Here in its entirety is the Frontline episode from Tuesday, June 16th, called Breaking the Bank. It’s a very clear exposition of the fundamental change that occurred in the collapse of Wall Street in late 2008. Essentially, the government is in charge.
The episode contains the usual wonderful stuff from Simon Johnson, to the effect that we really kind of went ahead and nationalized the banks back around the time of the Lehman bust, and the government-brokered acquisition of Merril by Bank of America.
Entertaining and enlightening. Below the fold is more from Simon Johnson, in the full transcript of his background interview the Frontline people did with him preparing the show. Johnson’s perspective really is valuable, and resonates quite soundly with me. I think he’s worth reading. Here’s the show:
I loved to read this about Nancy Pelosi, especially in a time of people gunning for her, thinking she makes for helpless prey. Chickenhearts themselves, they don’t understand true toughness. I didn’t realize Pelosi had been so principled all this time, one of the very few people who decried the US’s delinking of human rights from its other considerations of relations with China.
I say bless her for her courage - far beyond all of the gutless cowards in their high office and the greedheads in business who turned their backs on both the Tibetan and the Chinese people. Pelosi, love you we do … read the full post from the International Campaign for Tibet:
Pelosi, we love you!
So read one of the slogans painted by a group of Chinese on the main gate of Beijing’s propaganda office directed at the Speaker during her China trip this week. It is a sentiment shared by those of us in Washington who advocate for human rights in China and Tibet.
Obama at Notre Dame on May 17th talked a lot about climate change. Ezra Klein wrote about it, and I’m just copying him verbatim here. You should click through to his post - which is short and to the point - if only to see the maps he included: they show graphically which parts of the world have primarily caused climate change, versus which parts of the world will suffer most from its effects. Very sad. And Obama seems to get this.
Here’s a comment left on a blog that I want to remember:
The subprime mortgages aren’t the real evil. They are like the kid who acts as a mule for a big-time drug dealer; involved but fungible. If it wasn’t subprime mortgages it could have been something else, such as tech stocks or tulips. Total subprime mortgages were worth less than 1 trillion, of those, a few hundred billion worth of defaults. That is a lot of money, but an amount that could have been absorbed by the economy without causing particular harm.
The real evil is unregulated derivatives. Credit default swaps alone are estimated at over $60 trillion. Those are all just side bets on the original 1 trillion of subprimes. It’s like a craps table. The guy holding the dice drops a $100 chip on the table. If he loses, he goes home $100 poorer. But the derivatives markets then bet the farm on that same roll of the dice. And I mean the whole farm. The entire world’s domestic gross product is estimated at about $60 trillion. Derivatives makers and dealers bet the equivalent of the world’s economy on whether some poor schlub would default on his mortgage.
Deal with everything else but not unregulated derivatives, and this will all happen again. Deal with the derivatives market, and everything else is just mopping up.
Does our economic system require banks in order to function? Should banks exist?
The modern system of adjusting the money supply through interest-dependent banks is an inheritance from the centuries during which the only thing that could move money around was interest. Banks were the vaults that handled the stores of excess liquidity, paying less interest than they earned, and making their profits in the difference.
But given all the damage the current system has caused, don’t we have better ways of moving this money and credit around now?
A sustainable economy is one in which all business models rigorously internalize all costs into themselves. This is the opposite of the way capitalism and industrialism have developed, where the object is to externalize the greatest number of costs onto others, often unwitting stakeholders. Sustainability demands a true accounting of costs, and this has to mean the end of corruption in politics.
The Washington Postreported recently on a new study that finds the return on political corruption - lobbying, to use the airbrushed word - can yield as much as a 22,000 percent rate of return on the investment of companies who are successful. The newspaper makes this crucial point: “The study by researchers at the University of Kansas underscores the central reason that lobbying has become a $3 billion-a-year industry in Washington: It pays.”
I had always guessed the formula would go like this: buy a politician for $3 million, and reap a return of $300 million, by creating an unnecessary process that costs the commonwealth $3 billion. I always thought that it would be much more efficient to pay the politician $5 million, in return for rigorous transparency and scrutiny, and make corruption an offense very close to treason: after all, sovereign money is at stake.
During these times of economic crisis we are afforded a rare opportunity to observe the interplay between the various forces that influence the actions of our country and our money. The major banks of the nation have brought the economy to its knees - to put it in plain terms - and yet they, rather than the government, largely seem to be in charge of how the nation will bail them out, and restore the working of the productive economy.
The politics that we take for granted in the “banana republic” dramas on the world stage seem to be the exact politics we are witnessing in America today. Here we have a new President of great apparent integrity, and unquestioned political skill, forced to deal with an inherited economic crisis, and revealing by his actions the limits of presidential power, and the compromises that must be made, in creating desired outcomes. Obama, as a consummately skilled politician, seems to recognize these ground rules, and is offering us a textbook case study of where the power lies, and how to deal with it.
Looking to the future, and trying to prevent economic disasters like the current crisis from happening again, an idea that deserves top place but isn’t getting it so far is the one that any company too big to fail is too big to exist. A host of commentators have advocated this point, but putting it into practice may be harder than it seems.
Commentators keep talking about what Obama should do or what we should do, as if the power exists simply to do such things: as if the political establishment has the independence to turn against the finance system that channels the investment of wealth-holders. As if the small part of the money supply that constitutes the wage-earning voters has any comparable influence.
I am indebted to Mike at the Greenfyre blog for clarifying a major point in the Climate Change debate for me. He points out that there’s the science, and there’s the debate, and the science is not subject to the debate. Rather the debate must involve the science.
The determination of whether climate change is real or not is not something that can be settled by debate: it’s not a matter of reason, it’s a matter of fact.
