Federal Reserve unable to account for 1 to 8 TRILLION dollars.

December 9, 2011 10:49 AM

In August Bloomberg News Reported Secret 1.2 Trillion Dollar Loan To Banks. How much "secret" money was printed and given to the banks? Congressman Dennis Kucinich accuses the Federal Reserve of secretly giving domestic and international banks nearly 8 trillion dollars. Ben Bernanke denies. John Stewart educates and satirizes in the first segment of his show. Congressman Alan Grayson grills the (apparently clueless) Federal Reserve Inspector General regarding their accounting.
posted by noaccident (107 comments total)

Here's the Grayson video without all the conspiracy theory overlays: Alan Grayson questioning Federal Reserve IG Elizabeth Coleman (2009, SLYT).
posted by phoebus at 11:01 AM on December 9, 2011 [4 favorites]

Google Ron Paul, etc.
posted by resurrexit at 11:01 AM on December 9, 2011

James Hamilton explains why the "8 trillion" figure is highly misleading here.
posted by dsfan at 11:08 AM on December 9, 2011 [14 favorites]

From Hamilton's Post:

You're free to take your own position on whether these programs had beneficial effects. But please know that anyone who tells you that the Federal Reserve secretly loaned $7.77 trillion to banks is spreading a lie.
posted by Ironmouth at 11:15 AM on December 9, 2011 [1 favorite]

from post: “How much "secret" money was printed and given to the banks?”

Well, none. As Hamilton points out in the very useful article posted by dsfan, none of this was secret at all. The only secret was the recipients.
posted by koeselitz at 11:16 AM on December 9, 2011 [1 favorite]

James Hamilton explains why the "8 trillion" figure is highly misleading here.

One of the comments on that article led me to this.
posted by mstokes650 at 11:27 AM on December 9, 2011 [18 favorites]

Sigh. That's at the ignorance about this stuff, not about the program itself.
posted by Ivan Fyodorovich at 11:27 AM on December 9, 2011 [1 favorite]

It was not just a loan.
It was essentially a no interest "loan" (google it). .001 % interest . Essentially Zero.

Here's what a 7.7 trillion dollar zero interest "loan" could have done if America wasn't a country designed to funnel your wealth to the oligarchs.

7.7 TRILLION dollars would have provided 256,000 dollars for 30 MILLION PEOPLE , essentially refinancing each and every single foreclosure in America from 2008 through the present at a far more affordable rate and guaranteeing that no one would lose their home. And that money would have funneled through to the banks anyway. But instead we gave it to Chase, BOA and Citibank among others who immediately gave it to their executives in record breaking bonuses.
posted by Poet_Lariat at 11:28 AM on December 9, 2011 [53 favorites]

Setting this out there in wait for the "it wasn't really a bailout, it was all paid back" argument:

http://www.ritholtz.com/blog/2011/12/yes-virginia-the-banks-really-were-bailed-out/

and especially this part:

...Pulling back from a shell game whose details are, by design, labyrinthine, check out the big picture. Since the beginning of the 3rd quarter of 2008 (Lehman quarter), US debt held by the public increased by 84%, from $5.28T to $9.75T (as of the end of Q2 2011). Depending on where you start, the growth rate of publicly held US debt prior to Q3 2008 had been ~8% per year (starting in 1970 or 1980) or ~4.5% (starting in 1990 or 2000). The growth rate since Q3-2008 has been 22.6% per year. The United States has issued between $3T and $4T more debt than would have been predicted by any reasonable estimate prior to the financial crisis. So far....

Also setting this out there in wait for the inevitable "but the taxpayers make a profit on all that lending" rebuttal:

http://www.ritholtz.com/blog/2011/07/can-the-fed-make-a-profit-for-the-taxpayer

...For those who choose to read no further, the bottom line is that, from the taxpayer’s perspective, the government (Treasury) is paying interest to itself (the Fed). The Fed takes out its operating expenses that are now growing because of the interest the Fed is paying on excess reserves. The remainder is returned to the Treasury. In the process, under current government accounting conventions, an expense is magically converted into revenue. This is financial alchemy, but from the taxpayer’s perspective it unambiguously represents a net loss. The amount returned to the Treasury by the Fed will be less than what the Fed receives as an interest payment.

Author of the last:

Bob Eisenbeis is Cumberland’s Chief Monetary Economist. Prior to joining Cumberland Advisors he was the Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta. ...
posted by de void at 11:28 AM on December 9, 2011 [9 favorites]

You know what. They're right. We should just fuck the banks and let everything deleverage at once.

At least then, if there's still a United States left, we can point to the catastrophic fucking mess it would leave and say "THAT'S WHY WE BAILOUT BIG IRRESPONSIBLE BANKS EVEN WHEN WE DON'T FUCKING LIKE IT".
posted by Talez at 11:30 AM on December 9, 2011 [7 favorites]

I"m confused. The November 28th Bloomberg article Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress that made the rounds recently mentions a number of elements of secrecy, including attempts by the Fed to deny access to basic information about who got how much money:

The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011...

Can someone clarify how Hamilton's rebuttal fits with that article, aside from the 7.77 trillion bit, which I think I get?
posted by mediareport at 11:32 AM on December 9, 2011 [1 favorite]

The Bloomberg Article where I first heard about this reports:

The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank.

So not only did the get bailout money, but they got enormous loans at below market rates

[Congress] had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008

Ridiculous! Those in power had no clue that major banks were getting loans on the order of ~$100 billion.

The New York Fed, then headed by Timothy F. Geithner, who’s now Treasury secretary, helped JPMorgan complete the Bear Stearns deal by providing $29 billion of financing, which was disclosed at the time. The Fed also supplied Bear Stearns with $30 billion of secret loans to keep the company from failing before the acquisition closed, central bank data show.

posted by kuatto at 11:33 AM on December 9, 2011 [2 favorites]

Right Talez, because now we've taken what was a huge *PRIVATE* debt mess that would have taken down whole companies and impaired entire economic sectors and made it into huge *SOVEREIGN* debt mess that will take down countries or incite wars.

So much better.

Man, I'm hoping those Martians come through with the Sovereign bailout real soon now...
posted by de void at 11:35 AM on December 9, 2011 [18 favorites]

It's pretty hard for Congress to judge the relative health of the major banks and author legislation to *fix this mess* when those banks are receiving secret loans from the Fed on the side.
posted by kuatto at 11:38 AM on December 9, 2011

The solution to this problem:

Ron Paul for President.

or:

violent revolution. It's no wonder police are using more and more force to intimidate citizens.
posted by ubermasterson at 11:39 AM on December 9, 2011 [4 favorites]

Ron Paul for President.

or:

violent revolution. It's no wonder police are using more and more force to intimidate citizens.

I'm not sure which would be worse.
posted by cmoj at 11:41 AM on December 9, 2011 [23 favorites]

Two points. First, not only was this a no-interest loan but when the banks turn around and place that money in their accounts at the Federal Reserve, the banks get interest on that same money. It's worse than no interest, they seem to be getting paid (link).

Second, the problem isn't that the banks are being helped. The problem is that the Fed is going out of its way to say that it cannot help the average american...it has no tools to do so. On the other hand, the Fed is very creative in coming up with hitherto unknown methods of helping Big Finance (hmmm...I actually like Big Money).

