US Banks: Nationalization? Pre-privatization?

msj · March 3, 2009

It is clearly lawn watering and maintenance.

Good point, punked.

I'm talking about the regulatory powers the Fed does have and should be using in order to bring about proper regulation.

Greenie ignored these and we've got a haircut as BC2004 would say.

August1991 · March 3, 2009

Ultimately, you don't have a clue as to what the Fed's powers are.

Don't have a clue?

msj, you have drunk (like Obama) the Socialist kool-aid. You believe the State can fix problems. You believe the State can regulate banks and protect us against bubbles and bank loans. State regulation can protect against evil.

msj, I have a more sanguine view of the problem. So does Sarkozy, and he's French.

msj · March 3, 2009

Don't have a clue?
msj, you have drunk (like Obama) the Socialist kool-aid. You believe the State can fix problems. You believe the State can regulate banks and protect us against bubbles and bank loans. State regulation can protect against evil.

msj, I have a more sanguine view of the problem. So does Sarkozy, and he's French.

Oh, stop with this nonsense.

You don't even know what powers the Fed has and you think you can convince me you have any credibility as to whether or not the state can regulate banks? :lol:

As for your "more sanguine view of the problem" - this just means that you are confidently wrong. BFD.

August1991 · March 3, 2009

You don't even know what powers the Fed has and you think you can convince me you have any credibility as to whether or not the state can regulate banks?

Well, why can't the Fed fix this problem?

If it can pull a string, why can't it push it?

msj · March 3, 2009

Well, why can't the Fed fix this problem?
If it can pull a string, why can't it push it?

Oh, how original. :rolleyes:

August1991 · March 3, 2009

Oh, how original.

Fair enough but I think I ask a legitimate question.

The powers of the Fed (of the State) are limited. When the State regulates private affairs, it is an invitation to abuse. In this, America is a wonderful experiment.

America is a work in progress and Americans test the limits.

Edited March 3, 2009 by August1991

GostHacked · March 3, 2009

Well, why can't the Fed fix this problem?
If it can pull a string, why can't it push it?

Go ahead. I'd love to see anyone push a string and get desired results.

msj · March 3, 2009

Fair enough but I think I ask a legitimate question.
The powers of the Fed (of the State) are limited. When the State regulates private affairs, it is an invitation to abuse. In this, America is a wonderful experiment.

America is a work in progress and Americans test the limits.

Stop right there.

The reason it is an illegitimate question is because I never claimed the Fed would fix this mess.

Your just changing the goal posts again.

The Fed, however, could have gone a long way to preventing it had it used its powers to properly regulate mortgages in the first place (and for which Greenspan took a pass).

August1991 · March 5, 2009

From another thread:

Another good article.
Interesting that 4 banks have 64 per cent of total commercial banking assets (admittedly, this definition is probably being quite specific and I don't have time to consider it right now.

As for arguing about non-partisanship vs bipartisanship - I'm going to leave that for another thread for those interested in discussing it.

Anyone who knows anything about markets knows that 4 players with 2/3 of a market is a competitive market. (BTW, what are "total commercial banking assets"? Is that a sensible measure for market share?)

Go ahead. I'd love to see anyone push a string and get desired results.

This is the argument against monetary policy. If the US is in a liquidity trap, providing more money will not stimulate the economy. Banks will merely sit on the money. (The Fed is pushing a string. The idea of pulling the string is when the Fed chooses to reduce the money supply to reduce inflation and economic activity. IOW, the Fed can pull the string, but it cannot push the string. Monetary policy is effective to reduce inflation but not to stimulate the economy.)

Gost, this string idea is leftist, and you will see it mentioned (for example) on Krugman's website. Why leftist? Because leftists like Krugman want larger government and they want to show that monetary policy won't help the economy. Krugman wants to argue that fiscal policy (larger government spending) is the only way to help an economy in recession.

Stop right there.
The reason it is an illegitimate question is because I never claimed the Fed would fix this mess.

Your just changing the goal posts again.

