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Nationalisation is the solution

by Jerome a Paris Wed Oct 8th, 2008 at 05:55:27 AM EST

So far, governments (starting in the US) have been quite imaginative in finding new ways to hand over public money to the financial sector with very little, or nothing, to show for it. I've been saying it for a while in the comments threads, but it's time to say it loudly here on the front page: there is no other endgame for the financial sector than wholesale nationalisation so that (i) lending to the real economy can restart and (ii) the cleanup (of bad assets, and badder bankers) can be started.

Instead, ad hoc pseudo-nationalisations are done on what now appears to be an almost daily basis, with seemingly as main goal to avoid the stigma of socialism (it seems that spending vast amounts of taxpayer money is better than being called a socialist):


  • the precursor was the USD 29 bn guarantee given to JPMorgan, no strings attached, to take over Bear Stearns: billions of public money, no upside
  • then came the bailout of Fannie Mae and Freddie Mac - USD 200 bn to restate, a bit late, that government-sponsored entreprises were indeed government-backed, if not quite government-regulated. At least the US Treasury got some preferred shares there, but the likely losses in the $5 trillion portfolio of FM/FM don't suggest these will ever be worth anything;
  • then came the last-minute take-over of AIG, a day after Lehman was left to fail - via a USD 85 bn emergency loan (already drawn to a large extent today) in exchange for 80% of the bankrupt company;
  • throughout that period, the Fed invented various new ways to lend to banks and brokers, taking increasingly big risks along the way (it used to be that the Fed's lending was purely about liquidity, and entailed no risk whatsoever; now most of its balance sheet has been turned into a depositary of assets of dubious value, putting it at the risk of very real losses should any of its counterparties, ie banks, go bankrupt);
  • then, of course, came the Bailout. $700 billion gone to Paulson's Pals with nothing to show for it (as Ian Welsh notes, that was supposed to at least help restore commercial lending - so far it has utterly failed, as things keep on worsening on that market;
  • and thus the Fed now says it will take on commercial paper as collateral, ie direct exposure to the corporate sector. Banks won't lend to one another in the banking market, and thus won't lend to their clients (consumer credit is down for the first time since 1998), so the Fed is stepping in to push banks to restart; this seems unlikely to work any better in the current market meltdown (banks are hoarding cash because they need it desperately to cover their ongoing obligations, and because they don't want to lend it to anyone, unless contractually obligated to do so - everybody is suspect right now);

Meanwhile, the Irish banking sector has been pseudo-nationalised (the government has recklessly decided to guarantee all the liabilities - not just the deposits - of its domestic banks); the Belgian banks Fortis and Dexia (which have strong Dutch and French presence, respectively) have been taken over by multiple governments and their local assets split between them on national lines; the Greeks, Germans and others have provided extra public guarantees on deposits, and the British have now decided to inject £50 billion (and potentially another £250 billion) up to in their struggling banks.

In all countries, government intervention is seen as indispensable to avoid outright bankruptcies of weakened banks. And in all countries, the crisis continues to worsen. The interbank market  is dead, so that banks have to roll over increasing amounts of short term money from their central bank to keep on functioning (ie to keep up with previous commitments - they are all avoiding new lending) - something which is clearly not practical, nor profitable, beyond short periods.

Banking is dead, right now.

But it's still needed, if only to ensure that payroll happens, that bills are paid, and normal business activity can take place.

So government is going to have to step in even more massively at some point, to make it possible for banks to focus on something else than unwinding all the exposures they have in derivatives markets, the shadow banking system, hedge funds (including thos that are forced to close because of the insane "no short-selling" rule)  or bankrupt colleagues like Lehman.

Grankly, I see no other solution than the full nationalisation of all establishments that show any sign of weakness, and the massive netting out of positions to clean up things as much as possible.

The thing is that the longer this takes to happen, and the bigger the mess to clean up. And yet it's not happening - mostly for ideological reasons (nationalisation = socialism = evil; somehow the same logic does not seem to apply to the generous but pointless hosing of public money on the bankers that created the mess in the first place...)

Say it loud: Actual Nationalisation is the solution!

Display:
http://www.dailykos.com/storyonly/2008/10/7/175439/914/675/595281

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Oct 7th, 2008 at 06:19:11 PM EST
How is it playing over there?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Oct 8th, 2008 at 03:42:03 AM EST
[ Parent ]
we vote in politicians, we don't vote in bankers, yet we see the latter having disproportionate amounts of power, seems very undemocratic. we can't vote them out, after all.

have state-owned banks ever been nationalised in a democracy before?

