In all the cases I’m talking about, the bankers lost as a result of their own incompetence and the legal system. In Sweden, the government basically said “OK, you need the government to backstop your liabilities and deposits. We will do this. There is a price: We take you over.”
And the Swedes proceeded to kick out the old management, gave the shareholders nothing, gave the bondholders a haircut, then they waded into the banks’ accounting, pulled out the crap loans into a crap company that was selling speculative debt, put all the good debt back into the banks and re-privatized them.
People in the US, and especially conservatives, are loathe to even consider such a plan, but right now, what we have is the worst of all possible worlds: socialization of losses and liabilities, and private capture of the gains.
There should be a hard-and-fast rule about bailing out bankers, which goes back to Bagehot’s principle of central banks of “last reserve” and backstopping banks in trouble: “Lend freely, at punitive rates.” In other words, when the bankers got into trouble, if they needed a quick infusion of cash from the Fed, the Fed should have charged them, oh, 10% minimum. Instead the interest being charged is so low as to be trivial. Even Buffett bailed out Goldman for only 10% yield. If I had been in Buffett’s position, I would have asked for at least 15%. The federal reserve and treasury were not even approaching the level of profit required by Buffett.
Well, if we’re not going to ask for a hefty profit on backstopping the banks, then we should demand control. And the way to get control is “OK, you screwed up. You need us to step in. That means you step *out*. We’re going to install some adult supervision now.”
The one wrinkle in this plan is that government and banking are both infested with Ivy League graduates, all of whom are as thick as thieves and all perfectly happy to screw the common man and woman in the US.
As for the times of the 30’s: Yes, that was true. In short order, I expect the banks will have painted themselves into a political corner so tightly that there will be no way out for them in the future.
I think we must demand adherence to the Constitution for the United States of America without fail.
"Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good."
John Adams (1735-1826) Founding Father, 2nd US President
(misinformed "Deadbeat" advocate, Acorn mouthpiece, and CRA sponsor??)
The one wrinkle in this plan is that government and banking are both infested with Ivy League graduates, all of whom are as thick as thieves and all perfectly happy to screw the common man and woman in the US.
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The solution may come from the courts but it will be fought all the way by the administration for the reason you noted. Obama certainly has fed the banksters a sizable banquet and he needs them on board for a Chavez style full takeover... he won’t give them up easily.