The Fed, however, could have gone a long way to preventing it had it used its powers to properly regulate mortgages in the first place (and for which Greenspan took a pass).

msj, you have argued that the State (the Fed under Greenspan, for example) intervened too often by reducing nominal interest rates. And yet you want the State (SEC and banking regulations) to intervene more often.

You can't have it both ways unless you get into a quibble about the way the State intervenes in markets. For this though, you'll have to define the intervention more clearly. Once the State agrees to guarantee and regulate private deposits, it is giving up the control of the spigot.

So, my question is: How should the State intervene in markets? This crisis has thrown modern macroeconomic theory into a maelstrom, and even microeconomists have been drawn in.

----

It is sad that there is so much left/right partisan spin now. Sometimes it is personal: Some people utterly hate country club Bush Jnr, others dislike Obama's "coolness". Sometimes it is moral: Obama supports abortion. Sometimes it is ideological: Obama will make government bigger. Sometimes it is partisan: American liberals against conservative Republican.

The US (the World) faces an extremely severe recession. Robert Barro gives it a 20% chance. I suspect that even Dr. Doumini has been surprised at how quickly and how severe this recession has become. The numbers are awful.

I hope that my past error implies that I'm wrong once again.

Edited March 5, 2009 by August1991

msj · March 5, 2009

From another thread:Anyone who knows anything about markets knows that 4 players with 2/3 of a market is a competitive market. (BTW, what are "total commercial banking assets"? Is that a sensible measure for market share?)

I never said anything about it being a competitive market. This refers back to Obama and certain other people who ignorantly claim that the US is more complicated than Sweden and US banks can't be nationalized etc...

Only a handful of banks need be nationalized.

That is the point although I'm not surprised it went over your head.

This is the argument against monetary policy. If the US is in a liquidity trap, providing more money will not stimulate the economy. Banks will merely sit on the money. (The Fed is pushing a string. The idea of pulling the string is when the Fed chooses to reduce the money supply to reduce inflation and economic activity. IOW, the Fed can pull the string, but it cannot push the string. Monetary policy is effective to reduce inflation but not to stimulate the economy.)

No. Really? You don't say? So now you finally admit we are in a liquidity trap?

Oh, that's interesting. You really do have a short term memory. Or is it just selective?

msj, you have argued that the State (the Fed under Greenspan, for example) intervened too often by reducing nominal interest rates. And yet you want the State (SEC and banking regulations) to intervene more often.

Still getting it wrong all this time.

What do you not understand about the words IMPROPER REGULATION!

Wake up and stop misrepresenting my views you intellectually dishonest ....

You can't have it both ways unless you get into a quibble about the way the State intervenes in markets. For this though, you'll have to define the intervention more clearly. Once the State agrees to guarantee and regulate private deposits, it is giving up the control of the spigot.
So, my question is: How should the State intervene in markets? This crisis has thrown modern macroeconomic theory into a maelstrom, and even microeconomists have been drawn in.

Once again I AM NOT HAVING IT BOTH WAYS. WHAT DO YOU NOT UNDERSTAND ABOUT THE TWO WORDS "IMPROPER REGULATION?"

[My apologies to anyone else reading this but I'm getting tired of this dumb....]

The US (the World) faces an extremely severe recession. Robert Barro gives it a 20% chance. I suspect that even Dr. Doumini has been surprised at how quickly and how severe this recession has become. The numbers are awful.
I hope that my past error implies that I'm wrong once again.

Oh, so now you have finally come around to realizing the increasing probability of a depression.

Well, welcome to the club. Jump on the band wagon before it leaves.....

ReeferMadness · March 5, 2009

Can't push a string? What you mean is they can't "reflate" the economy. And nobody can agree on the value of the assets they hold. We're screwed.

Kind of makes market capitalism look pretty dysfunctional, doesn't it?

The bastion of free enterprise might find that the only way to save capitalism is to turn to socialism. Wait until the banks are ready to go under and buy them. Wait 10 years and sell them. Use the profits to recoup some of the money they're throwing away right now.