What’s unforgivable is the way policymakers, both at the Fed and elsewhere, basically declared Mission Accomplished as soon as the panic in financial markets subsided and stocks were up again. When spring rolls around, we’ll reach the third anniversary of Ben Bernanke’s declaration that “green shoots” were making an appearance — and there will still be 4 million Americans who have been out of work for more than a year. Yet there has been no sense of urgency about dealing with unemployment; indeed, most of the elite conversation has been about stuff like cutting Social Security payments a decade or two from now. Linkazoo

posted by Hypnotic Chick at 11:43 AM on December 9, 2011 [8 favorites]

"THAT'S WHY WE BAILOUT BIG IRRESPONSIBLE BANKS EVEN WHEN WE DON'T FUCKING LIKE IT".

That strawman is so huge it's ready to go ten rounds with Godzilla, geez.

To completely plagiarize a comment from the article I linked to in my prior post:

"As a rule of thumb, when the policies of a Democratic President are to the right of James effin’ Baker, his administration is doomed."

And what does Baker suggest?

But bank boards of directors and senior management should be replaced and, unfortunately, shareholders will lose their investment. Optimally, bondholders would be wiped out, too. But the risk of a crash in the bond market means that bondholders may receive only a haircut. All of this is harsh, but required if we are ultimately to return market discipline to our financial sector.

I do not mind that we bailed out a bunch of moronic bankers who tanked the economy. It sucks, but it had to be done. What I mind is that we gave them no incentive not to do it again, and we let them keep their jobs so they could do it again.
posted by mstokes650 at 11:44 AM on December 9, 2011 [38 favorites]

I'm pretty sure violent revolution would be worse cuz if Ron Paul were President he'd have a Congress that hated him from both sides of the aisle and he'd able to do NOTHING. So, I'll take Ron Paul, please.
posted by spicynuts at 11:45 AM on December 9, 2011 [1 favorite]

I do not mind that we bailed out a bunch of moronic bankers who tanked the economy. It sucks, but it had to be done. What I mind is that we gave them no incentive not to do it again, and we let them keep their jobs so they could do it again.

Indeed. It sucked, but had to be done, and we should have got something out of it (e.g. equity).
posted by idb at 11:48 AM on December 9, 2011 [2 favorites]

"We should just fuck the banks and let everything deleverage at once."

What's annoying is that people didn't pay any attention to what was actually happening at the peak of the 2008 financial crisis. The whole world's credit system froze. For example, ocean freight shipping essentially stopped completely for a week, or so, because firms involved couldn't get the operating loans they normally got to function.

This all happened because all the biggest lenders in both the US and Europe were discovered to be extremely vulnerable to huge losses or failure as a result of holding unknown amounts of securitized and bad subprime debt in some form or another. It wasn't just that these big banks were vulnerable because of bad lending, it went much farther than that, and, anyway, the real problem was that because of how all this stuff got diced-up and packaged and sold and resold and repackaged, absolutely no one had any idea about who was at great risk and how much risk they had. And uncertainty is itself toxic in this environment, because it fuels a self-fulfilling prophecy: everyone, from the lenders themselves, to big investors, to consumers, starts consolidating their liquid assets to protect against risk. This is a bank run. And bank runs cause even healthy banks to fail. And when banks fail, everyone suffers.

So the Fed and the US government, and others, all had to step in and provide the funds that no one else was providing. This is what "lender of a last resort" means. In bank runs, it has to be the lenders, because it's the lenders who are hemorrhaging funds as people withdraw them. Besides, it's the best route to inject the funds into the system. It has to be at very low rates, so that the banks can afford, in these conditions, to lend them out. And all this is done not because the financial institutions deserve the help themselves, but because these institutions, collectively and sometimes when they're allowed to get far too big, individually, can single-handedly blow up and destroy the entire economy.

Pretty much all liberals and progressives agree that the US should have bailed out the financial institutions somewhat differently, in some cases taking the institutions over completely, even. The long-term terms were too easy, and the anger about how these banks have profited from it and not changed much about how they do business is all very much deserved. But anyone who knows anything understands that there is no question at all that providing this liquidity was absolutely necessary for everyone. Everyone would have suffered had these banks been allowed to fail. It would have been a disaster of enormous proportions. Unemployment would have eventually reached incredibly numbers, thirty or more percent. It would have created social unrest on a huge scale. And maybe that would have forced some necessary changes. But anyone who advocates or wants huge disasters with associated human suffering just to force social change is ethically challenged.

"Right Talez, because now we've taken what was a huge *PRIVATE* debt mess that would have taken down whole companies and impaired entire economic sectors and made it into huge *SOVEREIGN* debt mess that will take down countries or incite wars."

That's just wrong. There's not a problem, certainly not even remotely to the degree to which you claim, with too much sovereign debt here, or in almost all off Europe.
posted by Ivan Fyodorovich at 11:51 AM on December 9, 2011 [26 favorites]

Can someone clarify how Hamilton's rebuttal fits with that article, aside from the 7.77 trillion bit, which I think I get?

He's mostly talking about the magnitude, which is relevant, because otherwise people believe things like Poet_Lariat's view that the Fed could just as easily have refinanced every foreclosure in America, which is untrue (mortgages have terms of up to 30 years, unlike these Fed loans).

The "secret" part is that the Fed tried very hard to prevent public disclosure of the identity of the loan recipients, which is true. I'm of mixed mind about that--I understand Bernanke's position, and if public disclosure created a bank run, it could be an unnecessary self-fulfilling crisis. On the other hand, I'm not sure that disclosure three years after the fact carries any real risk, and my gut feel is that a term of, say, six months would be adequate to prevent bank runs while still providing meaningful public disclosure. I don't know of any real evidence on this point though.
posted by dsfan at 11:52 AM on December 9, 2011 [1 favorite]

Note that Goldman Sachs was the second largest contributor (via bundling) to Obama's 2008 campaign.

This is all about money polluting policy, and transparency. Look at the other contributors on that list - almost half of the top twenty are investment banks or other financially-related institutions. Oh yeah, note that UC was the top bundler; it's nice to know that UC has, seemingly without a peep from the Obama administration, increased tuition rates at 3x the rate of inflation, while UC Regents continue to vote people at the top of their organization unconscionable raises.

Expect this to continue, because big media NEVER makes this an issue, as big media profits from it, big time. Where do you think those political ad profits come from. The .01%, dining at each others' tables.
posted by Vibrissae at 11:54 AM on December 9, 2011 [10 favorites]

" The problem is that the Fed is going out of its way to say that it cannot help the average american....

Right. And it's not really true that they don't have the tools to do so. The Fed has a "dual mandate" to both control inflation and control unemployment. It has essentially abandoned the latter mandate, and that's a serious problem that people should be angry about.

And, by the way, the ECB very much doesn't have a dual-mandate. It was designed to only control inflation, nothing else, and at whatever cost. This is at the root of what's going wrong in Europe.
posted by Ivan Fyodorovich at 11:54 AM on December 9, 2011 [2 favorites]

You know what I learned from this article? We need to end government regulation and excessive taxes on banks and bankers so our economy can improve and job creators can make more jobs.

/hurfdurf
posted by Mister Fabulous at 11:57 AM on December 9, 2011

"I do not mind that we bailed out a bunch of moronic bankers who tanked the economy. It sucks, but it had to be done. What I mind is that we gave them no incentive not to do it again, and we let them keep their jobs so they could do it again."

I agree with you. But his argument wasn't a strawman...you can see the proof of it right in this thread. The majority of Americans object to the bank bailouts in principle, because they are ignorant of everything they need to know to make such a judgment. Stuff like Poet_Lariat's comment is common.
posted by Ivan Fyodorovich at 11:58 AM on December 9, 2011 [3 favorites]

It's pretty hard for Congress to judge the relative health of the major banks and author legislation to *fix this mess* when those banks are receiving secret loans from the Fed on the side.

