If you are going to succeed in rewriting history, a necessary condition is that the public doesn’t remember it very well. Unfortunately, that requirement is not in place for the architects of the Administration’s blatantly bank-friendly crisis responses.
Timothy Geithner’s book Stress Test, in which he tries selling the idea that rescuing the banks was unsavory but necessary, and wanting to hold individuals accountable was a mere desire vengeance, is not only doing poorly in terms of sales, but is producing pushback on multiple fronts. Not only have quite a few reviewers taken issue with Geithner’s sense of priorities and his factual claims, but he’s gotten raspberries from the public. If you look at the one-star Amazon reviews, for instance, a large portion come from people who state that they haven’t read the book but have such antipathy to Geithner that they want to discourage everyone from buying it. Similarly, a sympathetic interview of Geithner by Andrew Ross Sorkin elicited overwhelmingly negative (and often extremely articulate and detailed) comments from New York Times readers.
A less high-profile effort at revisionist history, this one by Larry Summers in the Financial Times, is landing with a similar gratifying thud. Summers’ effort at Team Obama brand-burnishing came in the form of a review of an important new book, House of Debt, that analyzes the drivers of the financial crisis and its aftermath.
The book’s authors, economists Amir Sufi at the University of Chicago and Atif Mian at Princeton, performed extensive empirical work and found that over-indebted consumers, particularly the lower-income ones targeted by aggressive and often predatory lenders, had markedly cut back on spending before the fourth and final acute phase of the crisis, triggered by the Lehman collapse. That means that real economy factors, and not financial system dynamics, were drivers of the downturn in the US.* Sufi and Mian performed zip-code level analysis and found that the areas where home prices fell the most and consumers therefore had the biggest hits to their net worth were also the ones that suffered the biggest job losses.
Sufi and Mian also stressed that there’s no precedent for this response to a financial panic. Historically, bank crashes and financial implosions recognized that many of the loans could simply not be paid on their original terms. They provided either for suspension of borrower payments for a period of time, or restructuring, as did the Home Owners Loan Corporation in the Great Depression, or in biblical times, via debt jubilees. Similarly, the Chapter 13 process recognizes that keeping the borrower viable and having him pay what he can pay will usually provide the best economic outcome for lenders.
In fact, treating banking as a critical apparatus to the economy is a modern phenomenon; the Bagehot rule, of lending freely against good collateral at a penalty rate, dates to the late 1860s and was a measure to a measure to save otherwise solvent institutions from being pulling into a vortex, and not backstop banks generally. The Fed was created out of the recognition that the Panic of 1907 came close to exceeding the resources of JP Morgan and his fellow financiers and that frequent banking crises were exacting a large toll on the real economy. The deposit guarantee was a Great Depression innovation.
Nevertheless, past responses, including the now-abandoned Bagehot rule, recognized that bank failures were the result of bad lending decisions, and that reckless or sloppy lenders needed to bear the cost of their recklessness. Restructuring loans thus was not seen as charity to borrowers, but just like the Chapter 13 process for corporate bankruptcy, a pragmatic recognition that getting half a loaf from the borrower is better than trying to bleed him into failure (or in the case of individuals, penury).
Dave Dayen described last week how schizophrenic Summers’ reaction was to House of Debt, first lavishing it with praise, then disagreeing vehemently with the authors’ well-documented views:
It starts off with almost unvarnished praise for the book, saying “it could be the most important book to come out of the 2008 financial crisis and subsequent Great Recession.”…
And then, Summers calls them naive and says they didn’t understand the reality of what policymakers faced in 2008 and 2009. Specifically, he says that “We all believed in 2009 what Mian and Sufi have now conclusively demonstrated – that reducing mortgage debt would spur consumer spending,” saying they did not have a narrow banking view of crisis response. Yet almost every one of Summers’ objections – to supporting bankruptcy judges rewriting terms of primary mortgages, to forcing principal write-downs, to buying underwater mortgages through a Home Owners Loan Corporation-type structure – comes with the warning that the preferred policy of mortgage debt relief would hurt the banks..
