Maybe We Should Have Let the Banks Fail

Potentially one of the biggest problems with our government is that we rarely hear anyone say, "You know what? I think I was wrong."

When we are served mea culpas, it's typically a long time after the fact, and usually after the damage has been done. Alan Greenspan, for example, admitted well after the financial crisis exploded that maybe markets aren't perfectly self-correcting. And then there was Citigroup's (NYSE: C  ) former CEO, who confessed that repealing Glass-Steagall might not have been such a good idea.

So … what of the massive government bailouts that directed huge chunks of government cheese to U.S. financial institutions, with precious few strings attached?

Company

TARP Assistance

AIG (NYSE: AIG  )

$70 billion

Fannie Mae (NYSE: FNM  )

$60 billion

Freddie Mac (NYSE: FRE  )

$51 billion

Citigroup

$50 billion

Bank of America (NYSE: BAC  )

$45 billion

Source: Pro Publica.

More than dollars and cents
Although the monetary cost of bailing out the financial system was probably less than the hit we would have taken had the system melted down, it seems that worries that the bailout would create horrendous moral-hazard problems are coming true.

The profits being made at "banks" such as Goldman Sachs (NYSE: GS  ) and Morgan Stanley (NYSE: MS  ) so soon after the crisis are absolutely jaw-dropping, as are the bonuses being paid to the folks who work at these places. A lot of the money being thrown around is coming from government handouts that make it a breeze to pull down big bucks in banking.

Worst of all, though, is that where an implicit assumption once existed that the government would swoop in and save the banks if they got in trouble, now we have an explicit guarantee. To make money and score big bonuses, bankers can now chase after any cockamamie scheme they want to in the short run, even if their actions may imperil their banks. After all, Uncle Sam will come to the rescue if anything goes wrong.

Elizabeth Warren, chairwoman of the Congressional oversight panel for the banking bailout, recently railed on this subject:

Think about the business plan now for ... a big bank that has a government guarantee behind it. In effect, they can say to the investors, 'Hey, come invest with me. And I'm gonna take it all to Las Vegas, and I'm gonna bet it on Red 22. And if it comes in, we are rich. And if it doesn't come in, the taxpayers will pay you back.' … This is capitalism in a world in which the government either explicitly or implicitly says, "We will throw as many taxpayers under the bus as we need to, to keep these large financial institutions afloat."

In other words, we may have been "saved" for the time being, but we could also be getting set up to go through the same gut-wrenching scenario again in relatively short order.

Thumb-sucking ends now
Would we have been better off without any bailout at all? That's hard to say for sure at this point. What seems certain, though, is that the bailout should have been structured with much more of an eye toward the consequences of moral hazard.

The legacy of the financial bailout is definitely looking pretty bleak right now. But not all is lost. The government already supplied the carrot for banks, in the form of billions of dollars of bailout money; now it needs to break out the stick.

Thus far, there's been a lot of thumb-sucking over cracking down on banks. Of course, that's no big surprise when you learn that, according to OpenSecrets.org, Goldman, Citigroup, JPMorgan Chase, Morgan Stanley, UBS, Bank of America, and Merrill Lynch made combined political contributions of nearly $28 million during the 2008 election cycle. Is it any wonder that politicians want to avoid derailing that gravy train?

But unless we want to change the country's title from "The United States of America" to "The United Banks of America," we need action now. A good start would be to require banks with access to government backstops and ultra-low-cost borrowing to shed their trading arms. If we're going to subsidize anything, it should be real banking, not financial shenanigans that reward only those on the inside. 

Of course, I think regulations need to go much further than that. But what do you think? Scroll down to the comments section and share your views.

Think these problems make the United States a scary place to invest? Why not check out India, where my Foolish colleague Nathan Parmelee sees a boom coming?

Fool contributor Matt Koppenheffer owns shares of Bank of America but no shares of any of the other companies mentioned. See what Matt's tracking by visiting his CAPS portfolio, or follow him on Twitter @KoppTheFool. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants …


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  • Report this Comment On November 24, 2009, at 11:05 AM, PeteysTired wrote:

    Today, I look back on the bailout period and think that I was a fool. I followed one of the Gardner's advice and urged support for the bailouts. Boy was I stupid!

    Now, I have grown increasingly suspect of any company that feeds at the trough of American taxpayers. I feel like taxpayers are screwed along with my children as more and more line up for a hand out and less and less pay into the system. In addition, our Federal Reserve has no regard for our money.

    I am now a Paul supporter.

  • Report this Comment On November 24, 2009, at 1:18 PM, pmlang37 wrote:

    Yes ! Bring back Glass-Steagall !

  • Report this Comment On November 24, 2009, at 1:26 PM, whereaminow wrote:

    doing

    should read

    done

  • Report this Comment On November 24, 2009, at 3:23 PM, neutrinoman wrote:

    Agree with David in Qatar - the idea that Greenspan and Bernanke are "free-marketeers" is a quaint absurdity. Their careers are built on creating credit from nothing and asset inflation. Because of leverage, financial markets are not always smoothly self-correcting, unlike real markets for goods and services. But this instability is made far worse by the policies and - really - the mere existence of central banks.

    From the early 90s on, the Fed turned itself into a powerful sugar daddy for the financial industry, applying one bailout after another in the form of ultralow interest rates and now quantitative easing. They kept claiming the problem was "liquidity crisis" and "deflation" - instead of what it really was, a crisis of bad assets and burst bubbles. Of course, now we do have liquidity and deflation problems, but only as a consequence of their stupid policies.

    Then they befogged the collective mindscape with extraordinary rationalizations about "savings gluts" and how "you can't tell if you're in a bubble" but "you can tell if you're in a bust, and press the interest rates to the floor, baby!" Hence, the bloated, resource-sucking financial sector we have, which has still not shrunk enough.

  • Report this Comment On November 24, 2009, at 4:44 PM, Coreygranny wrote:

    The government should stay out of all US businesses. They were never meant to be efficient and I can't think of one instance where they are. The International Monetary Fund should be disbanded, the Federal Reserve should be closed and then people should stop investing in anything they don't understand - credit swaps and derivatives or companies they don't understand. Business that fail should be allowed to fail and there is no business in the US that is too big to fail. It may be painful, but it won't be painful for decades!! And just wait - in a matter of months, all of the CMBS mortgages will come due and unable to be refinanced. Everyone had better be able to take care of themselves and their families.

  • Report this Comment On November 24, 2009, at 4:45 PM, BioBat wrote:

    I was never a fan of the bailouts because when that much money gets thrown around, oversight is pretty much out the window but at the same time, I realize it probably had to be done.

    I do wonder, however, if the government had just decided to cut a $10-50K check for every taxpayer in the country and said "go nuts" if we just might be better off than we are now.

  • Report this Comment On November 24, 2009, at 4:49 PM, Lutz1107 wrote:

    Free Credit Report.XXX

    Maybe we need Fair Issac to write a little program for Banks....

  • Report this Comment On November 24, 2009, at 4:50 PM, GeorgeX2 wrote:

    I am against such bailouts. But at the VERY LEAST why did we have to make them whole 100% on the dollar? They should have had to incur SOME pain at least.

  • Report this Comment On November 24, 2009, at 4:52 PM, giciman wrote:

    Bailing out big banks

    Greed escalates wildly

    Throw man under bus

  • Report this Comment On November 24, 2009, at 4:52 PM, mdtopper wrote:

    The government should stay out of all US businesses. They were never meant to be efficient and I can't think of one instance where they are. The International Monetary Fund should be disbanded, the Federal Reserve should be closed and then people should stop investing in anything they don't understand - credit swaps and derivatives or companies they don't understand. Business that fail should be allowed to fail and there is no business in the US that is too big to fail. It may be painful, but it won't be painful for decades!! And just wait - in a matter of months, all of the CMBS mortgages will come due and unable to be refinanced. Everyone had better be able to take care of themselves and their families.

    So well said I thought it deserved REPEATING!!!!!!!!!!

