The Banks that are too big to fail- should not exist

13 Bankers. The Wall Street Takeover and the Next Financial Meltdown.  (2010.) Johnson and Kwak.

The currently proposed reforms of Wall Street by the Obama Administration are too limited.   To protect our economy and our society we need to

1.     Re-establish the Glass Steagal act of 1933 which separates savings banks from commercial banks.

2.     Break up the banks that are too big to fail.

3.     Add  substantive regulation to the markets.

   This recent  work  develops the important thesis that the U.S. is being directed and exploited by an Oligarchy.  This Oligarchy protects  their profits and their privileges, they dominate the government.  And, they will continue to do so until they are stopped.  The authors argue that in the crisis of 2007/2009, which the oligarchy  created, the the rich seized billions of dollars for themselves.  They made massive profits from the economic disaster. The Great Recession cost  the homes, the jobs, and even the lives of working people.  It is devastating our schools. This is the nature of our current state.

13 Bankers has additional importance since it was published in Spring 2010 just as the Washington/ Wall Street debate on regulatory reform reached its zenith.

Johnson and Kwak describe in detail the self serving economic theories which the wealthy and the powerful promote, such as those advanced most notably by the University of Chicago economists.  These theories known at various times as Free Market Capitalism, or the Washington Consensus serve the elite well.  They are very profitable while the impoverish working people and assault unions.

The authors note,

“ In the dark days of late 2008- when Lehman Brothers vanished, Merrill Lynch was acquired, AIG was taken over by the government, Washington Mutual and Wachovia collapsed, Goldman Sachs and Morgan Stanley fled for safety morphing into bank holding companies, and Citigroup and Bank of America teetered on the edge of being bailed out- the conventional wisdom was that the financial crisis  spelled the end of an era of excessive risk –taking and fabulous profits.  Instead,  we can now see that the largest, most powerful banks came out of the crisis even larger and more powerful.  When Wall Street was on its knees, Washington came to its rescue- not because of personal favors to a handful of powerful bankers, but because of a belief in a certain kind of financial sector so strong that not even the ugly revelations of the financial crisis could uproot it.”  ( P.11)

The current  “rescue” of the banking system was organized by  Hank Paulson formerly Chairman of Goldman Sachs, Larry Summers, Timothy Geithner and others who learned their perspectives working with Robert Rubin in the Clinton Administration.  Between  1989 and 2000, these and other “experts”  such as Ben Bernanke created exactly the kind of markets that collapsed in March of 2007, and now the same people are designing our “recovery”.  Who do you think will organize the next bailout?

 Stiglitz, Johnson and Kwak, Prins and the  others authors  agree that the current proposals for regulatory reform are too limited.  We need some version of the re-imposition of the Glass Steagal act of  1933 which separated banks from financial investment and trading companies.

In his book Stiglitz makes a strong case that the U.S. should change policies that led to the belief that some banks were too big to fail.  Simon Johnson and Kwak go further and argue that banks should be reduced in size so that no bank is too big to fail. 

Johnson and Kwak are at their best in providing a description of how Wall Street used its growing economic power to gain political power.  The response they propose is obvious.  If you hope to defend our society and to regain democracy, the large financial corporations, the Oligarchy, must be stopped and broken up- just as Standard Oil and AT& T were broken up in their time.  The authors of 13 Bankers follow the economy regularly on their web site  The Baseline Scenario: http://baselinescenario.com/.

Move Your Money

Adrianna Huffington.
Last week, over a pre-Christmas dinner, the two of us, along with political strategist Alexis McGill, filmmaker/author Eugene Jarecki, and Nick Penniman of the HuffPost Investigative Fund, began talking about the huge, growing chasm between the fortunes of Wall Street banks and Main Street banks, and started discussing what concrete steps individuals could take to help create a better financial system. Before long, the conversation turned practical, and with some help from friends in the world of bank analysis, a video and website were produced devoted to a simple idea: Move Your Money.

The big banks on Wall Street, propped up by taxpayer money and government guarantees, have had a record year, making record profits while returning to the highly leveraged activities that brought our economy to the brink of disaster. In a slap in the face to taxpayers, they have also cut back on the money they are lending, even though the need to get credit flowing again was one of the main points used in selling the public the bank bailout. But since April, the Big Four banks -- JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo -- all of which took billions in taxpayer money, have cut lending to businesses by $100 billion.