(excuse my history ignorance)

how can there be true democracy when some power-players amount to having even more effect on our lives than our elected leaders?

it's an area of too much responsibility to accord to mere citizens, when they can bugger off with huge amounts of cash from their machinations, bellowing all the time how regulation and/or nationalisation is against their ideology, well screw that...

when public trust is abused to this degree, with so little accountability, i don't care a fig for your precious ideology, your behaviour is that of a thief, and you've demonstrated that said ideology is devoid of any public good whatsoever, as it was used to justify fleecing others with.

if we're ever going to have sweeping reforms, now's a good time for them, but if i knew that the italian state had rule over all the money flow in the country, i confess it would freaque me out.

i am concerned at the voices predicting the end of the euro, but so far i find trichet more credible and trustworthy than the likes of paulson.

my gut feeling is that this has to be worldwide, and who's going to design such an overhaul of international banking?

i suspect it'll be a last resort after trying and failing everything else, and if we're there, why not give chris cook's LLP thing more of a chance too?

seems about as radical a rethink as any in the history of 'property rights', aka 'who gets what and how long they keep it'...

 

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Oct 8th, 2008 at 04:41:39 AM EST
[ Parent ]
we vote in politicians, we don't vote in bankers, yet we see the latter having disproportionate amounts of power

Since when does all power come from the ballot?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Wed Oct 8th, 2008 at 04:48:58 AM EST
[ Parent ]
well, that's the ostensible point of democracy, isn't it?

in theory, anyway, lol.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Oct 8th, 2008 at 05:54:38 AM EST
[ Parent ]
In the US a Republic was the least bad alternative to being ruled by a foreign monarchy, even if that monarchy was the government of your ancestors.  There were oligarchic republics like Venice as examples, but they did not inspire or truly fit the American situation.  So they took ancient Rome as a prototype and tried to strengthen the protections for individual liberty through  structural refinement--divided government.  Extension of the franchise mostly arose out of local governments established as the nation spread westward.

Jefferson envisioned a republic of small land holders, and Jackson was the proponent of the "backwoods" everyman who he mobilized in the service of westward expansion, relocation of Native Americans in the service of real estate developers and the expansion of slave holding practices.  Lincoln was a great proponent of "government of the people, by the people and for the people," but freeing the slaves was a strategic act of war rather than of principle.  The Radical Republicans tried to extend the franchise to emancipated blacks during reconstruction but worship of money prevailed under Grant and Jim Crow emerged in the South.  Women had to wait until the 20th century except in the west. Native Americans, whether their first European language was English, French or Spanish, had to wait until the second half of the 20th century.  Democracy for whom?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 8th, 2008 at 10:33:25 AM EST
[ Parent ]
Thanks melo.


my gut feeling is that this has to be worldwide, and who's going to design such an overhaul of international banking?

i suspect it'll be a last resort after trying and failing everything else, and if we're there, why not give chris cook's LLP thing more of a chance too?

seems about as radical a rethink as any in the history of 'property rights', aka 'who gets what and how long they keep it'..

The overhaul will not come from the debtors, so the necessary Bretton Woods II must originate from the creditors.

If nationalisation is the solution, then, frankly, we are not asking the right question.

As a transitional measure, there is no reason whatever why Banks should not engage with the State within a partnership framework - no legislation is needed for such a consensual solution.

The State puts in the necessary Capital, and shares in agreed proportions in the gross revenues (before management costs etc) with those using the Capital - ie the people who are the management costs.

Canadian and Australian "Income Trusts" operated in exactly such a "pre-distributive" way on Corporate revenues, but the tax-man eventually put a stop to them.

Such a partnership model transcends the "Principal/ Agency" problem which is that the management's interests always diverge from the owners' interests, whether ownership is "Public"= "owned by the State" or "Private" = "owned by a Corporation".

It essentially creates a new form of continuous

Open Capital

of indefinite duration - ie for as long as you use it, you share the revenues or production it enables - which transcends the discontinuity between the absolutes of conventional:

(a) Equity - "Permanent" Capital of infinite duration; and

(b) Debt - temporary capital of finite duration.

As you will see if you look at the site, I use the Mobius strip as a metaphor for the continuity of such "Open" Capital - as compared to the "two sided" and therefore discontinuous conventional "Closed" forms of financial capital and property.

All good stuff: I don't do "abstract", of course.... ;-)

Back to the Real World.

I'm off to Teheran for ten days on Friday, to make a presentation at a major conference re "PetroTrusts" ie the "Unitisation" and thence monetisation of energy generally, starting with carbon-based energy.

I'll also be seeing ministers, parliamentarians, virtually the entire financial services industry (I'm told) and even the clerics in the holy city of Qom to discuss the Islamic aspects of financing systems.

I will be posting my paper and presentation on my web-site from Sunday 12th October for anyone interested. In the meantime I am posting as a Diary the "outline" article which is appearing shortly in the Iranian press - don't worry, it's not the Farsi version...!

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Oct 8th, 2008 at 05:27:29 AM EST
[ Parent ]
I'm off to Teheran for ten days on Friday, to make a presentation at a major conference re "PetroTrusts" ie the "Unitisation" and thence monetisation of energy generally, starting with carbon-based energy.

I'll also be seeing ministers, parliamentarians, virtually the entire financial services industry (I'm told) and even the clerics in the holy city of Qom to discuss the Islamic aspects of financing systems.


To the extent that a new view of capital can supplant the existing view in an evolutionary, step-wise basis that is entered into voluntarily and flourishes on its merits, based on its benefits to the many, rather than by state edict in the interests of the few, it is to be welcomed.