  • Report this Comment On November 24, 2009, at 4:54 PM, mdtopper wrote:

    The government should stay out of all US businesses. They were never meant to be efficient and I can't think of one instance where they are. The International Monetary Fund should be disbanded, the Federal Reserve should be closed and then people should stop investing in anything they don't understand - credit swaps and derivatives or companies they don't understand. Business that fail should be allowed to fail and there is no business in the US that is too big to fail. It may be painful, but it won't be painful for decades!! And just wait - in a matter of months, all of the CMBS mortgages will come due and unable to be refinanced. Everyone had better be able to take care of themselves and their families.

    So well said I thought it deserved REPEATING!!!!!!!!!!

  • Report this Comment On November 24, 2009, at 4:57 PM, wittbelle wrote:

    Giciman: Nice Haiku but your second line is missing a mora. Anywho, the very insidious part of all of this is that the "profits" and bonuses keep coming, but the bad loans are still on the books, which is keeping the housing market artificially inflated. They get their cake, eat it too, plus ice cream, dancing girls, balloons, you name it! My kids are more accountable that these a$$ clowns!

  • Report this Comment On November 24, 2009, at 5:01 PM, bc0203 wrote:

    Sooo...

    I'm not a big fan of the bailouts either. But to say we should have "let the markets correct themselves" is a naiive argument when the setup that had to be corrected was a house of cards that had already brought the international credit system to it's knees. The problem here isn't that the government got involved, it's that when it did, special interests dictated the terms behind closed doors, and now you're seeing the results. Audit the bastards and demand the money back on an accelerated payment schedule. The government has no business running banks.

  • Report this Comment On November 24, 2009, at 5:02 PM, 7351jay wrote:

    I honestly feel that there will be no reckoning until the presidents of these banks that deliberately mislead investors are hauled off to prison and do hard time,

    As it is now they take chances and if it goes sour they will look to Uncle Sam.

  • Report this Comment On November 24, 2009, at 5:12 PM, mythshakr wrote:

    It does appear the taxpayer has become the default credit swap insurer of last resort and the Treasury doen't even get the benefit of any premiums received.

    Great carrots, pathetic sticks.

    What is so worrisome after all this experience is the health care reform bills meandering about congress likewise have generous carrots but very little in the way of effective sticks.

  • Report this Comment On November 24, 2009, at 5:13 PM, mythshakr wrote:

    It does appear the taxpayer has become the default credit swap insurer of last resort and the Treasury doen't even get the benefit of any premiums received.

    Great carrots, pathetic sticks.

    What is so worrisome after all this experience is the health care reform bills meandering about congress likewise have generous carrots but very little in the way of effective sticks.

  • Report this Comment On November 24, 2009, at 5:22 PM, clydejazz wrote:

    I agree we shouldn't have bailed them out at 100 cents on the dollar.

    Just more on a long list of reasons to break up the big banks. Starting by forcing them to shred their trading arms is good, but that's just a back door way to bring back Glass-Steagall. Let's bring back the real thing.

  • Report this Comment On November 24, 2009, at 5:23 PM, chukarlady wrote:

    It's easy to say "maybe we should have let the banks fail" now that we are all feeling a little more secure. Were these bailouts a thing of beauty?, no. Were they the right thing to do?, yes. The bailouts are giving people time to build themselves a lifeboat or get to higher ground instead of being swept out to sea in a financial tsunami of widespread bank failure. I think we should look at what happens to a country like Iraq when the country's systems are allowed to fail. It's a long term disaster. Their banking system failed too and the US dealt with that by bringing in boatloads of American dollars to pass around. But the "taxpayers" only seem to get upset when we spend tax dollars in our own country. Frankly, if the US had a tax policy that adequately taxed the high earners then the people we feel are being unjustly rewarded by taxpayer dollars would in reality be the taxpayers providing the bulk of the money for the bailouts.

  • Report this Comment On November 24, 2009, at 5:24 PM, eracer7347 wrote:

    Credit Default Swaps were called 'swaps' because they are a form of insurance that would not pass regulatory approval.

    Insurance that does not meet regulatory approval is either fraud, counterfieting or illegal gambling.

    These criminals must got to jail to serve hard time or our government must admit they are co-conspirators. But that is a forgone conclusion...

    Time to clean house...

    -------

    But when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security.

    -------

    500 lawyers at the bottom of the sea is a mistake. Start with 500 investment bankers and Treasury /SEC stooges.

  • Report this Comment On November 24, 2009, at 5:35 PM, robin308 wrote:

    . .

    An Easily Understandable Explanation of Derivative Markets

    > Heidi is the proprietor of a bar in Detroit . She realizes that

    > virtually all of her customers are unemployed alcoholics

    > and, as such, can no longer afford to patronize her bar. To

    > solve this problem, she comes up with new marketing plan

    > that allows her customers to drink now, but pay later. She

    > keeps track of the drinks consumed on a ledger (thereby

    > granting the customers loans).

    >

    > Word gets around about Heidi's "drink now, pay

    > later" marketing strategy and, as a result,

    > increasing numbers of customers flood into Heidi's bar.

    > Soon she has the largest sales volume for any bar in Detroit

    > By providing her customers' freedom from immediate payment

    > demands, Heidi gets no resistance when, at regular

    > intervals, she substantially increases her prices for wine

    > and beer, the most consumed beverages. Consequently,

    > Heidi's gross sales volume increases massively.

    A young and dynamic vice-president at the local bank

    > recognizes that these customer debts constitute valuable

    > future assets and increases Heidi's borrowing limit. He

    > sees no reason for any undue concern, since he has the debts

    > of the unemployed alcoholics as

    > collateral.

    >

    > At the bank's corporate headquarters, expert traders

    > transform these customer loans into DRINKBONDS, ALKIBONDS

    > and PUKEBONDS. These securities are then bundled and traded

    > on international security markets. Naive investors don't

    > really understand that the securities being sold to them as

    > AAA secured bonds are really the debts of unemployed

    > alcoholics. Nevertheless, the bond prices continuously

    > climb, and the securities soon become the hottest-selling

    > items for some of the nation's leading brokerage

    > houses.

    > One day, even though the bond prices are still climbing,

    > a risk manager at the original local bank decides

    > that the time has come to demand payment on the debts

    > incurred by the drinkers at Heidi's bar. He so informs

    > Heidi.

    >

    > Heidi then demands payment from her alcoholic patrons, but being

    > unemployed alcoholics they cannot pay back their drinking

    > debts. Since, Heidi cannot fulfill her loan obligations she

    > is forced into bankruptcy. The bar closes and the eleven

    > employees lose their jobs.

    >

    > Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%.

    > The collapsed bond asset value destroys the banks liquidity

    > and prevents it from issuing new loans, thus freezing credit

    > and economic activity in the community.

    >

    > The suppliers of Heidi's bar had granted her generous

    > payment extensions and had invested their firms' pension

    > funds in the various BOND securities. They find they

    > are now faced with having to write off her bad debt and with

    > losing over 90% of the presumed value of the bonds. Her wine

    > supplier also claims bankruptcy, closing the doors on a

    > family business that had endured for three generations, her

    > beer supplier is taken over by a competitor, who immediately

    > closes the local plant and lays off 150

    > workers.

    >

    > Fortunately though, the bank, the brokerage houses and their respective

    > executives are saved and bailed out by a multi-billion

    > dollar no-strings attached cash infusion from their cronies

    > in Government. The funds required for this bailout are

    > obtained by new taxes levied on employed, middle-class,

    > non-drinkers who have never been in Heidi's bar.

    >

    > Now, do you understand? I did NOT, now I DO!

  • Report this Comment On November 24, 2009, at 5:38 PM, caldyno wrote:

    This was all designed by a Leadership who couldn't even pay their own income taxes properly. What can any of us expect from this administration. We have rewarded failure and continue to do so with bonuses. Bonuses should be banned until the bailout dollars are returned. For the argument that retaining the best talent requires bonuses have these people really shown talent?

