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Blog item: Avoiding Brain-Dead Bailouts, Prosecuting the Criminals, and Shaming the Greedy

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11 comments, last: Oct-3-2008   Add a comment   Author:  PT (Sep-26-2008)    Play a Video
Categories: Economic/Financial, Political, Sustainable Living

The environment on Wall Street (up to September 2008?)It is time to speak here, beyond the cliches, concerning the difficulties taking place on Wall Street and the suggested response to those difficulties.

Whose Crisis Is It, Anyway?

There is always the entrenched investment community that wants public rescue when they run into trouble.  However, they give minimally TO the public when things are going well.  Certainly, they do not give $700 billion dollar gifts to the public.  You will also see further on in this article the tie-in of our financial system to the environmental effects on the planet.

This morning I heard, once again, a view that seems not to be fully reaching Congress.  Allan Meltzer, Professor of Economics at Carnegie-Mellon University and, let's say, a seasoned hand in economics, supports allowing the markets to manage this crisis.  Paul Krugman, also a very well-known economist, Professor of Economics at Princeton University and also a New York Times writer, agrees in this regard with Meltzer.

Allan Meltzer points out the Shearson-Lehman has already been able to sell off almost all its assets, and that AIG shareholders have been looking at buying the company, and that a Japanese bank just purchased a 20% share in Morgan Stanley.  This is the free market, at work, without any US tax payer dollars being donated to these giant companies.  But it is less comfortable for those institutions than a gift infusion of cash.

You can read the transcript and hear the audio from the three-person panel at the PBS Web site.

Henry Paulson and Ben BernankeDo You Believe in Magic?  In a Broker's Heart

Before discussing the "bailout" and alternatives, let me say out loud: I support whole-heartedly, and would like additional Congressional action supporting and widening, the current FBI investigation of and future Federal prosecution of all those who broke laws that resulted in the collapse of so many large institutions.  And those who corrupted and destroyed the regulation of the financial industry, while they may not be subject to prosecution, should be publicly shamed for the great, great disservice they have performed to the American people and indirectly to the rest of the world.

Now, you may be wondering how to interpret all these opinions, and here is where I will jump in.  It is important to remember that Federal Bank chief Ben Bernanke and Treasury Secretary Henry Paulson not only sleep with the investment community, but both are married to it.  The danger is that Congress is also feeling the need for a misplaced and misguided loyalty to the investment community, and that as a result they may simply change the trimmings of the $700 billion dollar gift.

Those Wall Street and other investor folk must have been wonderful citizens all year, making money for the public and for their firms, building our American spirit of mutual support and generosity.  Isn't that why we now want to offer them $700 billion?  Oh, no?  It is because that is the only way to rescue our American, no, the World economic system from catastrophe?  Apparently there are a number of experts-without-vested interests who disagree.

The REAL Bottom Line

If the government does not give the money, then the economy may indeed slow down for a while, maybe for a few years.  But that is a natural, curative behavior.  When a human runs a fever, he or she would normally slow down, probably rest in bed, eat good easy-to-digest food, and sleep a good deal, until the illness ends.  Similarly, our banking system needs to recover through re-evaluation of its assets by all the world markets.  This will entail slowing down, avoiding high risk activities, and earning some real money not speculative bubble money.  Otherwise, they are acting like a sick individual who, instead of allowing normal recovery, gulps down some high-caffeine energy drinks and runs around even faster because God forbid any of the daily activities get skipped or delayed or scaled back.

It is time for skipping, delaying, and scaling back of the financial industy.  It is THAT result that Henry Paulson and Ben Bernanke do not want.  After all, their friends all work for those firms that would get scaled back.  And what kind of friends would put the unknown public ahead of their own friends and their own future incomes.  Apparently not these two loyal folks.

Let's hope enough of Congress sees through what Paul Krugman characterizes as a "power grab".

Last point: I heard another expert discussing more just remedies for the current crisis.  His recommendation was that bankruptcy laws be revised to allow homeowners to claim bankruptcy protection on their homes, which would allow a judge to re-set the payments and interest the homeowner was paying.  This would allow corrective re-evaluation of assets at the level where the mistakes were originally made, that is, at the individual home level.  Rather than sweep the entire situation into one lump sum, the healthier approach according to this analysis (and it does seem to make sense) is to unwind it the same way it was created, at the level of the individual property.  To make this change requires undoing the restrictive changes to bankruptcy law that were passed under guidance from the financial industry after a long fight.

