Re: By the way
 

Krugman says that what needs to be protected are deposits. That could have been protected and sold, along with good loans. And not to hedge funds. To real investors. Hell, we would have been better off if Citicorp and Chase had been turned into mutuals, the equity given to account holders, and the shareholders and bondholders told to fuck off. You're mistaking the institution for the assets. You're telling me that the pensions, Warren Buffett, and a few million good old citizens with the money to invest $10/share to buy a bank that has been cleansed of shit, management, and backed by the US government is not going to find a buyer?

I remember the S&L meltdown of the 80's. An S&L would shut down on Friday, and reopen on Monday with new owners, no toxic loans, and the depositors hardly noticed anything had changed. The same thing could have happened 4 or 5 years ago with Chase and BofA.

It didn't happen because the White House and Congress didn't want to lose some of their biggest donors, not because Uncle Wayne's hardware store was in jeopardy. Citadel may have been in jeopardy, but they were big boys and girls; they knew what they were playing with was all going to go poof one day.

Re: By the way
 

There is a huge difference between letting a big financial institution fail, and keeping it from failing in a way that nonetheless cleans out the existing owners. I am very sympathetic with the argument that we should have taken ownership as the price of the bail outs, but that doesn't mean we should have let those institutions fail. That would have had huge impacts on the rest of the financial sector, and on everyday economic activity.

Re: Is Ted Cruz Satan? Discuss.
 

I read a very grim outlook on Mosul's chances a few days ago. I can't find it now or I'd link it. I think you're right about the leadership in ISIS being very professional and well-financed. I worry about them letting the troops blow off a lot of steam to keep them in line, and I worry that much of that steam will be sectarian and ethnic.

Eat the rich.
 

Wonk, I am with you in spirit, but 2008 was a magnitude bigger clusterfuck than the S&L crisis was. The adults (Paulson, Bernake, Geither at the NY Fed, and Barry O) didn't have a choice but to act as they did. Now, they could and should have done a better job of healing the patient after saving his life in the ER, but that is a different issue.

"Let it burn!" might have been a viscerally satisfactory thing to do, but we'd be all Mad Max right now if that's what happened.

Re: By the way
 

When I talk about failing, a purge is what I am referring to. I used that because, technically, the old bank does in fact "fail" in that it is shut down by the Fed. What opens the next business day is a "new" bank with the same name, same depositors, etc. Just none of the cancer, which the Fed excises and holds in quarantine while it tries to extract as much value as it can, and goes after management (can you say clawback?) for the largesse they bestowed upon themselves.

Re: Eat the rich.
 

If you're right, we might as well just admit that the Fed is a worthless puppet, and the big money has won. It was already burning. The difference is in who got touched by the flames.

Re: Is Ted Cruz Satan? Discuss.
 

With all respect -- and I say that in the hopes that you will buy the next round -- I don't think you've made the case that Islam is a key cause of violent extremism. (Your analogy to Catholics listening to the Pope is interesting, because Islam does not have a Pope who can use his authority in that way.) I think what you're saying is, there's a strong correlation so there must be a causal relationship. I think that's a fallacy.

OTOH, you certainly have some fundamentalist Arabs in the Gulf states who have a lot of oil money and have used it to fund violence all over the place. For those people particularly, it's hard for me to find an alternate explanation for what they're doing. But that's not a story about Islam -- it's a story about some Wahhabis.

OK. I have trouble knowing how to respond to this, so I guess I'll drop it.

Re: By the way
 

I think you're having trouble understanding how a bank works. Banks take deposits and invest them. When they invested them in CDOs, those deposits disappeared (which is why doing away with Glass Steagal was so stupid). If the bank fails, the deposits are *gone.* Didn't you ever see It's a Wonderful Life?

Ha! First, you're talking about a total of like $3-400 billion lost compared to trillions upon trillions! Nevertheless, hundreds of savings and loans were closed forever. The government came in paid off using the equivalent of the FDIC for S&Ls. And banks got dragged down too (apparently over a thousand) and the crisis is probably the cause for the recession we went through in the early 90s.