  • Report this Comment On November 24, 2009, at 6:16 PM, straightjackit wrote:

    I do not like Bailouts, either. But, we have allowed it and we continue to allow it. As long as the people (politicians) who are making the decisions on behalf of "The People" (you and I and Joe citizen) are getting more money ($28 million during the 2008 election cycle) from the Big Banks and Big Corporations than they are from us, they will continue to make decisions in favor of the Big Banks and Big Corporations. Simple as that. We, The People, do not control our country, the Banks and Corporations control it. Everyone looks for and thinks they deserve a handout, no one wants to be ultimately responsible for their actions anymore. We are almost bankrupt and the people we have elected either do not realize it or are not willing to stop their own gravytrain.

  • Report this Comment On November 24, 2009, at 6:26 PM, tonesw wrote:

    It's really hard to steer the car when it's always pulling left. The State has no business... well, let's just stop there. Free markets don't work, only because they're not really free.

  • Report this Comment On November 24, 2009, at 6:27 PM, Othello4U wrote:

    The damage is done! Stop crying over spilling the milk or you'll get cut cleaning up the glass!

  • Report this Comment On November 24, 2009, at 6:34 PM, Othello4U wrote:

    This is crazy!!!

  • Report this Comment On November 24, 2009, at 6:38 PM, gevmfool wrote:

    Why didn't the FED just break them up, instead we gave them lots of money and they bought up good smaller banks. I agree, take away their trading arms, but think we need to put the laws back in place from the depression.

  • Report this Comment On November 24, 2009, at 7:53 PM, mtracy9 wrote:

    Libertarians (or true conservatives) like Ron Paul need to start their own country and show us how it's done. Oh wait !! ... they already have, in Haiti and Guatemala -- no income tax and no unions. Death squads take care of the dissenters.

  • Report this Comment On November 24, 2009, at 7:58 PM, Joemit wrote:

    Three comments

    1) SOME, but not all of the problems originated with the demands on banks to reduce the requirements on loans so that more marginal people could reap the "American dream" of home ownership. Then the same members of Congress decried the banks for lending money to people who could not repay those loans.

    2) Presently, we have a Fed who continues to keep the bank lending rate at historic lows even when it is clear the Fed funds rate should be climbing to higher levels

    3) I had been a card holder of an airline miles generating credit card (issued by Citibank) and just this week was notified that my interest rate would be increasing to 19.99% even though I had never been late with a payment in 18 years of having this card.

    And people wonder why consumers are upset with Congress and banks and Obama....

  • Report this Comment On November 24, 2009, at 8:01 PM, topsecret09 wrote:

    MAYBE ??? LOL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! SHOULD HAVE !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • Report this Comment On November 24, 2009, at 8:02 PM, xetn wrote:

    The US has had a tool to deal with failing business for next to forever; it is called bankruptcy. It has worked throughout time without any problems, with the remaining assets pickup by others, while the failures are gone along with their mistakes.

    Bankruptcy does not care what size a business is; only that it is failing. The good part about this system is it does not need the taxpayer's money (except for paying the court system) to work. There is no ponzi scheme involved (the taking of wealth from the citizens and giving it to big companies).

    The bailouts of the banks (notice it was only the large ones) was nothing more than a fraud on the American people, perpetrated by the biggest legal "mafia" in history, the US government.

    But the biggest and worst part of this theft was perpetrated by none other than the Fed, with its massive inflation of the money supply and in forcing interest rates to extremely low levels which created the conditions to allow the financial bubble to be created.

    A previous post ask why the Fed did not break up these banks is because the Fed was created by the largest banks for their protection from failure.

    End the Fed! Remove government intervention in private enterprise (all 70000 plus pages of it).

  • Report this Comment On November 24, 2009, at 8:08 PM, vjm001 wrote:

    It seems to me that if a bank is "too big to fail" you have removed all financial disincentive to speculate. So something is needed to replace it. Maybe we should say the penalty for the top 3 levels of a financial institution that is size greater than "X" and is operated so irresponsibly that is requires a federal bailout is that they go to jail for 3 years and are barred from employment in the banking industry for "Y" years. That threat would, I suspect, induce more conservative actions on the part of bankers or it would make bankers ensure that their institution never got bigger than about .9X.

  • Report this Comment On November 24, 2009, at 8:55 PM, jesse2159 wrote:

    Boy, my next tax return going to be a work of art.

    Since the government has given these banks the lifeline to screw us, I feel that it's my duty to myself and my family to lie, cheat and steal on my tax returns from now on. I just don't think that our representatives in Washington are doing anything to protect us from these predators so, it's going to be my little protest every April 15th. Yep, I want the same deal they gave the banks or I'll simply take what I think is mine. Think of it as a bonus for being a good citizen for too long.

  • Report this Comment On November 24, 2009, at 9:01 PM, 7footmoose wrote:

    i reluctantly agree with the bailout of the banks, and i do mean reluctantly, my agreement comes from the belief that not bailing them out would have been worse, at least that is what i believe, what i will never understand is how the regulators from the many agencies of the government and the big name accounting firms who oversee and audit the banks did not see this coming and take some action, complicit in this entire mess is the government especially the lazy and stupid legislative branch who is eminently more interested in their perks and their reelection than doing the right thing, we need to fire them all and start over if this country is to return to greatness

  • Report this Comment On November 24, 2009, at 9:02 PM, LynSteichen wrote:

    I agree I think we should have let the banks fail along with the auto makers etc.. I think another depression would have been good for the country. We had a depression in the 30s, an we are still hear, and the world still turns. I do not believe the government has control of anything and their juggling act is eventually going to crash.

  • Report this Comment On November 24, 2009, at 9:18 PM, DDHv wrote:

    Debt is not capital.

    Our economy did better than a century ago not because many borrowed, but because many built machines and invented techniques that can produce more. This is the difference between debt and real capital.

  • Report this Comment On November 24, 2009, at 10:44 PM, wstwindsraider wrote:

    Yes, we should have let all these financial institutions fail. Yes, we should ave let the auto corporationsfail and bst the unions. Yes, we should have gone through a major depression right at the outt, if that was what was necessary. We may still have to anyway. We have wasted an incalcuable amount of our present ad future financial security on some of the biggest crook in history, in banking, insurance, manufacturing and, MOST OF ALL, GOVERNMENT.

    Our children and grandchildren will pay te price. God help us if it coplete Socialism. We're heading that way with the Healthcare legislation faster than a bullet train.

    Our debt to the Chinese will be repaid by either default, with the ensuing unwinnable war, nationalization of all retirement assets like the Argentines have done ro something else as unthinkable. We've allowed oour future to disappear without agreeing to some incredible sarifices.

    Senior Citizens have stood idly by with their hands out and are as much at fault as any other generation currently living on the State, ie College students, veterans, medicaid recipients, AARP members....nedd I go on. I guess I could insult about everyone because every group thinks their needs trump every one else's. B ut ou examples in terms of age, wisdom and leadership, our Seniors, have begun the domino effect in a societal context and itstill continues to this day.

    Attorneys will sue us into oblivion and we allow it by continuing to elect them to Public Office. And we allow them permanent terms of office in hich to perpetuate it all.

    No conscience, no values, no discipline, no willingness to sacrifice, no committment to principals, no willingness to "take care of our own house".............

    No Country.

    Our choice. Better now then later.

  • Report this Comment On November 24, 2009, at 11:15 PM, FOOLTHISFOOL wrote:

    Yes, we bailed out the greedy bank's top management. But arent we are really bailing out all the investors that bought the funny paper securities. Which included major governments, hedge funds, mutual funds of all sorts.

    We were forced into bailouts that would have produced a domino effect to bring down major sectors of the world ecoonomy.

    I think the fat cats that gained financially from all of this should be forced to pay a larger portion of the ensuing War and Health taxes also being forced upon us.

  • Report this Comment On November 24, 2009, at 11:34 PM, TomBooker wrote:

    Matt..et al

    I don't know if Morgan and you write out of Duke Street HQ, but I'll be there for a morning meeting before the MDP events in the afternoon. It would be an honor to shake your hands. Your op-eds have consistently taken some unpopular roads, but are absolutely essential to the American discourse.

    To answer the question...

    No. It has become crystal clear it was a huge mistake and continues to be.