Or, hey, here's a thought. For years, I've listened to followers of the church of capitalism saying that government should be downsized because they don't produce anything. The best government is no government. What do banks produce? Toxic debt? Financial products that nobody (not even the ones who dreamed it up) understand? Multi-million dollar bonuses? Maybe we don't need the banks at all.

August1991 · March 5, 2009

Once again I AM NOT HAVING IT BOTH WAYS. WHAT DO YOU NOT UNDERSTAND ABOUT THE TWO WORDS "IMPROPER REGULATION?"

Define IMPROPER.

msj, you think Greenspan was wrong to intervene too often but then you think the US government (SEC) was wrong not to intervene enough.

What is it? Too often, too much? Too little, not enough?

If you say that you want the government to intervene "accurately" (or "properly"), then you are on the way to understanding the conundrum of modern macroeconomics of the past 40 years or so.

The State can no more PROPERLY regulate markets than markets can themselves.

Oh, so now you have finally come around to realizing the increasing probability of a depression.
Well, welcome to the club. Jump on the band wagon before it leaves.....

msj, we may be facing something far worse than what even Noubini predicted. I hope not.

The numbers are awful. [bTW, the likelihood expectancy is from Barro.]

Edited March 5, 2009 by August1991

blueblood · March 5, 2009

Can't push a string? What you mean is they can't "reflate" the economy. And nobody can agree on the value of the assets they hold. We're screwed.
Kind of makes market capitalism look pretty dysfunctional, doesn't it?

The bastion of free enterprise might find that the only way to save capitalism is to turn to socialism. Wait until the banks are ready to go under and buy them. Wait 10 years and sell them. Use the profits to recoup some of the money they're throwing away right now.

Or, hey, here's a thought. For years, I've listened to followers of the church of capitalism saying that government should be downsized because they don't produce anything. The best government is no government. What do banks produce? Toxic debt? Financial products that nobody (not even the ones who dreamed it up) understand? Multi-million dollar bonuses? Maybe we don't need the banks at all.

It's funny that church has converted more people than the church of socialism. Hell people are fleeing the church of socialism in rubber dinghys!

As Aug1991 puts it, the NYSE has endured crashes and has been around much longer than any socialist experiment, and has outlasted the biggest socialist experiment of them all!

msj · March 5, 2009

Define IMPROPER.
msj, you think Greenspan was wrong to intervene too often but then you think the US government (SEC) was wrong not to intervene enough.

What is it? Too often, too much? Too little, not enough?

If you say that you want the government to intervene "accurately" (or "properly"), then you are on the way to understanding the conundrum of modern macroeconomics of the past 40 years or so.

The State can no more PROPERLY regulate markets than markets can themselves.

It is a matter of wrong and right.

The government can intervene properly if it hires the right people to do the job and puts through the proper legislation.

Hire people like Greenspan, who think that the market is self-regulating and doesn't need any help, is just creating a self-defeating system where poor regulation begets poorer regulation because the people doing the regulation are inept to begin with since the assumption is that there is no point financing and attracting good people to do something that is going to be ineffective anyway.

Greenspan should have used the powers of the Fed to demand tighter regulations on mortgage lending.

Yes, the Fed does have that power and they failed to use it (amongst others for which I will not go into details because, frankly, I have wasted enough time trying to explain something as simple as IMPROPER REGULATION many times already).

As for timing of intervention - that, too, should be obvious by now.

You let the small ones fail (like LTC) because they will not harm the system (at least not like Lehman or AIG) and will serve as a warning that yes, the Fed really isn't going to micromanage such things and will let people go broke (i.e. let the market do what it does well).

You don't hold interest rates at absurdly low levels unless you truly have a severe economic crisis going on.

And, no, a couple of buildings falling to the ground after a terrorist attack does not count as a severe economic crisis (funny how a real economic crisis like the one we have been in since August, 2007 helps put that in perspective for lay people [although many have just recently realized this] - unfortunately, it appears that Greenspan is also a lay person).

August1991 · March 5, 2009

Greenspan should have used the powers of the Fed to demand tighter regulations on mortgage lending.
...