May you meet with receptive minds.  Fare thee well.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 8th, 2008 at 10:46:47 AM EST
[ Parent ]
I checked your site, and think I understood two things better: 1) the concept of open capital and 2) why I often find your writing hard to understand.

The 2 might interest you (as feedback for better communication). The paged you linked to was to me easier to understand because my flow of reading was not there stumped by quotes around individual words, which apparently makes me stop and figure that you are using the terms in different ways then the normal convention. So when you write:

As you will see if you look at the site, I use the Mobius strip as a metaphor for the continuity of such "Open" Capital - as compared to the "two sided" and therefore discontinuous conventional "Closed" forms of financial capital and property.

I figure that you mark "Open", "two sided" and "Closed" as having a different meaning then Open, two sided and Closed. So for me it is much easier if you write:

As you will see if you look at the site, I use the Mobius strip as a metaphor for the continuity of such Open Capital - as compared to the two sided and therefore discontinuous conventional closed forms of financial capital and property.

Before then I assume that all words are used in their conventional way and go for the meaning of the sentence rather then individual words.

I do not want to presume that this is a general experience, but as you are communicating to an audience, some might share this experience. Take it as feedback, and use it (or not).

And good luck in Teheran!

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Oct 8th, 2008 at 11:12:51 AM EST
[ Parent ]
Thanks. Very helpful feedback...

I will attempt to ration my use of quotes in the future.....!

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Oct 8th, 2008 at 11:32:43 AM EST
[ Parent ]
It was originally a form of protection against PNing. By putting words in quotes, it's like writing f*ck - you can't be picked on for using an obscene word, but everyone thinks they know what you mean ;-)

But I agree, too much is too much - a stylistic blunder.

You can't be me, I'm taken

by Sven Triloqvist on Wed Oct 8th, 2008 at 11:40:38 AM EST
[ Parent ]
Obviously you mean fack - the short version of the swedish word fackförening (labor union). Though as this is the ET and not the FT it is not a dirty word ;-)

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Oct 8th, 2008 at 11:45:11 AM EST
[ Parent ]
Too facking right ;-)

You can't be me, I'm taken
by Sven Triloqvist on Wed Oct 8th, 2008 at 11:46:05 AM EST
[ Parent ]
... (as opposed to the Eurozone) is taken together, isn't that around half of world GDP on current exchange rates?

And in terms of international transactions, the total that have the EU and North America on one or the other side must be substantially more than half.

Seems like if the US, Eurozone, City of ... uh, UK, and Japan got together, on a common envelope, that would be a strong kernel for a regulatory framework.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 8th, 2008 at 10:59:16 AM EST
[ Parent ]
If North America and the broader EU ...... (as opposed to the Eurozone) is taken together, isn't that around half of world GDP on current exchange rates?

Appears to be:
World
GDP (official exchange rate):
GWP (gross world product): $54.62 trillion (2007 est.)

EU
GDP (official exchange rate):
$16.62 trillion (2007 est.)

US
GDP (official exchange rate):
$13.84 trillion (2007 est.)

All from CIA - The World Factbook.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Oct 8th, 2008 at 11:25:45 AM EST
[ Parent ]
Regarding the swedish experiences as discussed at big orange (where I do not have an account):

Daily Kos: Nationalisation is the solution

It was full nationalisation

I would say it was partial nationalisation and strong re-regulation. It was a lot of different actions taken. The best description I have found is from swedish wikipedia. The article is not very good (it appears to lean heavily on one source and lacks proper sourcing) but I will translate the key part anyway as it illustrates the mix of actions taken. Unfortunately I lack the sources to improve it.