    This is not a position from an ideology, because I (and many people) don't fit in any of the meme categories. We like to believe in equal fairness, the just, honest, and the practical. A successful recipe of proven values through American history, even though we are just kind of average folk.

    From Day One of this tragedy, we confused function and identity. We never needed the Big Banks, we only needed part of that which they do. And we always had 4000+ other US banks to do that.

    Just a thought, but what if we had played defense first, and poured/made-available historic liquidity into/for those banks, all across the US?

    As the Big Houses started to topple, first team in would have been Sheila Bair and the FDIC to extricate their traditional banking interests.

    A mess? You bet. Global. Markets would freak. Everything and everybody would freeze or sell.

    Oh right, Derivatives. Probably about $250T in total notional value from the OTC exchanges. And probably the same amount in private contracts. The headliner means of the spread of fear and the banner of extortion, IMHO.

    3/4 of the nation's liquidity, held by who? 98% held by the Big Five Houses. But 70% are Interest Rate contracts, mostly held in swaps of some form of floating and fixed rates. In frantic danger if the Fed moves the rate up from ground zero? And settlement value (read forced taxpayers' exposure) is a small fraction of these levered vehicles.

    And again, who trades in Derivatives? The 5 Big "Banks" and Hedge Funds.

    Not us.

    Some other outcome is purely speculative, because we did what we did. And that's over and done.

    The one thing which is crystal clear is that most of the People, and their prospects and futures, have been massively mortgaged to save the few at the top.

    And those few clearly intend to recapitalize on the backs of their benefactors, while they starve the financial system by leaving the lendable reserves at the Fed untouched. Making borrowing rarer, more expensive, and consumer credit outright punitive.

    Goldman Sachs with the favor of governmental and monetary system rights and privileges intended for a bank is a moral, ethical, and financial abomination. Both conceptually, and in practice.

    To this day, the leadership of our Government, Central Bank, and Wall Street maintain there was no other way. That is either a boldface lie, or an artifact of ignorance and denial. There is always another way.

    The only certainty in problem-solving is that if a cataclysmic and compelling emergency comes upon you, which you were too ignorant and blind to see, you will not come up with the best solution, You'll be lucky if you hit any in the top 10. The fact that you refused to see it, disqualifies you from its solution.

    I,for one, would have rather taken my chances with the rest of the true banking system well seeded, and with my fellow taxpayers prepared for the challenge of generations.

    Then leave the Massive Houses fall upon us.

    It is in my mind, that the wreckage would find Us still standing, Their weight is as nothing upon Us. For the "common wealth" of a nation lies within its People and their aggregated efforts at work and life, not within those they would have us believe.

    I would certainly rather facing hardship shared among Us. But it could only be without serving one minute of my life, or spending one dollar from my pocket, for those few who disrupted this country and failed Our economy.

    What has this bailout served...

    What is done to equal fairness, if it is not fair by any standard?

    What becomes of justice, if it is not just?

    What becomes of honesty, if it serves a sickly obfuscation of the truth?

    What becomes of the practical, if it serves no sense and only privilege?

    Well, I guess it's just the way it is, and we'll just have to live with the bad ending, to a bad problem, with a bad solution.

    No.

    As long as the discourse is kept alive, this is not a story with a bad ending. It is a story whose ending has not yet been written by the rightful authors to whom it belongs.

    It has oft been said of Americans that We will always make the right decision,... after We have exhausted all of the wrong ones. ;)

    Well, we certainly know The Club who caused the mess, and now has 1500 lobbyists and a few key government appointees and Central Bank friends, assisting in speeding through all of the "wrong ones".

    I just checked my watch...

    It's time to let them know they are up way past their bedtime...

    TB

  • Report this Comment On November 24, 2009, at 11:39 PM, Riddick100 wrote:

    Any bailout money should have been accompanied by the firing of CEO's, CFO's and other top management. These people are not valuable employees worthy of multi-million dollar salaries and bonuses. If I screw up at my job, I don't get a bonus, I get fired, without severance.

  • Report this Comment On November 25, 2009, at 1:23 AM, TheEDFLegacy wrote:

    It's high time that the largest institutions in the US file for bankruptcy - The Fed, and the US Governmment. As per the largest banks themselves, they've become too big, too powerful, and too debt laident to work efficiently. And no, the US is NOT too big to fail; look at Rome. The world will not end if the US collapses, but it certainly would be a mess.

    Unfortunately, no matter how much Americans fight the government and vote for the right parties, both are equally corrupt, and easily tainted by lobby groups and petty self-interests, and even someone like Obama has no chance in hell to fix the problem.

    It boils down to this: A nationwide uprising, or an economic collapse on a larger scale than anything in history.

  • Report this Comment On November 25, 2009, at 1:27 AM, 1phenom wrote:

    I was against all the bailouts!

    I distrust our government more and more every day. I do not believe the bailouts were done for our citizenry, I think they were done for the power and greed of our corrupt government.

    More ownership, more power and control, GM/Chrysler, AIG. More political contributions from the financial industry and unions is fodder for the decisions.

    The tax payers would have saved billions of dollars by letting them fail. Imagine the thousands of unemployed financial types lining up for unemployment benefits. No, they don't need that paltry benefit that has helped us real folk get thru the crises over the decades.

    The bank that I do business with, Frost National Bank is a good example for the big guys.

    Conservatively run with integrity and top drawer customer service, it is terrific!

    Another approach would be to break up the big guys like AT&T did decades ago. The result was smaller companies, some regional that prospered and now AT&T is a giant again!

    Citi Region 1, 2, 3, etc. would be incorporated as independent companies and no corporate ties to the former head. Loans based on regional needs and rates for services would vary depending on the specific service area.

    Credit Unions seem to have survived for the most part, but Thrift and Loans went by the wayside decades ago because of charter limitations and the big sharks being able to under cut them by offering other service in the form of packages. It's time to rethink how to get back to those times and away from mega financial institutions.

  • Report this Comment On November 25, 2009, at 2:07 AM, oldetoad wrote:

    A couple of months ago I fell and shattered my elbow. I'm on the mend now, but I recall that moment when I realized I was going to fall, and in that moment I had the chance to significantly influence how I would land, and how badly I might be hurt.

    I feel that America is in that moment now, like the eye of a storm, and the question is whether Americans are going to realize in time that they must speak out in increasing numbers to change what is happening in government, (as well as vote). This Nov. marks the anniversary of the peoples first response to Hank Paulson's TARP request. Those thousands of emails to congressmen in nearly every State led to a clear majority NO vote.

    A week later, with an orchestrated campaign of emails, and fear of the alternatives described, the house voted again and passed it. Clearly our voices need to be heard more than once given this outcome.

    I don't begrudge the existence of bankers, lawyers, politicians, knaves, or thieves. They are a part of humanity's diversity. They need to be disciplined, yes, but that takes we the people putting the fear we carry back in the laps of our governing officials. We need to recognize the seriousness of the outcome These guys aren't dumb so why are they taking over everything? Why are they printing money which is clearly a violation of their constitutional charter? It is directly related to their unfunded liabilities of Social Security, Medicare, and drug programs, gov. retirement benefits which, including the $12Trillion National debt raises the bar, according to several publications, to greater than $100Trillion.

    THE ONLY politically acceptable solution is to devalue our currency in order for the government to continue in business. The reality is we the people have been letting our government squander our resources for decades. Our collective voice,

    of protest is but a murmur. Over 40% of taxpayers work for government. Another 40% account for less than 1% of taxes collected. Too many of us are hooked on this system and they know it.

    Prepare for a worse depression than we would have had if bankruptcy was allowed, and bailouts were not. We the people have yet to collectively realize we are being fleeced, ( the finale is still ahead, ) The Fed's medicine is actually the poison- Keynesian economics appeared to work in smaller doses - hell inflation works in smaller doses, but whats coming is not small doses. If we want our freedom, our integrity,

    and a better chance to recover from all of this, we need get beyond discussing the dots and connect the dots, realize the inevitable fall, and influence how

    we hit the ground to minimize the damage.

    Happy Thanksgiving.