Like Congress has a fucking clue or an interest in fixing anything.
posted by malocchio at 11:59 AM on December 9, 2011 [1 favorite]

So, what you're saying is: in the US, half the country agrees there's a problem but disagrees on what it is, while the other half believes there's no problem at all and that they know how to solve it. Meantime, the whole thing is lurching along like a ship in a storm with no one at the helm.
posted by no relation at 12:00 PM on December 9, 2011 [1 favorite]

I truly have no concept of how big a "trillion" is. A billion is a thousand million. OK. So a trillion is a thousand billion?

At some point between million and trillion (or, more accurately, I suppose, at somewhere in the OCEAN of points between a million and a trillion) my eyes glaze over and my brain translates the terms into "massive huge fuck-ton" and I lose any sense of perspective.

I have a vague sense of what a million dollars might look like. That number is still a real number. But a thousand million? Now it gets hazy. And a thousand thousand million? Might as well be unicorns. Actually, I'd recognize a unicorn well before I'd recognize a trillion anything.

I don't think I'm alone in this failure to grasp the enormity of these numbers. It's easy to toss these figures around without concretely conceptualizing just how damn big they really are. This is part of the problem, I think. Anything over, say, a billion dollars becomes "lots and lots" -- and that failure to put it in perspective diminishes the scale and scope of the crisis.
posted by BitterOldPunk at 12:00 PM on December 9, 2011 [5 favorites]

The Fed has a "dual mandate" to both control inflation and control unemployment. It has essentially abandoned the latter mandate

And is lying through its teeth about the former. Gee, wonder what this 8 trillion dollar dilution will do in terms of inflation? Hint: to the first loot recipients, not much. To you and me, substantial damage.
posted by telstar at 12:02 PM on December 9, 2011

There's not a problem, certainly not even remotely to the degree to which you claim, with too much sovereign debt here, or in almost all off Europe.

Oh, ok, my bad. I keep reading about these record debt levels and deficits in major countries and how even a small rise in interest rates is going to seriously impair their ability to function, but I must be getting bad information.
posted by de void at 12:02 PM on December 9, 2011

Banks got bailed out, we got sold out.

I don't care about the ratio of bailed out to sold out. It happened, I'm pissed, and no one in power had done more than talk about the issue until a bare handful of state AGs took matters into their own hands. Not enough by far.
posted by Slackermagee at 12:02 PM on December 9, 2011 [1 favorite]

...The majority of Americans object to the bank bailouts in principle, because they are ignorant of everything they need to know to make such a judgment...

The bank bailouts would have been a lot easier to swallow if they had been sugar coated with the firing of management that led the bank to insolvency.

Ok, sorry, that's too extreme, how about instead clawbacks of management bonuses/salaries?

No, too radical? Ok how about on like a 100 to 1 match of public funds to management contributions into the bailout fund?

So what is the economic system in effect here? Capitalism? Is capitalism privatized profits and socialized losses, because that doesn't sound like what I was taught in Home Econ.
posted by de void at 12:08 PM on December 9, 2011 [7 favorites]

You know, I look at all these numbers and I keep coming back to this: this program only cost us $13 billion dollars to bail out the entire financial system. TARP cost about $19 billion, so say $34 billion total. That's crazy. The Irish spent $99 billion bailing out their banks, and there's only 4.5 million people in Ireland. We have like 70 times as many people and it cost us a third as much to bail out all of our private sector banks, and in doing so we saved the GLOBAL economy. Go us!

In contrast, bailing out Fannie and Freddie cost is going to cost us somewhere between $51 and $65 billion. Of course, many private sector banks benefit from the security provided by the GSEs as well, but so will homeowners.

In contrast, the 2009 stimulus and the 2010 tax cut together cost about $1.7 trillion.
posted by anotherpanacea at 12:08 PM on December 9, 2011 [1 favorite]

dsfan: "James Hamilton explains why the "8 trillion" figure is highly misleading here."

Barry Ritholz discusses this argument:

One comment about some of the folks pushing back against this massive total: Yes, there is a big difference between a $100 lent for 3 days, and a $100 lent overnight rolled over 2 more times. And there is an enormous difference when temporary overnight lending lasts for three years.

Overnight lending, by its definition, is temporary, short term, lower risk, modest impact. It exists to allow slightly over-extended banks to meet their reserve requirements. But rolling overnight lending repeatedly for 3 years is none of those things. And it makes a mockery of these same reserve requirements, and the protective purposes they are supposed to serve.

The amount of overnight lending reflects how broken our financial system really is. A well capitalized, moderately leverage system does not require this massive liquidity from a central bank — interbank lending should be sufficient. What the data reveals is that the financial sector remains dangerously under-capitalized and overleveraged.

posted by symbioid at 12:11 PM on December 9, 2011 [6 favorites]

Ron Paul for President.

or:

violent revolution. It's no wonder police are using more and more force to intimidate citizens.

I'm not sure which would be worse.

I don't think you get to choose one or the other. They go together.
posted by odinsdream at 12:11 PM on December 9, 2011 [1 favorite]

[Do not express the opinion here that someone ought to be raped. Thank you.]
posted by restless_nomad at 12:12 PM on December 9, 2011 [7 favorites]

Bail-you-out once, shame on you. Bail-you-out twice, shame on us.
posted by ZenMasterThis at 12:17 PM on December 9, 2011 [2 favorites]

*sigh* I was trying to cite an article from memory and I couldn't think of the name. The comment stood out to me. I'm certainly not advocating anyone get raped. Sorry if I somehow implied otherwise.
posted by scaryblackdeath at 12:17 PM on December 9, 2011 [1 favorite]

"Oh, ok, my bad. I keep reading about these record debt levels and deficits in major countries and how even a small rise in interest rates is going to seriously impair their ability to function, but I must be getting bad information."

You're not understanding the information you're getting. First of all, this post is about the US and there's no problem with sovereign debt in the US, even though the ratio of public debt to GDP is relatively high. Second of all, these are not "small rises in interest rates". The only way you can think that is because you think the difference between five and seven percent is only two, and that's a small number. But that's just wrong in two different respects. It's wrong because that's almost a fifty percent increase in interest, and more related to understanding what's really happening, what actually matters is is the spread between interest rates on these bonds and other stuff, anyway.

You don't know any of this, so just stop having an opinion until you do.

"And is lying through its teeth about the former. Gee, wonder what this 8 trillion dollar dilution will do in terms of inflation? Hint: to the first loot recipients, not much. To you and me, substantial damage."

Yes, we've had the hyper-inflation that necessarily would result from this since, as predicted, about the middle of 2009.

"The bank bailouts would have been a lot easier to swallow if they had been sugar coated with the firing of management that led the bank to insolvency."

de void, I don't have a problem with any of your suggestions about what should have been done. You don't have an argument with me about this. My problem is with people who don't understand that the bailouts were necessary, for everyone's benefit. I totally agree, as I've repeatedly said, that in the long run the people and institutions responsible for the mess shouldn't have been allowed to profit from their irresponsibility and that, generally, there should have been some big systemic changes made along with all this. I am 100% in agreement with OWS in being outraged about this. But the bailouts themselves? They saved the American economy and, arguably, the entire world economy. Which literally greatly avoided much of the human misery that would have otherwise resulted.
posted by Ivan Fyodorovich at 12:25 PM on December 9, 2011 [9 favorites]

BitterOldPunk, re: scale of amounts, you may find this enlightening. Or mind-blowing. Whichever comes first.
posted by epersonae at 12:28 PM on December 9, 2011 [1 favorite]

The offensive language in question comes out of the movie Office Space, where it is used to differentiate between Federal "Country Club" prison of the sort that white collar criminals are believed to go, and another, altogether less comfortable kind of prison.

