More Socialism?

So, we are in this mess because of government meddling and the solution is government meddling on a scale never before conceived?

Sorry, I’ll live with the consequences of freedom be that a recession or worse.

What’s next? Government cars? Oil companies? where does it end?

I never thought I’d see the day that a Red State front page article would push for the nationalization of banks on a global scale.

Despite my shock, you may have a point. Though there would have to be a mechanism to limit the amount of Bank assets government actually owns (i.e. I don’t think current shareholders should be entirely divested of their ownership in banks) and a mechanism to get government to sell off it’s ownership as the credit markets improve and trust is restored.

To those that vehemently disagree, please remember that NYSE has dropped 37% in the last year, meaning that you would have made more money leaving your cash in a non interest bearing checking account than investing in most major American companies this year. A drop like this hasn’t occurred since before WWII and much of it can be blamed on frozed credit markets.

Conservatives talking about eliminating the free market, and imposing the very definition of socialist ideology in this country.

To a degree – you have some good points.
However, even as a democrat – one that does admittedly border on the socialist – i think it’s a bad, bad bad idea.

Socialist IDEAS are not all horrible on paper. Socialist practices tend to not work out so well. Even I realize that.

Throw in our current system of government, who can’t even manage to keep a free and open market from collapsing – and the thought of a nationalized banking system makes me want to stockpile food and ammo.

I must admit.

I read earlier Asian markets are down. I’m almost in the mood to buy.

I’ve been, personally, buying at every step down.

I also realize, that money seems to be confused on where to flow to ( I wholeheartedly detest ending a sentence with a preposition).

(spelling)

I must admit.

I read earlier Asian markets are down. I’m almost in the mood to buy.

I’ve been, personally, buying at every step down.

I also realize, that money seems to be confused on where to flow to ( I wholeheartedly detest ending a sentence with a preposition).

(spelling)

The asian stock market almost crashed today.

what is essentially being proposed is what conspiracy theorists like to call “the new world order”.

Having a very small group of people in charge of the entire banking system globally, somehow does not strike me as a very good thing.

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Why do we need a global nationalization of banks, why can’t the US just do it itself?

Also, what would this require? Can the Central Banks of the world just do this, or are we going to have to get legislation through every major legislative body in the world? If the latter is the case, God help us because I doubt you’d ever see anything like that happening.

Or a better question might be: why are we stuck with McCain?

We’re in the biggest economic storm of five decades and we have a national security guy running the show. This is first time since a few months ago that I regret that my first choice, Romney, didn’t get nominated.

Imagine – if we had Romney up there he’d be wowing the American people with his knowledge and leadership ability on the economy.

I don’t even know where McCain stands these days, especially after hearing his new bailout plan during the debate. I think he’s on the verge of losing this one, if he hasn’t already.

There is a very solid school of thought that I am a firm believer that what put the Great in the Great Depression was government meddling with the economy.

There are times when economies need to bottom out and I believe this is one of them. To artificially prop up the terrible decision making from Congress and Wall Street (main street also was at the feeding trough) will continue this roller coast ride.

I was against the bailout (it is a bailout not a rescue) and I am still opposed to it.

Taking the latter figure and multiplying it 30:1 you get 60 trillion dollars, a number which is very close to the 62 or 65 trillion dollars in credit default swaps that are still extant?

Where would the money come from to buy the preferred shares? I’m going to pull a raw number out of a dark part of my anatomy and suggest that we’re talking about more than a trillion dollars and less than two trillion.

Are we simply trying to stave off the enormous counterparty damage that exists in the CDS system if the banks go insolvent?

In a related story, the Wall Street Journal is running an interactive article on the 1 in 6 home owners across the country who are now officially “under water” on their mortgages — meaning that they owe more than their houses are worth.

A look at the graph is instructive:

Most of the distressed assets are in Florida and California with a smattering of trouble spots in Michigan and a few metropolitan areas throughout the country. It looks like people on the sunny West Coast and in sunny Florida are responsible for most of the overvaluation in real estate that’s at the core of this crisis. Maybe we should consider ways of walling off, buying up and liquidating the real estate markets in California, Florida and Michigan and then keep them on a short leash for ten years.

skin in the game, trying to find a solution to the financial mess. Perhaps 1/2 or more banks worldwide need to liquidate and go out of business. They are undercapitalized and failed to recognize risks they were taking. Of course, that means bankers driving school buses for the next decade or so.

Socializing the banks won’t ‘solve’ this crisis or even smooth out the upcoming crash. The banks created a global tulip craze with no easy way out.

Conservatives should have buckled and passed the original congressional version that would have given $20,000,000,000 to the likes of ACORN!?

Krugman has been pushing this for at least several weeks now. He claims it will restore solvency and faith.