This is precisely what Mian and Sufi attack in the book! First off, they argue that it makes no sense to want to spur lending into a deeply indebted economy. They also add that “The idea that financial firms should never take losses is indefensible.” Their entire point is that the losses from the housing bubble collapse were poorly distributed through the system, heaped on those who lost the most in net worth and had the highest marginal propensity to spend. Meanwhile, those most equipped to absorb the losses, those who finance the banking system, were relatively untouched. This is the PRECISE CAUSE, in Mian and Sufi’s view, why the recovery has been so sluggish: the families who couldn’t withstand heavy losses took the brunt of them, and they had to cut back, and demand suffered.
It’s extremely weird that Summers says House of Debt should inform policy responses, and then gives all the reasons why it can’t inform the last policy response. Summers is effectively saying, “We didn’t have a banking view! It’s just that mortgage debt relief would hurt the banks.” In a way, that is nicely revealing. People long suspected** that the White House economic team’s policy response foregrounded the idea of protecting the banks at all costs, with homeowners a secondary concern at best. Summers just said it out loud.
Adam Levitin, Georgetown law professor and special counsel to the Congressional Oversight Panel, has a more detailed takedown of the Summers article. Levitin, a bankruptcy expert, objects strenuously to Summers claiming that he supported “cramdown”. In all other types of collateralized consumer lending, when a borrower is in bankruptcy, the loan is written down to the value of the collateral and the rest is treated as unsecured and written down based on how much the borrower has left to pay off all unsecured loans. Cramdown was seen by supporters as the best way to cut the Gordian knot of considerable complications and bad incentives impeding the restructuring of mortgages.
I’m taking the liberty of quoting Levitin at some length because the details matter and Levitin is very persuasive in marshaling them:
The FT op-ed was, admittedly, supportive of cramdown. But that’s not the whole story. If anything, the FT op-ed was the outlier, because whatever Larry Summers was writing in the FT, it wasn’t what he was doing in DC once he was in the Obama Administration.
Let’s make no bones about it. Larry Summers was not a proponent of cramdown. At best, he was not an active opponent, but cramdown was not something Summers pushed for. Maybe we can say that “Larry Summers was for cramdown before he was against it.” …
Summers main critique of Mian and Sufi’s book is that they’re (very good) ivory tower economists, but that they don’t understand the complexities of the policy world. I am sympathetic to Summers’ point that “it’s complicated”. Cramdown was, but policy isn’t like an academic debate in which noting nuances is how one scores points. Policy requires up or down decisions that swallow the good with the bad, and the Obama Administration (and Summers) made the wrong decision on cramdown. At the end of the day, that’s what matters.
A. Responding to Summer’s Technical Claims
Still, Summers raises five major points Mian and Sufi do not address. He is correct that Mian and Sufi do not address these points, but that does not mean that there are not answer, only that it isn’t Mian and Sufi’s fight. Let me go through these points systematically:
(1) Cramdown risked crashing the banking system. Allowing cramdown posed three possible concerns for the banking system. Let’s address each in turn.
First, there would be large scale loss recognition from cramdown itself. So what? If the banks are insolvent as a result, recapitalize them. Recapitalizing a bank is not rocket science….Perhaps some bridge financing would be needed, but giving the ingenuity that the Fed and Treasury displayed when they wanted to, I’m sure they would have found a way, legality be damned.
Second, there would be some people filing for bankruptcy for relief who would otherwise have continued to pay on their mortgages. The cramdown legislation took pains to ensure that bankruptcy wasn’t going to be unduly attractive and to limit eligibility. Perhaps more could have been done to avoid opportunistic filing, but there were ways to address the issue, and it bears emphasis that people do not usually file for bankruptcy lightly.
And third, bankruptcy filings would have affected not just mortgage debt, but credit card and auto debt, etc. The effect on other types of debt was a reasonable concern, but it could also have been addressed legislatively (that’s what my Chapter M proposal aimed to do).
