how much money we can expect to lose, and we’d also be able to eyeball the properties directly and ask a pertinent question being avoided: can we actually turn these properties around into something that could prop up the people that are being forgotten, the average working Americans?  I bet if you put some creative people on it, they’d have some interesting solutions.

“Well, that depends on thinking that houses themselves are shit, which is probably not true, don’t you think?  The question is what their value is an investment, and I do understand why people don’t want to buy something that’s going to lose value.

That’s why I think they need to quit hoping the value will come back up. “

But that’s the rub, it’s easy enough to say that, the problem is banks *can’t* do that. Because if they swap out their assets for the capital buyers are willing to give them, then they’re insolvent. But buyers aren’t willing to pay what banks need to get for the assets to stay solvent. So we’re at a point where no ones doing any business, because no one can agree to a price on trades. It would be like if I had a baseball card and you offered to buy it from me for $50, but I was simply not going to sell it for less than $60 under any circumstances. But you’re not willing to give me $60 for it. So no trade happens, you keep your capital, I keep my card, everyone’s happy enough. The difference in the banking system being that if you hit this situation on an industry wide scale, then there’s no capital moving through the system, meaning there’s no supply of credit to dole out. And that’s basically what you have now, it’s not that there’s “no value” or that no one knows what the values on the assets are, per se, it’s that buyers aren’t willing to pay the prices the sellers absolutely *have* to get to stay solvent, and since this is happening in the entire industry there’s no way to tell what assets are fine, which ones are junk, and which banks are solvent/insolvent.  You have to figure these things out before you do much of anything, including nationalization, unless you’re just going to literally seize everything.

“and we’d also be able to eyeball the properties directly and ask a pertinent question being avoided: can we actually turn these properties around into something that could prop up the people that are being forgotten, the average working Americans?”

But that’s not the problem.

That’s where I think I’m more suspicious than you.  I think they have a vested interest in giving up too easily on this, and we’re giving up too easily on trying to at least ballpark their value. 

I strongly disagree that the need for affordable housing isn’t a real problem.  It’s actually the major reason the bubble burst—-it probably burst the day that there were three-five times as many expensive houses as people who could ever even dream of buying them.

” I think they have a vested interest in giving up too easily on this, and we’re giving up too easily on trying to at least ballpark their value.”

But that’s just not what’s happening. There’s no “giving up” involved. Banks holding assets have a certain floor at which they can sell. They can NOT sell any lower than that, because to do so would leave them insolvent, and the can NOT go insolvent. So, no two ways around it, they can not sell assets at any price lower than this “X” value. The problem is that no one is willing to give them a value greater than or equal to X, because the buyers are scared it could be a toxic asset. So you’re simply at a standstill with no capital moving through the system, meaning no credit. Which sucks. But expecting that banks should accept prices that will leave them insolvent simply isn’t an answer, and even if it were possible, it wouldn’t fix anything, since insolvent banks can’t lend. So even if we did value assets this way, it would still require a massive capital infusion into the firms to make them solvent.

“I strongly disagree that the need for affordable housing isn’t a real problem”

That’s not what I said, and that’s not wrong. The problem is that that’s not really a central problem in the banking system anymore, we’re well beyond that at this point. Not that they’re not still connected in points, but stabilizing home values won’t make banks solvent anymore than making banks solvent will stabilize home values. They’re distinct, if connected, issues.

Oh, BTW, Amanda, nice Smiths reference in the title.

Jesus.  H.  Christ.  It two months and a week.  The banks will get sorted out.  It wasn’t the banks, per se, that fucked us.  It was the investment weenies and the lack of oversight.  I know some of the banks are investment types too but basically just say Wall Street. 

Just today the Administration moved to modify the “market to market” BS that has the assests undervalued and look what happened to the Market.  Stay the course, “O, ye of little faith.”

Phoebe Fay  on  04/02  at  07:15 PM:
I think you’re unnecessarily pessimistic. I love Paul Krugman, but his weak point is that he’s constantly underestimated Obama.

Where is this coming from? Krugman has been spot-on about Obama since he announced his candidacy. Krugman, like us, has been less concerned with Obama’s ability and more concerned with his intentions. His intentions are obviously malign—well, it was obvious before his election, but now there are children with surplus chromosones who know the score on the bailout.