Meanwhile, America's Main Street community banks -- the vast majority of which avoided the banquet of greed and corruption that created the toxic economic swamp we are still fighting to get ourselves out of -- are struggling. Many of them have closed down (or been taken over by the FDIC) over the last 12 months. The government policy of protecting the Too Big and Politically Connected to Fail is badly hurting the small banks, which are having a much harder time competing in the financial marketplace. As a result, a system which was already dangerously concentrated at the top has only become more so.

We talked about the outrage of big, bailed-out banks turning around and spending millions of dollars on lobbying to gut or kill financial reform -- including "too big to fail" legislation and regulation of the derivatives that played such a huge part in the meltdown. And as we contrasted that with the efforts of local banks to show that you can both be profitable and have a positive impact on the community, an idea took hold: why don't we take our money out of these big banks and put them into community banks? And what, we asked ourselves, would happen if lots of people around America decided to do the same thing? Our money has been used to make the system worse -- what ifwe used it to make the system better?

Everyone around the table quickly got excited (granted we are an excitable group), and began tossing out suggestions for how to get this idea circulating.

Eugene, the filmmaker among us, remarked that the contrast between the big banks and the community banks we were talking about was very much like the story in the classic Frank Capra filmIt's a Wonderful Life, where community banker George Bailey helps the people of Bedford Falls escape the grip of the rapacious and predatory banker Mr. Potter.

It was a lightbulb moment. And, unlike the vast majority of dinner conversations, the excitement over this idea didn't end with dessert. It actually led to something -- thanks in great part to Eugene and his remarkable team, who got to work and, in record time, created a brilliant, powerful, and inspiring video playing off the It's a Wonderful Life concept. Watch it below.

Within a few days, the rest of the pieces fell into place, including an agreement with top financial analysts Chris Whalen and Dennis Santiago, who gave us access to their IRA (Institutional Risk Analytics) database. Using this tool, everyone will be able to plug in their zip code and quickly get a list of the small, solvent Main Street banks operating in their community.

The idea is simple: If enough people who have money in one of the big four banks move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system so it becomes again the productive, stable engine for growth it's meant to be. It's neither Left nor Right -- it's populism at its best. Consider it a withdrawal tax on the big banks for the negative service they provide by consistently ignoring the public interest. It's time for Americans to move their money out of these reckless behemoths. And you don't have to worry, there is zero risk: deposit insurance is just as good at small banks -- and unlike the big banks they don't provide the toxic dividend of derivatives trading in a heads-they-win, tails-we-lose fashion.

Think of the message it will send to Wall Street -- and to the White House. That we have had enough of the high-flying, no-limits-casino banking culture that continues to dominate Wall Street and Capitol Hill. That we won't wait on Washington to act, because we know that Washington has, in fact, been a part of the problem from the start. We simply can't count on Congress to fix things. We have to do it ourselves -- and the big banks are the core of the problem. We need to return to the stable, reliable, people-oriented approach of America's community banks.

So watch Eugene's amazing video, then go to www.moveyourmoney.info to learn more about how easy it is to move your money. And pass the idea on to your friends (help make this video -- and this idea -- go viral!).

JP Morgan/Chase, Citi, Wells Fargo, and Bank of America may be "too big to fail" -- but they are not too big to feel the impact of hundreds of thousands of people taking action to change a broken financial and political system. Let them gamble with their own money, not yours. Let's turn big banks into smaller banks. We'll all be better off -- and safer -- as a result.

Make it your New Year's resolution to move your money. We can't think of a better way to start 2010.

UPDATE -- Credit Unions: Some commenters have written us suggesting that we also include credit unions. Like the FDIC for banks and thrifts, the National Credit Union Administrationinsures the deposits of credit unions and is a good resource for financial data on specific institutions. Credit unions do not disclose financial data in the same way as FDIC-insured banks. As a result, credit unions are not presently included in the IRA ratings database, which covers over 8,000 federally insured banks and thrifts. IRA is developing a method to rate credit unions in a way that is comparable to the IRA bank stress ratings. We'll be updating users of "Move Your Money" on this issue early in 2010.

