Prolonging the Inevitable on Wall Street and Making Things Worse for Main Street

U. of Texas government/business relations professor James Galbraith predicts dire consequences ahead with Obama's current trajectory of helping banks buy toxic assets:

When a bank's insolvency is ignored, the incentives for normal prudent banking collapse. Management has nothing to lose. It may take big new risks, in volatile markets like commodities, in the hope of salvation before the regulators close in. Or it may loot the institution -- nomenklatura privatization, as the Russians would say -- through unjustified bonuses, dividends, and options. It will never fully disclose the extent of insolvency on its own.

The most likely scenario, should the Geithner plan go through, is a combination of looting, fraud, and a renewed speculation in volatile commodity markets such as oil. Ultimately the losses fall on the public anyway, since deposits are largely insured ....

The oddest thing about the Geithner program is its failure to act as though the financial crisis is a true crisis -- an integrated, long-term economic threat -- rather than merely a couple of related but temporary problems, one in banking and the other in jobs.

The Treasury's Version of the Flying Spaghetti Monster

Ezra Klein argues that the Obama administration's mortgage rescue plan involves guessing at the price of toxic assets and then laundering the guess through corporate investors demanding a huge payoff to participate. The Treasury is assuming that risk aversion will naturally lead to fair pricing. It sounds like another version of blind and misdirected faith in the market to me.

The people at the table are the ones who created the financial problem in the first place

Nobel Prize-winning economist Joe Stiglitz tells Josh Marshall that lending institutions treat our malaise as a crisis in confidence rather than a real economic crisis and they are doing nothing to produce positive results for taxpayers while hoarding federal subsidies for themselves:

Commercial Real Estate Hankers for Bailout Capital

Putting out a full court press on Congress and the President Elect, and yet, they have weathered the economic crisis relatively well.  Now, when is this capital supposed to help out Main Street again?

What Do You Call 10,000 Lobbyists at the Bottom of the Ocean?

Sure, it's a good start, but R. Neal has an even better start on the stock crisis in which we find ourselves:

We need Resolution Trust Corporation v2.0 to shut down the bad actors and seize their assets and sell them off to the highest bidder instead of some half-baked scheme for taxpayers to buy their house of cards. If this was the counter offer to their desperate plea for a quick bailout, how many of of these companies would suddenly realize things aren't really so bad after all and retreat to the board room to figure out some way to restructure and survive? ....

The notion that credit will dry up and business in America will grind to a halt if this deal is not approved is ridiculous. There's good money to be made by responsible lenders who exercise due diligence in making loans to reputable companies. Republicans are basically telling us the only way business can operate in America is if shady lenders make dubious loans to corrupt companies and then get taxpayers to bail them all out when they turn out to be idiots or liars or both. Seriously? They should all go bankrupt, and in some cases straight to jail, while we get back to doing business on the up and up according to, you know, actual conservative principles where calculated risk involves reward and consequences.

Go, read, and heed his voice of reason in the midst of panic and overreaction. Being progressive also means being conservative.


UPDATE: Josh Marshall believes that Republican/McCain plan is to set up the Dems, whom they will run against for bailing out their pals on Wall Street. John McCain once again might get to have it both ways. Friend and enemy of Wall Street malfeasance. On HBO last week Naomi Klein rhetorically asked what person wouldn't like to be in the finance industry's position right now, to wake up one morning and find one's debts and mortgage wiped away clean by the government. Wall Street is going to win either way because the government is going to give them a do-over, and John McCain obviously intends to ride their coattails while making Dems take the hit for his part.

Dems in Tight Spot to the Right of George Will

Where's the outrage on the left? Below market interest rates for CEOs, taxpayer-funded bank insurance, immunity from market outcomes for the wealthy, and liberals allow a conservative commentator to lead the way criticizing corporate welfare. I'm embarrassed to admit that I vote Democrat. Is that awful housing-financial crisis just too large for liberals to get their minds around? Get a clue and help yourselves, Dems.

Socialized Rescues of Corporations

Socialism is alive and well in America, but not at the bottom of the market, where conservatives claim it is. Government bailouts of corporations amount to socialism for the very rich, and the same social Darwinism used as a weapon against the lower and middle classes is not brandished on the wealthy.

In the case of Bear-Stearns: insurance companies appear to be the "welfare queens" (absent food stamps) in the Federal Reserve's hands-on salvation of Bear-Sterns. Does anybody blame those queens? Not without risk of being ironically labeled as socialists who oppose "free" markets. But we know for whom American socialism truly works.