Ben D.  on  04/02  at  07:40 PM:
Secondly, he isn’t going to run against Generic Republican in 2012. He will be running against Batshit Insane Glenn Beck-esque Republican who will scare the Bejesus out of swing voters (suburban college educated white people).

I strongly believe that this may not happen. Keep in mind that the paymasters of both parties are getting a little alarmed at what’s happening in their private sandbox/labor pool called the North American continent. A “moderate” Republican would easily slap another 10 to 20 years of life on the Empire before the inevitable: all that needs be done is further isolate those portions of the population that are most likely to resist the more obvious acts of fascism that will be necessary as environmental problems become more severe. The next primary, corporate money may well flow for the milder republican. Sure, the base will be pissed, but everyone on Earth will join hands and tell them what they’ve been hearing all their lives: fuck you.

Republicans have been limited by incompetence. It would only take a candidate of mild political skill to bring the Republicans back.

Not that I don’t agree with the real prognostication, but isn’t part of the problem that it’s not currently legal yet to nationalize these “non-bank” entities thanks to some Republican legislation and the removal of the S&L;scandal protections? Thus Obama is needing a congress packed with conservadems and republicans whose only goal seems to be to try and block any legislation in order to increase campaign contributions to pass the necessary legislation so he can nationalize on the down-low all under a culture where a vast amount of the population is looking for any sign of socialism as an excuse to kill him.

Not that pushing him from the left isn’t the thing to do and I’ve been against his Treasury appointments from the beginning in that he seemed to buy the bullshit that Clinton actually did some good for long-term prospects, instead of making a few minor adjustments good for short-term gain without fixing the growing long-term problems.

Unfortunately, unlike under the New Deal, we allowed the conservatives to eliminate all socialist infrastructure so we can’t bring out the fear response enough in the rich to move them out of the haze enough to start thinking long-term.

Unfortunately for us, I strongly suspect that the first two years will be growing pains and it’ll take progressives pushing even harder in 2010 for massive progressive push against conservadems and establishment dems to really bring home the message that progressive reform is needed. It’s not helping that Obama has so many Clinton advisors who embody the doctrine of “let’s not, it’s not politically expedient”, but then again with the conservadems looking for any excuse to switch over to the republicans, it may not “matter” inside the loop what we progressives think because even if we can bring out the hammer, can we really produce revolutionary numbers for full-on progressivism in places like Indiana?

But that’s just my fear response speaking.

I just find it interesting that the piggy bank photo at the top of your post is filled with coins from Thailand.

The problem is that as home prices drop back to more realistic values, especially of foreclosed homes, so does the values of non-foreclosed homes.

Likewise, if the shitpile were to just crash as it probably should, it would take a large chunk of the value of the entire financial industry with it…including substantial portions of people’s retirement savings.

The Obama administration is acting as though abandoning the assets of the upper-middle class is a political third rail. That’s the long and the short of it. In fact, I suspect that at the moment they’re right.

The Obama administration is acting as though abandoning the assets of the upper-middle class is a political third rail. That’s the long and the short of it. In fact, I suspect that at the moment they’re right.

I think this is quite right, although I might say it’s the middle-middle class as well as the upper-middle class.  There was SO MUCH phantasmatic money tied up in home prices, and people got used to that.  Get closer to a “real” valuation and the whole system just might unravel.

You know what?

This is actually one of the best *threads* I’ve seen on Obama’s financial schema in nonspecialist blogland!  I already made my observations in the prop-up-housing prices post, so I won’t rehash.

Though I do wish to accentuate an issue that other people have touched on, in that we should be *much* harder on Congress than we have been.  My intuition sez that Obama’s path to nationalization is blocked by two things. 

1)  Nationalization (the real thing, like with japan’s Resona rehabilitation) is traumatic, and I think many people are underestimating the pain that would be engendered.  We suffered a great deal from the S&L;cleanup, but that was kept on the qt by MSM.  This would be much worse, than that, and the pain that Sweden underwent, which was not negligable.

2)  Nationalization is the quiktrip to Jimmy Carterhood, in the sense that the Masters of the Universe types want to keep Democratic presidents in a mere housecleaning role and avoid real restructuring to the left.  If Obama nationalize, seriously, there goes the cash for his other fiscal priorities.

FlipYrWhig:Yeah. I mean I’m a moonbat, ya know. I just happen to see that Obama right now is in a really tough situation, both policy wise and politically. And he’s doing a good job of walking pretty confidently through the minefield.