For more info, go to: www.moveyourmoney.info

(Coming soon: How to get your municipal and state governments to take their money out of the big banks too.)

From: The Huffington Post. See the video there.

Which Side Are you On?

Which Side Are You On?
100 Days
By Christopher Hayes

This article appeared in the April 6, 2009 edition of
The Nation. March 18, 2009.

Legislative fights in Washington rarely break down
neatly along class lines. Often, the coalitions on
either side of an issue are unwieldy and eclectic, with
one sector or industry battling another. The notable
exception is the Employee Free Choice Act (EFCA), which
would reform a broken labor elections system, making it
easier (one might say possible) for workers to
unionize.

On March 10 the bill was reintroduced in the House and
the Senate, ushering in the final act in a six-year
legislative battle that has become the most bruising
and intense in Washington, one that--literally--pits
Capital against Labor.

For the GOP the politics are straightforward. Woven
into the DNA of the modern conservative is opposition
to unions and unionism of any kind. Defeating the bill
has become a kind of jobs program for right-wing hacks:
no fewer than sixteen groups are raising money,
mobilizing constituents, running ads and lobbying
senators to kill it.

But for a Democratic Party that for several decades has
awkwardly attempted to be the party of both business
and labor, it's a very difficult circle to square. "It
comes at a bad time," says a wealthy, business-friendly
Democratic donor. "[Democrats] are blaming bankers,
blaming lots of people, and it sounds like these people
are anti-business.... A lot of us warned the guys
working for Obama that [EFCA] would be a problem. They
said, Don't overreact to this--it's a long way from
becoming law, blah, blah, blah."

In this particular fight, class solidarity--if I may
use a phrase that has long since gone out of
fashion--seems to trump partisan loyalties.

Obama supporter and advocate of progressive taxation
Warren Buffett has come out against the legislation.
And according to that wealthy Democrat I talked with,
he's not alone: "I think a lot of Democratic donors are
downright pissed off," he told me. His fellow
well-heeled Democratic donors, he said, are complaining
that "this is the danger of having Democrats control
Congress and the White House." The head of a large
progressive nonprofit echoed the point. The act, he
said, "happened to come up a few times" recently with
donors. He was surprised by how intense their
opposition is. "The passion of it threw me off a bit,"
he added.

Part of the source of these tensions is the fact that
the disgraced financial sector (which increasingly
leans Democratic in its donations) has largely thrown
its weight behind opposing the bill--despite the fact
that these same businesses are being kept on life
support by the government. A Citibank retail analyst
downgraded Wal-Mart's stock for fear that the bill
would pass; the next day she hosted an "informational"
conference call featuring a representative from the US
Chamber of Commerce, who spent the entire call warning
darkly about EFCA. (After the Huffington Post broke the
news of the anti-EFCA call in mid-March, Citi hurriedly
hosted a call with members of the United Food and
Commercial Workers.)

"This is the biggest battle between labor and
corporations in this country since the Taft-Hartley Act
of 1947," the AFL-CIO's organizing director, Stewart
Acuff, told me. What makes the battle especially
intense is that while both sides have attempted to
shape public opinion, polls show that the issue doesn't
amount to even a blip on voters' radar. A recent poll
found majority support for a bill that would make it
easier to organize, but only 12 percent of respondents
said they were following the EFCA bill "very closely."

That means victory will ultimately come not from
shaping public opinion but from pressuring the handful
of swing senators. Each side is ferociously organizing
constituents in those senators' states.

A few of these red state Democrats--in a kind of parody
of squishy centrism--have hinted they'd like to find
some legislative compromise. "This legislation is not
perfect," Arkansas Senator Mark Pryor said recently.
"And while I have been supportive in the past, I will
consider amendments to make it better if and when it is
considered by the Senate." Nebraska Senator Ben Nelson
said he thinks that "there'll be a major effort to
modify it before it ever comes up for consideration,
and I'll have to take a look and see what it is then."
Some senators have floated compromises, such as
extending the amount of time management would have to
negotiate a first contract before binding arbitration.

If Senate Democrats think an amendment will give them
political cover, they're fooling themselves. Just ask
big business. Speaking on the Citi conference call,
Glenn Spencer of the Chamber of Commerce said, "There
is no amendment you could make to this bill to make it
acceptable. From top to bottom it's a bad piece of
legislation. You'd have to start with scrapping this
bill."

