Zombie bank kitteh from I Can Has Cheezburger?The proletariat isn't killing capitalism. The banks are.
This is not an economics blog, but I thought Robert Reich really nailed it in his commentary on the big bonuses AIG is paying to the guys who orchestrated the failure of our economy:
This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that's "too big to fail" and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. [my emphasis]The Obama Administration's greatest failure, so far, has been its unwillingness to insist on accountability. The lack of accountability built into the initial rescue package should have been obvious to the least perspicacious economic minds. I mean, it was obvious to me! But I thought Obama would institute accountability even though his appointees helped get us into this mess. I hoped he'd override Timothy Geithner on at least this one point.
(More like this here.)
Why is Robert Reich not in the White House? Why not Joseph Stiglitz? Dean Baker? George Soros? I could name a half-dozen other people who aren't so personally invested as Geithner or Larry Summers in maintaining the status quo. For crying out loud, Badtux the Snarky Penguin would make a helluva better Treasury Secretary than Geithner. (See this post for just one example of why I'm not joking about this!)
AIG and its ilk are going to have to be nationalized (or put into receivership, or whatever euphemism you prefer) sooner or later. The only question is whether Obama has the nerve and foresight to do it now, and not wait until another trillion or so is squandered. Joseph Stiglitz has a smart explanation of what's going wrong and how to fix it: basically, by splitting each of the zombie banks into two pieces, hiving off the bad investments, and sticking shareholders and executives with the losses. In other words, he advocates eliminating the current moral hazard and disincentives to lend while reinstating accountability.
Right now, the zombie banks are murdering markets and capitalism itself. Time for a new escape plan.
2 comments:
The sad reality is that the so-called Federal Reserve Bank, particularly under Alan Greenspan, put us on a near parabolic trajectory when it came to monetary inflation. In a nutshell, the prosperity that many enjoyed was false, based only on cheap money and whacked-out lending. "$450k mortgage! Why not make that $650k! Your house will only appreciate!" A saw a graph in The Economist a few weeks back that had total US private debt increasing to an astonishing 300% of GDP. This makes the US Federal debt, which is somewhere about 80% of GDP, seem quite paltry by comparison!!!! And what about State and Local government debt?
I view the Fed as being complicit in this economic insanity. As far as I am concerned they were inflating an economic Hindenburg.
HR 1207 and S 153 basically call for an audit of the Fed. As of today, HR 1207 only has about 28 members supporting this measure (Republicans and Democrats). One would think that this would be an obvious move to ensure transparency. But sadly, too many Congressmen and Senators seem to be bought and paid for and will not do what needs to be done to restore confidence.
I am, however, heartened by President Obama appointing Paul Volcker as Chair of his Economic Recovery Advisory Board.
And now Greenspan claims to be surprised by all of this. A few months ago a report at Alternet claimed that the Fed has subsidized someone - apparently the banks? - to the tune of an additional $2 trillion. But I haven't heard a peep about this since then.
So yeah, a little transparency would be lovely.
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