Nobody in the financial discussion seems to have grasped the urgency of the planet’s message to us. We’re thinking that we just need to get back to the same consumerism we’ve built into our culture as a way of life, and I have the feeling that something will happen to interrupt this thinking. Some event on a planetary scale will occur, and change the game forever, and redirect attention permanently to the key fundamental of our broken economy, which is this: based as it is on the destruction and non-replacement of finite materials, this economy could never last, and always had to end, probably in pain.
Our economy is in the meltdown it is precisely because there are no cheap ways to re-energize it. We are out of resources to take from the planet. The economy of plunder is running into its most obvious limit: there’s nothing left to take for free. See how Ray Anderson explains to us the economy of plunder.
The big things remaining now from the legacy of Bush are the banks, and how to let them gently down to the ground in ways that won’t break the limited Federal capacity. Undoubtedly the banks themselves are the strongest political force in this equation, with everybody in the establishment interdependently existing with everybody else. In a way for me it’s encouraging to see the same debates going on about nationalization: I didn’t miss much since Obama’s speech.
There may be more stimulus actions. The recession is about halfway through now, with another 15 months to run perhaps, according to Roubini. Watch the clip here - I especially like his point, not very well transcribed into the article, about marking down a whole swath of toxic mortgages in face-value reductions across the board, rather than allowing foreclosures. He likens this to a Chapter 11-style reorganization, which would be a better situation, paradoxically, versus a Chapter 7-style shutdown, where everybody loses: homeowner, bank, economy.
I’ve been gone, and coming back I notice that everybody is still debating the meaning and merits of nationalizing the bad banks.
Obama’s speech to the Congress on February 24 was the last thing I posted here. By that point, having watched him closely since the election, I felt quite assured that he is the man we think he is. I especially liked this part:
Finally, I want to be very clear at the outset that while everyone has a right to take part in this discussion, no one has the right to take it over. The status quo is the one option that is not on the table. And those who seek to block any reform at any cost will not prevail this time around.
I took a break, concluding that his skill as a politician is consummate. I decided that all the grains of minuscule media speculation about how the political day is going every minute only reflect a neurotic impatience, which is mandated to these poor reporters and bloggers by an economy that ruthlessly demands constant production and consumption, even of view.
I’ve read The Economist for decades, and always found that it gave me a head start on breaking events of about two months. But I’m reading it less now: its reasoning powers and willingness to penetrate to the truth in economic matters seem to have failed it. There’s better information available through specialized economic sites.
The financial crisis has shown The Economist at its worst, completely unreliable when it comes to reporting the glaring flaws in capitalism. Far too many times in its recent opinions and analyses has the newspaper come out with disingenuous fluff, supporting equity over equitableness.
This is the most succinct view I’ve heard yet of what the last decade has done to us: “There are a lot of ways to tell the capsule story of the past few years, but one of the better summaries is simply this: Money got too cheap.”
And the poor were the only ones sane: “They saw it coming. The working poor always see it coming, well before the Wall Street analysts and the Federal Reserve wonks. From the bottom rung of the ladder, you get a more immediate view of the economy and the direction it’s taking.”
Read on for several commentaries summarizing in simple terms what has happened to our economy in thirty years of Reaganomics - and how we build the future from here.
Sustainable business should mean adding wealth to the planet, generating profits, and creating relationships with customers that endure through generations.
Join Ross Hunter as he takes the Hunter and Associates web development and marketing company through a series of explorations into green business, logical public policy, sound economics, and sustainable world.
Lincoln more than FDR « Las Vegas Review-Journal :: Blogs tags: Policy Lincoln was the quintessential patient man. He refused all impulses to push change. Lincoln allowed opinions to swirl around him, unaffected, letting the societal shifts he knew the country had to have come slowly, to evolve. Over time, his patience was the [...]
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The Dutch strive to make their country ‘climate proof’ – NYTimes.com tags: Sustainability “Can we actually save the Netherlands? Or should we abandon part of the country?” This is the basic question Dutch leaders were asking themselves within the context of global warming after witnessing Hurricane Katrina’s devastating blow to New Orleans in 2005. “We learned here that [...]
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I loved to read this about Nancy Pelosi, especially in a time of people gunning for her, thinking she makes for helpless prey. Chickenhearts themselves, they don’t understand true toughness. I didn’t realize Pelosi had been so principled all this time, one of the very few people who decried the US’s delinking of human rights from its other considerations of relations with China.
The subprime mortgages aren’t the real evil. They are like the kid who acts as a mule for a big-time drug dealer; involved but fungible. If it wasn’t subprime mortgages it could have been something else, such as tech stocks or tulips. Total subprime mortgages were worth less than 1 trillion, of those, a few hundred billion worth of defaults. That is a lot of money, but an amount that could have been absorbed by the economy without causing particular harm.
Does our economic system require banks in order to function? Should banks exist?
A sustainable economy is one in which all business models rigorously internalize all costs into themselves. This is the opposite of the way capitalism and industrialism have developed, where the object is to externalize the greatest number of costs onto others, often unwitting stakeholders. Sustainability demands a true accounting of costs, and this has to mean the end of corruption in politics.
During these times of economic crisis we are afforded a rare opportunity to observe the interplay between the various forces that influence the actions of our country and our money. The major banks of the nation have brought the economy to its knees - to put it in plain terms - and yet they, rather than the government, largely seem to be in charge of how the nation will bail them out, and restore the working of the productive economy.
I am indebted to Mike at the Greenfyre blog for clarifying a major point in the Climate Change debate for me. He points out that there’s the science, and there’s the debate, and the science is not subject to the debate. Rather the debate must involve the science.
This is the most succinct view I’ve heard yet of what the last decade has done to us: “There are a lot of ways to tell the capsule story of the past few years, but one of the better summaries is simply this: Money got too cheap.”
