Pretty interesting point by point piece on what happened in the financial meltdown.
How It Happened
by John Cole| 33 Comments
This post is in: Domestic Politics, Excellent Links, Free Markets Solve Everything, Republican Crime Syndicate - aka the Bush Admin.
Bill E Pilgrim
Galbraith is essential reading. I saved this quote from testimony he gave the other day:
Bootlegger
Last time I’ll mention it (today), but David Harvey’s take is, um, unique.
Comrade Jake
Michael Lewis’ The Big Short is awfully good as well.
El Tiburon
Shorter Galbraith: This is Obama’s economy now.
This article illustrates once again how obama refused to take the bull by the horns. As we sit here today, Wall Street is doing fine. Middle America? Not so much.
This is goodd news for Sarah Palin.
JasonF
That can’t possibly be an accurate explanation — it fails to blame everything on Barney Frank and dark-skinned people!
paradox
It’s just amazing how a critical element of the story is hidden–just like it is here–and even I don’t know the details and timeline.
Paulson panicked and screamed for TARP. Bush and Obama agreed in a roiling uproar during the Fall election. TARP was a Congressional obscenity of bailing out crooks, but at least it was a public process in providing the money.
The TARP money was not used, not immediately, not by Paulson or anyone. What in fact happened is that Paulson just dropped the whole idea after Congress passed it, went behind all our backs to Bernanke to finance the bailout, who then just did it with trillions. So they say. There are still TARP funds lying around.
How much did the Fed cough up? When? It must have been before Christmas 2008. That’s what this fucking audit is about, to try and grasp just how much the Fed went out of god damn control with no fucking public permission. Perhaps 25% of the population is fully aware of the bailout mechanics here, why in the fuck do even authors like Galbraith obfuscate it?
At any rate, the detail lessens nothing of my profound gratitude for the truth in crimes spelled out here, which for some corporate reason never gets emphasized in our sleazy press. Can someone–anyone–please hear me in the leadership?
We bailed out crooks. The little people got fucked in the years hence. You expect to win this Fall with that? You think 280 million Americans aren’t blazingly cognizant of that fact?
Have a good time on the way to your political graveyard. One author said onetime Obama and the bankers deserve each other in all this mess. Oh yes, they deserve to lose too, whether they will or no.
General Stuck
I hope someone remembered to make the Kool Aid.
Michael
Yeah, ‘coz Republicans are going to fix it all.
Naderite/Hamesherite/PUMA trash.
Rick Taylor
I can’t find the part where Fannie and Freddie forced poor innocent bankers to make loans to minorities to buy huge minorities they couldn’t afford which single handedly brought down the world economy. . . .
Pancake
Not a very complete or balanced picture of all that contributed to the problem.
Hunter Gathers
@Michael:
Right after they raid SS and Medicare, bomb Iran back the Stone Age, eliminate S-CHIP, Medicaid, WIC, abolish the minimum wage, eliminate OSHA and all workplace regulations, and have anyone who isn’t white and rich indefinitely ‘detained’, I’m sure that they will get tough with Wall Street.
cmorenc
@paradox
The real problem is that nearly everyonedeserves to lose in the next election who had any part in either enabling the massive fraud and irresponsibility in the financial system, or else since 2008 helped to sidetrack, dilute, or frustrate urgently needed reform of the financial system. That would include the entire GOP congressional and Senate contingent, whose resistance to anything Obama has tried to propose on any front has in turn given the most obtuse, and most corruptly in-pocket of big corporate interests democrats outsized leverage to weaken, obstruct, and resist meaningfully effective reform.
The one legitimate faction behind the original tea party movement (under much the same motivation as drove those behind Ross Perot’s insurgency in 1992) were driven by the strong sense that the current incumbents (both in congress, the executive, and various federal agencies) were hopelessly corrupt, compromised, and incompetent to solve the nation’s problems, and reform could only come by wholesale turnover of government. Of course we know all too well that the tea party movement itself quickly became infiltrated, subverted, corrupted, and misled by the same corporatist/ultra-conservative GOP interests who were most responsible for creating the mess in the first place. But the sensibilities of a great many people who felt attracted to the notion of a tea-party like rebellion that the first thing we needed to do was to throw all the rascals out is dead-on, and not really that out of line with what many progressives feel (and thought they were getting by electing Obama (!!) One of the great tragedies of modern times is how quickly the nascent “tea party” movement was taken over by the same GOP ideologues not-so-far behind the scenes who are approvingly responsible for forwarding pro-corporatist anti-libertarian shills like John Roberts and Sam Alito to the Supreme Court where they are in position to issue profoundly anti-reform rulings like Citizens United.