Finanskrisen i Sverige 1990-1994 - Wikipedia The financial crisis in Sweden 1990-1994
Bankernas kreditförluster mellan 1990 och 1993 var, enligt professor Johan Lybeck, 179 miljarder kronor, varav skattebetalarna stod för 65 miljarder - främst till Nordbanken och Götabanken. 50 miljarder kronor fick bankernas ägare stå för genom lägre avkastningar medan bankernas kunder genom sämre sparräntor och högre låneräntor antas stått för det resterande.
  • Nordbanken (numera Nordea) köptes ut av staten för att förhindra banken att gå omkull. Banken hade 1989 fusionerats med PK-banken. Staten pumpade in 65 miljarder i affären, dock bedöms banken ha ett visst värde varför förlusten antas ha kostat skattebetalarna omkring 35 miljarder kronor. Nordbanken köpte därefter den konkursmässiga Gotabanken. När Nordbanken inte klarar kapitaltäckningskravet på 8 % genomfördes en nyemission på 5,2 miljarder kronor, varav staten tecknade 4,2 miljarder. I samband med detta ökade Statens ägarandel från 70 till 77 %. Senare såldes Nordbanken, då i ett bättre börsklimat, och staten återfick en stor del av pengarna.
  • SE-banken, Wallenbergarnas kronjuvel, begärde först hjälp av staten om stöd för att klara situationen, men klarade sig till slut undan konkurs utan statligt ingripande genom att öka vidden mellan in- och utlåningsräntan, vilket innebar att förlusten vältrades över på bankens låntagare. Banken hade lite tur med att marknadsräntan gick ned. Då sänkte man inlåningsräntan, men utlåningsräntan bara för kunder med svårigheter så att kreditförlusterna kunde skrivas ned.
  • Första Sparbanken drabbades av betydande kreditförluster och uppfyllde ej kapitaltäckningskravet på 8 %, Sparbankernas Bank var villig att garantera likviditetstillförseln varför banken ej initialt behövde stöd från skattebetalarna. Då detta inte visade sig räcka lämnade staten ett borgensåtagande på 4,2 miljarder kronor till sparbanksstiftelsen. Som säkerhet tog staten 70 % av sparbanksstiftelsernas aktier i pant. Slutligen fusionerades Första Sparbanken in i Sparbanken Sverige.
  • Föreningsbanken klarade sig relativt helskinnade, men fick del i den så kallade kapitaltäckningsgarantin.
The banks credit losses between 1990 and 1993 was - according to professor Johan Lybeck - 179 billion SEK, of which the taxpayers ended up paying 65 billions - primarily to Nordbanken and Götabanken. 50 billions was payed by the banks owners through lower yields while the customers payed the rest through lower rents on savings and higher rents on loans.
  • Nordbanken (now Nordea) was bought by the government to prevent the bank from bankruptcy. The bank had in 1989 fusioned with PK-banken. The government infused 65 billion SEK in the deal, though as the bank was deemed to have some value, the cost for the tax-payers is estimated at 35 billion SEK. Nordbanken then bought Gotabanken which was on the verge of bankruptcy. When Nordbanken failed the reserve requirements of 8% a new emission of stocks was done to the tune of 5,2 billion SEK of which the governemnt bought 4,2 billion. Thus the governmental share increased from 70% to 77%. Later Nordbanken was sold, in a better stock market climate, and the governement recuperated a lot of the money.
  • SE-banken, the crown jewel of the Wallenberg family, first asked for assistance to cope, but eventually avoided bankruptcy without governmental intervention through an increased spread between savings and loans rents, which means that the losses was passed on to the lenders. The bank had some luck and market rents went down. Then savings rents was decreased but loans rents was only decreased for customer that was otherwise unable to pay. Thus credits losses could be written down.
  • Första Sparbanken (First Savings bank) had serious credit losses and did not fulfill the reserve requirements of 8%. Sparbnkaernas bank (the Savings banks bank) was willing to guarantee the liquidity wherefore the bank initially did not tax payers support. When this turned out to be to little the government posted a bond to the amount of 4,2 billion SEK. As security the government took 70% of the savings banks foundations stock in escrow. Eventually Första Sparbanken was fused into Sparbankerna Sverige.
  • Föreningsbanken managed itself relatively safe and sound, but took part in the so called reserve requirement guarantee.
  • Handelsbanken was the bank the managed the crisis best.


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Oct 8th, 2008 at 08:21:21 AM EST
[ Parent ]
We are discussing the scandinavian bank crises in the nineties here if you are interested: http://www.eurotrib.com/?op=displaystory;sid=2008/10/6/131033/786
by Trond Ove on Wed Oct 8th, 2008 at 08:58:24 AM EST
[ Parent ]
What about going after the profits off shore and in the respective countries. A huge wealth tax on those which took advantage of the system, regardless of how legal it was at the time. It may only be more symbolic than beneficial but it is called for.

The local councils, police depts etc in the UK and I would think elsewhere have huge deposits in failed or failing banks. While Iceland and the UK are in the courts; UK government will have to give loans to these institutions in order to function. Unfortunately whatever loans are given won't be enough to sustain the present services so they will have to be cut.

Easiest answer is total socialism for citizens' basic needs and services for the time being until this mess is sorted out and a new system in place relying on the many ideas put forth on ET. The idea Free Enterprise will provide social justice has been debunked and unfortunately  the governments will only find this out
after all solutions to maintain the present system is proved to be not working. Priorities of any new system have to be social justice first, then free enterprise providing individuals incentives to better society not profits for their own well being.

Otherwise, civil unrest and fascism will be their way.

by An American in London on Fri Oct 10th, 2008 at 04:49:59 AM EST
[ Parent ]
but tempting if you have the opportunity:


Knock Out: CNBC Confirms Lehman CEO Punched at Gym

  "From two very senior sources - one incredibly senior source - that he went to the gym after ... Lehman was announced as going under. He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold. And frankly after having watched this, I'd have done the same too."



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Oct 7th, 2008 at 06:29:08 PM EST
These guys need security guards and walled compounds yesterday.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Oct 8th, 2008 at 03:49:50 AM EST
[ Parent ]
Nah.
They need a grocery cart stuffed with rancid clothes, a bottle of Mad Dog and a two block area of the Champs Elysees to patrol. So they can hobnob with their ex-peers.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Oct 8th, 2008 at 06:45:19 AM EST
[ Parent ]
of Americans must be decoupled from the ups and downs of Wall Street. The payroll cap on Social Security must be eliminated and payments to retirees should be increased.
by Magnifico on Tue Oct 7th, 2008 at 06:46:11 PM EST
Why give Social Security payments to people making $250,000 on retirement in line with that level of income?