  • Report this Comment On November 25, 2009, at 6:00 AM, driller101 wrote:

    Had to have the bailout. Actually there should be more stimulus directed towards jobs instead of Wall Street.

    There should be more regulation. F the banks and their bonuses.

  • Report this Comment On November 25, 2009, at 8:56 AM, investusgregory wrote:

    The presumption that "we" have any say in whether the banks should of failed or not assumes that what "we" do or say matters.

    What will alter the financial system is when people stop throwing their money into the investment market casino and start hoarding their cash in safe deposit boxes etc. When people stop borrowing then credit expansion will cease and when debts are paid down or written off then further credit deflation will take place. When credit deflation takes place tax revenues will shrink.

    While employees or business people have to put in hard work to earn their keep, the world is governed by the people who operate the "money business". They don't have to do real work or contribute to production in the real economy, all they need to is create credit and lend it out or collect taxes and spend it.

    Some people are asking the ruling elite to increase the regulation of the operations that they run and others are asking them to reduce regulation and thereby allow them to operate on a free footing.

    Either way, nothing changes.

    The only way to restore society to normality and permit a fairer system is to implement step 1 which is to transfer the control of monetary policy to the Treasury. If this was done then there is a lot that can be implemented to transform the financial system to fit the 21st century.

    I doubt that this will happen so there is no point in adding extra here.

    Another point to mention to folks out there is to be careful of being entranced into believing that gold is "real money" and will protect your wealth. This is just another racket. Gold is a metal, a lump of metal. At todays rate one bar of this lump of metal could buy you houses , cars, furniture, money to invest in real businesses but what do foolish people think? They think "nah, I think I would rather have that lump of gold because it will save my wealth".

    The global currency that will come will be formed from a basket of currencies as the Euro was created from a basket of currencies. In my view the soundest thing to do right now is to hold onto as much cash as you can. The old model of credit fueled expansion is dying daily and as this happens your cash will increase in value.

    Have a good day.

  • Report this Comment On November 25, 2009, at 9:24 AM, Keal7 wrote:

    "This was all designed by a Leadership who couldn't even pay their own income taxes properly. What can any of us expect from this administration." - caldyno.

    Not even a year and we have a complete fictitious account of even the bailout. It started in Sept 2008 - designed by Paulson and Bush under the last administration. It was based on three sheet sof paper and had no strings. The current administration have no choice but to now nurse bailed out firms to health so that they can get back the money and they already got back nearly 100 billion. Disagree with the government but let's not review the facts to create villians of those we dislike and exculpate the real villians we dont dislike.

  • Report this Comment On November 25, 2009, at 10:12 AM, globalsailor wrote:

    I said we should have let them fail as the market was collapsing. If they can't manage their own risk let someone else do it properly. Some people are alcoholics, some people can't manage risk. Don't give an alcoholic more alcohol or a gambler more money. Let's stop pushing paper around and start trying to produce exports for once.

  • Report this Comment On November 25, 2009, at 10:25 AM, Beanfarmer wrote:

    Elizabeth Warren, Charwoman:

    This is capitalism in a world in which the government either explicitly or implicitly says, "We will throw as many taxpayers under the bus as we need to, to keep these large financial institutions afloat."

    This is not capitalism, this is altruism hiding under the misguided title of capitalism. Read Ayn Rand's essays on capitalism, you will agree with her.

  • Report this Comment On November 25, 2009, at 11:08 AM, sofpan wrote:

    Be(a)rnanke rules!

  • Report this Comment On November 25, 2009, at 11:35 AM, Melaschasm wrote:

    I generally oppose bailouts for companies. However, if we are going to bail companies out, a few basic rules should be followed.

    1. Stock of a company that recieves any taxpayer money should be eliminated, and new stock issued to debtholders.

    2. Debt holders should take significant principle reductions (standard bankruptcy rules for allocating losses should be used.

    3. All employees should take a signficant pay cut (say 20% reduction for everyone), with zero raises for at least one year. Many employees should lose their jobs.

    4. Some assets should be liquidated (specifically under utilitized, or unprofitable assets).

    You may have noticed this is similar to what currently happens in bankruptcy. If we absolutely must have bailouts, then it is best to have the government help make bankruptcy easier and quicker, than to just give away tax payer money.

  • Report this Comment On November 25, 2009, at 11:56 AM, dodge1026 wrote:

    This is what should have happened. All banks receiving Federal money should have been forced to declare bankrupcy. All shareholders would have taken a 100% hit. Those shareholders would be allowed to vote to keep/replace management/BOD. Since the companys were in bankrupcy all contracts (salary/bonus) would be null & void. As bond holders the Feds would be in receivership and in the posistion to determine all compensation. They would be able to dictate the terms of the bankrupcy.

    The way it is now banks pay bonuses on income not on profits. That is insane.

  • Report this Comment On November 25, 2009, at 12:04 PM, Tomg813 wrote:

    Of course, it is naive to believe it could happen, but...a good starter would be to make it illegal for the banks to contribute to political campaigns, PACs etc.

    If this were ever to be brought about, we would have at least a chance at some decent legislation to control the outlandish behavior and exectutive pay structure.

  • Report this Comment On November 25, 2009, at 12:16 PM, kedo76 wrote:

    This is a great read. Fiction at it's best. The government is run by morons and will therefore be run moronically. They can not see the forest through the trees and while everything in this article is absolutely true, none of it will be done or accomplished.

    Elizabeth Warren can rant all she wants but she still isn't actually doing anything about it, and it sounds good at re-election time that she at least said something about it.

  • Report this Comment On November 25, 2009, at 12:17 PM, redbird67x wrote:

    Since it appears that the entire gamut of Fool responders are unanimously opposed to the format of these bailouts perhaps its time to kick the b******s who presently run the government and Congress out on their butts next year.

    Oh.............maybe we don't have the 'horsepower' to do that???? How many of us are their? A million plus!!

    We need to vote with our feet not our mouths.

  • Report this Comment On November 25, 2009, at 12:28 PM, mpendragon wrote:

    The banks still aren't lending a great deal with is both a problem for the economy but a good sign for the moral hazard issue. It shows that they are now a bit too risk adverse even when playing with the house's money.

    The bank bailout should have been in the form of a pool of money to lend as a stimilus that kept the bank's operations going while they worked out as many of the bad loans as they could manage. We could have handled that quickly enough to avoid the banking collapse on the short term.

    Over the long term, the US government should have gotten some equity for their loans so the investors in the banks to enforce the lesson about risk and offset some of the expense. Instead the use of the money wasn't well regulated and we have more consolidation and worse too big to fail situations than we had before.

    We seem to have avoided the worst of this disaster but not the next one.

  • Report this Comment On November 26, 2009, at 8:24 AM, HHorwitz wrote:

    From your page to the government's ears. Warren Buffet and most other folks with wisdom have agreed that the 'banks' (speculators, really) have gotten away with robbing the public till. We should not let up in the effort to get our government to behave in the public interest, rather than be the 'best that money can buy'.

  • Report this Comment On November 26, 2009, at 8:42 AM, LaurieLivermore wrote:

    Poorly researched and weakly argued hyperbole.

  • Report this Comment On November 27, 2009, at 9:24 AM, burrowsx wrote:

    The fiction that retail and commercial banking should be an unregulated industry is late nineteenth century Social Darwinist buzhwha. They are and should be regulated public utilities. They are different from investment banks, who have much different risk profiles and business objectives; and should never have been allowed to merge the two types of institutions.

    The usurious rates of interest now being charged are anathema to a democratic economy, and must be reregulated. If the current Supreme Court gets in the way, on their stupid Friedmanesque view of the law, they ought to be impeached

  • Report this Comment On November 27, 2009, at 11:26 AM, hcgray100 wrote:

    Having successfully run a small business for 35 years with NO help, only interference, from government at all levels, it is anathema to me that my hard-earned tax dollars have been and are being used to support huge bonuses for failed executives. "Too big to fail" should not be a part of American capitalism. If any business is so large and vital that it can adversely affect the entire economy of our country, use existing laws to break it up.