Allison W.
It’s Obama’s economy now? no shit. it was the day he took office. So was the war.
I don’t understand why this is a debate. He took responsibility for all these problems when he took office. And I can’t for the life of me understand how he is expected to have had it fixed in a year. Took the bull by the horn? more generic nonsense. He has to enlist congress to fix this mess and I’m tired of advice and criticism where the critic ignores the giant elephant and donkey in the room – congress. The one solution I have yet to see anyone offer is how to get the votes in congress. No one has a clue. And no, the usual ‘grow a pair’ ‘use the bully pulpit’, ‘threaten dems in congress’ ‘call them out by name’ will not get votes. I know many people can’t understand how he convinced all these people to vote for him but can’t get congress to do his bidding. He spent two years running for president. Almost every day he was out there making his case. TWO years. He doesn’t have that luxury as president.
El Cid
The problem was too much regulation, and Jimmy Carter and Barney frank giving ACORN trillions of dollars worth of houses for free.
General Stuck
@Allison W.: Though I am not yet ready to sign on to the idea, but American’s have thick heads and short attention spans, and all kinds of pea brain submission to right wing patriotic jingoism – and we might need to let the wingnuts back in the captains chair for it to sink in to the well scrubbed citizenry of this country, that maybe, just maybe, the right wing does not have their best in mind and are willing to scuttle the entire ship for a few dollars more.
Or, maybe not, and someone will need to stick a fork in this republic, cause it is done.
update – if my kool aid isn’t cherry flavored, I ain’t drinking it.
Michael
@El Cid:
All so strapping young bucks can gobble the tbone steaks that their welfare cadillac mamas made for them.
Brian J
Um, where’s the part about ACORN and its supporters shaking down the big banks to give loans to people who made up their qualifications, all at the direction of Obama, Rahm Emmanuel, John and Theresa Heinz Kerry, and of course, the most evil of them all, Bill and Hillary Clinton? How about the billions in TARP funds that secretly went to Democratic causes, like voter fraud and labor unions and destroying the Whitey Tape? Why does the media refuse to share with us with it knows?
Brian J
@Allison W.:
You can (possibly) blame Obama for not pushing for bigger and better (i.e. more support for the states) stimulus, but it makes no sense to say he’s responsible for the shitty economy and the resulting deficits that we have now or will have in the next couple of years.
El Cid
@Michael: Let’s not forget all the illegals coming in beheading people.
Hunter Gathers
@Brian J:
Support for the states was whittled down by Presidents Olympia Snowe, Susan Collins, Arlen Spector, and Ben Nelson, in order to secure their votes.
scav
yah know, what with the effectiveness of ACORN in bringing down the entire fucking economy while not dabbling in rigging the electoral process and their office staff being smarter than the tax code and the evironuts forcing international big business, better, big OIL!, around telling them where to drill — well, all can say is they must have some wicked efficient managers and organizers at the helm. Why can’t we elect one of those guys, huh?
Bill H
Well it’s a lot of fun to point the finger at Bush as having started and/or created this whole mess, but it was actually Clinton who refused to veto the repeal of Glass/Stegall, and who signed the law retroactively legalizing the anti-trust-busting merger of Citi and (humph, whatever) to create the whole concept of “too big to fail.”
Bush certainly accelerated the process beyond the wildest dreams of what Wall Street mavens hoped he would do, of course.
Certainly Obama could not solve the problem in one year, actually eighteen months, but he could have at least changed the direction, which he has not significantly done, what with putting Timmy in Treasury, approving the changes in accounting rules to allow banks to value garbage at pretend values, and not requiring that banks write off bad loans when the loan holders stop paying on them.
Brian J
@Hunter Gathers:
I know that.
