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Administration Bank Tax Plan: An Empty Populist Gesture by Design?

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With its talk of new taxes on banks, is Team Obama reverting to its now well established pattern of crony capitalist giveaways with the occasional phony populist reform as an increasingly ineffective disguise? The extraordinarily unenthusiastic, perhaps inept by design, discussion of its plans to tax banks in some yet undetermined manner certainly says so.

First, let’s consider Exhibit 1: the truly piss poor job the Obama Administration did of selling its health care reform plan. Recall the remarkable disconnect of people saying they did not want “socialized” health care, yet they also did not want Medicare touched. It does not take Madison Avenue credentials to see the sales pitch: “We already have successful, popular, government funded health care in the US. It’s called Medicare. We want to build and improve on that. Here’s how.” Did we see anything like this from the Administration message-meisters? And where were the President’s famed communication skills? Funny how he seems unable to articulate a vision that will actually shift public opinion.

If you believe in neuro-linguistic programming, Obama’s formal presentation often uses what I believe NLP calls hypnotic speech. It sounds wonderfully uplifting while you are listening, but when you get done, you scratch your head, because there was so much abstraction and imagery relative to content that very little of substance is said. Despite its creepy sounding name in the NLP lexicon, it’s common in political speeches. The audience is left with a favorable impression of the speaker but not much in the way of concrete ideas that it can recall, which is perfect for campaigners who studiously want to avoid making promises. Hypnotic speech is good for creating a positive image, not good at all for conveying content of any complexity.

Now before we get to the “how” of any bank taxes, something Team Obama clearly has not figured out, we also need a “why”: why are these taxes warranted and necessary now? Well, the Adminsitration is either punting (as usual) in giving a rationale, or worse, is just ‘fessing up loudly and clearly that it really does not have much appetite for this exercise, but is responding to its sliding poll ratings.

Get a load of these remarks from the usual MSM suspects. In each case, we have chosen the first sentence which says why the Administration is planning to move ahead:

Wall Street Journal: “The White House hopes the fee will soothe the public’s anger at financial firms.”

Financial Times (subhead on first page summary): “Aim to address anger over bonuses.” From the story itself: “The proposal comes as the administration faces increasing pressure from Democrats in Congress to take punitive action against banks. The White House is trying to contain anger in a week in which banks will begin announcing billions of dollars in new bonuses.”

New York Times (which does give two objectives): “The general idea is to devise a levy that would help reduce the budget deficit….But the president also has a political purpose — to respond to the anger building across the country as big banks, having been rescued by the taxpayers, report record profits and begin paying out huge bonuses while millions of Americans remain out of work.”

From Politico.com (which broke the story): “A fee on banks would help solve two political problems for the White House. First, the administration would benefit politically from tapping into the populist anger about enormous 2009 banker bonuses that will be announced in coming days. And second, it would help stem some of that backlash from the GOP about runaway federal deficits.”

Yves here. This “we need to appease the peasants” logic tells all. It says the Administration is so profoundly captured by the banksters that it sees nothing wrong with what is happening, save the political fallout. It’s perfectly OK for banks to go right back to status quo ante, looting their firms by paying themselves too much in bonuses and not retaining enough in the way of risk buffers. And why should they change behavior, now that it has been conclusively demonstrated that if they screw up in a big way, the government will run in, and they make even more money as a result? These are the worst imaginable incentives; intervention is the only solution, with the only question what form it should take.

Seeing the problem merely as “the public is angry” implies that the collective reaction is simply emotional, and by implication, unjustified. That is 180 degrees wrong. To use an expression I heard in Venezuela, Team Obama may have changed its mind on where it stands relative to the banksters, but it has not changed its heart. And it hearts bankers, big time.

So what should these fees be about? They should, correctly, be depicted as windfall profits taxes. The US has implemented them from time to time, most notably in the 1970s oil crisis. The idea that the extraordinary profits the banks are enjoying are the result of their efforts needs to be assaulted, head on. They are almost entirely the result of continuing government intervention.