The expression scaryblackdeath used is a shorthand that gets at a distinction that is entirely appropriate in the context of massive financial fraud and secret financial transactions at the taxpayer's expense.

I don't think that kind of assault -- or any assault, really -- is funny or appropriate: indeed, I think it pretty horrifying. At the same time, I didn't read it that scaryblackdeath was saying anything that needed to be deleted, or advocating a position that is out of bounds for the blue.
posted by gauche at 12:30 PM on December 9, 2011

You're welcome to take it to MeTa if you feel it's necessary, but please don't turn this thread into a "how we talk about prison rape" debate.
posted by restless_nomad at 12:34 PM on December 9, 2011 [3 favorites]

Here's another look at scale, which is better imo for visualizing a trillion, but not as interesting as the XKCD one.

Ivan, your posts are very informative, but when you include language like...

You don't know any of this, so just stop having an opinion until you do.

...you're just encouraging people to ignore your information and fight.
posted by Huck500 at 12:36 PM on December 9, 2011 [4 favorites]

My problem is with people who don't understand that the bailouts were necessary, for everyone's benefit. I totally agree, as I've repeatedly said, that in the long run the people and institutions responsible for the mess shouldn't have been allowed to profit from their irresponsibility and that, generally, there should have been some big systemic changes made along with all this.

So, thing is, popular outrage about the bank bailouts will not cause the bank bailout to un-happen. It may cause two things, though:

1.) It may pressure the people in power into actually instituting some of the systemic reforms that should have been attached as strings to the bailouts.

2.) It may make bankers fear that popular outrage would make a second bailout impossible, so the bankers won't automatically assume that they will get bailed out in the future just by virtue of being big enough. Whether that's true or not, I think it's good for John Q. Public if the guys at Goldman-Sachs think it's true.

Both of those results look like big wins to me. Since, after all, it's too late for the question of "should we bail out the banks?" the important questions are about what to do next time (or preferably, to avoid the next time).
posted by mstokes650 at 12:37 PM on December 9, 2011 [2 favorites]

...You don't know any of this, so just stop having an opinion until you do...

That's the most condescending statement I've read in my brief history on Metafilter. Well played sir.

...First of all, this post is about the US and there's no problem with sovereign debt in the US, even though the ratio of public debt to GDP is relatively high...

There's no problem with debt in the US? So why was the US gov't in a tizzy over a possible shut down over...level of debt?

(I think we're having a semantics issue here. My point is the transference of debt that was private into debt of the country, "sovereign debt". If that's an incorrect usage of the term according to whatever context you're coming from, fine, I can change my usage if you'll get your dander smoothed back down. I'm guessing that for you "sovereign debt" means "debt of other countries".)

I understand fully that a change from 5% to 7% is a huge jump in interest cost. The bigger point is that debt is reaching levels, in the US, where historically "small" rises in interest costs can not be absorbed without tremendous pain.
posted by de void at 12:41 PM on December 9, 2011 [3 favorites]

Eh... what's a trillion between old friends?
posted by Trurl at 12:41 PM on December 9, 2011

It wasn't just that these big banks were vulnerable because of bad lending, it went much farther than that, and, anyway, the real problem was that because of how all this stuff got diced-up and packaged and sold and resold and repackaged

So the Fed and the US government, and others, all had to step in and provide the funds that no one else was providing. This is what "lender of a last resort" means.

...

cut my loans into pieces
this is my last resort
posted by one more dead town's last parade at 12:45 PM on December 9, 2011 [5 favorites]

The problem with the bank bailouts once you arrived at the realization that you had allowed banks to become too big to fail was that the terms of the bailouts were entirely too benign to exisiting shareholders. Although TARP came in the form "loans" they were really from an economic perspective equity, and equity offered at a period of great distress. As such under any normal circumstances the equity infusions from the few should have wiped out the entire exisiting investment of equity shareholders and made them zeros. The actual size and quantity of the bailout is in all honesty irrelevant. The size of the bailout was driven by the liquidity needs of the institutions more than anything else.

So then the obvious question was why didn't the fed/treasury do this. And this is where you realize the insane politics of it all. Treasury decided they wanted to be seen to be bailing out everyone in order to "restore confidence" to the point that they actually went to certain banks that were borderline from a survivability perspective and said "You must take TARP." Legally Treasury/OCC/Federal Reserve do not have the right to force an equity investment. It would qualify as seizing private property, and the boards of these banks would quite reasonably take the OCC to court and would have won. And of course the republicans would never have permitted this to happen either.

So the solution that that was arrived at was to make the TARP terms such that the cost of accepting TARP = the cost of antangonizing the regulator for the "Probably going to survive" banks, and then you could force something that was dilutive, but not to the degree that it should have been, onto the banks that were totally fucked and going to bring down the financial system if they failed. The net result was that instead of the equity being wiped out at the TBTF institutions and the government owning them, we got the horseshit solution we ended up with.
posted by JPD at 12:49 PM on December 9, 2011 [4 favorites]

I wish there was a roundtable discussion of this caliber on network t.v. This works so much better when people get to speak their piece without loud mouth interruptions. Reading is power! Go metafilter!
posted by Redhush at 12:53 PM on December 9, 2011 [3 favorites]

Umm, there were infinitely more reasonable options than bailing out the banks to resolve the commercial paper market, Ivan Fyodorovich.

Identify safe financial institutions, like mid sized banks, large credit unions, and sane brokerage house. Allocate these blameless parties enough funds to support the commercial paper market. If necessary, allocate them additional personnel as well, mostly NSA analysts, but also Lehman Brothers' lower tier layoffs, or even grad students in math, physics, economics, etc. Vaguely like sending the military to run a coal mine.

Viola, economy saved without the moral hazard of bailing out the culprits.
posted by jeffburdges at 12:56 PM on December 9, 2011 [2 favorites]

JPD, thanks for your comment.

Question - was there an "or else" on the "You must take TARP" edict? Was there a penalty that Treasury et. al. would have handed down if a bank refused to take TARP funds?
posted by de void at 12:58 PM on December 9, 2011

"And is lying through its teeth about the former. Gee, wonder what this 8 trillion dollar dilution will do in terms of inflation? Hint: to the first loot recipients, not much. To you and me, substantial damage."

Yes, we've had the hyper-inflation that necessarily would result from this since, as predicted, about the middle of 2009.

Forgive what may be a very naive comment, but it seems to me that one outcome of all the inflation suppression that has gone on for the past many years is that there is simply no incentive for Americans to save anymore. There's no interest earned in interest-bearing accounts any longer. Savings accounts are for chumps. Its just possible that, if savings accounts earned some money, Americans would have some incentive to save, and this might allow banks to be better monetized. Just my guess -
posted by newdaddy at 12:58 PM on December 9, 2011 [1 favorite]

"..you're just encouraging people to ignore your information and fight."

Yeah, I know.

Here's the thing, though: this is the biggest economic crisis of our lifetimes. It involves some of the most important public policy questions concerning finance and economics faced in our lifetimes. The fallout from the financial crisis has created one of the biggest economic and public policy popular protest movement in moderns times (if you group the Tea Partiers and the OWS together, which is valid within the context of "people being upset at economic instability and the government's role in it").