IMO I’m fairly confident that Obama has his head screwed on straight. He just sees a bit of the bigger picture, and that alters what he does on individual issues. A good example I think is health care. Where I really started to like him, was when he said that if he was going to build a health care system from scratch, it would be single payer. However, as it stands right now there’s a significant infrastructure to the current health care system, and to just blow that up would be economically rather painful. And by inference, it would be REALLY painful right now. Thus why single-payer is off the table, more or less. Imagine losing 2 million or so jobs overnight.

Which sucks. But it’s also a very good and real point that has to be dealt with.

But if the Republicans actually believed in right-wing populism as a winning strategy, I would have thought they would have tried it in November 2008.  Instead they had McCain voting for the original TARP thing… they have Rush Limbaugh and Mitch McConnell defending AIG bonuses… They’re all over the place and incoherent.

I think that the corporate side of the party did a full court press to get McCain as the nominee once they say no one wanted Guiliani or Romney.  (In fact, wasn’t Fox News hyping Giuliani early on?)  Remember who else won a few states - particularly Iowa?  I think the corporate guys were scared shitless of Huckabee and his brand of right wing Christianist populism.  Huckabee indicated that he was more than willing to shove Christianism down everybody’s throat with a healthy dose of tax increases as a side dish.

My biggest fear is that if the economy continues to go south and people continue to get desperate, they will start to engage in some serious magical thinking along the lines of “if only we return this country to a godly state, then God will make us prosperous again.”  There was a great book written a few years ago called “American Fascism” (can’t remember the author) that talked about right wing churches promoting this very sort of thinking among people in dire economic circumstances.  I think that Palin and Huckabee have strong appeal to anyone who has gone down the magical thinking route.

A couple of caveats:

1) A comparison to FDR isn’t really apposite, because the stock market had crashed two years before he was elected, and the depression was well underway when he took office. So people were ready for a far more drastic set of changes. (He also had a couple more months to plan his first 100 days, which is really not an insignificant time.)

2) The US is an exception to the usual IMF stuff, for a bunch of reasons. First is that we print the world’s currency. For other countries, especially little ones, “We won’t let you have any more dollars” is a really powerful threat. Here, we have the Fed. Second, because we screwed the regulatory pooch, the government may not have the authority to seize all the players involved, and you sure as heck don’t want looter-in-possession bankruptcies. Third, when the banking sector of some third-world country shuts down for a couple months, it doesn’t affect anyone but their own citizens.

Which brings me to another point, namely that the IMF doesn’t necessarily have a terribly good track record from the point of view of people living in the countries they’ve “helped”. The IMF’s primary job is to make sure that smaller countries pay of their loans, and if maximizing repayments to external creditors means that wages take a sustained drop, unemployment increases and the population of the country in question suffers for years to come (as long as they keep working productively in export industries) so be it. Johnson refers obliquely to this by saying that he considers IMF intervention to have failed when local oligarchies didn’t take a big haircut, but he doesn’t say that failure by those standards is a pretty common outcome.

“Mnem, all that strikes me as all the more reason that these banks need to be nationalized and resold in smaller bits, with strong regulation to keep them from ever getting that big again.  They’re using their size to stop this from happening.  We need to stop them from employing such a sleazy tactic.”

That’s one thing I’ve been waiting to hear about ever since we were told their were financial institutions that were Too Big To Fail. Where was antitrust law? And how are we going to proceed to place where there are no such private institutions?

Not saving the banks is what caused the Great Depression. Thats what the Obama administration is trying to prevent. If a company like GM collapses, its bad but if banks start collapsing the economy goes into a tailspin and panic ensues.

Mnem, all that strikes me as all the more reason that these banks need to be nationalized and resold in smaller bits, with strong regulation to keep them from ever getting that big again.

Yes, we need to prevent that from happening in the future, but right now they’re basically all wearing vests filled with plastic explosives and threatening to pull the cord if we don’t do what they want.

When you’re defusing a bomb, you need to go slowly and make sure you’re cutting the right wires instead of plunging in and cutting everything in sight because you just want to get it over with.  If word got out to the markets before the takeover of a huge bank like Bank of America or Citibank, it would be a complete fucking disaster for pretty much the entire world economy that would dwarf the Great Depression.