As the BBC’s Robert Peston explains (hat tip reader Tim C)

First, what proportion of investment banking profits can be seen as an exceptional windfall, stemming from the unprecedented financial and economic support provided by governments and central banks to lessen a recession that was caused in large part by the recklessness of banks?

This question can be broken down into two parts.

(1) How much has been earned by what investment bankers style as a “carry trade” with central banks? This is the business of buying assets that yield 5, 6, 7 or 8 percentage points over the official lending rate, and then refinancing those assets with the central bank at that official lending rate. Borrowing at close to zero from the central bank and lending almost risk-free at 6 or 7% is not the most stressful or challenging way to generate bumper profits. Investment bankers tell me this carry trade has been happening on a system-wide scale, in spite of central banks’ precautions to prevent it.

(2) How much of the investment banks’ profits is the result of a generalised rise in asset prices, caused by the easiest monetary conditions for a century, which has led to a recovery in the price of securities that in the previous year generated spectacular losses for the banks? This gain from marking investments to the market price should not be seen to be the consequence of management genius, since the main reason the banks didn’t sell the securities in the previous year is that they were unsellable.

Bankers tell me that a vast proportion of all investment banks’ profits stem from these factors. It is visible in the sharp increases in revenues from so-called trading and principal investments – a doubling in some cases – which in turn is the main driver of banks’ overall profits growth.

There is an acknowledgement by some bankers that these gains are in effect an unrepeatable jackpot, the consequence of the authorities’ bail-out of the economy, and not the result of their great prowess.

Or to put it another way, only the generation of losses in these benign market conditions would require a very special talent. Making profits? A suited monkey could do it.

And some of these suited monkeys are doing exceptionally well:

At RBS, for example, I am told that executives in its Global Banking and Markets division who have previously never earned more than £1m at the bank have this year been told they’ll be pocketing over £5m. And that a small number will be making over £20m.

The bailouts of a relatively small number of capital markets firms that have made themselves the providers of a crucial service, debt intermediation, and their stuffee AIG, constitute the greatest transfer of wealth in the history of man. There is ever reason to challenge the legitimacy of this operation and demand that restitution be made, and not of the limp-wristed “pay back the TARP” variety. But Obama is so unwilling to make demands that he won’t even insist that bank CEOs show up to meetings with him. So he’s certain to cave when we get to what bankers really care about, namely, their sovereign right to seize everything that is not nailed down.

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44 comments

  1. bena gyerek

    if i were a banker and thought that the world economy might be heading into a long depression a la japan, then this would mean i should expect no profits (and therefore no bonuses) for the foreseeable future.

    i would therefore abuse the cheap financing from the world’s central banks as much as possible whilst it’s still available in order to maximise short-term profits from the carry trade, and to hell with the fact that i am just leveraging up the bank’s balance sheet all over again. and because every other bank is doing the same thing, it has the added plus of generating a (probably unsustainable) rally in markets that is driven by cheap funding and short-term time horizons, rather than long-term economic fundamentals. there doesn’t need to be any collusion, it’s just a happy outcome of everyone behaving selfishly.

    in this way, i generate big profits this year, which i will then want to cash in as much as possible by paying myself a huge bonus. i don’t care what the public thinks. i don’t care whether the market rally goes pop (so long as it doesn’t go pop until after i get paid). i don’t care if i am loading up my bank with more assets that will become toxic once the markets turn.

    i don’t care because i don’t plan to be around a year from now (unless by some miracle the markets don’t go pop after all). all i care about is to make as much hay as possible while the sun still shines.

    1. JTFaraday

      And so THEREFORE, the government should clawback those false profits while awaiting your NEXT mess, yes?

      “There is ever reason to challenge the legitimacy of this operation and demand that restitution be made, and not of the limp-wristed “pay back the TARP” variety.”