My concerns are:
1) Not sure the US government can run a bank competently.
2) Still leaves us with the problem of an insolvent US government.
3) Creates an awesome potential for corrupt private profit as these assets get shifted around. The government won’t own them forever.

It may be what we have to do. It likely would be better than either economic collapse or the creation of another bubble. It goes against the conservative grain, though.

It’s funny, I don’t see it the same way you do: I think the delayed panic reaction we see right now in world markets is because nobody really took the necessity of the Paulson plan seriously until it happened.

I think a lot of investors were thinking: “it’s not so bad…” until Jim Cramer got up on the Today show and told them to pull all their money out of the stock market, and until the government was forced to act. It was only then that a lot of the sleepyheads woke up and realized: “Holy …., things are really not so great…”

I do understand the impulse, but I tend to think that even nationalization is a poor solution to the problem. I think the aversion to counter-party risk precedes the crisis, as evidenced by the profusion of risk management through creation of securities like the MBS and credit-default swaps to guarantee the safety of the transaction. It appears to me that we’ve managed to convince ourselves that we can have high returns without the commensurate risk that comes along with them, and I don’t see a government guarantee as solving that issue.

I would look along a different line of thought. While there are certainly banks that are under capitalized, there is also a good deal of money effectively on the sidelines in cash or near-cash equivalents due to the risks involved. Rather than attempt to deal with the counter-party risks by making banks risk-free government operations, we could also increase the risk of having your money do nothing. How? Inflation.

Not the hyper-inflation of Zimbabwe, but a modest level of inflation together with the temporary discontinuation of inflation indexed bonds by government issuers would add a real cost to keeping large amounts of cash out of the market. Instead of a choice between a “perfectly safe” low-yield solution and a risky higher-yield solution, you are instead looking at a choice between a negative effective yield and a positive effective yield.

I would think that establishing effective counter-party risk analysis as a real and necessary precondition to wealth protection would better jump-start the recovery process than attempting to ensure the safety of the counter-parties themselves

Had Congress passed the plan when they first received it, instead of questioning whether the situation really was this dire, we might have forestalled the worst effects.

I agree! We all (us conservative pro markets types) all blew it when when we barked at the wrong dog when the first Paulson Treasury plan was floated.

We lost time (which made the markets worse) We gave an opportunity to the big government guys to add $110b to the bill, and we imperiled that markets we all hold so dear.

I also agree that Treasury wished the could have the Lehman deal back. That non-intervention was a big mistake and is requiring a far bigger intervention to fix.

All markets, but financial markets in particular, exist only because of political structures and in fact the financial markets are the most heavily regulated in the world. For good reason. Blackhead’s position counter-party risk is sound and, calm down everyone, in no way is a socialist takeover of the economy, the markets, your house, your pet, anything…

My work on the financial crisis is over here…

Congress to America: Drop Dead

Doug

Dougist.com

The US in concert with 6-7 other central banks cut interest rates this morning to help jump start the credit markets.This is a huge move in the right direction.

Please stop with the nationalization talk around here. Aren’t we in favor of free markets?

Look, taking away why we’re here let’s look at the problems right now. They are an overleveraging of businesses, governments (state and local), banks, and ordinary Americans. Everyone agrees that our real estate is overvalued – it became uncoupled with inflation.

So the natural response to ‘correct’ the problem is to make credit harder to come by (which the market is doing) and causing a massive devaluing of real estate assets. The malinvestment (or over investment) in real estate must correct. So we must avoid the impulse to prevent devaluation of home values, etc. This is a normal market response. If we prevent this, it merely continues the malinvestment in real estate.

So buying foreclosed homes or putting a ‘floor in the market’ simply artificially inflates the prices of homes – further slowing the necessary correction. The other entirely wrong thing to do is to lower interest rates which again encourages more malinvestment and inflation.

Everything the Federal Reserve and Treasury is doing is to prevent a depression which is unavoidable. We need deflation and a contraction of the market. We need realistic interest rates to encourage smart investing.

Will people lose jobs? Yes, but less than if we continue down this path. Will we see a drop in real wages? Yes, but less than if we continue down this path. Is there any way to avoid the downturn? No, but we can deepen it by using government power to prevent the market from correcting itself. Each ‘trick’ in the Fed’s bag further prevents the inevitable correction but makes it more and more painful for everyone. And with each new power the Fed acquires the less the liklihood we ever get to see those freedoms return.

Oh, and passing the first bailout bill right when it was proposed would not have prevented the correction. This has been brewing for a long, long time.

And now we’re pushing for More socialism. MORE government action.

Blackhedd, allow us non-economics gurus to remind you of something:

When you have been poisoned, you don’t take more of the poison expecting it to cure you.

Government action is the poison that Created this problem. Government action is the poison that will make it worse.

STOP POISONING US!

Let us get the poison worked out of our systems and move on.