Labor also sees EFCA as a black and white issue and is
eager to take away the middle ground. Acuff says the
fundamental question is, "Are you for unions or are you
against unions? If you're against this legislation,
you're against unions. You can't say you're for unions
if you don't think workers should be able to form
unions without fear of retaliation."

Sometime in the next few months, every Democratic
elected official is going to have to answer a very old
question that in a post-meltdown world is newly
resonant: Which side are you on?


About Christopher Hayes Christopher Hayes is The
Nation's Washington editor. His wife works in the White
House Counsel's office.

______________________

Citigroup robs the bank- and you and I- again

Citigroup's Clever Plan to Screw Taxpayers Again

From The Business Insider, Feb. 23, 2009:

So Citigroup (C) has proposed that the US taxpayer and other preferred shareholders convert up to $75 billion of preferred stock into common stock, thus bolstering the company's tangible equity and putting it in less desperate need of a complete takeover.

And what will the US taxpayer get for this preferred stock conversion? 40% of the company for some of its $45 billion of preferred, say reports. The reports add that Citigroup's goal here is to keep the US's ownership under 50%, so this won't be a de facto nationalization.

Well, that's nice for Citigroup...and another ream-job for taxpayers.

Citigroup's common equity is currently worth $10 billion. If the US were to convert all $45 billion of its preferred at the current stock price, it should end up with 80% of the company, not 40%.

For the US to convert $45 billion of preferred to common and only get 40% of the company, Citigroup's existing common equity would have to be valued at $65 billion, not $10 billion, and the conversion price would have to be about $10 a share. Or the US would only be able to convert $4 billion of its $45 billion, which wouldn't help Citigroup's tangible equity ratio much.

So is that what Citigroup is trying to do here? Persuade the US goverment to convert to common stock at a price miles above the current trading price, screwing the US taxpayer yet again?

Or does Citigroup have some other secret plan up its sleeve whereby it can take up to $75 billion of debt (preferred stock) off its books and not end up diluting its current shareholders 90%?

Nationalize the Banks : Baker

Published on Sunday, February 8, 2009 by Beat The Press
Dealing With Bankrupt Banks: Nationalization or Welfare

by Dean Baker

The media continue to do more to misinform the public than to inform
them when it comes to plans for fixing the financial system. Following
the absolute worst in journalistic practices, a front page Washington
Post article explains the Obama administration's policy by telling
readers that the "approach reflects Treasury Secretary Timothy F.
Geithner's philosophy of how governments should respond to financial
crises."

Trees had to die for this garbage? The reality is that the reporters
have no clue as to what Timothy F. Geithner's philosophy of how
governments should respond to financial crises. The reporter knows
what Timothy F. Geithner told them, so why don't they just stick to
passing this information along to readers instead of speculating about
his innermost thoughts?

The excursion into philosophy deflects readers from the real issue.
Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in
business. In effect, he wants to tax teachers, fire fighters, and Joe
the Plumber to protect the wealth of the banks' shareholders and to
pay high salaries to their top executives. No readers of this piece
would understand that this is the process being described.

The Post editorial page carried on with this deception. An editorial
on saving the banks dismissed nationalization because it would involve
the government in running the banks. Then it discusses the idea of
buying bad assets and warns, "but there is a huge risk that the
government would badly overpay in the first place."

Actually, this is not a risk, this is the point. If the government
paid the market price for these assets the banks would be bankrupt and
we would be back to step 1, nationalization. The point of buying the
bad assets is to pay too much, so that the banks can get enough money
to stay solvent. (It is worth noting that deciding how much the
government will overpay, and to whom, also involves the government in
running the banks in a really big way.)

It would be nice if the Post and the rest of the media would report
honestly on the bank bailout and stop trying to conceal plans for a
massive redistribution of wealth to the bank shareholders and their
top executives.

Dean Baker is the co-director of the Center for Economic and Policy
Research (CEPR). He is the author of The Conservative Nanny State: How
the Wealthy Use the Government to Stay Rich and Get Richer (
www.conservativenannystate.org) and the more recently published
Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also
has a blog, "Beat the Press," where he discusses the media's coverage
of economic issues. You can find it at the American Prospect's web
site.