      It’s not the TARP, it’s what’s under the TARP.

  2. Kevin de Bruxelles

    In a functioning democracy the party on the left would be salivating over themselves to tax the suddenly very unpopular bankaz and dare the party on the right to react by throwing themselves on this political hand grenade to protect their rich banksta friends. You see this in dynamic Britain but in this case the Tories have choosen not take the bait and have said nary a peep over Labour’s recent moves to tax banksta bonuses. Luckily for all our hardworking B-units, America does not have a functioning democracy. Don’t hate the bankaz, hate the game!

    On health care, far from expanding Medicare, the privatized ObamaCare is a trojan horse designed to eventually replace Medicare. It’s the old two-tier monty game that unions have fallen for so often in the past. I mean if ObamaCare ground meat is good enough for some Americans why should others be dining on Medicare T-bone steak? If I were an evil health care executive, I would certainly see letting all those spongers stay on Medicare as leaving money on the table; money that I want moving into my coffers. One way or another Medicare will soon be phased out and everyone will be sending their money to the private insurers thanks to ObamaCare.

  3. attempter

    The aforementioned carry trade and government-zombified asset prices are two of the mechanisms of fraudulent bank profits.

    Others include the TBTF and oligopoly premiums, and the generally fraudulent accounting the government encourages.

    Put it all together and it’s clear there are NO real big bank “profits”, but only stolen taxpayer money looted through various devices to be fraudulently declared “profit” even as 100% of risk continues to be socialized.

    The big banks are insolvent. The are permanently insolvent. There’s no conceivable way they could ever exist under a capitalist regime. They are pure welfare parasites, wards of the state, zombies.

    We the people are in fact the moral and legal owners of these banks. The government, “our” government, has purchased them on our behalf (it has simply criminally allowed previous management to continue looting what is now the taxpayers’ property).

    We are the rightful owners of every cent of “revenue”. Every cent of “profit”, every cent of any “bonus”, is being criminally stolen from us.

  4. Bruce P.

    Having been a speechwriter for several national politicians, I am fully aware of the uses and abuses of speech-making. Yet, a speech is like any other tool: it depends on how you use it. Do you try to educate and convey useful information or do you simply try to paint over an issue with an appealing but obscuring gloss? That is why I am never automatically bowled over by an entertaining and skillfully delivered speech. To quote Fritz Mondale quoting Clara Peller – of the old Wendy’s commercial, “Where’s the beef?”

    History is filled with great speechmakers who did crappy things. Quite frankly, I think Reagan was one of them; and Obama, it appears, is a more recent vintage. Yves is on to something with the reference to neuro-linguistic programming. And, unfortunately, it is everywhere.

    In doing some research on the collapse of the Soviet Union, I came across this regarding the latter stages of the SU: “… the temptation to take advantage of positions of power to accumulate privileges was too great. Corruption started from the top and soon spread pervasively. And eventually it became apparent to those governed, as a kind of tacit public knowledge…. In a pact founded on duty and debt, if one of the partners starts to cheat systematically, the pact as a whole falls apart.”

    Slowly, the corruption at the top of our system is becoming more and more difficult to ignore. Two of the questions it is reasonable to ask: First, will we reach a tipping point when the public-at-large decides to do something about it; and second, will we end up targeting ourselves instead of those in power who have used and abused us?

    1. IF

      I agree with your analysis. But notice that the US is still very rich (compared to the rest of the world) and the population knows it. This was not the case with the SU and east block countries. And the US security apparatus is formidable and projects great power. Conservatives like to clinch to the second amendment, but it clearly provides no match to the systems powers. Economic pressure plus communication lead the way to changes. Yves is working on her samizdat and communication is still way better in the US than it was in the east. The suppression techniques here use brainwashing to a greater degree than blunt censorship. Maybe for that I see the system in the US as mostly stable. It will take much better communication than blogs or much worse times to mobilize the population against corrupt powers.