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Oct 8th, 2008 at 11:01:25 AM EST
[ Parent ]
I think it is a matter of perceived fairness.

Off the top of my head, I think there are a couple of ways to handle this.

First, remove the wage cap of Social Security. Right now, I believe Obama wants to swap a cap for a floor. Pay for no Social Security tax for people making under $250,000 a year, and tax those above it. It may be better as a matter of perceived fairness and shared sacrifice if all wage earners payed the tax.

Second, to mitigate this increase the benefits for retirees, but also continue to tax Social Security income, and then raise the threshold of taxation to a higher level, say an income of $250,000, where the benefit is therefore reduced if not eliminated.

This may be too much smoke and mirrors. I can imagine the people making right around $250,000 a year would do everything they could to make sure they made less than that. Companies would offer more compensation in nontaxable ways.

by Magnifico on Wed Oct 8th, 2008 at 02:07:04 PM EST
[ Parent ]
... he has talked about a donut hole, with the current tax and cap remaining in place, and adding a tax on those making over $250,000.

That's because he wants to say that nobody making under $250,000 pays higher taxes under his plan, since $100,000-$250,000 is too lucrative a source of $2,300 cheques.

And which also lets him wriggle out on saying raise the cap, which implies raising the benefits to people retiring on average incomes above $100,000.

If there is a floating levy, it could certainly kick in two stages, with income above $250,000 taxed first, until the levy reaches the Social Security tax rate, then income between $100,000 and $250,000 kicking in.

I agree with Herman Daly on the unsustainability of 500x ranges of income, and so no reason at all that Social Security income entitlements should be accumulated on income in excess of twice the median income. If people receiving above that income level gamble it in the stock market and lose it, tough titties.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 8th, 2008 at 02:21:54 PM EST
[ Parent ]
Typo on the last line (Say it lous).

The N word is still taboo. It goes against the (still) running dogma.

I'm afraid you will need a massive bank run, some episodes of food missing in the shelves for the N word and practice to be an acceptable path.

The gospel for the last 30 years is that the state is incompetent and the market will provide. That will need a bit more stress to be washed way.

by t-------------- on Tue Oct 7th, 2008 at 06:48:22 PM EST
Some new terminology:

    CEO -- Chief Embezzlement Officer.

    CFO -- Corporate Fraud Officer.

    BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

    BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

    VALUE INVESTING -- The art of buying low and selling lower.

    P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

    BROKER -- What my broker has made me.

    STANDARD & POOR -- Your life in a nutshell.

    STOCK ANALYST -- Idiot who just downgraded your stock.

    STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.

    FINANCIAL PLANNER -- A guy whose phone has been disconnected.

    MARKET CORRECTION -- The day after you buy stocks.

    CASH FLOW -- The movement your money makes as it disappears down the toilet.

    YAHOO -- What you yell after selling it to some poor sucker for $240 per share.

    WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

    INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.

    PROFIT -- An archaic word no longer in use.

by das monde on Wed Oct 8th, 2008 at 01:52:57 AM EST
CAPITALISM is when people can do business in unregulated sectors to circumvent others sectors regulations and thus in some cases lay ground to future crises for society.

MARKTWIRTSCHAFT is when people can only do business after it being approved harmless to society by at least one non involved entity.



Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Oct 9th, 2008 at 03:18:48 AM EST
[ Parent ]
A humble physicist like me knew it all along....

nationalization.... the only thing ww can discuss is wether the takeover is direct or just indiret i.e. do you leave  the bank to proceed without direct government rule and take most of the shares or you take over the CEO board?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Oct 8th, 2008 at 03:56:58 AM EST
It appears that Martin Wolf is moving in your direction:

By these means, the flow of credit should restart. But governments cannot allow banks to gamble freely with the public sector's balance sheet. During the period of the guarantee, governments must exercise close oversight over the institutions they have decided to protect.

The word nationalization has yet to appear, but the framework is there.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Wed Oct 8th, 2008 at 06:32:10 AM EST
but it is a hopelessly confused muddle, and I could not get what his ultimate point was, beyond the need to move away from failed ideas (a good think in itself, I suppose).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Oct 8th, 2008 at 06:51:41 AM EST
[ Parent ]
Muddled and also a bit self-contradictory, but i just can't spare any deconstruction time right now.  The positive spin on it is that he's trying to get comfortable with massive government intervention, even saying taxpayer balance sheets should profit from their risk-taking (always in terms as if governments were corporations.)  Even more important, that regulation needs to be comprehensive.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Wed Oct 8th, 2008 at 07:33:38 AM EST
[ Parent ]
Martin Wolf may be, but Jose Manuel Barroso sure doesn't seem to be. In fact, isn't his choice of priorities right now kind of, er... scary, given that he is the European Commission President? Shouldn't we start some sort of fun campaign against him?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Oct 8th, 2008 at 08:54:23 AM EST
[ Parent ]
--avoid the stigma of socialism--

In the US we are hoist on the pitard of our own demonization of the term,--and our rather expansive inclusion of just about all social and economic activity that isn't overtly neoliberal, Chicago-style pillage.