  • Report this Comment On November 27, 2009, at 11:37 AM, Roger1925 wrote:

    This is how the GOV'T. operates. When a drug addict or a boozer applies for SSI they complete a application it is reviewed and if it is approved the person gets a retroactive check from the date of the application. Would one think i have this problem should i try to get help for my problem? housing? medical? or would the boozer or drug addict spend this windfall on more booze or drugs ? knowing that he is in the system and will be getting a check every month !!! This how the GOV'T works spend the$$$ don't try to correct the problem and since we have 100million taxpayers who cares??????

  • Report this Comment On November 27, 2009, at 1:40 PM, AlanBlackburn wrote:

    Quote "Although the monetary cost of bailing out the financial system was probably less than the hit we would have taken had the system melted down, it seems that worries that the bailout would create horrendous moral-hazard problems are coming true."

    It's amazing how many are claiming that the country should have just been allowed to fail. To create anarchy to serve what purpose is deceitful and arrogant.

    We come up with terms to judge what we do not understand. Socialism, leftists, liberals, etc. The master's of spin have you convinced that this is what is happening, is horrible, and the country will go in the toilet because of it.

    If the banks, auto industry, etc. were allowed to fail, millions would be standing in the unemployment line and, we would have been paying for them anyway through unemployment insurance and taxpayer money.

    Neither party is blameless for this debacle. All parties had their own hands in the cookie jar, by having investments in this mess or, receiving campaign contributions behind the scenes.

    The true answer is; "United we stand, divided we fall (FAIL)."

    The true answer is that we did not insist, as Americans, that safeguards be put in place to protect taxpayer money from scoundrels. Now we're going to sit on the sidelines and decry the bonuses being given out by these scoundrels. Write your lawmakers and insist that they put these safeguards in, NOW! Insist that any bank/corporation that received money, that has not paid it back in full, is not entitled to spend it for bonuses or salaries, over and above, what their baseline salary was before the money was given/lent to them.

    Why yes folks.....some of the money was lent to them. The auto industry was one example where the money was lent. We could not afford to let 3 million jobs be lost. Our economy would have been squashed for years forcing many retirees back in to the workforce where many jobs were now non-existent. If you think that you are totally independent upon the government then please sign away your right to collect Social Security or Medicare. There are plenty of us who would be glad to accept this check on a monthly basis because we know the truth behind our retirement plans. Unless you were lucky enough to work for a company, the state, county, or federal government, where you had a pension plan, your retirement plan has been squashed by this current downturn and you will work until you are dead. Just like the old days.

    Some of the lack of accountability were the stimulus dollars that went to the states. These monies were supposed to be used to create jobs. Our state used most of the money to balance our budget, as the lawmakers could not stomach taking care of our broken tax system, where we have limited revenue coming in to support our expenses. We give out pages upon pages of tax loopholes to anyone and everyone so that revenue is guaranteed to decrease year after year supporting the agenda to squash government down to nothing. This is the agenda of some of the lawmakers in our state. They will be working to get government down to nothing while they collect the taxpayer money for their own benefit package and salary. What hypocrites. They do not care that class sizes will be 100 plus in a class room, they do not care about the Departments that help out impoverished people, or social programs. Their job is to help the corporations and the wealthy. The corporations operate without a conscience and the wealthy send their children to private schools. They do not care about the poor or middle class in spite of the fact that the poor and middle class continue to get them their wealth. These same banks are making a large amount of their money on the fees they generate from poor people and middle class. Credit cards are allowed to charge loan sharking fees. They hope that you are late so that they can make your payments higher and your interest rate even higher. Then they hit you up with late fees on top of all that. Banks are doing the same things to people with overdraft fees and other fees they tack on to poor people. We really do hate our poor in this country though we depend on them to make us richer.

    What the small government is meant to produce will be lack of oversight. Lack of oversight is what caused our current mess. No one was minding the store because we were all profiting from it. Our retirement accounts were swelling, the banks were lending money in record fashion, the rich were getting richer and receiving cushy tax cuts to get wealthier and greedier. Until the system collapsed and now we are crying; "FOUL."

    Obama will be blamed for the lack of job creation in spite of the fact that many states, besides mine, used the government stimulus money for balancing their damaged budgets.

    If you expect corporations to have a conscience then you are deluding yourself. Corporations exist to create profit. Unfortunately we have it designed to share profit with shareholders. This system is what is allowing jobs to be sent overseas to places where the EPA is not looking, the labor force will work cheaper, the products can be imported cheaper than by manufacturing them here in this country. The largest company that engages in this practice is Walmart. They have labor in countries where the conditions are much worse than what ours was when we founded unions in this country. Imagine working in sweat shops to produce products that you can squeeze to the lowest price possible. Walmart has so much clout that they can force these places to squeeze more out of the people or threaten to build where they will. We want our products so cheap in this country that we will support human rights abuses so that we can get it. As long as we do not have to look at these people working in abhorrent conditions it is fine with our sense of decency. You see, we do not have much in the way of a conscience either. Even if we knew these things we would continue to shop there because we want our lifestyle of affluence and affordability.

    The union backlash is incredible but we have lost the sight of history. Unions were created by workers who organized against unfair labor practices of companies. They assured decent wages and benefits that drove our economies. Rather than looking at what they created for our economies, people got jealous that they did not have it as good. Rather than working to get all of our standards as high, people sat around envious of what they had. These union jobs supported buying a home, buying a cabin somewhere else and helping out the economy of that little town, sending kids to college ensuring a smarter generation and good jobs for the future.

    We own a store and my wife's and my sales are down by 16% from last year and last year was bad. Walmart is doing extremely well though. When our store closes down now Walmart will continue to do well. If Sam Walton was alive today he would be worth considerably more than what Bill Gates is. As it is the Walton's are worth $16 billion dollars a piece.

    We have allowed Walmart to take over our towns which forced many of the local retailers out of the community. Then Walmart raise it's prices because it can. They are known for paying their labor much lower that any other competitor. On average a clerk is paid $14,000 per year and 40% of them cannot get health care so are dependent upon our state's Medicaid programs for any of their health care needs. The problem with this philosophy is that it is driving many people down the road to poverty. The cost of goods is staying about the same as well as professional labor charges. Try being one of these poor people and hiring a plumber.

    I don't believe in handouts and the states should have had civilian conservation corp type jobs to fix the infrastructure of our country. That is what the stimulus money should have been used for. It would have created jobs that would have generated taxpayer money for the government and money for retailers because people would have bought things. Now people are hoarding their cash and driving the country in to further destruction. People are only buying the essentials. My wife and I have changed our spending habits as well. We have not made an interest payment on a credit card in twenty years. We have lived within our means for most of the years that we have been together. Still, we did have some disposable income that we played with each year from a Christmas bonus and cashing out some vacation time. This year we will probably hoard that money as well. We've been saving about $17K per year for many years towards our retirement. We will probably not be able to afford to retire though because of the current mess with health care. The company I run pays for health care for the employee, spouse, all children living at home. We have experienced double digit rate increases every year for over a decade. Our salaries have never kept up with these rate increases. We are painfully aware that the health care system in this country is broken. Many here have been duped in to believing that it is the trial lawyers fault for this mess. We do not say anything when we know that the insurance industry has 20% administrative overhead, the CEO is making millions of dollars per year, the company makes more money by denying us the care that our premiums are supposedly paying for. But we want to limit the damages some injured person receives. Ignorance is bliss until you get injured yourself. I got injured some years ago. In spite of the fact that I had good medical insurance, in spite of the fact that I was not at fault, the homeowner's policy refused to cover my injuries. I spent $74,000 out of my pocket to get fixed. I had to sue to collect my money back. I was only able to collect the limit of the homeowner's liability. $100,000 with one third for the attorney fees. We settled in mediation without taking it to trial. Many claims are settled this way. But, let's assume that this case did go to trial. We still would have only collected the policy limit though we would have incurred all attorney fees meaning that we would have received nothing. If the homeowner had a higher limit I would have been able to collect more. Here is how that would have worked. We would have taken this case to trial with a jury of our peers. Not a perfect system, in this country but, one that does give us due process. A jury would have decided the amount of my injuries plus an award for damages. Three years of my life were taken from me and I am in permanent pain. Even after I would have been awarded a monetary settlement, the insurance company would appeal, I would have incurred more legal expenses, my settlement would be reduced in the appeals process. So the American people have been duped by the insurance company, having all kinds of marketing dollars, coming up with the ridiculous claims that have been filed and parading that in front of our noses so that we now want to limit the amount a person could collect. Let's say the limit will now be $250,000 total. Now lets say you have lost your right arm. You now have $250,000. What is your $250,000 going to do for your life now? You cannot do the same job you did before, maybe you can qualify for vocational rehabilitation dollars from the federal government and you can learn how to type with your hook. What you will have taken away is the right of due process, the insurance companies will get out of paying for claims, they can make absurd profits so that they can give even higher bonuses and a larger salary to the CEO. This is being done with term limits in states as well. We did not trust our people's ability to vote someone out if they were not doing a good job so we came us with term limits. Now we throw out the good with the bad.