    2. John C

      I just finished reading “Perfectly Legal” by David Cay Johnston on the US Tax System and it appears that this will be more of the same. This mess started with Raegan’s “wonderful” NLP speeches through Clinton, then Bush, and now it looks like this mess will finally go down in flames with Obama’s NLP speeches… along with the entire US “Social Experiment”.

      I would like to think that the Melting Pot is in melt-down and, as H.L. Mencken said, “There comes a time when a man must spit on his hands, hoist the black flag and begin slitting throats.”, but unfortunately it will probably all end in a whimper.

  5. JO

    These populist tax em’ plans would only hurt consumers in the end as these companies would find a way to either raise fees/lower rates on savings/raise rates on loans to recoup the tax money. I thin a series of core reforms would be much better at reigning in these banker animals. Bring all off balance sheet structures into plan re reserve requirements and raise reserves gradually, but aggressively over time so that the counterfeiting operation is gradually de leveraged. All off balance sheet structures need to be counted toward this.

    Then force the split up of any institutions that are engaged in prop trading/Investment Banking and core bread/butter banking.

    The only tax plan i see working is a bonus tax that targets the individual exec, but this is still a bad idea for the troubling precedent it will set. We complain about how much money these parasites make, yet we sit idle as gov’t encourages extreme leverage in the system, and turns a blind eye on accounting and trading which drives a lot of the profits. The best plan is to force a change in gov’t – until then any tax proposals or other superficial “reform” plans are simply propaganda.
    JO

    1. EmilianoZ

      Very true, the cost of the tax will be easily passed on to ordinary costumers.

      However, this tax could be used to favor small banks who are less systemically dangerous than the TBTFs. Small banks should be exempted from the tax. Therefore, if the big banks raise their fees, costumers could vote with their feet and move their deposits to small banks such as credit unions.

  6. DoctoRx

    The post asserts that “Obama is certain to cave” to the bankers.

    Perhaps it’s saying the same thing differently, but he was the Establishment candidate from the get-go and thus he’s always done what they wanted–and if he didn’t make that promise in 2008, he’d never have gotten the nomination and if he started reneging on the promises during the campaign, he’d have been destroyed. (Of course, McCain was the other Establishment candidate. The fix was in. Bankers up, people down. It was foreordained.)

    1. Toby

      It’s always been like that. Because you need money to get anything done, the guys that control the money run the show. It really is that simple. If some renegade squeaks through the firewalls and gets his or her hands on the reins, he or she won’t last long, and the “damage” perpertrated simply gets rolled back via the next willing puppet.

      The only chance of change is to go all out radical. Sooner or later the ecosystem is going to cough, and the eruption will be mighty. In the final analysis money means diddly, resources mean everything. Nature is All. Unless we can find a way of recognizing true priorities like the ecosystem and a healthy society, our days are numbered.

      Sorry, but it’s true.

  7. BDBlue

    This entire exercise reminds me of two recent experiences with the Obama administration: 1) the bait and switch on healthcare, where the “public option” was offered not as a real proposal but to take attention and energy away from any true reform measures and 2)Credit card “reform” where the WH (and Senate Dems) chose to support the bill that requierd some good disclosures but left a ton of loopholes (starting with the fact that it did not cap interest rates) over the one that did cap credit card interest rates.

  8. scapegoats

    The bankers have a better idea about how to assuage public anger: let voters crush the Dems and switch industry support back to the GOP.

  9. lambert strether

    Yves:

    I’d be interested to know the settings in which “hypnotic speech” is more or less effective. For example, I’m betting it’s more effective in large arenas, say, and on the teebee. But are there any studies to that effect?

    scapegoats:

    I agree. That’s why its important to give neither legacy party any time, attention, or money, no matter what. The opportunity cost of buying into “the two party system” is the creation of something that’s actually responsive to the electorate.

