Posts Tagged ‘financial crisis’
(Via Felix Salmon)
I’ve written negatively about Senator Blanche Lincoln in the past for her vote in favor of the Iraq War, her frightening views on indefinite detention and torture, her support of warrentless surveillance, and a host of other sins, but I think she deserves major credit for introducing a bill earlier this week that would ban over the counter derivatives:
“Speculators will not be exempted and all trades will be reported to regulators and the public,” Mrs. Lincoln wrote. In addition, any agency that is used for the trading of swaps contracts, including those dealing with energy commodities, will be required to register with the C.F.T.C.
This is exactly the kind of transparency and oversight that could have prevented the crisis, or at least made it softer. I want to stress that the layers upon layers of new regulation that Timothy Geithner intends to add (and which I discussed in the post immediately before this one), will not do anything for public transparency.
Blanche, you’ve voted for some pretty bad things in the past, but this is a bill I can get behind.
And, of course, Times is spinning it like it’s a bad thing. During the panic of aught-eight, the Icelandic economy crashed, their currency, the Kronor, became nearly worthless, and 85% of their banking system collapsed. They were the first national victim of the securitization Ponzi scheme – the same scheme that’s currently threatening the EU. When the dust settled, Iceland found itself owing Britian and the Netherlands more than 40% of their GDP. As the Times notes, this would be the equivalent of America owing $5 Trillion (which we actually did borrow to fix our own crisis, but don’t talk about that.)
Icelanders are, naturally, incensed, and it looks as though they’re going to refuse to pay up. Their debt is equivalent to approximately $62,000 per household here, and just try and imagine if our leaders tried to get everyone to deduct $62,000. They’re having a referendum on the latest repayment plan, and no one thinks it’s going to pass.
However, this hasn’t stopped the Times from threatening Iceland with becoming an “international pariah” if they end up defaulting. Debts must be paid, after all – even to gangsters and con artists.
Check out his column, in which he makes a similar point to what I made a couple posts down:
Now what? A breakup of the euro is very nearly unthinkable, as a sheer matter of practicality. As Berkeley’s Barry Eichengreen puts it, an attempt to reintroduce a national currency would trigger “the mother of all financial crises.” So the only way out is forward: to make the euro work, Europe needs to move much further toward political union, so that European nations start to function more like American states.
It’s an ugly picture. But it’s important to understand the nature of Europe’s fatal flaw. Yes, some governments were irresponsible; but the fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready.
“We’ve got strong financial institutions . . . Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.”
– Hank Paulson, Treasury Secretary, March 16, 2008
“We must [enact a program quickly] in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses, both small and large, and the very health of our economy,”
– Hank Paulson, Treasury Secretary, September 23, 2008
Bloomberg gets the scoop on how Obama’s flimsy “Bank Tax” will affect Goldman Sachs:
Goldman Sachs, like many banks, is awarding more of its bonuses in stock to tie them more closely to performance. The firm priced those shares at $154.12, the closing level on Jan. 22, a person familiar with the matter said, after a two-day, 8.1 percent slide prompted by Obama’s plan.
“The unintended consequences of some of this craziness coming out of Washington are breathtaking,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “In the process of trying to score political points, they have taken the target, in this case the so-called fat-cat bankers, and provided them with a reward.”
I wonder if we’ll ever realize that you can’t punish people who make the rules. In this case, Goldman Sachs regularly gets their first choice appointed to the Treasury Secretaryship, and as Rep. Dick Durbin had the courage to remark, so far as Congress goes, the banks “frankly own the place” .
Under these circumstances, finding a way to curb executive compensation or even castigate the banks for getting us into this stupid crisis isn’t just difficult. It’s well-neigh impossible. It would be like getting Obama to reduce his executive powers, or trying to convince Stalin to step down nicely after two terms.
Bloomberg has a fantastic timeline of the fortunes and despairs our favorite International Group has suffered and celebrated over the past two years. This will be very useful for anyone still confused about how AIG ended up with trillions of taxpayer dollars (read: everyone)