You don't hold interest rates at absurdly low levels unless you truly have a severe economic crisis going on.

IMV, regulation per se was not the problem. It was Greenspan's willingness to "correct" the corrections of 1987 and the tech bubble that have made the collpase of this bubble so severe.

Market players saw in 1987 that they could push the envelope, but the Fed (Greenspan) would step in to protect the economy, then they pushed the envelope a little further the next time.

Bernanke, unfortunately, is not as adept as Greenspan at keeping the envelope on the table. (Paulson had no patience for such games and simply pushed the envelope off the table to teach them all a lesson.)

----

I think that it is fair to say that Keynes invented macroeconomics to explain how the State can exist alongside free markets. These two institutions, and how they work together, deserve more thought.

The government can intervene properly if it hires the right people to do the job and puts through the proper legislation.

And in a perfect world, we wouldn't need markets because we could go directly to communism. Edited March 5, 2009 by August1991

msj · March 5, 2009

Fine, we can agree to disagree.

Why you have a need to be so intellectually dishonest about such things is beyond me....

August1991 · March 5, 2009

Fine, we can agree to disagree.
Why you have a need to be so intellectually dishonest about such things is beyond me....

???

I'd be the first to agree to disagree. By nature and background, I'm an Obama supporter. But how am I intellectually dishonest? I may be inconsistent but I try not to be dishonest.

------

[Off topic rant ahead]

You and others may know me as "right wing", or a "Bush supporter" or a "Harper supporter". (BTW, while I'm no Liberal, I supported Chretien's decision to keep us outside of Iraq. At the time, I was working abroad with Americans and they accused me of being a "cheese eating surrender monkey". I have found American insults more tolerable than Canadian insults.)

In fact, while I am not American and I have no desire to become one, I support individual liberty and I believe that Americans, for this reason alone, should be proud of their society.

Because of America, the rest of the world is more civilized.

Edited March 5, 2009 by August1991

ReeferMadness · March 5, 2009

It's funny that church has converted more people than the church of socialism. Hell people are fleeing the church of socialism in rubber dinghys!
As Aug1991 puts it, the NYSE has endured crashes and has been around much longer than any socialist experiment, and has outlasted the biggest socialist experiment of them all!

Could be. I personally follow no church. I respond to what makes sense at the time.

But I understand the knee-jerk reaction. Whoever won't worship at the church of capitalism must be a socialist, right?

GostHacked · March 5, 2009

Define IMPROPER.

Define REGULATION.

August, I agree with you for the most part. The string theory thing

ReeferMadness · March 5, 2009

Because of America, the rest of the world is more civilized.

Are you talking about the parts they've bombed recently, the parts they bombed a while ago, the parts they bombed a long time ago or the few parts they haven't bombed yet?

msj · March 5, 2009

???
I'd be the first to agree to disagree. By nature and background, I'm an Obama supporter. But how am I intellectually dishonest? I may be inconsistent but I try not to be dishonest.

I don't particularly care who you support. Personally, I would be just as happy to see Obama at the gallows as Bush.

What I can no longer tolerate is your sophistry, your intellectual dishonesty and your childishness.

It's one thing keep misspelling Roubini's name (tee hee hee, that's so funny :rolleyes: ) and it is quite another to constantly misrepresent my arguments throughout various threads like you do.

I'm tired of wasting time trying to figure out if you are just acting or not.

msj · March 7, 2009

An interesting development at the Fed. Looks like not all are in agreement regarding nationalizing banks:

Fed's Hoenig: 'Too Big has Failed'

Many are now beginning to criticize the idea of public authorities taking over large institutions on the grounds that we would be “nationalizing” our financial system. I believe that this is a misnomer, as we are taking a temporary step that is aimed at cleaning up a limited number of failed institutions and returning them to private ownership as soon as possible. This is something that the banking agencies have done many times before with smaller institutions and, in selected cases, with very large institutions. In many ways, it is also similar to what is typically done in a bankruptcy court, but with an emphasis on ensuring a continuity of services. In contrast, what we have been doing so far is every bit a process that results in a protracted nationalization of “too big to fail” institutions.
... ome are now claiming that public authorities do not have the expertise and capacity to take over and run a “too big to fail” institution. They contend that such takeovers would destroy a firm’s inherent value, give talented employees a reason to leave, cause further financial panic and require many years for the restructuring process. We should ask, though, why would anyone assume we are better off leaving an institution under the control of failing managers, dealing with the large volume of “toxic” assets they created and coping with a raft of politically imposed controls that would be placed on their operations?