“Conservatives” or Congress not passing the Paulson Plan when first proposed, we have to realize that the “crisis” alarm was not issued early enough. The speed that Congress passed legislation on this was a breakneck speed (for Congress). In fact, I would argue that they did not take enough time for generally thought out legislation. I’m not talking about the timing of what needed to be done, I am talking about rational debate and understanding what you are voting for, etc.

I disagree with you here Blackhedd. At some point we have to decide to follow principles (and the Constitution) even if it hurts. I have trust that the structure that the Founders came up with will survive and thrive if we remember to follow it. Nationalized banks? I don’t think that falls into Constitutionally approved activity.

Seems it’s coming regardless…

credit markets continue to deteriorate despite massive money injection and rate cuts globally.
http://www.cnbc.com/id/26905693

Again, it’s not a liquidity problem but a solvency problem.

Can anybody explain to me why the overnight LIBOR exceeds 1-month and 3-month LIBOR by a wide margin? It doesn’t make any sense to me at all. Does that mean the 1-month/3-month LIBOR rates are just nominal, the actual markets do not exist at all?

I’m confused …

I’m sure Francis has the ability to defend himself for reasoning behind nationalizing, if you are familiar with his diaries you already know that his diaries come with a great deal of thought and internal evaluation.

I can empathize with people who are so ardently opposed to nationalization, but Francis didn’t recommend this, he provided an objective analysis of why it may be an option. It may also foreshadow some inevitable events.

I see many reactions to this diary stemming from emotional response to big government…the news bearer in some comments being taunted… let me remind folks that Francis isn’t proposing the new course here… he’s opening dialogue about a very possible action that may come about. He’s obviously not in lead negotiations between banks and government right now either… however if he were, I know I’d sleep better at night.

I think nationalization is going to be an option…to the powers that be… I would hope that it isn’t, seems to me to be the last option to pursue. The window to use this option of last resort may be narrowing. Which may in turn cause poor decisions.

Will people lose jobs? Yes, but less than if we continue down this path. Will we see a drop in real wages? Yes, but less than if we continue down this path. Is there any way to avoid the downturn? No, but we can deepen it by using government power to prevent the market from correcting itself. Each ‘trick’ in the Fed’s bag further prevents the inevitable correction but makes it more and more painful for everyone. And with each new power the Fed acquires the less the liklihood we ever get to see those freedoms return.

Will people lose jobs… they already are

Will there be a drop in wages… already happening

Is there a way to avoid the downturn? possibly… but it may involve uncharted territory.

Calling on a depression to cut losses and move on is in my opinion a piss poor attitude towards an actual resolution.

We all agree the markets didn’t fail until government got involved. If I’m seeing this correctly, now only the government has the means cut the markets loose again by providing a bridge to solvency then gracefully stepping out… the second part is the real question…

I believe Francis has pointed out that this maneuver would be very temporary, and profit opportunity for the banks to re-privatize will make it so should this course of action be taken. Standing on principle doesn’t make a lot of sense when you’re doing that standing head down.

This seems sensible to me in that it stems from the hope of possibly fixing this without having to enter into a depression.

take this all with a grain of salt folks… your blogging won’t exactly protect your civil liberties…

work with the card dealt to you… play you best game always…

Personally I thank Francis for helping us understand the risks involved. Reading between the lines helps me to know that these diaries are somewhat more like warnings to they that have ears to hear rather than outright embracing of unpopular actions.

I must admit deep astonishment that you would suggest the answer to curing global liquidity is nationalizing and globalizing all the banks. This is a Marxist approach using borderline world collectivist philosophy to cure a flaw in the business cycle. It is not only short sighted but permanently damages the free market. It is the tripe that Euro-trash has been pushing forever to further their dream of one big world social order with our country as their minion. It is also the de novo Bolshevik Revolution Obama is pushing.

You know better then most, historical growth rates and underlying reasons for this countries economic prowess. It is also obvious you have an acute sense of how we got here. The latter starts and begins with unwise government intervention in the market and a lack of will, encouraged by political factors, to cure problems which were foreseen by the sagacious. Permanent government intervention, ownership and control will further that downward spiral and spell the death of our free markets. Let’s not forget who help create the Alt/a-Subprime markets and gave Wall a chance to turn it into an overleveraged business.

I have no issue trying to make institutions safer vis-à-vis better Treasury control over balance sheet risk and capital standards. Given our global market I would also, if done right, not have many issues with establishing overarching standards through institutions such as IASB. We also don’t have many short term options beyond what Treasury is doing today, provided they remain only as long as the exigent circumstances do and divestiture is in our future.

However, the answer to short term liquidity lies in the building of trust, establishing sounder fundamental risk measurement, proper capitalization and more adroit balance sheet awareness; all slowly done without ownership control. I don’t see how any government accomplishes that when those factors, in effect, become controls they may place upon themselves.