There are signs that some influential US bankers and financiers are playing a greedy and self-centered game of, essentially, blackmailing the rest of the citizenry (and everyone else with an interest in the integrity of the US financial system) with their– the bankers’– non-cooperation in the bailout unless they continue to be able to lead their self-centered and completely irresponsible lifestyle and continue to be able to exercize their accustomed level of untramelled control over vast portions of the world economy and financial system…
See e.g. this quote from Bloomberg today (HT: Calculated Risk):
- Senate Banking Committee Chairman Christopher Dodd has proposed that the Treasury potentially receive equity stakes in some companies that sell assets to the government. The stakes would “vest” in an amount equal to the 125 percent of the dollar value of the loss realized by the Treasury on the sale of the assets.
That type of “loss participation” proposal would endanger companies’ ability to raise private capital afterwards, Jeffrey Rosenberg, head of credit strategy research at Bank of America Corp. in New York, wrote in a report yesterday.
Or this, also from Bloomberg (HT: Moon of Alabama), about much-lauded investment whiz Warren Buffet:
- [Buffett] made it very clear that he would not have bought anything right now if he wasn’t confident Congress will do the “right thing” and approve the financial bailout proposal put forward by Treasury Secretary Henry Paulson.
That is, the bailout plan that would not include the US citizenry ending up getting any actual equity warrants in return for the massive generosity the financiers are requesting from us…
Paulson and Bernanke tried to ram their “no equity, no restrictions” plan through Congress early week without any further deliberation, discussion, or changes. Perhaps they and their financier friends were counting on two things to succeed at this: (1) Fear, and (2) The lovey-dovey relationships the banking world has built up with all the members of the relevant congressional oversight committess over the years, greased by often massive campaign contributions.
So far, the US Congress has dug in its heels and resisted the strong railroading blackmail/pressure being exerted on it by the Bush administration and the “community” of uber-rich (and right now, spectacularly unsuccessful) bankers and financiers in this country. This, in parallel with the resistance to the administration’s plans that has been exhibited in recent weeks by the (actually, US-constituted) government in Iraq…
It seems the Bushists’ ability to cow and intimidate their opponents has waned considerably?
We still, quite evidently, need a financial bailout/reform/restructuring plan. But let it be one that is fair to all stakeholders, including at the head of the queue the US citizens who’re being asked to sign on to the whole of the costs involved.
Oops. Maybe trying to ram this legislation through in the pre-election period wasn’t such a smart idea for the Bush administration people after all?
(Publishing note: I am writing this on an extremely slow internet connection, as provided by my hosts here in Lewes, Delaware. I’m a little web-deprived right now, but I’ll be back at a good connection in NYC by Thursday afternoon. Expect resumption of normal JWN posting at that point. In the mean-time, for updates on the global implications of the US financial crisis, read Calculated, Moon, Krugman, etc.)
As always, Dean Baker has constructive suggestions:
http://tinyurl.com/3t73x7
In particular, a Tobin Tax on financial transactions is an idea whose time is now. It would affect mostly those who engage in frequent financial trading — speculators, hedgers, etc. In other words, it would be a tax on exactly the kind of behavior that has caused the problem. While not banning such transactions outright, like the ban on short selling, it would raise the casino (US government) share of the take ever so slightly and maybe give speculators pause before they every bet they place. If managed well, it could shift the balance of financial activity from speculation to underwriting real, productive activity.
The other advantage of the Tobin Tax is that the sums raised are potentially enormous–perhaps even big enough to cover the $700 billion. (A miniscule tax on huge trading volumes adds up quickly.)
Best of all, it levys the tax them that brought the problem, largely exempting those of us whose financial transactions are rare.
http://tpmcafe.talkingpointsmemo.com/2008/09/16/medicine_for_wall_street_a_fin/
JohnH,
Please consider this: short term speculators who are in and out of trades in an hour by definition can’t cause long term market distortions. They’re just middle men. “Day trader” is practically synonymous with low-level schnook. For some reason Dean Baker hates and resents them but can’t quite tell us why.
The saddest part about this misdirected rant is that the richest finance people (senior investment bankers and fund managers) probably transact the least.
No airline is going to be discouraged from hedging on jet fuel futures because of a 0.02 percent tax
True, but I sure hope Dean Baker’s jet fuel hedger has a jet fuel seller on his speed dial, because all the market makers (aka “the bloodsucking vermin speculators”) will have packed up shop if that stupid tax goes into force. It’ll be like the good old days before futures, when oil markets were 2 dollars wide, and low frequency, high margin trading made fortunes for good honest folk like Marc Rich (sarcasm alert! mayday!!)