What? No losers? Must be a socialist policy!

But it remains incredible to me that in so much of Western Europe, with so many good object lessons of good results of "socialist" policy ideas, the demonization is almost as complete, it seems.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Oct 8th, 2008 at 06:35:22 AM EST
This is why I have recommended my "538" solution for the USA.  Creating 538 new banks with $100 billion government capital and operating under tighter regulations more like those of the '70s would un-thaw the current credit freeze without causing the Fed to have massive conflicts of interest.  They would enjoy confidence, as they have no history of bad behavior.  They could, in time, be made available for purchase on the same terms as a private bank would be acquired by another bank or investor group, if anyone had the money and either way the public would receive value.  Then the bad actors could be left to the tender mercies of the "creative distruction" of the market.

Given the extent to which US citizens have been propagandized on the evils of nationalization, I think that this plan might be an easier sell.  It could be sold as an interim, cheap but effective step to save the real economy while maintaining the integrity of the Fed, (such as it is!)  It would perform its stated purpose far better than Paulson's stupid $700 billion fat cat bail-out.  Unfortunately, it is unfeasible until there is a new administration.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 8th, 2008 at 11:20:16 AM EST
[ Parent ]
Full nationalisation is what's necessary. Partian won't do:


Darling unveils bank rescue

Britain's largest banks are to be part-nationalised after the government took the momentous decision to pump tens of billions of pounds of public money into the sector to avert a banking collapse.

The scheme failed to stabilise shares in the UK's biggest banks and the FTSE 100 fell another 200 points or 4.4 per cent to 4,404.32.

The government is to put up to £250bn into the banking system in an effort to keep banks lending. It will also offer a guarantee to banks issuing medium term debt, which could mean backing a further £250bn of bank borrowings. But it is likely to demand dividend cuts and the end of big bonuses at the banks in return.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Oct 8th, 2008 at 06:50:21 AM EST
I am not convinced that the bank's share price is the good measure for a (partial) nationalization success. After all, the shareholders will probably get wiped out, even if the bank itself will become more solid, so there is not much incentive to buy those stocks.
by Deni on Wed Oct 8th, 2008 at 09:45:24 AM EST
[ Parent ]
... combine that with the loss of opportunity to distribute revenue that you pretend is net revenue by ignoring systemic risks and the loss of opportunity to make income from the real productive economy because you are not in a position to lend and with a steep recession kicking in, they are a bad credit risk to lend to ...

... multiply the expected loss in shareholder equity by the dilution of the private shareholder's share in equity, and banking stocks out to be plummeting.

The measure of the success of any system is not in the equity markets, but in the credit markets.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 8th, 2008 at 02:26:42 PM EST
[ Parent ]
If we are to believe the most recent narrative, the problem is no longer one of liquidity or insolvency, it all has to do with confidence or the lack of it. The banks are swimming in cash but don't trust each other. At least that's what I'm hearing and reading a lot. Well, I can only guess that they don't trust each other because each one individually knows how rotten their books are, how  much they've lied, how much they're keeping up appearances, that is, in the circumstances they wouldn't trust themselves. So eveyone's playing the confidence game, i.e., con game, a swindle by making false promises. A big part of this con game is to enforce the narrative that confidence is lacking and causing mayhem. The collapse isn't the result of thievery, swindle, deceit and unsustainable expectations: it's the result of a lack of confidence, as at the height of the internet mania everything was a matter of perception. All this has everything to do with virtual money and wealth. 'Go shopping!' (psst, with your credit card). Remember that jewel. I find it odd that we haven't heard much from either Italy (euro basketcase number one or two, with Ireland?) or Spain (bursting housing bubble; okay, now guaranteed savings).
by Quentin on Wed Oct 8th, 2008 at 06:52:28 AM EST
... solvency crisis. As Jerome has pointed out time and again, banks with liquid funds to lend look at their books, say to themselves, "if our books look this bad and we are able to lend, what must the books of the borrowing bank look like", and stop treating overnight lending of reserves to fellow commercial banks as the next best thing to lending to the reserve bank.

And add to it that the banks that know that they are approaching insolvency, and may need the liquidity to try to avoid having anyone go through their balance sheet while they wait on more income to come in to rebuild their book ... where lending to a bank that then goes belly up could really put them in the shit ...

... and there is a kink in the normal flow of liquidity back and forth through the system.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 8th, 2008 at 02:31:10 PM EST
[ Parent ]
Grankly, I see no other solution than the full nationalisation of all establishments that show any sign of weakness, and the massive netting out of positions to clean up things as much as possible.
This seems overkill to me. Why nationalize on the basis of weakness? Shouldn't the basis be protection of the national economy? Let's rank the banks by importance to the economy, and decide to protect the N most important ones, if they need it, and let the remaining ones fend for themselves.



