Monday, October 13, 2008

William F. Engeldahl: "Financial Tsunami:The Ende of the World as We Knew It"

Financial Tsunami:
The Ende of the World as We Knew It
: William F. Engeldahl

Andy Davey

This bail-out and global financial crisis has left ordinary people bewildered and in many cases, down on their luck as a lot of them were/are close to retirement, having lost their financial security for their golden age. We have lost big time as well. We're not the only ones who wondered how and why, and why them?

Read this;

"The actions of Treasury Secretary Paulson since the first outbreak of the Financial Tsunami in August of 2007 have been directed with one apparent guiding aimto save the obscene gains of his Wall Street and banking cronies. In the process he has taken steps which suggest more than a mild possible conflict of interest. Paulson, who had been chairman of Goldman Sachs from the time of the 1999 Glass-Steagall repeal to his appointment in 2006 as Treasury head, had been one of the most involved Wall Street players in the new securitization revolution of Greenspan.

Under Paulson, according to City of London financial sources familiar with it, Goldman Sachs drove the securitization revolution with an endless rollout of new products. As one London banker put it in an off-record remark to this author, “Paulson’s really the guilty one in this securitization mess but no one brings it up because of the extraordinary influence Goldmans seems to have, a bit like the Knights Templar order of old.’ Naming Goldman chairman Henry Paulson to head the Government agency now responsible for cleaning up the mess left by Wall Street greed and stupidity was tantamount to putting the wolf in charge of guarding the hen house as some see it."

Nouriel Roubini

"As respected economist, Nouriel Roubini pointed out, in almost every case of recent banking crises in which emergency action was needed to save the financial system, the most economical (to taxpayers) method was to have the Government, as in Sweden or Finland in the early 1990’s, nationalize the troubled banks, take over their management and assets, and inject public capital to recapitalize the banks to allow them to continue doing business, lending to normal clients. In the Swedish case, the Government held the assets, mostly real estate, for several years until the economy again improved at which point they could sell them onto the market and the banks could gradually buy the state ownership shares back into private hands. In the Swedish case the end cost to taxpayers was estimated to have been almost nil. The state never did as Paulson proposed, to buy the toxic waste of the banks, leaving them to get off free from their follies of securitization and speculation abuses.3

Paulson’s plan, the one essentially rejected on September 29 by the House of Representatives, would have done nothing to recapitalize the troubled banks. That recapitalization could cost an added hundreds of billions on top of the $700 billion toxic waste disposal.

Serious bankers I know who went through the Scandinavian crisis of the 1990’s are scratching their head trying to imagine how crass the Paulson TARP scheme is. That politically obvious bailout of Wall Street by the taxpayers, what some refer to as ‘Bankers’ Socialismsocialize the costs of failure onto the public, and privatize the profits to the bankers―is a major factor behind the defeat of the TARP compromise version. Under Paulson’s scheme, which seems likely to get very little alteration by Congress in coming days, the Treasury Secretary, initially Paulson, would have sole discretion, with minimal oversight, to use a $700 billion check book, courtesy of taxpayer generosity, to buy various Asset Backed Securities held not only by Federal Reserve regulated banks like JP Morgan Chase or Citicorp, or Goldman Sachs, but also by hedge funds, by insurance companies and whomever he decides needs a boost.

‘The Paulson plan is unworkable,’ noted Stephen Lewis, chief economist with the London-based Monument Securities. ‘No one has an idea how to set a price on these toxic securities held by the banks, and in the present market a lot of them likely would be marked to zero.’ Lewis like many others who have examined the example of the temporary Swedish bank nationalization, called Securum, during their real estate collapse in the early 1990’s, stresses that ultimately only a similar solution would be able to resolve the crisis with a minimum of taxpayer cost. ‘The US authorities know very well the Swedish model, but it seems in the US nationalization is a dirty word.’"

(underlines, italics, bold added by yours truly..)

Well, so is Banker's Socialism...socialism is for society, not for 'high society'. But then of course it becomes a 'dirty word'. Click on the title (in the post) for the whole article. It has an interesting background story on Phil Gramm, remember Mr. We're a country of whiners?? Psha!

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Blogger susan said...

I was glad Paul Krugman (Princeton and NY Times) got the Nobel Prize for Economics but I would have been just as glad to see Roubini in the spotlight.

My friend Crow posted about these issues quite extensively throughout September but he's got writer's cramp now. He's glad you raised the Swedish plan since it's only right that the taxpayers take ownership and not just the loss.

The next step internationally will be the removal of the US dollar as the Reserve Currency acknowledged by all. It's past time.

7:44 PM  
Blogger Border Explorer said...

This pretty well confirms all my worst fears.

8:50 PM  
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Blogger D.K. Raed said...

Very informative link! Wow, is there anything Phil Gramm has touched that hasn't proved awful for non-Gramm cronies? And I've often wondered why Bill Clinton so happily signed onto the program of deregulating investment banks.

We've sure got ourselves some screwed-up rules regarding investment tax laws, too. The tax laws say the money has to be "at risk" in order for gains to qualify for special (lower) tax treatment. "At risk" means you can lose your money. But, oops, when the really big boys start losing really big money, suddenly they act like, oh, why should they be "at risk". Well, if that's they way they want to play, I say the fed should make a retroactive tax law to make them pay ordinary tax rates on their previous gains, since they were obviously not "at risk". We could probably wipe out a large piece of the $700billion with that revenue.

1:18 AM  

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