    We still make the Civics 101 assumption that corruption is a bug in the system. In fact, it’s a feature.

    1. Dave of Maryland

      Hypnotic speech is the province of small time scam artists. It can be made to work in any setting.

  10. scapegoats

    Yet listen to Dems talk about Ralph “awful hideous despicable person” Nader. All the contentless character assassination techniques that republicans used on the Clintons, dems used on Nader. Read Crash!ng the Party, you’ll think it’s a book about Zimbabwe. A third party will have to be much much nastier and more aggressive than Nader was. And that’s O-K.

  11. Francois T

    The thing that amazes me the most is this: Obama seems to think that nothing can interfere with his re-election in 2012.

    He has proven incredibly tone-deaf to the populist rage. Oh! He understands it, no doubt; but hell will freeze over before he does ANYTHING to address the hoi polloi grievances, no matter how legitimate they can be.

    In a way, the guy reminds me of Churchill; he has the conviction that because it was said so eloquently, reality will find a way to mold itself to the rhetoric.

    But, not to worry! Via NPR, Congressional Quarterly is kind enough to inform us that “Obama’s Winning Streak On Hill Unprecedented”. Alas, NPR does not push the solicitude to the point of giving the audience a mere list of wins. So, we are left with the PR line, but no way to evaluate how meaningful this streak really is.

    Feels like this football team who gets tons of first downs but repeatedly sputters in the red zone.

    By the way, NPR was kind enough to mention something about the downside of the necessary compromises needed to win.

    On health care, (they didn’t push the indecency to talk about financial reform) we get this pearl from Rahm Da Man himself:

    “The question is: Are you compromising a set of principles, or are you making adjustment in strategies, roads, that can still achieve the same objectives? And not every compromise is the same in weight,”

    “Not every compromise is the same in weight”

    I’d say!

    No public option, tax on high-end plans (an horrible idea as per the real experts), mandates for all, no caps on copays and deductibles, no changes in the fee-for-service structure etc. etc. etc.

    Plus ca change…

  12. Siggy

    I plan to generally vote to oust incumbents. Not because the other candidate is better but because the incumbent is compromised. I will continue to vote against incumbents until I sense that the incumbent is genuinely interested in representing me and not some oligopoly.

    The taxing of the banksters is reasonable, after all it is bailout money that made their current extraordianary earnings possible. For the institution the choice is simple, pay the tax; or write down the worthless assets. If at a later date the worthless assets are liquidated at a price higher than the write down, pay a capital gains tax. Either way it’s moral because the institution is merely repaying principal and interest on the bailout. As to individuals, tax bonuses at 50%. No deducts, you received a $1,000,000 bonus, you owe $500,000 plus your ordianry income tax. It’s a tax you should enthusiastically pay, after all the bailout made it possible for ypou to continue your employment.

      1. Hugh

        Trillions to banks, no serious effort at reform, no real investigation of fraud and criminality, of course, this Obama tax is a PR stunt. Something to be announced now and let to die in Congress.

        If you wanted something effective than declare all compensation income, require it to be taxed completely in the year it was earned, and put in place a marginal tax rate of 90% on income over $1 million. You could further refine this by limiting deductions on gross income over $1 million.

  13. Stevie b.

    Yves – Danny Wallace has recently written many great, funny, heart-warming books, one of which was called “Join Me”. Someone with marketing skills (you perhaps?) should/could start a similar movement with real aims and objectives. We need to join all those in the world disgusted by bankster shenanigans into an unstoppable movement to put these people on the minimum wage, cos that’s all they deserve.

    1. Doug Terpstra

      You mean minimum wage in prison, right? A highway-litter chain gang in orange jumpsuits would fit.