Its time to take over the banks : Baker

"The banks have stolen enough. It's time to take them over."

by Dean Baker
Huffington Post
1/25/09

Hold onto your wallets. The bankers are coming bank for more money.
They burned through the $350 billion that we gave them in the first
round of the Troubled Asset Relief Program (TARP) and they are worried
that even the second $350 billion will not be enough money to keep
them solvent. The selective leaks from Treasury tell us that the banks
will need far more money to cover their bad debts.

The latest story is that the banks want to sell us their bad assets at
above market prices, which was the original plan that Treasury
Secretary Paulson proposed, except the banks want to push off their
junk on an even bigger scale. In one version, the government would set
up a Resolution Trust-type corporation (RTC), like we did with the
bankrupt Savings and Loans in the 80s, which would hold all the
garbage and then gradually resell it to the private sector to recover
a portion of what the government paid.

This is a reasonable course, except there is one big difference
between what we did with the S&Ls in the 80s and the leaked plan being
floated. The S&Ls were taken over by the government and then resold to
the private sector. These were bankrupt institutions that were put out
of business. The stockholders were wiped out, which is what is
supposed to happen to stock holders when their company goes bankrupt.

But this is not what happens in the plan being discusses. In this
plan, the taxpayers just do the banks the great favor of paying above
market prices for their junk so that we can relieve them of the burden
of their past mistakes. The taxpayers get to eat the losses and the
bank executives and their shareholders go on their merry way.

These folks are not market fundamentalist types. The Wall Street view
of the world, and apparently the view of at least some people in the
Obama administration, is that the government always is there to help a
bank or banker in need.

The idea that we would give one more penny to this crew that has
wrecked the economy should make taxpayers furious. There is a
legitimate public interest in keeping the banks operating; a modern
economy needs a well-operating financial system. But, there is zero
public interest in rewarding shareholders and overpaid banks
executives.

These executives bankrupted their banks and brought the economy down
with them. They belong in an unemployment line not collecting
multi-million dollar paychecks in their designer office suites.

The obvious answer is to take over the insolvent banks, just as we did
with the insolvent S&Ls. The government should form an RTC as we did
in the 80s, which would dispose of the assets over time, collecting as
much money as possible for the government. The bankrupt banks would be
restructured and sold back to the private sector as soon as their
books were straightened out. The point of the exercise is not have the
government run the banks, the point is to keep the financial system
running without giving even more money to the richest people in the
country.

This is the only reasonable solution to the mess that the bankers have
created. The other solutions are simply efforts to transfer dollars
from hardworking taxpayers to overpaid and incompetent bank
executives. It is hard to believe that anyone would take it seriously,
if not for the enormous political power of the Wall Street gang.

It's too bad that the Republicans' anger over giving tax breaks to
workers who did not pay income taxes does not extend to giving tax
dollars to Wall Street banks who have wrecked our economy. Where are
the anti-government conservatives when we need them?
__._,_.___

What to do about the banks?

And this from the New York Times.
JANUARY 21, 2009, 4:00 PM
Should Obama Seize Citigroup?

By ERIC ETHERIDGE
This is probably not a news story that a new president wants to read on his first full day in office. Bloomberg.com reports:

U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Last week’s bad news from Citigroup and Bank of America had already prompted a round-robin discussion in the blogosphere on the wisdom of nationalization. With tongue somewhat in cheek, John Quiggin blogged at Crooked Timber on Monday:
All reasonable commentators now agree that nationalisation of big banks like Citigroup, Bank of America and Royal Bank of Scotland must take place soon, explicitly or otherwise. As I said at just before the second (failed) Citigroup bailout, banks like Citi are not only too big to fail, they’re too big to rescue with any of the half-measures that have been tried so far.

Others were wary of this solution: At his New Yorker blog, The Balance Sheet, James Surowiecki wrote the same day, “I think that as the ‘nationalize now’ meme has taken hold in the blogosphere, people are talking about nationalization ‘awfully casually.’ . . . [T]he idea that most of Barack Obama’s Presidency will be spent presiding over a government-run banking system is a daunting thought.”