Also, sadly, I think there's every indication that A) there will not be the right public policy changes necessary to prevent the US from spending ten-to-twenty years at this level of economic under-utilization and human misery, and B) it's entirely possible that Europe will blow-up from the same crisis (just took them longer to reach the crisis point) and force the US back into a severe recession or even into a depression, that may be shared worldwide.

So, "the thing" is that there's almost nothing more important and relevant to daily lives in terms of politics and policy yet the majority of people are deeply ignorant of anything beyond slogans and propoganda, deeply misunderstand almost all of the issues involved, and yet are extremely opinionated and driving various public policy via the politicians who exploit these strong feelings for personal political gain.

That all makes me very upset. It's hard to not respond with intense frustration to assertions that are obviously false to anyone who has spent any real time actually trying to learn about these issues.

"There's no problem with debt in the US? So why was the US gov't in a tizzy over a possible shut down over...level of debt?"

...and this is an example. This is a misunderstanding of that whole sorry incident that exists outside the context of either what the debt-limit actually is, or what the politics of the vote actually were. It's like reading only a headline saying something about a "fight over the debt limit" and forming ideas and conclusion solely on that basis.
posted by Ivan Fyodorovich at 12:59 PM on December 9, 2011 [13 favorites]

Gauche is spot-on with what I was trying to say. The real problem is that the culprits of these massive frauds (let's call them what they are) haven't been held accountable in any meaningful way. They should be in prison. Real prison.

And if what they did was legal, then I suppose they can't be put in prison, but the law should certainly be changed.

It's ridiculous that the worst corporations ever suffer is fines. Corporations aren't people, but those who run them most certainly are. These decisions were made by people. Those people should be held criminally liable for what their corporations do.
posted by scaryblackdeath at 1:00 PM on December 9, 2011 [3 favorites]

We mentioned this in the Bank Transfer Day thread, but :

Bank of America recently moved trillions of Merrill Lynch's bad derivatives onto the books of it's retail arm, meaning they wrote themselves another bailout using ordinary people's accounts.
posted by jeffburdges at 1:00 PM on December 9, 2011 [5 favorites]

Hey, look, it's right-wing-anti-intellectualism, only from the left! One of the important functions of government is to have a central bank to act as lender of last resort. Otherwise, you get failures of solvent but illiquid banks and increase losses to FDIC and depositors.

In other news, credit card companies lent me nearly five and a half million dollars over the last year. (Using Bloomberg math, anyway)
posted by wierdo at 1:03 PM on December 9, 2011 [2 favorites]

Question - was there an "or else" on the "You must take TARP" edict? Was there a penalty that Treasury et. al. would have handed down if a bank refused to take TARP funds?


They could have forced you to deleverage or various other regulatory moves, but none of them could possibly have been as NPV negative as a forced equity injection.

BTW - at the time TARP was happening most of these banks that thought they were in the "Will probably survive camp" were actually "utterly and totally fucked camp" post Lehman.

Bank of America recently moved trillions of Merrill Lynch's bad derivatives onto the books of it's retail arm, meaning they wrote themselves another bailout using ordinary people's accounts.


Eh that's playing a little fast and loose with what they did. It was shady for sure. The net result of it was really to move the onus on a bailout for derivatives counterparties of BAC from the fed (The odds of the fed bailing out BAC after seeing the LEH debacle is something 99.9999%) to the FDIC where the odds were 100%. I.e. it was shady, and shouldn't have been allowed, but I think its been overplayed a lot.
posted by JPD at 1:04 PM on December 9, 2011

If the big banks are going to run the government, then it seems inevitable that the government will nationalize the big banks, and what is going on here is just a messy noisy preamble to that.
posted by bukvich at 1:06 PM on December 9, 2011 [1 favorite]

You know what. They're right. We should just fuck the banks and let everything deleverage at once.

At least then, if there's still a United States left, we can point to the catastrophic fucking mess it would leave and say "THAT'S WHY WE BAILOUT BIG IRRESPONSIBLE BANKS EVEN WHEN WE DON'T FUCKING LIKE IT".

Ooh, scary. But we brave men are willing to examine every scenario.

Why is it bad to let it rip? Unemployment, 1930's style Depression etc.? What if that's good, not bad? Here's what I saw come out of that era: massive progressive legislation and the foundations of a modern economy and societal safety net. The size of those achievements has dwarfed anything we've been able to achieve in the last 40 years. Was the price terribly high? Yes.

But was it worth it? An argument could be made that it was. Because it was the only way to achieve consensus and the necessary social momentum to make wrenching economic and political changes. Further, it was worth it, because it prevented something even worse happening: a chaotic revolution with blood in the streets.

To those who argue that the price today would be too high, I say - you are only sweeping the problem under the carpet, for it to emerge even more violently later on. We bailed out the bad actors and were spared the pain to ourselves - but because there was no pain to us, we were given the Tea Party mentality and no solutions to prevent this from happening again. And we cannot generate the consensus for real reform *precisely because* we have felt no pain - and here we are, with no real financial reforms in the wake of this outrage. The same bad actors are in place, unrepentant and more dangerous than ever and they have no incentives to alter their behavior, instead they have incentives to keep up their malfeasance because we'll just bail them out again. Until we have no more ability to do so. And then comes the revolution and blood in the streets.

So it may seem compassionate to avoid inflicting pain on the country and just keep bailing 'em out piecemeal - but that is a compassionate way to let the whole ship sink with everybody onboard. Sometimes, it's necessary for a bit of pain - and a few may have to hang from the masts. But the ship survives with most alive to see another day. Which is more compassionate?

I'm not necessarily advocating "let it rip", but I do think it makes sense to look at it with clear eyes. It's what I'd call the "nuclear option" - and one day, we may have no choice but to do it, otherwise there'll be nothing much left to save in the revolution that comes.
posted by VikingSword at 1:09 PM on December 9, 2011 [7 favorites]

de void wrote: There's no problem with debt in the US? So why was the US gov't in a tizzy over a possible shut down over...level of debt?

There is a difference between "ability to pay" and "willingness to pay." The US, by dint of borrowing in its own currency, always has the former, no matter the true financial situation, but was lacking the latter.

newdaddy wrote: Its just possible that, if savings accounts earned some money, Americans would have some incentive to save, and this might allow banks to be better monetized. Just my guess

There's already plenty of money sitting around. Literally trillions in excess reserves that the banks aren't lending. Inflation is nearly flat because demand is nearly flat. Demand for dollars, demand for most goods. Demand drives prices.

VikingSword, ask your grandmother if the Depression was really that great.
posted by wierdo at 1:16 PM on December 9, 2011 [1 favorite]

VikingSword, ask your grandmother if the Depression was really that great.

In order to get the New Deal? Social Security? The SEC (which we then proceeded to gut, decades later)?

The Depression was far from great - it was terrible. But the alternative, was worse.

What if we postponed - not abolished - merely postponed the reckoning, and instead had a Weimar Republic type outcome? Or Russian Revolution? Would that have been better?

You want bad pain now, or do you want to be quartered a little bit later on?
posted by VikingSword at 1:25 PM on December 9, 2011

Bailouts saved the American economy and, arguably, the entire world economy. Which literally greatly avoided much of the human misery that would have otherwise resulted.

Is the world economy saved? Because from where I am sitting it looks like it's still in trouble.

This is why I hate economics. We have plenty of food, plenty of production capacity, resources and boatloads of cash, but somehow the economy is failing.