  14. steelhead23

    Yves, that was the best political analysis of the situation I have read. It is passing strange that here we have a juggernaut of a political machine that utterly fails to understand its strength. Obama should know – he was elected by angry people. The American people had had it with Bush, from the embarassment of Abu Ghraib to the teetering economy and the White House full of Wall Street sycophants. However, virtually from the day after the election, Obama has disappointed us. First he hires the very same Wall Street sycophants or their proteges who got us into this mess in the first place to direct the process of getting us out. Then, instead of kicking the banksters in the ass and clawing back the bonuses paid out by firms increasingly dependent on the public teat, he begged. He gave speeches. He did – nothing. My only disagreement with your insightful presentation is that I want Obama to act like a savvy politician and work to demonstrate that he hears the public anger. With each move, no matter how contrived, his popularity would increase and with each increase in popularity he would be encouraged to do more – a positive feedback loop. Of course I agree that the problem lies with ineffective policies and what we need is a large-scale change in federal policy – but populist politics could help Obama see the light. Either the Obama White House is inept at politics, or they are hellbent on protecting their major donors – to the point of self-immolation.

    Anyone with even a modicum of political insight and two firing neurons must see that as regards the economy, Obama is dangerously close to being considered “the problem” by the American People who are understandably angry at their lost savings, high unemployment, seemingly endless bankster bailouts, topped off by sky-high bankster bonuses. Obama desperately needs to identify a fall guy or guys – people and policies that created the current crisis. He then needs to demonstrate some success in defeating this foe. Such actions as firing Geithner and Bernanke, taxing bankster bonuses, reinstating Glass-Steagall, etc. would lift his popularity spectacularly.

    Obama is not alone in failing to understand the politics here. The entire middle to left of the political spectrum have largely abandoned the political theater to populist anger on the right – in the form of the tea-baggers. The tea-baggers evolved out of popular anger over the government standing behind and enriching people who didn’t deserve it. The left should have been leading that charge with denunciation of the banksters and their cronies in government. Now we have the perfectly weird situation where the Democrats are seen as protecting Wall Street. Don’t they know that Wall Street is filled with Republicans? This is perfectly inept politics as well as counterproductive for economic recovery.

    1. Doug Terpstra

      Great insights, steelhead. Obama’s performance or lack thereof is mystifying, so bad it seems deliberate yet also incredibly politically stupid, unless of course elections don’t really matter anymore, like Afghanistan. But what do I know?

    2. Hugh

      “Obama is not alone in failing to understand the politics here. The entire middle to left of the political spectrum have largely abandoned the political theater to populist anger on the right – in the form of the tea-baggers.”

      It is important to remember that while Obama uses progressive language in his speeches, he acts and governs as a conservative. So this teabagger backlash is actually something of a rightwing against rightwing phenomenon. It is true that mainstream and many liberal Democrats continue to defend Obama and put the best face on his actions. But when you talk about those who identify primarily as progressives, some of us withdrew our support from Obama and started actively criticizing him 18 and more months ago. In the beginning we were few in number but as we were a handful then so progressive supporters of Obama have become a handful now. The left does not come in just one flavor. But by and large progressives are done with Obama. Even their traditional alliance for Democrats has been brought into question. Many who actively supported Democrats in the past plan to stay home. The argument of electing the lesser of two evils is rapidly losing its punch as progressives increasingly recognize that while Republicans and Democrats have different styles their policies are indistinguishable.

      Currently, the teabaggers present a larger threat to Republicans than they do to Democrats. I mean it wasn’t like they were going to support Obama anyway. But the media, loving circuses, loves them. Meanwhile the rapid erosion of support from the left for Obama and the Democrats is far less reported but far more substantial. On the left there is both great anger and great disappointment. But more, there are detailed records and critiques of Obama and the Democrats that they are not going to be able to blow past with a few pretty words, throwaway gestures, and “Where do you have to go?” arguments. Some progressives are reaching out to conservatives who also have problems with the two parties’ corporatism. But as I said, most plan to sit this election out. In many races that could spell the margin of defeat for Democrats. But then as they have stiffed their core constituencies, it is no more than what they deserve. It will be interesting to see what happens.