And at Marginal Revolution, Tyler Cowen listed his concerns about how a nationalization strategy would play out:

How many years of profits are needed to create the cushion of capital which is required for re-privatization? And how many years of government ownership will be needed to generate that many years of profits? Will banks owned by the government be allowed to pursue profits, rather than lending to troubled industries in the districts of influential Congressmen? Or will government just stick money in the bank and hope they have thereby created a sound enterprise?

Quiggin’s argument is that current rescue efforts — especially including leaving current bank managers in place — simply won’t work. Blogging today in response to Surowiecki and others, Quiggin writes:

Financial restructuring is going to be a huge challenge, involving both a radical redesign of national regulations and the construction of an almost completely new global financial architecture. To attempt this task while leaving the banks under the control of discredited managers nominally responsible to shareholders whose equity has, in the absence of massive transfers from taxpayers, been wiped out by bad debts, seems like doing live electrical work while wearing a blindfold and standing in a pool of water.

In Britain, where the banks and the pound are collapsing, and the government announced its new, just-short-of-nationalization rescue plan on Monday, Financial Times blogger Willem Buiter is leading the charge for going all the way.

Yesterday he laid out his thinking in a long post, which began with a comparison of the recent banking excesses in Iceland and the U.K.:

Both countries allowed the unbridled growth of banks that became too large to fail. In the case of Iceland, the banks also became too large to rescue. In the UK, the jury is still out on the ‘too large to rescue’ issue, but I have serious and growing concerns. Incrementally, the British authorities have guaranteed or insured ever-growing shares of the balance sheets of the UK banks. And these balance sheets are massive. RBS, at the end of June 2008 had a balance sheet of just under two trillion pounds. The pro forma figure ws £1,730 bn, the statutory figure £1,948 (don’t ask). For reference, UK GDP is around £1,500 bn. Equity was £67 bn pro forma and £ 104bn statutory, respectively, giving leverage ratios of 25.8 (pro forma) and 18.7 (statutory), respectively.

With a 25 percent leverage ratio, a four percent decline in the value of your assets wipes out your equity. What were they thinking? The fact that Deutsche Bank used to have a leverage ratio of 40 and is now proud to have brought it down to just below 34 is really not a good excuse.

Buiter goes on to argue that the near-nationalization rescue plans will only make things worse:

In the name of preventing a collapse of the UK banking system, we are witnessing the socialisation — at first gradual, but now quite rapid — of all balance sheet risk of the UK banks by the UK government. This is risky and, in my view, unwise. The manner in which it is done also seems designed to maximise moral hazard. The good news is that it is unnecessary for restoring and maintaining the flow of new credit in the the British economy. . .

My belief that the UK government should take over all UK high street banks (on a temporary basis) is based on the simplification this would provide as regards the governance of these institutions under extreme circumstances, when private ownership and governance have clearly failed, and on its positive effect on incentives for future bank behaviour (’moral hazard). When the public interest and the interests of the existing private shareholders and the incumbent managers and boards of directors diverge as manifestly as they do in this crisis, the sensible thing to do is to buy out the existing shareholders (as cheaply as possible). That way the failed and failing management and boards can be restructured (fired without golden parachutes) and the new owner can insist on and enforce an open, verifiable valuation of toxic and dodgy assets, on and off the balance sheet of the bank.

He then lays out his four-point plan:

(1) Take into complete state ownership all UK high street banks. This has to be mandatory, even for the banks that still like to think of themselves as solvent.

(2) Fire the existing top management and boards, without golden or even leaden parachutes, except those hired/appointed since September 2007.

(3) Don’t issue any more guarantees on or insurance for existing assets - regardless of whether they are toxic, dodgy or merely doubtful. Issue guarantees/insurance only on new lending, new securities issues etc. A simple rule: guarantee the new flows, not the old stocks. This will reduce the exposure of the government to credit risk without affecting the incentives for new lending.

(4) Transfer all toxic assets and dodgy assets from the balance sheets of the now state-owned banks (or from wherever they may have been parked by these banks) to a new ‘bad bank’. If possible, pay nothing for these toxic and dodgy assets. Since the state owns both the high-street banks (I won’t call them ‘good’ banks) and the bad bank, the valuation does not matter.