I have to wonder if another stimulus, composed entirely of federalizing Medicaid for a few years and a ton of aid for states, would actually stand a chance of passing. Perhaps the comparison doesn’t stand, but I always remember how, in 1948, Harry Truman traveled by train reaching tons of people in order to campaign. He essentially took his message directly to the people. Why can’t Obama do the same?
I don’t know when Congress will be back to business, but he’s got a lot of smart people working for him, so why not have them design a package, and then spend the next month or two traveling the country promoting it? He shouldn’t lock out the media, but focus more on the small outlets and actually speaking to people directly. Hold a three-hour town hall multiple times in various states, if need be. He’s great at explaining things, and the need for more stimulus of the kind I describe is clear, so why not spend the time making this clear to people?
It might not succeed, and it might not make much of a difference in the upcoming elections, but simply making a thorough attempt would help him enormously.
tkogrumpy
@Pancake: Well fill it out for us, will you?
tkogrumpy
@Brian J: I think she means he’s responsible for fixing it, not causing it.
Hunter Gathers
@Brian J:
Nope. It would require at least one GOPer vote. Snowe and Collins will have their committee chairs taken away by McConnell, Senator Cosmo Von Truck Nutz will want the money for it to come out of stimulus funds from last year or from a tax on the poor, and Ben Nelson is in full on “Up yours, nigger” mode, since he got burned by his ‘Cornhusker Kickback’ debacle from the HCR debate. We aren’t going to get shit. White America has grown impatient with Obama, who hasn’t cleaned up the biggest clusterfuck in 70+ years in 18 months. And what is he going to get for trying? A high tech lynching.
I, for one, look forward to being ruled by a White Trash grifter from Alaska, who just might be swept into power on a wave of White Anger. The next 2+ years are going to be extra, extra fun.
Sentient Puddle
I’m working through The Big Short at the moment as well. Though I’m not too far into it, what’s striking to me is that this wasn’t the first time subprime mortgages collapsed. They went to all hell about a decade before the current crisis, and apparently, Wall Street watched this happen and decided that the best course of action was to go practically all in on them.
The finance industry has built themselves up a nice system that nobody involved fucking understands at all. It’s sort of amazing.
John Merryman
The whole paradigm is flawed.
A debt based currency is an archaic construct that is breaking down due to exploitation of inherent flaws. Three hundred years ago it was a pretty smart idea, since there were few economic measures to determine the money supply and debt grows at roughly the same rate as productivity. The problem is that productivity must increase to pay off debt and debt must increase to finance productivity. Now the financial system has been allowed and encouraged to turn the entire economy into a debt production machine through lower quality debt and enormous gambling schemes promoted as “providing liquidity.” This creates the illusion of wealth far exceeding the productive capacity of the economy and often subverts actual production in the process.
Since money is drawing rights to productivity, the question is how to formulate a viable and healthy production based currency system. Money serves as a store of value and a medium of exchange. As a store of value, it is private property, but as a medium of exchange, it is a public utility. As property, there is the desire to accumulate as much as possible, but as a medium of exchange, more money than productivity degrades the value of the money. Money should only be treated as a public utility. In that way, it would be similar to a road system. You own your car, house, business, etc. but not the roads connecting them and no one seriously cries socialism over that. Treating money as form of public commons would make people very careful what value they would take from social relations and environmental resources to convert into currency in the first place. This would be healthy for society, the environment and the monetary system. Of course, it would create a slower, but more sustainable economy. We all like having roads, but there is little inclination to pave more than we need. If we applied the same principle to money, life would be in better shape. Instead of valuing ourselves by how big our bank accounts are, our sense of worth would be on how strong our community is and how healthy our environment is. A smaller money supply would go a long way to limiting the size of the government and the banking system.
The function of the central bank is to make maintaining the value of the currency a public responsibility, while leaving private banks to profit from managing it Political power started as private enterprise and eventually became monarchy. When monarchs lost sight of the fact that their purpose was to guide their people, as opposed to simply exploiting them, they tended to be overthrown and eventually the whole system of hierarchal power was replaced by political power as a public trust. Democracy works by pushing power down to the level it is responsive. If we were to make banking a public function, it would also be bottom up. Local credit unions would use local deposits to loan to local enterprises and use the profits to fund local needs. They would then form regional banks for broader investments and managing the currency.