--
$E(X_t|F_s) = X_s,\quad t > s$

by martingale on Wed Oct 8th, 2008 at 06:55:45 AM EST
(by protect I mean nationalize)

--
$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Wed Oct 8th, 2008 at 06:57:18 AM EST
[ Parent ]
by "weakness", I mean the kind of total loss of trust in the market that prevents the entity from working. And you are right that this should apply only to banks that are systematically important, but when you look at Europe, the large majority of banks are systemically important to their home market, given that they are often active in other countries as well and thus their balance sheet is bigger.

And nationalisation need not mean subsidizing one - see the example of Fortis, where the governments have taken over and sold off various bits quite quickly, without a loss to them

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Oct 8th, 2008 at 07:47:42 AM EST
[ Parent ]
... in Continental Europe, commercial banks tend to have a larger share of the finance sector than in Anglo Disease countries, and are relatively concentrated compared to the US banking sector, which has been rapidly concentrating, but which started from a position of nearly 50 state banking markets.

The upside is that to a much greater extent than in the US, getting the banking system through the current financial turmoil will on its own leave continental Europe with most of the bits and pieces of a functioning Finance sector.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 8th, 2008 at 02:35:00 PM EST
[ Parent ]
I like to think in  terms of analogies.

I read articles like this one, actually skim most of it, and feel like it's the ramblings of a bunch of old folks in a nursing home complaining about the service they're getting, yet TOTALLY HELPLESS to change ANYTHING!  

"The food sucks. Change this. Change that."

Can we please get some of the ultra-rich to blog at this site so we can find out what's REALLY going to happen?  Are food riots around the corner? Should we start emptying the Nursing Homes because they're a total waste of resources?  How about getting rid of cemeteries ... human remains go to a cremation oven or used in research?

WHEN ARE WE GOING TO GET SERIOUS AROUND HERE ?!

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Oct 8th, 2008 at 07:01:15 AM EST
I've never hidden the fact that my understanding of economics and finance is pretty limited.

I have a question that will undoubtedly seem very naive to most readers here, but I can't help wondering about the answer.

Here it is:

I always understood that when it was illegal for someone (person, corporation) to repay commercial paper ("traites"?) with more commercial paper.

It was a offense dubbed "cavalerie"  because the penal code considered it akin to creating new, and therefore counterfeit, money.

Why, therefore, is the entire derivatives industry legal?

According to this graph on Wikipedia, the total value of all the derivatives is in excess of $500 trillion, while the entire world wealth may be perhaps only half of that.

Wasn't that creating counterfeit money, in effect?

So why was it legal?

by Lupin on Wed Oct 8th, 2008 at 07:09:37 AM EST
I've just sat this morning and seen a Tory Shadow chancellor sit and say with an absolutely straight face that "the conservative party has never been in Favour of Laissez-faire capitalism and has always favoured stronger regulation in the financial markets"

then seen the leader of the party railing against executive pay.

Am I awake, or is it some wierd dream I'm having?

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Wed Oct 8th, 2008 at 07:48:06 AM EST
Let me guess: the journalist was nodding in approval?

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Wed Oct 8th, 2008 at 09:05:51 AM EST
[ Parent ]
In fact he was in a studio, so you didn't get to see the interviewer.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Oct 8th, 2008 at 09:16:14 AM EST
[ Parent ]
with Oceania.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Oct 8th, 2008 at 09:31:38 AM EST
[ Parent ]
We've always been at war with Oceania.
And as we long ago found out from Alice, that is down the rabbit hole.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 8th, 2008 at 11:26:51 AM EST
[ Parent ]
As a society, we need better drugs!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 8th, 2008 at 11:27:54 AM EST
[ Parent ]
the world was fine till I stopped taking my meds.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Oct 8th, 2008 at 11:43:18 AM EST
[ Parent ]
I wonder if nationalizations are going to happen in Portugal and if we will witness our government telling us not to worry because it is not socialism.

You can be, say The Labour Party, and discard something for being socialist. But when your party is called "Partido Socialista", i wonder how you do it?

by Torres on Wed Oct 8th, 2008 at 01:23:35 PM EST
"Don't worry, this is not communism."

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Oct 8th, 2008 at 02:17:34 PM EST
[ Parent ]
There is always that, i guess.
by Torres on Wed Oct 8th, 2008 at 03:24:12 PM EST
[ Parent ]
... don't actually do it.

Its works for Murdoch's Fox News in the US, which is "Fair and BalancedTM".