    Everything I discussed in my rant is about capitalism. Capitalism without a conscience is what breeds greed, intolerance, indifference to our fellow man, and the corruptness that we have in all levels of government. Until we allow our society to stop being sick in the soul with commercialism, allowing lobbyists to buy our government, we will continue to have the mess we have. It does not matter who is in power because we have allowed corruptness, crimes, lust, power, greed, to shape our society as a whole. As long as we allow this we will see the horrific crimes against humanity throughout the world we live in. We will align ourselves with the party that we assume is most holy as they have taken on abortion as the red herring issue to focus on. Never mind that it could have been solved when the Republicans were in complete power. If that happened it would take away the trump card that is thrown up to claim that they are pure. Neither side is pure as we have allowed corruptness to exist by not insisting that they take care of special interests, lobbyists, and graft. Get involved with shaping who and what we truly want in our leaders, examine what is happening overseas in the labor markets, demand accountability. Demand accountability in our banks, corporations, marketing practices, etc. Stop allowing marketers to have access to our children and exploiting them through sexual imagery in everything we sell. Get back to being parents in the home, etc. It's hard to clean up the world when we are not right in our own homes. When we demand more of ourselves we can demand more of our leaders.

  • Report this Comment On November 27, 2009, at 3:17 PM, akaprimo wrote:

    In hindsight the bailouts, without strings attached, were a big mistake. However, I think that the alternative would have been much worse.

    At this point, I believe that "too big to fail" should become "break them up before they fail".

  • Report this Comment On November 27, 2009, at 6:40 PM, LifesABeach310 wrote:

    It is time to take back the control of our government and our financial systems that are both clearly corrupt and out of control. The middle class people that have the largest tax burdens have the capability but lack the ability to make a coordinated effort. The middle class is quickly becoming poorer as we are continually hit with higher taxes and are forced to participate in the pain of those that acted foolishly by over-extending themselves. Tax payers should not be forced to bail out what was quite simply ridiculously leveraged gambling. The too big to fail banks are only getting stronger as the government is quite happy to let the 'not too big to fail banks continue to die' and the result is that the big banks only get bigger. They are borrowing at virtually 0 cost, they are paying their customers virtually zero, and the credit quality of what is being lent today that is kept on their books is for the most part 'A' paper. The junk that continues to be created for example is anything that is FHA or Fannie/Freddie. These are Federally run organziations that just bleed tax payer money and there is no end it sight. We need new banks to be created that don't have bad assets on their books, they are starting with a clean slate. These banks should only be able to create or invest in what is considered 'A' paper products. I would gladly pull my deposits from the garbage banks that remain and put them into a bank that was created exclusively for high quality customers and investments. If we could pull sufficient capital from the bad banks, they may not be forced into collapse, but they could be forced to improve their operations. We also need to stop the flow of capital into further high risk mortgage lending under Fannie/Freddie and especially FHA. These programs offer financing with ridiculously high debt ratios, high loan to value, low credit and exceedinly low reserves. This continues to spell trouble for housing and disaster for taxpayers as long as they lend with their current guidelines. FHA is most dangerous because it is GOVERNMENT INSURANCE for the banks. If an FHA borrower defaults, the government guarantees that they will repay the bank that originated the loan back in FULL. This is 0 risk for banks, 100% risk for the taxpayer. The government and wall street continue to focus on "emerging markets" because there is soo much potential. They also have the greatest amount of risk associated with them! Our government and our financial institutions needs to be responsible to the people for their actions, the people should not be responsible to bail out the ridiculously excessive greed of a very small number of people that wield far too much power in government and finance.

  • Report this Comment On November 28, 2009, at 2:04 AM, tkell31 wrote:

    Robin308 summed it up best because that is exactly what happened and it was the greed and corruption of all involved that made it almsot inevitable. I mean, who made all of these non-profits and why are they allowed to keep the money? Now if you started arresting all the people involved with the money laundering scheme, which is what it boils down to, then maybe we wouldnt have a repeat, but we wont so I'm sure we will. The american public is pretty docile, sure we might make an angry post or two, but at the end of the day 85-90% of us have it good enough that we really dont have the incentive to do anything about it. Fortunately once you have enough money or political clout accountability becomes just a word, morality a myth, and ethics just a vicious rumor.

  • Report this Comment On November 28, 2009, at 6:00 AM, rfurtado wrote:

    As usual everyone skates around the problem.

    First, if an investor or financial institution is willing to take on investments it does not understand , then expect to lose your shirt. Your money, your risk, not my problem.

    Second, why would a ratings company, ie( moody's, S& P, etc, etc), rate an investment AAA when it knows it is junk or cant understand it.

    Third why aren't these institutions been investigated for , what is clearly fraud, and possibly collusion in rating CDS, CDO, and other investment paper that clearly were not even close to an AAA rating or any other rating above TOXIC RADIOACTIVE JUNK.

    Fourth, and I love the term NINJA loan , NO income No job, No assets. How do you issue a loan to such a person. This is the definition of getting in a car with a drunk driver. You may be able to get away with it for a while but eventually your going to crash. By the way your getting injured and the drunk gets away injury free.

    And last how can you trust any politician when they receive bribes, and that's what they are BRIBES, from financial institutions that they are suppose to regulate. I refer to Sen C. Dodd - D of CT, in 2003 takes out two mortgages at 4 % for two houses for a total of almost 1 million, at 2 points lower than the average interest rate at the time. Now the investigating committee found him to be not guilty of bribery but should have not taken the sweet deal from Countrywide his Loan originator. Well, S*&T, if you ask the bank robber if he should go to jail for the crime what do think the answer is going to be.

  • Report this Comment On November 28, 2009, at 10:08 AM, MORK000 wrote:

    Our big banks have all of your money tied up in many of the Foreign countries. Therefore if our baks fail so does the many foreign countries fail? Simple is'nt !

  • Report this Comment On November 28, 2009, at 1:03 PM, gamblingkev wrote:

    I think to argue that we should not have bailed out the financial system last year is specious at best and seriously flawed. If the government had not stepped in when they did I believe the entire financial system would have ground to a halt and the recession would have been seriously worse than it was. That's not to say I agree with all that has happened before or since the bailout.

    Why was a bailout needed? Because the overseers, especially Congress, abdicated all responsibility to oversee the process and then proceeded to chasitise anyone who brought word to them that there was a problem. Watch the video of the investigators testifying before Congress about accounting shenanigans from Fannie Mae and Freddie Mac back in 2003. Instead of being thanked, the regulators were raked over the coals by Barney Frank and friends in public. So if you are supposed to investigate these institutions, how hard will you look when they are donating 10 times your salary to the campaigns of the same people you report to?

    But enough of that. My biggest issue with the bailout now is the we continued doing it. GS and MS both are reporting huge profits now. Why? Because we continued to give money to AIG to unwind all of their derivatives. And who held many of those contracts? Why GS and MS of course. Their huge profits are directly from the pockets of all of us.