  15. Cynthia

    These words by DownSouth are well worth repeating:

    “FDR betrayed his fellow blue bloods. LBJ betrayed his fellow white southern racists. And Obama betrayed his fellow blacks of humble circumstances.”

    So now I think it’s time for us to come full circle and elect another FDR to once again betray his fellow blue bloods. And we must do this before the blue bloods in power totally collapse our country into a full-blown banana republic that’s loaded down with nukes. We need a president who’s got enough spine to throw his fellow blue bloods under the bus and stand up for people of humble circumstances. We need a president who’s got enough spine to say and then do what FDR said and then did back in 1930s:

    “We had to struggle with the old enemies of peace — business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me — and I welcome their hatred.”***

    http://motherjones.com/kevin-drum/2010/01/earning-some-hatred

    ***hat tip: Franklin D. Roosevelt

  16. Thomas Barton, JD

    Yves , you do good work when many have been doing everything they can to protect the TBTF Scum…I am a former Obama supporter and the fact is that he and his administration is nothing but a combination whore and bodyguard for the Big Banks and secondarily the nightmare agglomeration of Big Pharma and the health insurers. I hope you will crank up your rhetoric and call a big honkin’ mallard a duck because it flies for the Banks, it squonks for the Banks and it lays down moronic plans for the Banks which will only cost captive Bank consumers the full till of the fees or taxes. The three worst presidents for the United States middle class have been Bill Clinton, George W. Bush and now Barack Obama. Please give us your faithful readers a post on how Citigroup and BofA can be chopped up NOW, not next year not 3 years from now. You have the forum and the expertise to galvanize bloggers and blog readers behind a concrete plan to slice and dice these piles of putrefaction into oblivion and add a healthy dose of velocity to our barely airborne money supply.

    1. Doug Terpstra

      Hear, Hear! “slice and dice these piles of putrefaction into oblivion.” Hallelujah and Amen!

  17. David

    Just an anecdote, but one that illustrates the issues here. We have some friends, well we actually several, that happen to live in neighborhoods where there have been foreclosures. It turns out when the foreclosures happened, some banks issuing their credit cards increased their interest rates, sometimes as high as 30%. Now our friends are paying their mortgages and credit cards on time. They also fully understand that their tax money went to bail out said banks. These rate changes were sudden and without warning, and most were paying low interest, well under 10%, before this happened.

    Now what would have good Democrats, such as myself, said if this happened under Bush? That gives you and idea why the tea bagger movement has momentum.

    From very early in this financial crisis my wife (particularly) and I both noted that the issue of the banking industry responsibilities in it had to be addressed, or it could seriously poison the presidency of Barak Obama. The ripple effects can be seen already with Chris Dodd deciding against another run. He was correct to do so, as he is unelectable, even though he could make some claims towards wanting reform of the financial industry. And we just passed the one year point in Obama’s presidency.

    Point is, a fig leaf will not do and the fact that Barak Obama has not adopted some clear and appropriate bank reforms leaves Democrats generally, and himself eventually, with a deep political fall out. The fact that he does not take the lead has essentially left a power vacuum that is difficult for Democrats to fill. So, it is being filled by Republican craziness. This is bad.

  18. Hamanyone

    You want to know how to stop Wall Street Capture? Militia’s are the answer. You have a constitutional right to create a militia filled with men and women of your state. Do so. Get busy. Homeland Security will take this right away sooner than you think. They will close down internet sites like this so you can’t exchange information. So you can’t warn, inform and act. The power is in the people. So people if you don’t have a militia, and we are not talking the National Guard, start one. Then link together and fight Wall Street. Fight Homeland Security. Any one read that account by a passenger on the bomb in the underwear flight? He was behind him at the ticket counter. Overheard, he had no passport, whisked away to a closed room, along with some Indian man pleading for him to be allowed on the plane. Gets on the plane. Though not through security like everyone else. Tries to blow up the plane. But doesn’t. Why? Why didn’t it work? Was it meant to work? Or merely to scare and give Home Land Security license to invade your rights. Another step towards a police state. Can some Chemist please explain why it did not ignite and blow? It’s all too tidy.