The bottom line here is that cramdown would have resulted in loss recognition. That would have wiped out equity and possibly some bondholders in the large banks, which would have to be recapitalized. That was a result the Administration found politically unacceptable. But legally and technically it was quite feasible. Instead the Administration preferred to extend and pretend. We’re still paying the price.
(2) Cramdown risked chilling future lending. Nonesense. Everyone understood that 2008 was a 100-year storm and that the government wasn’t going to be in the business of abrogating contracts willy-nilly. In any case, however sacred contracts might be, they aren’t economic suicide pacts and never have been. Markets have responded very well in the past when the government acts like a grown-up and puts aside contracts that are socially detrimental, such as the case with gold indexation in the 1930s…
Yves here. I have to interject that of all the Administration’s justifications for inaction, this is the most patently ludicrous. Banks and financiers LOVE lending to cleaned-up post bankruptcy borrowers. And a robust Chapter 13 process clearly has not scared away creditors from lending to corporations. Back to Levitin:
(3) Cramdown posed a danger of prolonging the housing market’s problems. To the extent that problems are caused by negative equity, cramdown would have fixed them. Chapter 13 bankruptcy confirms plans pretty darn fast. We’re talking months, not years….cramdown would have forced the housing market to clear. Instead, we got HAMP, which did exactly what Summers claims was a problem–delaying inevitable foreclosures through insufficient mods that were designed primarily to extend rather than resolve troubled mortgages.
(4) Cramdown would have raised regulatory issues. I don’t know what Summers possibly means by this. There were ZERO regulatory issues involved in cramdown…
Other, non-cramdown alternatives, such as pursuing something on the Home Owners’ Loan Corporation model would have raised regulatory issues, but that’s not cramdown. Moreover, for Summers to state that the problem with a HOLC-type proposal is that it would have to buy mortgages at par is wrong. The original HOLC didn’t buy at par. Buying at par would be a subsidiy to the banks, but it’s rather laughable for Summers to claim that the Adminsitration was opposed to a “massive backdoor subsidy to banks,” given the enormous backdoor and frontdoor subsidies it doled out to the banking system.
(5) Cramdown had implementation issues. No, not really. That was the beauty of cramdown. It would have been very easy to implement. It would have just added a change to the terms of what bankruptcy plans could be confirmed, but the entire infrastructure was already there….
In any case, the Administration had no understanding of the bankruptcy system.*** This was one of my great frustrations in 2008-2009. The Administration was staffed with economists and the occasional non-bankruptcy lawyer, none of whom had the foggiest notion of how consumer bankruptcy works, but a tremendous fear of the process…
The bottom line here is that of the five issues Summers raises, one is a made-up ideological concern (#2) and three weren’t actually possible with cramdown (#3, #4, and #5) but instead conflate cramdown with a bunch of other housing relief ideas. In the end, we’re left with #1, which was a genuine concern, but was ultimately a question of whether immediate loss recognition and recapitalization (that is, a market clearing solution) was preferable to extend and pretend (delaying loss recognition to let the banks recapitalize with retained earnings). There was no body of scholarship clearly supporting extend and pretend; if anything, we knew the problems of that approach from Japan’s experience. Instead, the only grounds for the choice were distributional. The Obama Administration needs to own that one.
B. Responding to Summers’ Political Claim
Finally, Summers writes that “critics who disagree at this late date are obliged to provide an alternative analysis of the political calculus, not a mere recitation of the arguments for cram-down.” Let me take up the gauntlet.
Not pursuing cramdown was the Obama Administration’s worst political mistake. Period. It may well have cost Democrats the House in 2010 and ushered in the current era of complete Congressional dysfunction. Democrats took a licking in 2010 for two reasons. First, they were held responsible for the state of the economy, irrespective of the shared blame for the crisis. Second, Democrats took a licking because the Administration was perceived (rightly) as caring more about Wall Street than Main Street. Cramdown would have gone a long way to mitigating both criticisms. If cramdown had succeeded, it might have turned around the economy. Maybe not fast enough to matter for the 2010 elections, but we can’t be sure. And even if cramdown had failed, had the administration had put some muscle into the effort, it could have painted the GOP as obstructing help for real people during the 2010 election. The Obama Administration could have carried the banner of the champion of Main Street instead of the protector of Wall Street. By dropping the ball of cramdown, and then doubling down on the incompetent HAMP program (which was patently flawed from inception as was regularly pointed out by the Congressional Oversight Panel), the Administration ended up owning the financial crisis instead of pinning it on the GOP. The Administration is still paying the price.