    Instead of totally bailing out AIG, we should have stopped after the initial bailout. Then ensure that everyone involved in that mess took a haircut. Let AIG pay 75 cents on the dollar and make all of the companies who caused this mess have to take a hit instead of creating the AIG taxpayer insurance company and letting GS and MS give obscene bonuses to the clowns who helped cause this debacle.

    So now it's up to all of us. If we don't make our voices heard at the polls in the next few elections, if we don't force our representatives to do their jobs instead of creating more opportunities to take away our liberties, we will all get exactly what we deserve.

    Two things I am going to do are vote against everyone in Congress now, Republican and Democrat, until they get the message and quit wasting my money. And I will never buy stock or bonds in Goldman, Morgan Stanley, Citi, Bank of America, or JPM. I may cost myself some money there but if enough people refuse to support these companies, then their stock prices go down and one of the areas they get bonuses from will be cut.

    To finish up I do want to give some kudos to a few companies that have stayed out of these messes and continued to do things right. Brokerages like Stifel Nicholas (SF) and Raymond James(RJF). Banks like New York Community Bank (NYB) and Hudson City Bancorp (HCBK). These are companies in the same businesses as the major players but who have standards that they continued to follow. No they did not post huge profits over the past 5 years but they are still reporting profits now without needing a taxpayer bailout to do it.

  • Report this Comment On November 28, 2009, at 1:28 PM, plaarch wrote:

    Maybe we should running ALL institutions and corporations in a democratic manner and have directors of a board of common stock holders to oversee All decisions including those regarding salary's & bonuses of the chairman & board of directors etc. and any other decisions vital to the health of that entity. We run our government that way with 2 houses in the legeslative branch or 2 houses in parliament. Why not have a board of common stock holders to protect the interests of the small common stock holder?

  • Report this Comment On November 28, 2009, at 2:47 PM, dymty wrote:

    Wait until the commercial real estate heads into its death spiral with a vengeance. You think we had issues when someone woke up to the reality that residential real estate wasn't worth what is was purported to be?

    Anybody want to take a stab at why Dubai World is just the primer cord, the 'pop' before the explosion?

  • Report this Comment On November 28, 2009, at 8:44 PM, Jaksan wrote:

    The Soviet system failed because its politicians were completely corrupted by their social and political system and their system eventually collpased as a result of the decisions made and not made by those politicians. It's a huge mistake thinking you won a particular struggle because you believed your side superior as opposed to a victory resulting from your enemy's incompetence

    What folly it would be to think capitalism not capable of the same error.

    To quote a famous Russian author Aleksandr Solzhenitsyn "We do not err because truth is difficult to see. It is visible at a glance. We err because this is more comfortable."

  • Report this Comment On November 29, 2009, at 12:45 PM, VegasMartin wrote:

    Peteys Tired, I'm glad that someone else actually gets it. Thank you for supporting Ron Paul. We are living in a financial fantasy land right now. The Fed's policy will cover up the flaws temporarily, but it's only a matter of time before this facade wears off and comes crashing down and the result is hyperinflation.

    http://www.ShootTheBears.com

  • Report this Comment On November 29, 2009, at 4:31 PM, 1gnorant0pinion wrote:

    It was clear to me back when the bailouts were announced that they were a bad idea. From the comments on this article, it looks like it was also clear to many others then, and since then it has become clear to many more that the bailouts were a bad idea.

    It's disgusting that all taxpayers are paying for business blunders of some fat cats who should really have been forced to declare bankruptcy, because that's what they created for themselves with their own decisions.

    It's clear that our government simply isn't equipped to handle a handout and audit of this magnitude. Much smaller projects have failed or later been discovered to be crooked many, many times. This is about people; the people that we elected and the people they hired just aren't strong enough. That means WE are not strong enough, because they and we are all Americans.

    So after the smoke clears and we all realize just how much was stolen from us during this bailout, and we begin to rebuke our decision-makers, we need to go further and talk about how we can prevent this from happening again. Because this problem we have is not new, and it's name is corruption.

    We are hypocrites because our country is a victim of the largest corrupt schemes in history and at the same time we are trying to "clean up" the rest of the world. We have to admit failure at home so we can fix it and move on and regain our self-respect as well as the world's respect.

    Corruption happens because individuals aren't strong enough to withstand the pressures of their position. Let's not be naive and believe we can eliminate the pressures - corporations both profit and non-profit will always attempt to lobby for their interests, ladder-climbers will always be kissing up to the person above them, and bringing home the bacon always looks good to the masses who don't understand what was traded away for it. We need to focus on strengthening the system in which our elected officials and their hires operate.

    To strengthen our system we may need to add new laws, remove existing detrimental laws, and amend other existing laws. The national discussion should be about what can be done in order to strengthen our system for posterity - not just react to the latest blunder.

    My Foolish opinion: Our stock in the USG is currently over-priced, given the severe management issues. It's time to sell or demand reforms.

  • Report this Comment On November 30, 2009, at 5:41 AM, SnafuUK wrote:

    As a citizen of the UK I have sympathy with the comments espoused herein and they are echoed in large part in the UK. That being said; I do find the viewpoint somewhat naive.

    In the UK we supported the wholly unpalatable bank bailout because we do not have a dogma that "Free markets are the ultimate arbiter". They are most certainly not the ultimate answer nor are they perfectly free. The US on the other hand still adheres to this myth. If the free market argument were to truly apply then there would be no such thing as Unemployment Security, Health Credit or any assistance of any kind.

    If the whole financial system were permitted to fail then everybody would have lost everything and the West would never have recovered. The East on the other hand would be in a position to dominate the world because they don't adhere to the simplistic free market doctrine. They have a much more controllable authoritarian dogma: people they don't like simply disappear.

    The UK philosophy is that we don't like what we had to do to stabilize the financial system and we're boiling with rage on the abuses the bankers have put in place since. Now that the system is coming out of intensive care we have an opportunity to redress the excesses of the banking system. It was suggested to the G20 that bankers should pay for the massive subsidy they were given by a levy on profits over an agreed period. For arguments sake we'll call it 5% over 30 years. This will go a long way to redressing the amount that the taxpayer has paid. The levy would be applied equinanimously across the worlds banks with each country's banks paying to their own respective treasury.

    Unfortunately, the US were unsupportive of this proposal as it failed to conform to the free market dogma, casually dismissing the fact that by supporting the banks the US had de facto dismissed the free market doctrine.

    The issue of bank bailout is not over, rational thought needs to be applied to finding ways to make the bankers pay for their actions. Simply paying back the money they were loaned is insufficient redress. The extraordinary salaries that these people pay themselves, at our expense, is truly beyond comprehension, and must be redressed.

    The taxpayer has paid for the cost of the recession in human terms; social security payments, lost tax revenue, small business failures, etc. By pressurizing your elected representative you can ensure that an equal global levy on bank profits, or other such mechanism, is adopted to pay for the wider cost to society of their adventures. However, in order to do this, the myth of the 'free market' must be well and truly dispelled.

    A system must be devised so that bankers should be in no doubt that future misbehaviour will result in significant financial penalty for a long period of time.

  • Report this Comment On November 30, 2009, at 2:19 PM, jfrankh57 wrote:

    Whatever happened to being held accountable for your actions. In the reality of today, everybody looks for a bailout when they make mistakes or become rash/impudent., especially when there are no consequences to fear. I think society should stop coddling folks and let most choose their lives, let them live those lives, and let them handle the consequences of their decisions. You know the market goes the way the big guys make it happen. Maybe if the government of the people was really for the people, they would set boundarys for ethical behavior and really hurt those who do harm to others in malicious ways. In fiduciary matters, they should lose all illgotten gains and, certainly, suffer a stiff penalty on top to assure schemers that reckless or dangerous behavior should be an expensive course of action. Stupid actions should not be rewarded either.

  • Report this Comment On December 01, 2009, at 12:45 PM, williamjacobs wrote:

    "Socialist" Bernie Sanders suggested anti-trust breakups for banks too big to fail.

    Require a break up for any bank that accepts bailouts.

    Banks that are too big to fail must be broken so they cannot be bailed out twice.

    There'd be a lot fewer banks with their hands out under these conditions.

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