Maybe our economics is failing and our economy is fine.
posted by psycho-alchemy at 1:28 PM on December 9, 2011 [6 favorites]

So - I was wondering, and I know it kinda sorta happens via the Fed and Treasury and how they get money to the banks and such, but...

What if they really did Nationalize it all - fuck private banks. Loan directly to the people. Now obviously there's an overhead that would need to be taken care of (i.e. "the bureaucracy"), but I've been wondering what would happen if the gov't just owned all the banks, and replaced a portion of taxes w/interest-bearing loans? And what if savings accounts were basically like "loans" to the government (like someone buying a bond with a lower interest rate)...

Please forgive my ignorance - but is there any place that does this? I just assume that most central banks are just a place for the gov't to lend out to private firms? When we had the 2 Banks of the United States, what was that, exactly? Was it similar to what I'm proposing above?
posted by symbioid at 1:29 PM on December 9, 2011

You know, from a selfish perspective, I could say - go ahead and spare me the Depression, because at my age, by the time the Revolution comes, I'll be dead. Apres moi le deluge.

But I'm not a selfish fuck, so I'm willing to sacrifice now, so that people who come after me can have a better future.

I'm willing to pay higher taxes, and go without, and volunteer, and help, and share. But I'm just an individual. What the Depression did, is motivate millions - the majority - to come together for the greater good. Instead, we have the Tea Party.
posted by VikingSword at 1:31 PM on December 9, 2011

Prosecuting Wall Street: Two high-ranking financial whistleblowers say they tried to warn their superiors about defective and even fraudulent mortgages. So why haven't the companies or their executives been prosecuted?
posted by homunculus at 1:32 PM on December 9, 2011 [5 favorites]

Or, to make the point about why ill-informed outrage about the bailouts is kind of okay in my book, using the meth-addicted kid metaphor, it's like this: your meth-addict son* comes to you and says "Dad* I need $100k by tonight or my dealer is going to shoot me in the fucking kneecaps if the not the face, Dad holyshitohgod please help me Dad," and you go, oh shit, and go into hyper-efficient problem-solver mode and somehow find the money and loan it to him, and he doesn't get shot, and then you help him get an awesome job to pay you back, and he pays you back, and you're actually feeling pretty good about the whole thing, like you were a hero sort of a little bit, and then a while later your wife* skims through some account statements on your desk and misreads them and goes "JESUS FUCKING CHRIST YOU LOANED HIM A MILLION DOLLARS TO FEED HIS COKE HABIT WHAT IS WRONG WITH YOU OH MY GOD."

Your response is to calmly reassure your wife that no, it was only $100k, not a million, and it's a meth habit, not cocaine, and anyhow, he could've been shot in both kneecaps, or worse! Does she not understand how close he came to actually getting shot, with real bullets, from a real gun? He's her son too, surely she should appreciate the tragedy your quick financial dealings avoided. And he paid you back anyhow! So she's getting all upset over nothing, you say, and anyhow she's got all the important details wrong.

And all that is absolutely true, from a technical standpoint - but what's also true is that by loaning your son that money, and helping him pay it back, and not demanding he get clean or making him go to rehab as a condition of the loan, you were, in point of fact, enabling his addiction. You avoided the tragedy that could've occurred at that moment, but by shouting bloody murder about the whole thing, at this moment in time, after the fact, your wife is being the more responsible one by refusing to quietly enable his addiction or allow you to do so. The facts that she's bad at math and has her illegal drugs confused are not actually terribly germane; she's outraged and she should be outraged. She says you were an enabler and you were an enabler.

And even after all that, once she calms down a bit, you're still stuck explaining to your wife why you were able to come up with $100k for your son that quickly and get him a $200k/year job to pay it back - but you've never gotten her a $200k/year job in all the time you've been married, and you've been insisting you can't afford to get the house re-painted this year, or fix that leak in the garage roof.

...and I don't think I can possibly torture that metaphor any more.

*(It bothers me how hetero-normative this metaphor came out, I apologize.)
posted by mstokes650 at 1:33 PM on December 9, 2011 [14 favorites]

The french sorta tried it under mitterand, in that most of the consumer banking was done by mutuals and the corporate banking was done by state owned enterprises. It didn't really work, but probably because of execution.

Communism obviously does this.

For decades most housing finance in the Anglo-Saxon world was done by mutuals and co-ops.

You give up some efficiency, you get some more security because the personal returns to risk for the management team is much smaller.
posted by JPD at 1:34 PM on December 9, 2011 [2 favorites]

Note that Goldman Sachs was the second largest contributor (via bundling) to Obama's 2008 campaign.

Speaking of Goldman Sachs: Hank Paulson Warned Hedge Funds, Goldman Sachs Pals About Takeover of Fannie Mae and Freddie Mac
posted by homunculus at 1:36 PM on December 9, 2011 [1 favorite]

Jon Stewart.
posted by ericb at 1:37 PM on December 9, 2011

This is why I hate economics. We have plenty of food, plenty of production capacity, resources and boatloads of cash, but somehow the economy is failing.

Maybe our economics is failing and our economy is fine.


what does this even mean? People don't have jobs because the data says they don't have jobs?

People don't have jobs because people aren't spending money. People aren't spending money because they spent too much money over the last 20 years and have finally realized they have to make the payments. The government is supposed to be there to cushion the blow but has not/will not do so - for reasons that can be argued about for days weeks months years.
posted by JPD at 1:42 PM on December 9, 2011 [1 favorite]

I truly have no concept of how big a "trillion" is. A billion is a thousand million. OK. So a trillion is a thousand billion?

Yes. Or one million millions. So if you had a million dollars, each dollar could represent another million dollars to make a trillion.
posted by telstar at 2:07 PM on December 9, 2011

what does this even mean? People don't have jobs because the data says they don't have jobs?

He wasn't referring to people, he was referring to banks lending money to businesses that would spend money, etc on down the line.

And in a sense, he is correct. No one's lending because everyone is spooked and not wanting to put themselves at risk, despite knowing that it was their own greed that put themselves at risk before. The machines/economists/computers say, "STOP" and so everyone stops without really thinking about the whole mess.

I'm fairly certain there's an Aasimov story about this exact kind of situation.
posted by Slackermagee at 2:16 PM on December 9, 2011

Maybe our economics is failing and our economy is fine.


what does this even mean? People don't have jobs because the data says they don't have jobs?

I think it's better understood as "production is fine, but distribution is screwed". The physical aspects of the economy are more or less okay in terms of being able to provide enough for everybody, but the structural aspects fail to ensure that everybody gets a decent share.

There is enough of everything except money.
posted by Jehan at 2:19 PM on December 9, 2011

That 60 Minutes piece on lack of prosecutions is fascinating. Looks like it could make for a major scandal.
posted by Anything at 2:34 PM on December 9, 2011 [2 favorites]

"I truly have no concept of how big a 'trillion' is. A billion is a thousand million. OK. So a trillion is a thousand billion?"

Yeah, in the US. Note that many non-Americans use the word "billion" and "trillion" differently than Americans, where the steps up are multiples of millions, not thousands. That used to be the norm in the UK, but I understand that in recent years they've begun using the American version of "a thousand million" and "a thousand billion". The difference is between the "long scale" and "short scale". But most of the non-Anglophone world uses the long-scale.

