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Morning Reading
Good morning. Two former Fed chairmen disagree with our current one about TBTF. That and more:
Former Citigroup Chairman: Restore Glass-Steagall (Big Picture)
Our current Fed Chairman: No, don't restore Glass-Steagall (NPR):
"If they're too big to fail, they're too big," (Alan Greenspan) said recently. Mervyn King, head of the Bank of England, expressed similar sentiments in a speech last week.
But speaking Friday at a conference on Cape Cod in Massachusetts, the current Fed chairman, Ben Bernanke, disagreed.
"We can address these issues in a way that doesn't destroy the economic value of large, complex multifunction firms through other mechanisms," he said.
A drop in the wrong bucket (New York Times)
Where's the outrage over the housing credit scam? (Real Clear Markets) This is what I wrote about last week:
Talk about a double standard. I'm sympathetic to anger on Main Street against banks and investment banks that accepted government money to stay afloat and now are paying big bonuses out of profits. But what the big banks are doing is still legal, if controversial. Compare that to potentially $500 million in homebuyers' tax credit fraud, according to estimates by the IG. Somehow it seems disproportionate to evoke more outrage about how banks will disperse their earnings than how the IRS may have squandered our money.
AFL-CIO struggles in a new world PBS NewsHour
Personally, I hate paying for someone else's poor choices. There should be no such thing as too big to fail. Instead, there should be "too big to pay the insurance".
The FDIC model works well, why not extend that? All FDIC insured banks pay into the pot before there is trouble, and then after there is a bank failure the losses to depositors are covered by what was paid in.
If a financial institution (bank plus insurance, brokerage, etc) holds onto people's money, then why not force those companies to pay into a pot that covers some percentage of all the deposits - not just savings accounts. The premiums would be higher for any service that is not a strictly defined simple bank account.
This would make financial institutions make choices about how much advantage there is to being really big and providing lots of services. More services and more size means more risk. More risk means higher FDIC insurance premiums. Higher premiums means higher costs, which would knock down the benefits of being too big (to fail).
I think this system of raising the FDIC premiums would reduce occurrence the stomach turning choices we had to make in the last crises. If we had let the free market work, then lots of big financial institutions would have gone bankrupt and we all would have paid the price. Instead we saved the institutions and had to pay the price. Both options are TERRIBLE because the free market did not work well: The employees, investors, and owners of the company should have paid the cost of failure, not we the people. With higher insurance for larger, integrated service, too-big-to fail companies we could get those companies to pay the cost of bailout up-front, while times are good, so we can avoid the pain on the way down.
Does anybody understand whom Bernanke and Federal reserve work for?
He seem to spit on people who have been prudent by lowering savings interest rates. He utterly craps on the value of currency by printing on boat loads on money. He seem to side with banks who have made mistakes and did not pay any price for it. Not only that He took all their crappy assets on to federal reserve balance sheet and exchanged with good money.
Whom does he work for?
I think there's a relationship between the way the government has coddled rich institutions and the homebuyer's tax credit.
I am willing to bet that many people are rationalizing the tax fraud because they think the government stole their money to give it to banks who are ripping them off.
"Compare that to potentially $500 million in homebuyers’ tax credit fraud, according to estimates by the IG. Somehow it seems disproportionate to evoke more outrage about how banks will disperse their earnings than how the IRS may have squandered our money."
Their earnings? That's a euphimism at best. Those bonuses are being paid out of huge taxpayer subsidies secured through corruption. Hank Paulson, Robert Rubin, and Larry Summers' fingerprints are all over the financial collapse, but through corruption they were able to secure control of the US Treasury and to loot it in favor of their robber class contemporaries. The banks looting of the treasury was much more than just the distribution of "earnings."
It's offensive to compare the $500 million alleged homebuyers tax credit fraud with the fraud perpetrated by the big banks and their henchmen, which has cost taxpayers trillions. I know the big banks and their corrupt henchmen would prefer to lay the blame on Joe Plummer, but this is like comparing stealing bread to survive to stealing a seventh yacht.