Impact on the Planet

One side effect of the history of feverish activity and growth in human society has been accumulating damage to the planet.  It is the urge for "higher" and more luxurious standards of living, for more variety of disposable products, and for faster and more ubiquitous private transportation, that has led to the gradual collapse of more and more ecosystems, as well as resulting in our INABILITY globally to slow down and reduce the emission of greenhouse gases, even when the warning signs are crying out from all sides.

A Short But Sweet Summary, and a Question for You

All the alternative solutions to our current economic crisis seem to have great value compared to what I will call the "brain-dead solution".  That is, unless you believe Paulson and Bernanke that we must immediately hand Paulson the $700 billion or the world will melt down.  I know that I am not buying it.  Do you?

Related PlanetThoughts.org reading:
  Paul Krugman's Errors And Omissions (Sep-25-2014)
  Peak Oil: German Military Not Sticking Its Head ... (Sep-22-2010)
  Sacred Demise (Mar-28-2009)
  Make Do and Mend (Mar-11-2009)
  Four Truths About Climate Change We Can't Ignore (Dec-13-2008)
  John 'Nuke Bailout' Bryson must NOT be Secretary... (Dec-7-2008)
  Michigan in Crisis - The Collapse of the Big Three (Dec-2-2008)
  Alternatives to an Auto Bailout: Help the Econom... (Nov-15-2008)
  From Despair to Hope (Nov-15-2008)
  Bailing Out the Biosphere (Oct-23-2008)

Click one tag to see readings related specifically to that tag; click "Tags" to see all related readings
  
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Comment by:  PT (David Alexander) (Oct-3-2008)   Web site
I agree with you, Auntie. I think we are simply deferring the REAL crisis that may occur starting in the next year to ten years. When it will occur can not be exactly predicted, but look at the talk from Matthew Simmons that I just posted - we are on the edge of a number of crises with oil, gasoline refining, water, food, and even health (look up XDR-TB).
  
Comment by: auntiegrav (auntiegrav) (Oct-2-2008)   

We send 700 billion out of the country every year to buy imported oil.
This bailout is just enough to keep the 'ole Building and Loan open until quitting time when uncle Billy grabs the silver certificates and heads for the Caymans.
If they want to rescue the banks, they have to rescue Suburbia. In order to do that, we either need a new energy source or a new way to live in those houses or they become worthless.
Suburbia was designed to maximize the use of resources (make the highest profits), especially petroleum. Lose cheap petroleum and you lose the value of suburbia. No more suburbia and you have no more Home Depot, etc. to fill those houses with individualized stuff.
  
Comment by:  PT (David Alexander) (Oct-2-2008)   Web site

Thanks for the kind words (and I apologize for the delay in replying).

It looks like the bill will pass, because they topped the crisis pie with some fake, non-dairy whipped cream.

It occurred to me a few days ago, when I heard that Wall Street firms are jockeying to provide "services" for managing the $700 billion, that it is always a mistake to create an uncontrolled pool of $700 billion (look at families who assault each other over $10,000, so what will $700 billion do?) I can just imagine what the management services will consist of - handing out funds to their friends, while keeping a 40% "management" fee?

And by the way, I keep hearing or reading the defenders of the bailout saying "No, no, no, the fundamentals of Wall Street have changed, now that the five biggest players (Merril Lynch, Bear Sterns, Morgan Stanley, etc) have disappeared or fundamentally changed. But it seems far more likely to me that, fueled by the money industry (whose derivatives and credit default swaps remain unregulated even in the most current bailout bill), the remaining firms will simply struggle to see who will fill the spots left open by the disappearance of the big firms.

Within a few years, the game will continue with more or less the same music, while no one notices that the original host has left the house.
  
Comment by: lynmarie (LynMarie) (Sep-28-2008)   Web site

I think they figure that if they say the word "crisis" enough times, we will agree to whatever they want to do without even looking at it. I'm not saying there isn't a crisis, but I do believe that for this administration, crisis means, "Hurry, hurry and do what we want before there's a chance to think!" If they could keep us in a perpetual state of panic, they'd be the happiest bunch of guys on the planet.

Great post, by the way. Lots of good insights here.
  
