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post #1 of 43 (permalink) Old 03-29-2009, 09:14 PM Thread Starter
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Former chief IMF economist : the finance indust

industry has effectively captured our government...

Quote:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

by Simon Johnson

One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card.
...
Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government.
...
In a financial panic, the government must respond with both speed and overwhelming force. The root problem is uncertainty—in our case, uncertainty about whether the major banks have sufficient assets to cover their liabilities. Half measures combined with wishful thinking and a wait-and-see attitude cannot overcome this uncertainty. And the longer the response takes, the longer the uncertainty will stymie the flow of credit, sap consumer confidence, and cripple the economy—ultimately making the problem much harder to solve. Yet the principal characteristics of the government’s response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector.
...
This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again).

Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isn’t) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple.
...
Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change.
...
To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.
...And the advice from the IMF on this front would again be simple: break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail.
...
The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

The Quiet Coup - The Atlantic (May 2009)

Last edited by mlfun; 03-29-2009 at 11:18 PM.
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post #2 of 43 (permalink) Old 03-29-2009, 09:51 PM
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Very good article

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post #3 of 43 (permalink) Old 03-29-2009, 10:22 PM
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^ scary article
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post #4 of 43 (permalink) Old 03-29-2009, 10:29 PM
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Originally Posted by Stuantle View Post
^ scary article
Not to worry Stu, the repubs have your back.
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post #5 of 43 (permalink) Old 03-29-2009, 10:53 PM
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^ scary article
It should be. And it should be read every time folks start the "deregulation chant" again. That is what brought us here. And the article nicely outlined that. The most interesting part was one of the charts. When you consider that some deregulation of the financial sector started with the beginning of Supply Side in 1981 with Kemp and Gramm you see a somewhat shocking snapshot of the financial sector's change of compensation in relation to the rest of the country.

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post #6 of 43 (permalink) Old 03-29-2009, 11:32 PM Thread Starter
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Indeed, Obama is beholden to the oligarchy.

Quote:
"There's no separation between Main Street and Wall Street," he said. "We're all in this together.'

UPDATE 2-Obama: I told bankers bonuses 'not acceptable' | U.S. | Reuters
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post #7 of 43 (permalink) Old 03-29-2009, 11:54 PM
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Indeed, Obama is beholden to the oligarchy.
That is either:
  • Naive
  • A complete misread of the article
  • A lovely Troll

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post #8 of 43 (permalink) Old 03-29-2009, 11:59 PM
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Quote:
Originally Posted by mcbear View Post
That is either:
  • Naive
  • A complete misread of the article
  • A lovely Troll
Dude! It's Milfy! Could be a three-fer!
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post #9 of 43 (permalink) Old 03-30-2009, 12:03 AM Thread Starter
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Really ? You must have missed this in the final paragraph of the article, and if anything in writing, the final conclusions are usually written first.

Quote:
If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite.
Then, consider Obama's very own words "There's no separation between Main Street and Wall Street. We're all in this together." to the American public after the closed door meeting with the financial industry fat cats, you will realize we are in no way close to breaking up the oligarchy.

Last edited by mlfun; 03-30-2009 at 12:06 AM.
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post #10 of 43 (permalink) Old 03-30-2009, 12:04 AM Thread Starter
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Dude! It's Milfy! Could be a three-fer!
What's up with the recent trolling ? Too busy getting whipped by the market ?
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