When I was married almost twenty years ago, my wife, S, went to a different school and she was pretty good friends with another student there who asked us to house-sit for her once (and then we did so several times). I'd met the friend a few times but the housesitting thing prompted a discussion about her family, because it was a nice place and I asked about it since she was twenty, or so, and a student. And S said, well, her father is supposedly very wealthy, or something. So, this was before the web, and I ended up looking him up in the Forbes list on the off-chance that he would appear there (I was thinking more on the tens of millions scale).

He was, at that time, the second-wealthiest man in the US, after Gates. I think his worth was (you can tell how much things have changed) something like fifteen billion dollars.

I was astonished. I couldn't believe that S hadn't thought this was noteworthy enough to remember (because she said she had been told who he was and how wealthy he was). I tried to explain to her the scale of the wealth we were talking about. I had her imagine a pile of a million dollars, somehow, and then imagine fifteen thousand of those piles. I pointed out that the second-wealthiest man in the US was someone who could talk to anyone in the world he wanted to talk to, on the phone—the President, anyone. This was a level of power and influence and, of course, pure wealth, that's difficult to comprehend.

This young woman was a really cool person, actually. Beautiful, too, which hardly seemed fair. But she was very nice, unassuming, and I got along with her very well. Though I've occasionally Googled her over the years and apparently she's turned into the kind of person it's hard to imagine liking.

Anyway, billions and trillions of dollars are almost unimaginably large numbers. But that just tells you the scale of the modern industrial economies and everything associated with them, including government.
posted by Ivan Fyodorovich at 2:36 PM on December 9, 2011 [1 favorite]

I'm willing to pay higher taxes, and go without, and volunteer, and help, and share. But I'm just an individual. What the Depression did, is motivate millions - the majority - to come together for the greater good.

in New York City in 1931, there were 20 known cases of starvation; in 1934, there were 110 deaths caused by hunger. There were so many accounts of people starving in New York that the West African nation of Cameroon sent $3.77 in relief.

I'd like to think we can find a solution to the banking crisis without letting people starve this time around.
posted by nomisxid at 2:40 PM on December 9, 2011 [1 favorite]

From a Something Awful thread on the 60 Minutes report:

If you're interested in why there haven't been any prosecutions you should read Bill Black's blog regularly. He was part of the team that referred something like 10,000 prosecutions during the S&L scandal and while there are any number of motivations for why this hasn't happened now (all of them related to crony capitalism), the structural reason is apparently that there have been no referrals for prosecution. The SEC has been destroying evidence for years, as Taibbi reported on, and settling left and right as is widely known. For the DoJ to investigate something securities related, someone normally refers a case for prosecution along with all this important data about what happened - because the DoJ's expertise isn't in figuring out securities frauds I guess? Anyway, that, apparently, hasn't happened.

posted by Anything at 2:46 PM on December 9, 2011 [5 favorites]

It's been so long, I think people really don't comprehend the scope of the misery of the Depression.
posted by Ivan Fyodorovich at 2:47 PM on December 9, 2011 [2 favorites]

For example, ocean freight shipping essentially stopped completely for a week, or so, because firms involved couldn't get the operating loans they normally got to function.

In other words, prudent people who had been accumulating cash rather than inflating a bubble could have earned fantastic interest rates?

I speak hypothetically, of course. If you thwart the natural rewards of prudent behavior consistently enough, then by definition that behavior stops being prudent. It still would have been nice in a pinch, though.
posted by roystgnr at 3:18 PM on December 9, 2011

FWIW, here's a White House petition to push for prosecutions, created following the 60 Minutes report.
posted by Anything at 3:31 PM on December 9, 2011

BTW - at the time TARP was happening most of these banks that thought they were in the "Will probably survive camp" were actually "utterly and totally fucked camp" post Lehman.

I'm a n00b, so bear with me, but could you please clarify this point? Wouldn't this have been exactly why the government had essentially forced these banks to accept TARP monies? Banks which had looked borderline at the time were in even deeper shit than the metrics were showing. The government was erring on the side of caution by assuming that the borderline banks were actually either in trouble, or about to be in trouble in the near future.
posted by Sticherbeast at 3:33 PM on December 9, 2011

Also, repeating the Depression could just as easily create a fascist dictatorship, as opposed to some sort of progressive wonderland. "You must destroy in order to create" works better on Etch-A-Sketches than it does on national economies.
posted by Sticherbeast at 3:34 PM on December 9, 2011 [6 favorites]

Forgive what may be a very naive comment, but it seems to me that one outcome of all the inflation suppression that has gone on for the past many years is that there is simply no incentive for Americans to save anymore.

Well, I've been saving for years despite the low interest rates available to proles like me. Why? Because I want to be able to pay my rent and buy food if I find myself among the ranks of the long-term unemployed. That's incentive enough. I'm just lucky I don't live paycheck-to-paycheck and have the luxury of saving.
posted by Thoughtcrime at 3:34 PM on December 9, 2011

I'd like to think we can find a solution to the banking crisis without letting people starve this time around.

Of course, just as we didn't have an SEC or an FDIC or an activist Federal Reserve Bank back in 1929, neither did we have the social safety nets, at various levels, that we have today.

Which is to say, who says a 1929 scale collapse of the banking sector would necessarily lead to 1933 scale suffering of the masses?
posted by notyou at 3:39 PM on December 9, 2011

FWIW, here's a White House petition to push for prosecutions, created following the 60 Minutes report.

JFC, stop it with the lame internet petitions.
posted by rhizome at 3:41 PM on December 9, 2011 [1 favorite]

Also, too: good thing, too.

'Cause I don't think the West African nation of Cameroon has another $3.77 to spare.
posted by notyou at 3:42 PM on December 9, 2011

> It's been so long, I think people really don't comprehend the scope of the misery of the Depression.

1938 was 73 years ago. I have an aunt who was born in 1938 so obviously she does not remember it. I had the personal misfortune of growing up in a house with two grandparents--her parents--who lived through it. They talked about it all the time. They said they ate oatmeal and rice and beans three meals a day seven days a week. Their oldest daughter never had a dress that wasn't made out of a feed sack until 1942. They were embittered by the experience until the day they died.

John Steinbeck and Woody Guthrie captured the ethos quite eloquently if anybody is curious.
posted by bukvich at 3:48 PM on December 9, 2011 [1 favorite]

We have a very good example of how the bank resolution should have occurred because the government did it with GM.

For GM, management was fired, the equity holders were wiped out, the bond holders took a big haircut and the employees had their salaries and benefits cut. The government took ownership and when the situation stabilized, sold the company back to the public.

Contrast that to what happened to the banks. Nobody was fired, the equity holders kept 100% of their share, the bond holders kept 100% of their share and the employees kept 100% of their bonuses. The banks were treated quite differently than GM.

I know that Ivan Fyodorovich is all fighty and condescending about peoples understanding of the details of the financial crisis, but the fact is that people's instinct that they got screwed is perfectly valid and more important than debating fine details of exactly how that screwing occurred. Go ahead and try to clarify the issues but don't cloud the fact that very bad, dangerous and unfair things happened in the bailout.
posted by JackFlash at 4:01 PM on December 9, 2011 [10 favorites]

1- The Federal Reserve is not the government.

2- $7.7t was the total flow of the loans, not what is outstanding. These were overnight loans, essentially useless money that the banks use to keep their books in compliance. In essence "oh shit, someone just withdrew $10,000 at the end of the day. We need a credit on our account for $10,000 overnight until be can rebalance tomorrow."

3- This is the Federal Reserve's job, they have been doing this for quite some time.

4- The interest rate for these loans was 0.01%. A DAY. Which is, not coincidentally, right about what the prime rate is on an APY basis.

