I'll write a thank you letter to the government when the future of our nation isn't tied to the bad judgement of a few irresponsible companies.
Sure there was:
http://www.nytimes.com/2008/09/23/business/worldbusiness/23k...
The Swedes actually solved this by nationalizing all the failing banks, wiping out the equity holders, restructuring and privatizing again. It ended up not costing much. In the US a bunch of bankers got huge bailout funded bonuses and the banks are far from solvent even now.
They had time to extracted pounds of flesh from bank shareholders before writing checks, time to design policies to force banks to write down losses and issue warrants to the government
2008 was different. After Lehman collapsed, the government had to make it's initial intervention overnight, and the full package took weeks to put together, not months.
Many in the US were simply asleep at the wheel, both in government and private sector.
Looking this up in Wikipedia it seems the crisis started in early 2007 and Lehman collapsed in September 2008. So there was a year and a half to plan a response.
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Financ...
Yes, there were plenty of signs of the sub-prime crisis.
However, no one expected it to cause an investment bank like Lehman to collapse. It wasn't until the day of the crash that the people begun to dig into how the mortgages had been repackaged and sold, and it still wasn't widely know how badly the ratings agencies had failed in their analysis of this.
(Ok, so it seems likely that Goldman had a fair idea and possibly went short Bear Sterns based on their exposure, but they weren't exactly spreading that information around)
http://archive.newsmax.com/archives/ic/2007/3/28/110709.shtm...
March, 2007
Hrmm...so let's see...4% of $14.14T = $565B.
TARP alone was 700B - i.e. approximately 5% and that seems to not have been enough - because the Fed spent an additional $1.4T.
How much more money did you want the US to spend? Obviously if it was as simple as nationalizing every single bank, they would have done that. But the US banking industry is much more complicated than any other country - much less Sweden's (with all due respect).
To whit, so far this year the FDIC has 'nationalized' more banks than they did 2009.
https://www.fdic.gov/bank/individual/failed/banklist.html
So they are kinda doing what you suggest, but just to show you how difficult such a task really is, they are still winding them down almost 2 years later.
If the banks had not been bailed out by TARP they could have been nationalized cheaply, restructured and relaunched. The equity holders would have been wiped out, as they should have been since their banks were broke, and the employees at these banks would not have extracted even more obscene amounts of money. By now you'd have functional banks driving the economy again. The amount of money isn't the issue here, it's the fact that it was used to prop up a failed system instead of used to restructure it.
>To whit, so far this year the FDIC has 'nationalized' more banks than they did 2009.
All of these banks are the small insignificant ones. None of the big ones have been restructured and most are still technically insolvent.
Everybody else, it was pittances - a few % here and there.
So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether.
Not all of the banks the FDIC has nationalized are insignificant ones. It started with IndyMac which is no small bank.
The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying.
So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks?
I hardly think so.
BOA is up from it's low of $3, to $11.70. Citigroup (the most damaged of them all) is up to $4.17 from a low of $1.xx - the gov't owns the biggest stake in Citi than most other banks.
Yes, their prices aren't as high as it used to be, but these things take time.
The banks were propped up by TARP and so their market value remained high. Without it they were probably all insolvent and so the cost of owning them would be basically zero. Otherwise the market would have been able to finance the banks.
TARP was designed to feed money into banks in a very cheap way, the size of the wealth transfer from the taxpayer to Wall Street is staggering. Buffet himself got much better conditions than the Federal Government.
>The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying.
There is now a quite explicit assumption that the federal government won't let the banks fail. With that and the Fed helping there's plenty of reason to think banks will continue to make money. That doesn't mean the crap on (and off) their balance sheets has stopped being crap.
>So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks?
I'm saying the markets are now useless to value the banks because the value being judged includes the federal government as a crutch. There is no market pricing for the value of the banks on their own.
* The Fed creates money
* The money supply has shrunk greatly, so the Fed needs to create money anyway
* The money is not given out, but traded for Treasury securities
Saying the Fed spent money on banks suggests a fundamental ignorance on how these things work. If anything, the Fed spent money of the government, but that viewpoint is not accurate either, only less ignorant.
The money was technically given out - because they essentially purchased securities (not just Treasuries, but commercial paper, Mortgaged Backed paper, Gold, etc.) at significant losses to themselves in the short term - so that the banks can shore up their balance sheets.
My broader point was that the US Treasury could spend only $700B, because the Fed was there to further capitalize the banks. If you want to go ahead and be a grammar natzi, then feel free. But at the end of the day, the financial institutions were given approx $2.5T cash - in exchange for a variety of things (some securities on their balance sheets, to warrants for their own common & preferred stocks).
Although the Fed can create money out of thin air, the notion that it isn't spent (i.e. it has no cost to anyone) is a misguided notion because it typically has a greater cost to everyone than the Treasury doing so.
The Justice dept. has very successfully broken apart companies in the past: http://en.wikipedia.org/wiki/Bell_System_divestiture http://en.wikipedia.org/wiki/Standard_Oil#Breakup
No government ownership is involved; one day you own 1 share of AT&T and the next day you own 1 share of the new AT&T and 1 share of each of the new baby bells.
I would argue the AT&T break-up allowed the first internet boom to happen. Can you imagine how hard it would have been to get a T1 provisioned if there had been no competition AND AT&T was offering a service just like what you were trying to start
If you put them all in one place, that bank would fail and still cause the same chain reaction, except the debt would fail entirely on the customers of the bank instead of the bank itself.
If you spread out the assets, then you'd just have lots of smaller banks fail instead of the larger bank. I suppose doing this could have spread the failures out over time.
As to who gets the "toxic" assets, who cares? They are all but worthless. Auction them off to whoever will buy them that way we no longer have this fiction that they will ever be worth anything. The US tax payer is now explicitly on the hook for these assets. The sooner we know what they are truly worth the better.
The government seems to have chosen instead to increase their power in handling these crises.
http://en.wikipedia.org/wiki/Obama_financial_regulatory_refo...
Once you believe in Capitalism, there will always be systemically important companies - whether it is Google, Amazon, etc. or Banks - that should something go wrong with them will require a bailout of some nature.
NB I really don't think that applies to Google or Amazon.
Not to mention those companies that rely on Adwords to drive traffic through their doors (both online and offline).
I can almost assure you that the markets would get very jittery and irrationality would likely spread to all sorts of other industries.
It is easy to take these things for granted.
Amazon is the same. There are thousands of mini-retailers that earn a living on Amazon. Amazon might even be more so - the equivalent of a Walmart going down....but almost worst.
At it's extremes, the beauties of capitalism lead to large firms that build ecosystems to entrench their positions - whose failure would be significant and potentially systemically dangerous. It is the nature of capitalism - it actually is very healthy for the system. Over time they eventually fade out and other large companies come and take it's place - e.g. the newspaper industry, telecom, etc. So you can't really escape it.
Of course, the libertarian purists argue that we shouldn't have sarbox and shouldn't bail companies out -- which makes me think that if they were in charge the last few years, my electricity wouldn't be working by now.
I do think, however, that if Google or Amazon failed there are some elements that would stay up - but it's more than just those elements.
It's the little things, like email for 200million people disappearing overnight. I can't even imagine the amounts of things that would be lost (receipts from sales, tax information, customer data, invoices, legal contracts, etc.). Much less just a major communication channel going dark. That alone would cause a dip in GDP (in my opinion).
Might be difficult to foresee, but so was the banking crisis.
- http://delong.typepad.com/sdj/2008/09/a-very-large-in.html
- http://www.nytimes.com/2009/09/12/business/12nocera.html?_r=1&hp