US Politics Mega-thread - Page 1076

On May 28 2014 15:28 IgnE wrote:
Then provide liquidity for every student and homeowner that defaults.

On May 28 2014 21:52 oneofthem wrote:

given the leverage involved and what risk of AAA is supposed to be these numbers are far from acceptable. fragility due to leverage and tight interconnectedness plus the more important problem of systemic faulty info will grind the banks to a halt. you are like the guy citing absolute self combustion rate of dynamite sticks without noting the millions of sticks around each one

WEST POINT, N.Y. (AP) — In a broad defense of his foreign policy, President Barack Obama declared Wednesday that the U.S. remains the world's most indispensable nation, even after a "long season of war," but argued for restraint before embarking on more military adventures.

Standing before the newest class of officers graduating from the U.S. Military Academy, Obama said, "I would betray my duty to you, and to the country we love, if I sent you into harm's way simply because I saw a problem somewhere in the world that needed fixing, or because I was worried about critics who think military intervention is the only way for America to avoid looking weak."

Obama's speech signaled a concerted effort by the White House to push back against those critics, who contend that the president's approach to global problems has been too cautious and has emboldened adversaries in Syria, Russia and China. It's a criticism that deeply frustrates the president and his advisers, who say Obama's efforts to keep the U.S. out of more military conflicts are in line with the views of the American public.

Even as the U.S. emerges from the two wars that followed the Sept. 11, 2001, attacks, Obama said terrorism remains the most direct threat to American security. But he argued that as the threat has shifted from a centralized al-Qaida to an array of affiliates, the American response must change too.

Rather than launching large-scale military efforts, Obama called for partnering with countries where terrorist networks seek a foothold. That effort includes a new $5 billion fund to help countries fight terrorism and to expand funding for Defense Department intelligence, surveillance, reconnaissance, special operations and other activities.

Obama cast the bloody civil war in Syria as more of counterterrorism challenge than a humanitarian crisis. He defended his decision to keep the U.S. military out of the conflict but said he would seek to increase support for the Syrian opposition, as well as neighboring countries including Jordan, Lebanon, Turkey and Iraq that have faced an influx of refugees and fear the spread of terrorism.

"In helping those who fight for the right of all Syrians to choose their own future, we also push back against the growing number of extremists who find safe haven in the chaos," Obama said.

On May 29 2014 00:29 JonnyBNoHo wrote:

The Fed isn't in a position to evaluate each student and homeowner to figure out if they can repay the money. It would also be a mess for the Fed to take collateral from individuals.

I'm not talking about the Fed throwing free money at insolvent firms.

On May 29 2014 04:56 IgnE wrote:


I thought you said the Fed doesn't lose money when it provides liquidity? So now that TARP and other government lending has provided a return of 2-3% a year it's impossible to lose money when the Fed acts as a lender of last resort? Nevermind the significant damage the economy and the majority of Americans suffered as a result of the collapse, at least the banks were able to repay their loans with a bit of interest. Should Lehman Bros and Bear Stearns have been bailed out? How do you make the determination whether a financial organization is "solvent" or not? Wouldn't an infinite amount of liquidity allow any organization to eventually make a profit? How much liquidity should be provided? You are basically just flat out lying when you say the Fed doesn't lose money, and can never lose money.

The larger point here is that when you propose a solution like this you are further entwining the fate of productive capital and the entire public with that of the financial sector. You, like Geithner, would argue that TARP was a success because if we didn't bail out the banks everyone would have suffered more. So you envision further ways to ensure that bank runs don't happen again by providing an implicit government backing to even more financial organizations with a greater variety of riskier financial products. Why on earth should we let these organizations collect rents and accumulate fictitious capital, effectively siphoning off useful capital from productive industries and workers, without any risk to themselves? By pretending that you are shoring up weaknesses in the economic system and lowering the risk of catastrophic failure you are effectively making everyone more vulnerable to the whims and decisions of those in the financial industry. We are hostage to the bankers, investment bankers, and hedge fund managers who have to be propped up with infinite credit in order to avoid destroying the economy the rest of the world depends on.

The IMF released a report very recently that the subsidy the banks receive, via noticeably lower interest rates, because of their implicit government backing probably exceeds their profits every year. You want to extend this subsidy to those financial capital holders that have grown so big that they can now hold the rest of us hostage, saying that if we don't bail them out they will bring the rest of us down with them. But they deserve to continue collecting their gargantuan bonuses and corporate profits at essentially no risk to them.