August1991 · March 8, 2009

What I can no longer tolerate is your sophistry, your intellectual dishonesty and your childishness.

Once again, I don't know how I can be accused of sohistry or intellectual dishonesty. The accusation of childishness might be due to our differing sense of humour. Roubini is something of a noobie at this so I just couldn't help myself.

Here is a good article (Nov 2008) that both supports your argument that Greenspan's loose monetary policy was largely responsible for the housing bubble and also gives a detailed explanation of what happened afterwards:

In the game of Hearts you don't know where the Queen of Spades is; you don't want to get stuck with the Queen of Spades. Well, the Queens of Spades—and there are many of them in this game—were the securities with the bad mortgages in them and people didn't know where they were. We didn't know which banks were holding them 14 months ago, and we still don't know where they are. This risk in the balance sheets of financial institutions has been at the heart of the financial crisis from the beginning.
...

This was not a situation like the Great Depression where just printing money or providing liquidity was the solution; rather it was due to fundamental problems in the financial sector relating to risk.

John B. Taylor

Here is a simplified version of the same article: WSJ: How Government Created the Financial Crisis

Edited March 8, 2009 by August1991

msj · March 8, 2009

I don't need more articles to support my assertions - I have already put up tons of links for that and for which you prefer to ignore or purposefully misunderstand.

As for Roubini, hmm, he has been an economist for many many years and many have accused him of being Dr. Doom for many years so your accusation of him being "new" at something, particularly given your own pathetic track record of missing the recession altogether (until recently) is laughable.

No, I don't need your "simplified" version given that I have been reading "complicated" versions well before the credit crisis began in August, 2007.

In fact, I was not a fan of Greenspan as late as 2003 and you seem to have remained a fan of Greenspan until just recently.

So I suggest you take your selective (and so convenient) memory and go discuss these matters at some old folks home so that you don't have to face up to discussing something with someone who has a memory.

Edited March 8, 2009 by msj

August1991 · March 10, 2009

I don't need more articles to support my assertions - I have already put up tons of links for that and for which you prefer to ignore or purposefully misunderstand.

And what exactly are your assertions?

It seems to me, msj, that you are like SNL's version of Geithner (playable in Canada).

IOW msj, you repeat the Roubini line, or the line of the Credible Risk comments.

Roubini says we can wait. Other say we can't.

Martin Wolf’s excellent article on the pros and cons of nationalisation suggested, quoting Nouriel Roubini, that we could wait six months to determine how solvent US banks are before making decisions (“To nationalise or not to nationalise is the question”, March 4). This is possible but surely risky.
...

A gradual disintegration of bank franchises will be met with more credit contraction and some new panics, thus deepening the recession and further reducing solvency of banks. The only credible solution is to embark immediately on a Federal Deposit Insurance Corporation-type intervention, recapitalisation, and early reprivatisation of US banks. The recapitalisation needs to be so large that it is near impossible to imagine an economic outcome where they fail in the next five years. That requires several trillion dollars, not the small sums left in the Trouble Asset Relief Programme and earmarked in the new US budget. Without these urgent measures, whether we nationalise or not, we are risking a highly undesirable outcome.

FT

-----

Can we wait, or can't we? Should we place good money after bad? Every bureaucrat is terrified of another Lehmans.

Nationalizing Citibank or Bank of America (or AIG) amounts to putting them into bankruptcy.

Our paper money is a question of confidence - as life itself. When we marry, we trust.

Edited March 10, 2009 by August1991