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Oct 11th, 2008 at 12:20:34 AM EST
[ Parent ]
I don't understand this "bailout" thingy.
Let's say i own a company or a bank. I give the management of that business to a poor manager, who runs the business to the ground. Who pays the debt company owns? I do. Of course.
Can someone seriously claim that the owners of these banks and companies don't have money to pay these debts? I don't believe that. They have for years received huge profits and salaries.
Who owns these businesses, they pay. It is so simple.
by kjr63 on Thu Oct 9th, 2008 at 09:15:09 AM EST
Shareholders are not liable for remaining debts when a company has gone bust and been liquidated. As much money as can be liquidated is given to the creditors and if there isn't enough to cover all debts, well too bad for the creditors who were stupid enough to loan the money to the company in the first place.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Oct 9th, 2008 at 10:03:35 AM EST
[ Parent ]
Bailouts rescue (in this order) management, shareholders, creditors and (in the case of banks) depositors. Depositors don't actually need a bailout to be rescued since there is deposit guarantee.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Oct 9th, 2008 at 10:09:11 AM EST
[ Parent ]
The devil was in the ultra-short term mega-huge money incentives.
Managers were rewarded with hundreds of millions of dollars for creating an illusion, the price of said illusion being the existence of their bank (or similar institution) some 3 years later.
If performance rewards were kept on hold for, say, five years, they would have received ZERO. Instead, it was hundreds of millions. Sweet.

"The womb that spawned that thing is fertile yet"
by Cyrille (cyrillev domain yahoo.fr) on Thu Oct 9th, 2008 at 10:25:26 AM EST
[ Parent ]
An interesting thing to note is that the average French employee indeed gets "participation" in the form of company stock that he can't sell for five years...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Fri Oct 10th, 2008 at 08:02:49 PM EST
[ Parent ]
Sounds like a good idea, I like it, and something de Gaulle would have liked. And if you work at a company which you think will kind of get into trouble you could always counter your "compulsory" shareholding by shorting the share at the same time.    

We have something like it in Sweden too at certain companies where employes often can buy a fixed amount of shares in their employee for a below market price. The problem here is that people are generally really bad at risk management, and lots of people will end up with large sums invested in this single company and no other companies.

So when the company falls on hard times you not only lose your job, but also your savings. This at the very time you would actually need those savings...

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Oct 11th, 2008 at 09:05:26 AM EST
[ Parent ]
The problem is, a single employee is not all that responsible in the way his company's stock moves. Also, these stocks are usually held through mutual funds, which means the employee doesn't really get the vote his share of ownership grants him.

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Sat Oct 11th, 2008 at 09:37:58 AM EST
[ Parent ]

More to the point can we start calling the perpetrators of this mess 'The Destroyers of the Universe' or sumfink?

They seemed to get a such a kick from being labeled
'The Master of the Universe' I think it's time to
reverse the direction of this kick...

My Suggestions

The Destroyers of the Universe
The Horsemen of the Apocalypse
The Scum Sucking Greedy Bastads? (might not be media friendly but I kinda like it)

Cheers
Elras

All views expressed are my own but you knew that.

by Elras on Fri Oct 10th, 2008 at 05:19:31 AM EST
Or 'Global Village idiots'

You can't be me, I'm taken
by Sven Triloqvist on Fri Oct 10th, 2008 at 05:21:23 AM EST
[ Parent ]
trust pirates?

viking vultures?

they charted new territories of untruth, and now they are out of resources to bluff with.

game over

it just takes a few, to fuck things up for everyone else.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Oct 10th, 2008 at 03:27:32 PM EST
[ Parent ]
  1. Liquidated value of bank balance sheets is negative. So, the current shareholders should be forced to pay for nationalisation (because the share price is negative, as whatever is traded at the market is inclusive of "government salvage premium").

  2. All bank executives and employees should become public officials with an appropriate pay, which is equivalent of the postal savings service.

  3. What's wrong with socialism for a while? America finally came out of the great depression in 1945, and prices and production had been tightly controlled for the previous several years because of the war.


I will become a patissier, God willing.
by tuasfait on Sun Oct 12th, 2008 at 05:09:01 AM EST
Liquidated value of bank balance sheets is negative. So, the current shareholders should be forced to pay for nationalisation (because the share price is negative, as whatever is traded at the market is inclusive of "government salvage premium").

Horrible idea. Limited liability is extremely important, and even if it weren't you can't go around and change contracts afterwards like that.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Oct 12th, 2008 at 10:52:58 AM EST
[ Parent ]
Why is limited liability so important?

And why can the rules of the stock exchange not be changed? Tax structures can be changed by parliament. Building codes can be changed by parliament and/or municipal authorities. What's so terribly important about the racetrack stock exchange that it should be insulated against legislatory changes?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 12th, 2008 at 02:40:53 PM EST
[ Parent ]
Without limited liability practically no one would dare invest in new businesses or provide capital at all. We would have what we have right now all the time.

Rules can be changed! But it's hardly reasonable to change them afterwards. It's like putting people in jail for things that weren't illegal at the time they were done. That's a basic legal principle.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Oct 12th, 2008 at 03:29:05 PM EST
[ Parent ]
Investments happened before limited liability. Investments can happen without limited liability or with a severely modified version.

FWIW, I am not sure that demanding reparations from stockholders is the best idea: Management seem a better bet - they're the ones who screwed up in the first place.

WRT ex post facto laws, sure. But nobody says that we cannot change the rule going forward. Most of the banks that are going to fail have not failed yet.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 12th, 2008 at 04:32:01 PM EST
[ Parent ]


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