Again, you are comparing a small leak in a dam to the whole dam turning to dust. Shit, that small leak created a huge recession. Imagine what would happen if numerous huge banks went under in '08.

And you're wrong. The bail out was in the form of making good on the insured deposits, which the Federal Savings and Loan Insurance Corporation absolutely had to make good on.

TM

Re: By the way
 

In your scenario, there is no investor group. It's a bank run.

We've done what you're advocating before, and the lesson was let's not do that again.

Which is not to say that we went about it the right way. We most certainly did not, saving the executives and the shareholders instead of the institutions.

Re: Eat the rich.
 

Correct! Banks made huge money borrowing from the Feds at almost zero percent and then lending it back out again at much higher rates and paying themselves huge bonuses for their genius business acumen. You know why the Fed was lending at such low rates? BECAUSE BANKS REFUSED TO LEND AT ALL (EVEN TO EACH OTHER), WHILE LYING ABOUT AT WHAT THEY WERE CURRENTLY LENDING (SEE: LIBOR SCANDAL). The whole system is a joke and our politicians are owned by the people laughing the hardest.

TM

Re: By the way
 

And that happened with lots and lots of banks this time around. But with these global behemoths with lots of non-banking businesses (thanks, deregulation!), I am sympathetic to the uncertainty that it would have been possible for these institutions.

Which again, is not to say that that it could not have been handled more equitably.

But you've come a long way from the "let them fail" that started this conversation.

Re: Eat the rich.
 

If someone could get the banks to compete with each other, this wouldn't be such problem.

Re: Eat the rich.
 

They definitely compete with each other. It's a big reason why the recession lasted as long as it did. Back in '05 to '07, things were so good that (corporate) borrowers who were even a mediocre risk started demanding that banks remove the protections in credit agreements that keep borrowers in line and provide warnings and protections to banks in case the credit starts going south. They called them covenant-light loans. Some banks wouldn't give in at first, but they eventually came around when there were 10 other banks ready to make that loan. And if you were making no loans, guess what! Loan officers were missing out on all those huge bonuses paid based on the size of your book! Plus your bosses were mad when they looked around at everyone else making tons of cash hand over fist.

When the crisis hit, lenders were stuck with lots of shitty credits that they couldn't default or, more likely re-work to keep the credit flowing at better rates, because the covenants on which they typically rely didn't exist. That kept them from lending way longer than it should have. Well, that and the fact that Lenders couldn't buy a LIBOR contract because the stated rate was pure fabrication (if published LIBOR was 5% on a 30-day contract, no bank could actually get a 30-day contract at a rate lower than fucking 20%).

I knew of banks who were calling their borrowers and saying, "Look, I know LIBOR is currently at 6%, but it is actually not available. Can you please allow us to change the LIBOR provisions of our credit agreements so that it says 'If no LIBOR contract is available at the published rate, we don't have to lend at the rate we agreed on?'" If they hadn't negotiated away their protective covenants in the first place, they would have been in a position, when borrowers blew their covenants, to say, "We'll continue to lend to you, but we need to revise the LIBOR language."

A lot of money ended up being lost because of competition. And it surely extended the recession.

You know what? We're already back in a covenant-light market (somewhat)!

TM

Re: By the way
 

I understand how banks work. And I did see "It's a Wonderful Life." I was suggesting that, instead of just throwing a bunch of money at the same assholes who blew it all in the first place, the G should have restored depositor accounts, wiped out the equity and debt on the bank itself, so the losers were the ones who invested money and then failed to keep an eye on the management, and turn the institution over to someone who would run it the way a bank is supposed to be run. Like George Bailey. What I am having trouble understanding is why it would cost so much more to do it the way I suggest than it did to just give more money to the fuck-ups?

Re: By the way
 

What I did was neglect to go further than just let them fail. What I was suggesting could have been done was what I was thinking all along, I just didn't express it clearly. I made a couple of jumps in logic and got frustrated when nobody was following along. I expect you people to be more clairvoyant, so I can be less complete.