Back in the States, watching Tim Geithner’s confirmation hearing today, Kevin Drum seizes on this remark by the soon-to-be Treasury Secretary:

The tragic history of financial crises is a history of failures by governments to act with the speed and force commensurate with the severity of the crisis. If our policy response is tentative and incrementalist … then we risk greater damage to living standards, to the economy’s productive potential, and to the fabric of our financial system … In a crisis of this magnitude, the most prudent course is the most forceful course.

Drum’s conclusion?

Nationalization fans should rejoice at hearing this. More and more, that includes me, by the way. The news out of Britain is beyond grim right now, and [throughout] this financial crisis the U.S. has never been more than a couple of months behind the UK. If that stays the case, nationalization of at least a couple of big banks will hardly even be a debatable option a few weeks from now.

Why our schools will not have funds :AP

AP study finds $1.6B went to bailed-out bank execs

FRANK BASS AND RITA BEAMISH | December 21, 2008 10:07 PM EST |

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits in the calendar year 2007, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for 53 of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount to a bribe "to get them to do the jobs for which they are well paid in the first place.

"Most of us sign on to do jobs and we do them best we can," said Frank, a Massachusetts Democrat. "We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"

The AP compiled total compensation based on annual reports that the banks file with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help. Among the findings:

_The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.

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_Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. The company's top five executives received a total of $242 million.

This year, Goldman will forgo cash and stock bonuses for its seven top-paid executives. They will work for their base salaries of $600,000, the company said. Facing increasing concern by its own shareholders on executive payments, the company described its pay plan last spring as essential to retain and motivate executives "whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels." Goldman spokesman Ed Canaday declined to comment beyond that written report.

The New York-based company on Dec. 16 reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money on Oct. 28.

_Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the chairman of Capital One Financial Corp., took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options. The McLean, Va.-based company received $3.56 billion in bailout money on Nov. 14.

_John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, took the reins of the company in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options.

Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28.

The AP review comes amid sharp questions about the banks' commitment to the goals of the Troubled Assets Relief Program (TARP), a law designed to buy bad mortgages and other troubled assets. Last month, the Bush administration changed the program's goals, instructing the Treasury Department to pump tax dollars directly into banks in a bid to prevent wholesale economic collapse.

The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from giving golden parachutes to departing executives and deducting some executive pay for tax purposes.

Banks that got bailout funds also paid out millions for home security systems, private chauffeured cars, and club dues. Some banks even paid for financial advisers. Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay personal financial planners.

At Bank of New York Mellon Corp., chief executive Robert P. Kelly's stipend for financial planning services came to $66,748, on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said.

Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important in giving executives more time to focus on their jobs.

JPMorgan Chase chairman James Dimon ran up a $211,182 private jet travel tab last year when his family lived in Chicago and he was commuting to New York. The company got $25 billion in bailout funds.

Banks cite security to justify personal use of company aircraft for some executives. But Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation's security-conscious commercial air terminals.

Sherman, a member of the House Financial Services Committee, said pay excesses undermine development of good bank economic policies and promote an escalating pay spiral among competing financial institutions _ something particularly hard to take when banks then ask for rescue money.

He wants them to come before Congress, like the automakers did, and spell out their spending plans for bailout funds.

"The tougher we are on the executives that come to Washington, the fewer will come for a bailout," he said.

McCain and Crony Capitalism

Crony Capitalism
The U.S. purchase of AIG is crony capitalism at its worst. We, the tax payers are left holding the bag for bad investments. AIG has 85 billion world wide of insurance and other products. The front page story in the BEE says the U.S. gets a stake in the insurance giant. No. We get a liability. So, we now sell insurance in Thailand, Indonesia, Korea, Peru and Russia and Europe – all supported by our taxes and our bank accounts. But, John McCain says we can not afford health insurance for our own people.
AS described in a Salon.com article, this system was created and promoted by Phil Gramm, formerly John McCain’s principal economic advisor.
http://www.salon.com/tech/htww/2008/09/16/mccain_and_aig/index.html
It is accurate that Gramm had assistance from Democrats, lead by Joe Lieberman, now Mc Cain’s primary advisor.
These politicians demonstrate the examples given in the book, The Best Way to Rob a Bank is to Own One.
Public money should be used for public purposes, for schools, roads, water systems. Not for crony capitalism and to reward millionaires.
Its time to throw the bums out- the Republicans -to protect your home ,your job and your pension funds.

Duane E. Campbell
Sacramento