Vadim–unwarranted gloom & doom. We’ve had transaction taxes on consumers for years (VAT, sales tax), and nobody stopped buying discretionary goods. We’ve had real estate and automobile conveyance taxes for years and nobody stopped buying cars and houses. Many mutual funds charge a front end load of 5% for the privilege of buying their stock funds. Many others charge more than 1% per year for providing you the privilege of baby sitting your money in virtually automated index funds.
And you know what? Nobody stops buying. And nobody is saying that markets have become any less efficient.
So if you have any sense of social justice, the industry that is causing the financial meltdown ought to be the one to pay for it. Do you have a better solution?
the industry that is causing the financial meltdown ought to be the one to pay for it
Here you’re begging several questions. First is that “high frequency” trading caused ‘the problem’. I don’t see any evidence that it has. High frequency trading (except perhaps the flipping of real estate) has nothing to do with the evaporation of credit quality. This was caused by a series of defaults – some borrowers stopped paying some lenders. The borrowers – speculative real estate investors, and overleveraged consumers using their homes as ATMs- are mostly to blame for their dereliction, and the lenders (debt buyers here and abroad) are responsible for misunderstanding the risks of their loans. In my eyes one class of charlatans has defrauded another. Zero-sum to the rest of us.
if you have any sense of social justice, the industry that is causing the financial meltdown ought to be the one to pay for it.
My sense of social justice tells me something different. If you pay too much for a house hoping to flip it in a year, you have no right to demand a taxpayer financed bailout of your bad gamble. Same goes if you refinanced your house to pocket a phantom gain in “market value”. If you run a fund that invests in loans to such people, you should be in a different line of work. If you’re a bank that depended on income from brokering this crap, you deserve to go bankrupt or be swallowed up by a more disciplined rival. Adding arbitrary taxes to unrelated markets addresses nothing.
But if I’m wrong and some other category of innocents has been harmed by the crisis, I’d really like to hear how. Foreclosures by the way aren’t a result of the crisis but the cause. Debtholders make less on a foreclosure than on a healthy mortgage, which is why so many property derivatives are in crisis.
Nobody stops buying.
As a middleman, my first reaction to a new tax would be to bake it into my bid/ask along with all the other dealers. Nobody would stop buying, the markets will simply become wider, and the tax will be passed through to the market end user, ie the general public. Its simple logic: he more ‘liquid’ the market (ie te more dependent on in-and-out middlemen) the wider the spreads would become.
The following is what came out of an impromptu gettogether at the a local coffee-shop.
This socalled financial tsunami of the US economy is/ was a cold and calculated criminal enterprise … Several comments were made to the effect that the techniques used by the bankers to sell loans, collect commissions, and then walk away when the loans defaulted is referred to by the mafia as a bust out.
Why are no efforts made to name names? Who is calling the shots that have made Paulson, Bernanke and even Bush look fear stricken? Are these individuals Americans, foreigners, dual citizens?
If we are going to be had as taxpayers for, now $700 billion, we aught at least know who is doin it to us so that we do not in the future do business with them.
During an economic meltdown caused by excessive government spending which ought to call for belt-tightening, guess what, Congress is continuing and even accelerating government spending. The excessive 2009 Pentagon corporate welfare budget has been increased even further by earmarks, giving the Pentagon money it hasn’t even asked for. While the Democratic Congress has been voting for these corporate slush funds with one hand it has been blaming Bush with the other. Is there no shame?
WASHINGTON (AP) — Bowing to President Bush’s demands, the House passed a mammoth package for the Pentagon on Wednesday that contains a pay raise for troops, billions of dollars for the wars in Iraq and Afghanistan — and some political protection for lawmakers during a tense election season. The 392-39 vote sent the $612 billion defense authorization bill to the Senate, which was expected to clear it this week.
The $612 billion military authorization bill would also fully fund the request for a radar site in the Czech Republic, opening the door for the next U.S. administration to begin building a European missile defense system.
Democrats made clear early on that any Republican efforts to block the bill would be characterized as disrespect for military personnel. However, negotiators addressed objections from some Senate Republicans to $5 billion in pet projects not requested by Bush, called earmarks. In the compromise, the earmarks are listed in a table accompanying the legislation.
Senate appropriators recently disclosed close to $3 billion in project requests that were not included in the Pentagon’s budget request for fiscal 2009, according to a calculation by The Hill and Taxpayers for Common Sense (TCS). That is more than $2 billion less than what the Senate disclosed last year.