We had a former head of the FDIC tell a group of congressmen yesterday that the Bush administration has been going around the last few weeks, actually, so tightening up on the practices of banks that they’re forcing them to have bigger reserves, which in a way would, you know, kind of create—help to create the kind of tight money policies that we’re saying we’re trying to alleviate with this bill. So, you know, there needs to be a deeper look at this. It seems to me there’s a possibility that this crisis has a little bit of manufacture to it.
Suspending mark-to-market accounting, in essence, suspends reality.
-Beth Brooke, global vice chair at Ernst & Young LLP, WSJ, Sept 30, 2008
Some "public opinion" from the finance geek sites:
The bailout, I mean rescue plan, can be seen as nothing less than a new Ponzi scheme. It works like this:Fed as only lender, in an attempt to keep the financial system from imploding;
TARP needed to keep Fed balance sheet intact so that it can continue as only lender;
Treasury will need to significantly increase the amount of Ts (public money) auctioned to fund TARP;
Panic serves to encourage T. buyers, especially for bills;
This represents a liquidity trap: TARP recipients of Ts will hoard cash to buy Ts: rinse and repeat.
This results in drying up of lending to corporations/crowding out private capital - no new credit lines;
The Fed becomes a holder of private capital, the later of which is now frozen to protect that capital from deteriorating, The rollover scheme will restrict even more lending in the private sphere for purposes of keeping the financial sphere on life support, but with the consequence of furthering the deterioration of the 'real' economy.
My thoughts exactly, Don. Plus the durations target the drawdown precisely on the capital we need most. We're desperately short of 3 month working capital, and here comes Paulson to take $700 BB of what we've got left away and dump it in the mortgage industry. I don't think you could devise a worse plan. We might be better off if he *did* steal it.
So, financial predators and parasites, having cannibalized the actual productive economy of the US over the past 30 years, now have no choice but to cannibalize each other.
It points out the fundamental need to free the republic from the stranglehold that finance capital has held the country in for the past generation, starting with the bankruptcy of NYC in 1975, aka The Banker's Coup. It was this event that presaged the dominance of the neoliberal regime and serial credit crises to come. Now, as a result of their infinite greed and arrogance, we will see a Final Offensive of structural readjustment, privatization - already announced in Thursday's New York Times, in an article buried in the back of the Metro section announcing that Governor Patterson is exploring the sale of state assests - and widespread immiseration.
While Marx's prescriptive powers left much to be desired, his powers of description - namely, the inherent tendency of capitalism to generate crisis - remain prescient.
Having listened to all 42 minutes of the late night Treasury briefing of investment banks on Sunday, there is no doubt in my mind that this legislation represents the sort of federal largesse for Goldman Sachs, Morgan Stanley, Citibank and JPMorgan Chase that the Iraq war provided for Halliburton and Blackwater.
The most cynical moment in the call is when the Treasury official confirms, ”our preference would be to help the healthy banks become even healthier” rather than helping troubled banks or illiquid banks.
America is now a centrally planned economy where the Treasury will determine which firms survive and prosper through allocation of scarce capital to an undercapitalised financial sector.
Clearly what is going on here has nothing to do with kick starting the credit markets or stabilising the equity markets or restoring depositor confidence in banks. (Treasury official: “No provision in the legislation that mandates re-lending.”) What is going on here is a blatant attempt to provide government funds to a select cadre of firms (not all banks) which are chosen to be the survivors feasting off the carcasses of their less fortunate and less well-connected brethren as the downturn intensifies in the years to come.
The crash in equities will still happen. The debt deflation of the economy leading to mass commercial and consumer credit defaults will still happen. The collapse of many national, regional and local financial institutions will still happen. The bankruptcy of many municipalities and shortfalls in state budgets will still happen.
This bill is about engineering survivor bias to friends of the Bush administration so that they profit disproportionately from the collapse of these markets using the funds provided by the taxpayer via the unreviewable and unconditional authority of the Secretary of the Treasury.