Source

According to you the real bogeyman here is the threat of an ordinary bank run, not the moral hazard of bankers and shadow bankers investing in high-risk, high-return products, knowing that they can externalize the risk to the tax payer. Your attempts the last few pages to try and shift the blame for the crisis to a lack of liquidity is exactly the kind of dissimulation that those who are deeply captured by the financial industry peddle every time the economy "recovers" from a crash, willfully blind to the underlying causes and inherent tensions in the system. Your revisionist history swipes under the rug all of the systemic problems soberly identified after 2008, declares that a safer capitalism of unbounded growth is around the corner with a few adjustments, and sets the stage for the next catastrophe within the next decade.

According to you the real bogeyman here is the threat of an ordinary bank run, not the moral hazard of bankers and shadow bankers investing in high-risk, high-return products, knowing that they can externalize the risk to the tax payer. Your attempts the last few pages to try and shift the blame for the crisis to a lack of liquidity is exactly the kind of dissimulation that those who are deeply captured by the financial industry peddle every time the economy "recovers" from a crash, willfully blind to the underlying causes and inherent tensions in the system. Your revisionist history swipes under the rug all of the systemic problems soberly identified after 2008, declares that a safer capitalism of unbounded growth is around the corner with a few adjustments, and sets the stage for the next catastrophe within the next decade.

On May 29 2014 06:03 zlefin wrote:
I've never understood that too big to fail thing.
It's better to just let them fail, but manage the failure in a way so it doesn't cause too much harm; there's plenty of ways to handle things so there's consequences for the bankers.

I mean, sometimes when a tree is really tall, or in a neighborhood, you can't just cut it down and let if fall; but you can take it down, you just have to do it carefully and piece by piece, and make sure none of those pieces fall on anything important.

On May 29 2014 06:17 Danglars wrote:
That's the moral hazard created alongside TARP and by extension Fannie and Freddie. In the worst case scenario, the government has your back. Your biggest mistakes will not fall on you. The government might have preached that this was the last time this would happen, in an alternate universe. Congress passed Dodd-Frank instead, covering up the causes of the crisis and writing encyclopaedic new regulations. I wager a minority of them work to prevent the specific exposure we saw precipitate the crisis, but the rest push up compliance fees for smaller banks. The CFPB, in the meantime, is busy behind closed doors writing and enforcing its drafted rules, immune to Congressional oversight (for the time being, some bills addressing this are currently being drafted & debated in Congress) and business input.

On May 29 2014 04:56 IgnE wrote:


I thought you said the Fed doesn't lose money when it provides liquidity? So now that TARP and other government lending has provided a return of 2-3% a year it's impossible to lose money when the Fed acts as a lender of last resort? Nevermind the significant damage the economy and the majority of Americans suffered as a result of the collapse, at least the banks were able to repay their loans with a bit of interest. Should Lehman Bros and Bear Stearns have been bailed out? How do you make the determination whether a financial organization is "solvent" or not? Wouldn't an infinite amount of liquidity allow any organization to eventually make a profit? How much liquidity should be provided? You are basically just flat out lying when you say the Fed doesn't lose money, and can never lose money.

The larger point here is that when you propose a solution like this you are further entwining the fate of productive capital and the entire public with that of the financial sector. You, like Geithner, would argue that TARP was a success because if we didn't bail out the banks everyone would have suffered more. So you envision further ways to ensure that bank runs don't happen again by providing an implicit government backing to even more financial organizations with a greater variety of riskier financial products. Why on earth should we let these organizations collect rents and accumulate fictitious capital, effectively siphoning off useful capital from productive industries and workers, without any risk to themselves? By pretending that you are shoring up weaknesses in the economic system and lowering the risk of catastrophic failure you are effectively making everyone more vulnerable to the whims and decisions of those in the financial industry. We are hostage to the bankers, investment bankers, and hedge fund managers who have to be propped up with infinite credit in order to avoid destroying the economy the rest of the world depends on.

The IMF released a report very recently that the subsidy the banks receive, via noticeably lower interest rates, because of their implicit government backing probably exceeds their profits every year. You want to extend this subsidy to those financial capital holders that have grown so big that they can now hold the rest of us hostage, saying that if we don't bail them out they will bring the rest of us down with them. But they deserve to continue collecting their gargantuan bonuses and corporate profits at essentially no risk to them.