  19. Paul Tioxon

    I do not know what to make out of Obama’s inability to go for the jugular other than he doesn’t want to wind up like George Wallace or The Kennedy Brothers. Seymour Hersch reports that he and his administration are at war with the Generals, who want war in Afghanistan and maybe Iran so bad they can taste the napalm in the morning. That is one big power group to contend with. Then, there is the scorched earth policy of the retreating Republicans. If the Clinton’s aides left a mess with glue on the computer keyboards, the extra ordinary reluctance of Wall St, and money center Banks to lend, poisoned the wellspring of the economy, killed all off the auto industry, the largest unionized bastion left in our disappearing industrial sector and burned down the employment prospects of a generation, putting the fear of God into them about any hope of upward mobility without competing with 10 other poor displaced, foreclosed upon, debt ridden souls. Carthage was left in better shape by the Romans compared to what Obama had to deal with coming into the seat of power. This is an exceptional time of discontinuity, where so much is laid bare about the naked power of oligarchy that controls most of the wealth and influences all of the State’s power by lobbying, that the claims of insufficient energy and inadequate response to crisis belies that the only true response would be revolutionary, so much so that the America that used to function a few years ago would be gone, with the wind. The fact that Obama is offering lukewarm reforms, to a smashed system, that he is in fact replicating or repairing the smashed apparatus of capitalism, and restructuring in name only in order to effect the necessary repairs, is not a surprise. The alternative? How much nationalization on the federal level can you handle? The end to outsourcing contracts, the end to privatization, the creation of entirely new functions of government to replace the destroyed private institutions. That is what would come to pass and I am not sure if there are enough people in place to execute such a transition and defend it while it is being erected. Of course, if the president does the sensible middle of the road thing, but the results are more scorched earth by his enemies, more No way Jose from the republicans and then the roof really caves in on the economy. Bold Dems might just say it is time to do what we know is the rational and right thing. Let the banks and the private sector lick their wounds and try to claim that America is back, Mission Accomplished, when de facto unemployment is 18% and wages are depressed to the level of a dollar store middle class way of life. If things do not get back to where they should be, it may not be an electoral change but democratic politicians who effect a radical remaking of the political economy in a way that can not be manipulated through the levers of power in private employment or private capital. State capitalism, funded from DC, and made operational on the state level, like the Chinese have may be a suitable replacement for an inefficient and disloyal ruling class. Obama may have his hands tied, to effect real change, or may be a Machiavellian operator, more so than an NLPer, but his real chance at retaining power is to get the job done for a lot of middle class voters and hurting his enemies in ways that they can not come back at him. That is a lot to do, and keep us all from the another real great depression, all at the same time.

  20. JeffC

    Given a crisis of too-low bank equity that threatened widespread insolvency, excessive bank profits are the entire point of the government intervention, not some annoying side effect. The problem isn’t the profits, which add directly to equity and so build a cushion against insolvency. The problem is diverting those profits to the personal accounts of the bankers through excessive pay.

    Simple if somewhat snarky solution: Legislate strict tangible-capital thresholds below which emergency capital-recovery rules dictate that no bank employee can be paid over half a $million per year in total compensation. Then stand back and watch how fast dangerous speculation disappears from bank behavior. Of course you’d have to strengthen auditing of bank books, given the enormous incentive you’d then have for cooking them.

    Yes, there is the question of employees fleeing. But when low capital is endemic, as at present, there’d be nowhere to flee to. In good times a bank falling below the threshold would be quite rare and very temporary. Whopper emergency pay cuts focus the mind wonderfully.

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