5- The flow of the loans went up because normally, individual banks loan each other the money. When one bank owes another money because of fund transfers, whatever the outstanding amount is each night, the bank in the red pays interest to the other bank for that amount. During the crisis, no banks wanted to be stuck holding debts from other banks, even overnight, because they were terrified that bank might fold. So they used the Fed's overnight funds service instead.

6- I am disappointed in everyone for not explaining this. Especially Bloomburg and Jon Stewart. They both should know better, but I guess hysteria sells better than "here is how our financial system works".
posted by gjc at 4:26 PM on December 9, 2011 [4 favorites]

Had the Fed not done what it did the following would have occurred: The majority of people who remain employed would not have received paychecks, groceries would have had empty shelves and your ATM card would have stopped working. It would have taken months for the FDIC to get your checking accout fixed; assuming there was anything left of you when it was over.
posted by humanfont at 5:19 PM on December 9, 2011 [2 favorites]

Is it too much to ask of the Fed to publish an on-line "prospectus"* so that we can see for ourselves what is going on with our tax dollar "investment"?

* Prospectus in quotes because tax payers may or may not be considered to be investors.
posted by snsranch at 5:22 PM on December 9, 2011

This is when I bust out the word godzillion, which is any number that can destroy Tokyo...
posted by Samizdata at 5:34 PM on December 9, 2011 [2 favorites]

FWIW, here's a White House petition to push for prosecutions, created following the 60 Minutes report.

hmmm and only 26 signatures....
posted by AElfwine Evenstar at 5:50 PM on December 9, 2011

"This is when I bust out the word godzillion, which is any number that can destroy Tokyo..."

Heh. That's very interesting because I made up that word, too (almost)! It's an obvious word, so I'm sure there are lots of people who've thought of it.

My version is godzillionaire to describe the ultra-rich (like the person I mention above) who are basically like Godzilla, capable of destroying city blocks without a thought, with everyday people invisibly small from their viewpoint.
posted by Ivan Fyodorovich at 5:59 PM on December 9, 2011 [1 favorite]

I'm not sure that it's even possible for John Stewart to have a show. He's been dead for a bit now.
posted by hippybear at 6:02 PM on December 9, 2011

Is it too much to ask of the Fed to publish an on-line "prospectus"* so that we can see for ourselves what is going on with our tax dollar "investment"?

Here ya go.. Published regularly for a long time.
posted by humanfont at 7:23 PM on December 9, 2011 [1 favorite]

Bailouts saved the American economy and, arguably, the entire world economy. Which literally greatly avoided much of the human misery that would have otherwise resulted.

Saved, or just postponed?
posted by ymgve at 7:30 PM on December 9, 2011

Postponed, possibly, but that's what you do in the ER.
posted by Ivan Fyodorovich at 7:31 PM on December 9, 2011

Or as an EMT first-responder. Insert the better analogy, here.

It's not the Fed's job to fix the financial system. And while it's Congress's, and the executive branch's (in the form of the SEC) to do so, TARP was even more constrained by political reality than is already the case. It had to be done yesterday.

Honestly, I'm torn between Krugman's point-of-view about this sort of thing (the politics) and those who defend Obama's compromising and timidity. It's absolutely true that what's actually politically possible is a long ways away from what progressives want, and that includes with regard to TARP and the things we're discussing here. On the other hand, as is so often argued, he concedes too much right off-the-bat. I don't know how much better TARP could have been with regard to the things that we're all mostly agreeing about here. It almost certainly could have been at least a little bit better. Maybe a lot better. I don't think it could have been that close to what we want it to have been, though. As I said, it had to be done immediately.

I think that we had many of these banks over the barrel and despite their enormous power otherwise, right at that moment we could gotten a lot without their ability to effectively resist. It's the GOP that's the problem. The bankers knew they would lose their job if they went under, like Lehman. So we had leverage with them, they wouldn't have been able to put up much of a lobbying fight. Shareholders? Well, I don't know. But the GOP politicians and lobbyists and think-tankers and the whole machine itself had no incentive to give in because a particular bank would fail if they fought a bailout with lots of strings attached. They'd not lose their jobs and the rest of the industry that funds them would reward them for protecting its collective interests. And even if it didn't, these folks would have opposed it tooth-and-nail just because they're nuts.

I mean, someone mentioned how good an example the auto-industry bailout was of how to do it right. But the GOP freaked out about it, the conservative base freaked out about it, believing it was the socialism they feared, finally come. No matter all the jobs that would have been lost, all the GOP blue collar voters who would have been hurt. These people don't even recognize their own self-interest (the voters, that is). And, also, the left hated the auto-industry bailout, too. It's not like the left wanted the bank bailout. It didn't, and the sentiments against it were what we're seeing in this thread. But the right had reasons to dislike it, too. If it had been what we're saying it should have been, it wouldn't have improved its popularity very much on the left, because the left would have hated bailing out the banks regardless. But it would have made it even more unpopular than it was on the right. It couldn't have passed. The first attempt didn't pass, if you'll recall.

All that said, it's not at all clear to me that a) it couldn't have been better at least a little, because I think it could have; and b) obviously the Obama admin and others could have done things since then to truly hold the financial industry accountable for almost destroying the world. And fixing the stuff that needed to be fixed. I don't think that we could have had anything very close to what we want. But I think we could have had more than the Obama administration has done or attempted to do.
posted by Ivan Fyodorovich at 7:49 PM on December 9, 2011

Metafilter: anyone who knows anything understands that there is no question at all
posted by sneebler at 8:30 PM on December 9, 2011

If you're interested in why there haven't been any prosecutions you should read Bill Black's blog regularly.

2nd paying attention to Bill Black; I like what he says every time I hear him interviewed. Here's some of his most recent stuff.
posted by mediareport at 9:20 PM on December 9, 2011

Apropos of nothing much but Goldman Sachs gets another free pass; mistakenly let off £10m in interest charges (vodaphone possibly got off UKL 1 billion.) and US Gen Martin Dempsey, says he is concerned about "the potential for civil unrest" as Europe's financial crisis unfolds.
I think I'll get my tinfoil hat down off the shelf.
posted by adamvasco at 3:00 AM on December 10, 2011

Don't worry if you don't really 'get' much of what's going on here, or can't access the information necessary for that understanding. There are experts out there working hard to keep the world's complicated financial systems running smoothly, and they will make sure that the issues we've had in the past few years never happen again. You don't need to know any details because only an expert can deal with the problem.
posted by soy bean at 9:00 AM on December 10, 2011

Obama: I can’t comment on Wall Street prosecutions
posted by homunculus at 10:36 AM on December 13, 2011 [1 favorite]

I think its worth quoting the update in it's entirety: -
It’s certainly true, as President Obama said, that many of the unethical and damaging acts of Wall Street were not illegal: thanks in large part to the orgy of de-regulation that took place in the Clinton era under Robert Rubin, Larry Summers, Tim Geithner, Gary Gensler and others (also known as: Obama’s economic team). But — as even life-long Wall Street apologist Alan Greenspan admits — much of what was done by Wall Street was outright fraud. Even after the 1990s spasm of deregulation, fraud — e.g., representing debt instruments to the public as sound and top-grade while scorning them privately as toxic junk — is (as Greenspan pointed out) still very much illegal, criminal, under existing statutes.
posted by adamvasco at 12:46 PM on December 13, 2011

At this point I'd prefer to just start talking in terms of losing confidence in the government. Surely that's a theme that can unite left and right.
posted by rhizome at 4:00 PM on December 13, 2011 [1 favorite]