What pisses me off about Obama is the contrast between the car companies and the banks. In exchange for the relative pittance we’re supplying the car companies, he’s forcing them to take draconian measures like laying off even more workers. It’s not the workers who pick the vehicles to build. But he’s pouring ten times as much money down the investment bank rathole without asking for any accountability. Rather than force them to oust their leaders, Obama’s leaving the same clowns who got us into this mess in charge, and their prescription is business as usual.

Make the banks mark all their investments to market value, and let the chips fall where they may.

if banks start collapsing the economy goes into a tailspin and panic ensues.

The banks were way overleveraged due to gross mismanagement. They are dead men walking.

They are dead men walking.

I prefer the Weekend at Bernie’s metaphor, myself.  Gotta prop the corpse up so the hitman can’t get a clear shot at you.

(Not that I’ve seen it—I’m going by the IMDb summary.)

I will agree that he thinks he’s doing what’s right. But I do think there needs to be more regulation, and I sincerely hope Merkel and Sarkozy hammered that into Obama’s head in London.

I’ve been writing a series called “The Bankster Wars” at my blog for about 3 years. 

Mark my words:  This is a multi-tiered, multi-party intelligence operation, one might even suggest it’s The BIG-un, fought behind the scenes for literally decades. Usually the effects of “Tales of an Economic Hit Man” intel ops are felt in OTHER countries, usually developing ones.  Whatever made us think the U.S. would be immune to a major hit someday?

Be careful about any information on this crisis that comes from the mainstream media.  Once you peek under the rug you’ll find it’s typically an Orwellian reversal of what’s actually happening. For instance, Nationalization = ZOMGSocialist?  Bish, puhleeze.  Our Founding Fathers fought hard against the financial alchemists of their time and wrote down exactly what they wanted in the Constitution.  They sure as heck DIDN’T want private banks issuing funny money debt notes. 

In fact, for us to 1) Kill the Fed, and 2) have a national bank issuing debt-free currency, would make the hyper-conservative Ron Paul wing of the Republican and Libertarian parties literally dance in the street throwing gold coins. Seriously.

Two guys to watch:  That Roubini guy, and Peter Schiff.

Where I really started to like him, was when he said that if he was going to build a health care system from scratch, it would be single payer. However, as it stands right now there’s a significant infrastructure to the current health care system, and to just blow that up would be economically rather painful. And by inference, it would be REALLY painful right now. Thus why single-payer is off the table, more or less. Imagine losing 2 million or so jobs overnight.

Ok, are you talking about the health care system or the health insurance system?  I don’t think single payer would cause that much upheaval in the former.  It’s the latter that would take a hit, and yes, that certainly includes all the paper-pushers at doctors’ offices and clinics and hospitals whose entire jobs are wrangling payment from insurance companies. 

2 million jobs lost overnight is a bit of an exageration of the effect, I think.  It wouldn’t happen overnight, for one thing.  I could easily see a gradual transition based on, say, applying Medicare to an ever-expanding base of qualified applicants until it basically includes everyone.  Combined with a similarly expanding level of basic care to be paid for by the program.  It could be easily timed over a period of years, giving everyone involved ample opportunity to adjust.

I also expect that putting the amount people currently pay for insurance premiums back in their pockets, even after accounting for the increased taxes to pay for the program would far outweigh the negative effect of those 2 million (or way less) jobs lost.

Sorry for the OT rant, but I cannot abide for a moment the argument that are insane and inhumane system needs to be maintained at the expense of everyone else in the form of crushing premiums, heartless corporate bureaucracy, medical bankrupcies, needless pain and suffering, grave risk to public health, and preventable deaths due to being less than upper middle class.  All so that 1/2 of 1 percent of the population can keep their clerical jobs.

Kind of touched my hot buttons, that one did.

If we had a just healthcare system, there would need not be a net job loss. Any jobs lost in the insurance industry would be made up for by the tremendous increase in jobs at clinics and hospitals requiring staff because, with preventative care being free and encouraged, doctors would have a flood of patients. Billing departments at hospitals would just get spun into the paperwork duties brought on by increased volume, and more clinics would be likely to open. If the government were to go all the way with this reform, we’d see job creation in the pharmaceutical industry as well, since generic producers would get a well-needed boost from having all the monopolistic pratices and ad campaigns declared illegal. I’d think the transition from useless to useful jobs would be roughly equivalent in raw numbers, though we’d have a lot less ultra-high paying CEO jobs to go around. . . which is another net benefit.