Source

According to you the real bogeyman here is the threat of an ordinary bank run, not the moral hazard of bankers and shadow bankers investing in high-risk, high-return products, knowing that they can externalize the risk to the tax payer. Your attempts the last few pages to try and shift the blame for the crisis to a lack of liquidity is exactly the kind of dissimulation that those who are deeply captured by the financial industry peddle every time the economy "recovers" from a crash, willfully blind to the underlying causes and inherent tensions in the system. Your revisionist history swipes under the rug all of the systemic problems soberly identified after 2008, declares that a safer capitalism of unbounded growth is around the corner with a few adjustments, and sets the stage for the next catastrophe within the next decade.

Illiquid Vs. Insolvent: Why Lehman Isn't Bear Stearns

September 15, 2008 9:29 AM ET

Lehman Brothers is insolvent.

When you add up all the stuff they own and all the people they owe money to, they don't have enough to pay their debtors back.

They are fully, totally, completely broke. Not just "kind of broke, but a loan from their cousin will get them through the next few weeks, 'til they close that next big deal." They are broke and have no chance of coming out from under any time soon.

Bear Stearns was a different story. Their assets were worth more (or close to more) than their debts. But they didn't have liquid assets, ready cash. Too much of their money was tied up in long-term obligations, like mortgages and loans and the like.

Think of ordering a pizza. The delivery guy comes to your door and you say, "See, I'm worth a million dollars. Just look at this house. But I don't have any ready cash in my wallet. Give me the pizza and I'll pay you back."

Bear Stearns had the million dollar house. They just didn't have any ready cash.

Lehman didn't own the house. They were homeless. In fact, they owed someone a house. They had nothing that made their promise to the pizza guy credible.

Bear Stearns worked like many banks — they borrowed money every day from other banks to do their daily business with. All of a sudden, all the other banks got worried that Bear Stearns wouldn't pay them back right away. They knew Bear would be able to pay them back eventually. But not right away. So the banks stopped lending them that everyday money.

When the Federal Reserve Bank came in and helped JP Morgan Chase buy Bear Stearns, the risks weren't terribly high. The Fed promised to pay up on the very remote chance that Bear's various assets could never be accessed. But the Fed knew that Bear's assets were good.

It's like that house: the Fed stepped in and told JP Morgan: "Hey, we know Bear Stearns' house is good and worth $1 million. But if for any reason it's not, we'll cover the difference."

That made JP Morgan comfortable.

Since Lehman Brothers doesn't own a house and, in fact, owes someone else a house, the Fed would have to do a lot more. They would actually have to fork over real money to anyone thinking of buying Lehman Brothers. Not contingent, just-in-case money. They actually have to pay cash out to a private company to save another company.

There were plenty of debates over Bear Stearns: was it a

There would have been no debate over Lehman Brothers. This, my friends, would be a bailout the likes of which the U.S. has not seen in a long time.

On May 29 2014 06:19 xDaunt wrote:

There's a big problem when hundreds of billions of dollars of assets suddenly disappear. The damage isn't limited to the immediate failed entity.

On May 29 2014 06:35 JonnyBNoHo wrote:

A noobie friendly guide to illiquid vs insolvent:

Source

Having the Fed provide liquidity is not TBTF and its not free money. The Fed doesn't lend to insolvent institutions and that's not what I'm advocating. If we want to do away with TBTF we need a system that can withstand failure of large institutions.

Since the crisis the Fed has provided a lot of liquidity and in unusual ways. This hasn't been a disaster for tax payers:


source

Nor is what I'm suggesting an implicit backing. It's an explicit liquidity backing paid for by anyone involved in it. This is not like the situations with GSEs pre-crisis where everyone knew that the GSEs would be bailed out if they got in trouble no matter how often Barney Frank insisted they wouldn't be.

Edit: I'd appreciate it if you stopped assuming what I mean when you don't understand what I've written.

On May 29 2014 06:51 IgnE wrote:


It's a judgment call, and pretending otherwise is silly. It's not a pizza that goy Bear Stearbs in trouble. It's them owning one house and telling someone hey give me your similar house on credit, I'll pay you back. Look I have this other house here that's probably worth something.

The taxpayers did lose out. The economy is significantly worse and many manu people lost a lot of middle class wealth.

On May 29 2014 07:02 IgnE wrote:
$3B of BoA assets vanished overnight in an "accounting error" that Pwc didn't report. And jonny wants us to think that there's always a clear difference between illiquid and insolvent. Fed couldn't possibly lose money, look at its record over last 5 years. No moral hazard either.

On May 29 2014 07:07 JonnyBNoHo wrote:

Sorry, but you don't know what you're talking about.