Comment by: auntiegrav (auntiegrav) (Sep-27-2008)   

There is nothing free about our enterprise system. It is bought and paid for by those with the ill-gotten means to do so. The delusion that "if you work hard, you will be paid well" is total crap. The Greeks knew this about democracy almost 3000 years ago. If you are mean, you win. That's the 'free market'. Bullies build on top of peasants. Religion, law, infotainment; they are all designed to keep people thinking below their paygrade so that they don't get 'uppity'. When the peasants are tasked too hard (not enough time to work enough hours to buy enough gas to work for the rich), they are simply allowed to fend for themselves while being jackbooted in the throat to get taxes out of their future offspring.
And yet, we keep watching TEEEVEEEE and buying the crap that fills the screen...not to mention the commercials.
If it was truly a free market, we would have the freedom to NOT buy stuff. Go ahead. Try it for a while and see what happens to your social circle, your job without buying gas, your promotions without deodorant, your kids' schooling without the candy sales...
The only thing free about this market system is the freedom of those with money to buy lives and dispose of them at will.
An economic meltdown may be a boost for freedom, but not unless we keep a wary eye on the System of systems that is designed to allow violence to flow downhill.
  
Comment by:  PT (David Alexander) (Sep-27-2008)   Web site

Yes, let's hope there is at least a strong component of that in whatever the final agreement turns out to be.
  
Comment by: SanDiegan (Sep-27-2008)   

Thanks for the insightful article. One would think that our 'free enterprise system' and the laws of supply and demand, if allowed to work, would lead to the current crisis eventually sorting itself out without massive monetary infusions.
  
Comment by:  PT (David Alexander) (Sep-26-2008)   Web site

Yes, beautiful ideas. I agree, this is a once-in-a-century opportunity to consider what is going on, and what we WANT to go on.
  
Comment by: auntiegrav (auntiegrav) (Sep-26-2008)   

The only reason it is a 700 billion dollar number is to whitewash the public's windows. Even Paulson said that is just the beginning. The derivatives markets which are leveraged on these collapsing home values are in the tune of at least 46 TRILLION dollars, and with the current leverage ratio of 40 to 1, that means we have to make sure there is at least 1.something trillion in the slush fund guarantee. Higher numbers have put the derivatives at 455 Trillion. Yes, Four Hundred Fifty Five TRILLION dollars, when all the options and trades are said and done, most of that money is what we have seen promised between people in order to make things like yachts, underwater hotels, and cheez doodles with poison additives in the cheez.
If we allow this bailout, we are financing the poisoning of the planet and our children. This is a perfect place to stop it and let it collapse, then implement a consumption tax system to bring all government costs out in the open and let people be anonymous tax payers.
  
Comment by:  PT (David Alexander) (Sep-26-2008)   Web site

Thanks for the observations and links - I will check them out.

One thing is sure, a lot of decisions and the future appear to be up in the air, and the haste to gain a commitment to a $700 billion slush fund, after a mere few days of deliberation, is really unbelievable.
  
Comment by: auntiegrav (auntiegrav) (Sep-26-2008)   

I didn't buy it BEFORE they had a crisis. Over at Minyanville.com, the discussions are among stock traders and interested parties, but mostly on the Street. The majority consensus is that what we used to have was the option of a car crash (quick market failure) or cancer (slow decline). This bailout fiasco brings to light the fact that what we have now is the option between a car crash or an airplane crash. If nobody is lying, then dumping 700 billion into the economy will destroy the value of the dollar to buy oil to make the economy go. If we do nothing, supposedly, the economic activity of the country and world will realize that Perpetual Growth is impossible and collapse. If they are LYING, however, then the 700 billion dollars will go straight to Dubai's underwater hotels.

The AIG story is a fun one. Check out "The Conspirators" by Al Martin if you want to know more about illegal activities, connections to Iran Contra (no, clandestine drug/arms deals did NOT go away with the death of Bill Casey), and Arkansas. If you wondered why the Lewinsky scandal was such a big deal, perhaps it's because Iran Contra suddenly became a small deal when a stain showed up on a dress.

We Don't Need Them. We can build a new financial system with people and creativity. We cannot feed people with a bank. 700,000,000,000 dollars is 7 million homes with gardens and windmills at 100,000 ea.
It is 100,000 'Alaskas': the new form of currency if this passes. Seward's folly was the 7 million dollar purchase of Alaska. If you adjust for inflation, this bailout is still upwards of a thousand Alaskas.

"Hey Mister, got any spare states?"

  
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About author/contributor Member: PT (David Alexander) PT (David Alexander)
   Web site: http://www.insightandenergy.com

Member: PT (David Alexander) My lifelong pursuit, since age 18, has been to live more fully and find wisdom. This has involved studies with Zen masters, Tai Chi masters, and great psychotherapists while achieving my license as a gestalt therapist and psychoanalyst.

Along the way, I became aware of how the planet is under great stress due to the driven nature of human activity on this planet.

I believe that the advancement of human well-being will reduce societies addictive behaviors, and will thus also help preserve the environment and perhaps slow down the effects of global warming and other major threats to the health of human societies.
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