We understand various civil institutions, such as the military, police and the courts, cannot be run as private, for profit enterprises. Eventually we will realize banking also falls in this category.
With a debt based currency, there is an overwhelming need to create debt. A good example is government spending. The current system is designed to overspend by buying enough votes to pass enormous bills that can only be vetoed in whole by the president. This serves to create debt in order to store capital, as government debt is the primary investment vehicle. In the spirit of actual budgeting, a possible solution would be to break the spending bills down to their constituent items and have every legislator assign a percentage value to each item and then re-assemble them in order of preference. The president would draw the line at what would be funded. This would divide responsibility, allowing the legislature to prioritize, while giving the president final authority over total spending. Since making the cut would be graded on a curve, there would be much less incentive to trade favors and the percentage system would allow legislators to fine tune their granting of favors to other legislators and lobbyists. Since this would likely reduce funding for local projects, a system of local public banks would fill this need.
Another issue would be the variability of needs by different communities from their currencies, so possibly a system of various currencies could be developed, of different exchanges rates, inflationary expectations, etc. Then countries/banking collectives could join what most suits their needs and if necessary, switch from one to another, or start new ones. Obviously somewhat chaotic, but it would be an evolving system and would engender a deeper understanding of economics among the larger population, thus making them less vulnerable to financial predation.
Then there is the question of how to introduce currency into the economy. Currently it is by loaning it out at low enough interest rates to allow sufficient productive returns to pay interest back. This has proven to lead to speculative booms, when interest rates are lower than assets are appreciating, creating feedback loops that increase appreciation and thus more speculation. As well as requiring unsustainable growth.
A viable system needs to recognize excess money is inflationary and by the Fed’s logic of selling bonds to reduce the money supply, excess currency is in the hands of those with an excess of wealth. So, since the stability of the currency is a public responsibility, it should be taxed, not borrowed. If we tax out excess currency to contain inflation, then how about tax credits to introduce money into the system, when prices seem to be deflating? That’s what they are doing now, with all these rebates and it does serve to support productivity. Another method is for the government to spend it into the economy. This has been tried with various levels of success over the ages, but needs prudential management to not get out of hand. In the governmental budgeting process mentioned above, this might entail some degree over spending to control deflation and under spending for inflation.
John Bird
Can’t quote that one enough.
If I was Dorgan, after the Pharma backroom deal, I’d retire too – because it became clear that financial regulation was going to be settled in the same fashion.
Still, watch him in 1999, as he identifies a crucial part of our current crisis, and how it would be enabled by the Clinton-backed repeal of Glass-Steagal.
http://www.sourceoftitle.com/blog_node.aspx?uniq=464
Here’s a transcript excerpt for anyone who hasn’t seen it yet:
Remember, that’s in 1999.
I’d say it’s spooky, but really, it’s just smart. Dorgan IDs gambling on high-risk derivatives by merged mega-banks as an inevitably destabilizing proposition, and then points out that when these banks (once again, inevitably) lose out on some high-risk venture or another, we would HAVE to pour public money into them or face the potential collapse of our economy.
jaleh
I’m reading “Lords of Finance” which is the history of four bankers during WW1…
I found this interesting:
“By one count there have been sixty different crises since the early seventeenth century-the first documented bank panic can, however, be dated to A.D.33 when the Emperor Tiberius had to inject one million gold pieces of public money into the Roman financial system to keep it from collapsing”
joe from Lowell
Barney Frank and a dreadlocked guy with a nightstick made my take out a refi with an ARM.
It was horrible.
AlanDownunder
Has Barrack “look forward not back” Obama the same attitude to white collar crime as he has to war crime? ‘Fraid so. Gonzales has nothng on this Attorney-General. A more effective Presidential stooge is hard to imagine.
Bernard
if only the crash would come before they rob Social Security and the other poor folks’ money. and i won’t hold my breath for any Republican losing their seats. the Democrats will lose plenty for their willful co-operation in scamming us.
why are only the Democrats going to lose seats here? Not to say the Democrats don’t deserve to lose, but the “Fatherland” party never seems to lose much for their adherence to the scamming. Real Americans never wrong, i hear!!
really weird country, America. where the poor get screwed all the time and the masters win all the time. oh never mind!