Summers’ political story seems to be “We didn’t have the votes, so it wasn’t worth the coin.” Of course, one reason they didn’t have the votes was that they didn’t put in the effort. They didn’t have the votes on the CARD Act until the President put in some muscle, and lo, it passed.
Yves again. So on the one hand, the Administration and the Democrats generally are reaping the bitter harvest of their “cream for the bankers, crumbs for everyone else” crisis responses. But the troubling part, as Geithner’s Stress Test and Summers’ op-ed suggest, they have so managed to isolate themselves in the Versailles of official Washington that even warnings of insiders like Levitin are unlikely to penetrate their flattering, insulated world view. Unfortunately, seemingly unsustainable conditions have a nasty way of lasting longer than seems possible. While we can hope for Summers to face an ugly day of reckoning, it may be historians that are the ones to hold him to account
* I quibble with how strongly they state their conclusion. The fall in fourth quarter 2008 GDP was 8.9%. The spectacle of the financial system implosion led to businesses and consumers cutting back dramatically on spending, so to present this as “real economy v. financial system” is a false dichotomy. However, the role of real economy dynamics has been sorely neglected in most accounts of the crisis, and even more so in policy responses.
** Um, suspected? Please see this post for a more pointed take.
*** This was demonstrated by the fact that no one in the Administration could be bothered finding out what a bankruptcy for Lehman would entail (we’ve written about this at some length in older posts). Lehman had retained the top lawyer in the US, Harvey Miller, yet Miller with his famed acute sense for odds of a filing, was blindsided because the Administration had kept him out of the loop, an idea that is still hard to understand. It isn’t simply that Lehman filed for bankruptcy, but as Miller pointed out on September 14, it was obvious it would be highly disruptive based on past failures of much smaller securities firms. Worse, by not consulting Miller, he was forced to file for bankruptcy with a thin form document, which greatly increased how disruptive the failure was.
Whilst I get the economic arguments (such as they are), the central issue the is old story of insiders making sure that they are looked after and that their wealth and power remain in tact. Beyond that, the talk of “policy issues” or of a lack of understanding by “ivory league economists” is a smokescreen to direct debate towards something intellectual (or rather pseudo intellectual in the case of economics).
As we know from Summers, insiders never speak out against other insiders, ergo; all those on the outside don’t understand the real challenges and that those in charge came to the rescue and saved the day.
The likes of Summers, Bernanke, Geithner will write their books, be paid well for their speeches to adoring unquestioning fans, but in the end they are no different than those who wiped the Mao Zedong policy disasters from history.
Thank God we have the internet and NC as a partial antidote to the corrosive practices of these cockroaches.
I can only hope that Adam Levitin”s post on “cramdown” could be a song title of the band “Tool”!
A man can dream, right?
“Meanwhile, those most equipped to absorb the losses, those who finance the banking system, were relatively untouched. This is the PRECISE CAUSE, in Mian and Sufi’s view, why the recovery has been so sluggish: the families who couldn’t withstand heavy losses took the brunt of them, and they had to cut back, and demand suffered.”
In short, “It’s the Class War, stupid.”
It’s only wrong if you don’t consider the exit gravy train Obama and his cohorts will ride (and have been riding) because of this decision.
Not only did Obama, Summers and Geithner bail out the banksters instead of the populace, but my memory tells me that those in the know knew well ahead of the crash, up to a year or more, and that insiders and banksters used that time to get their finances in order while letting the unwitting general populace continue to buy homes and cars and invest in stocks, thus becoming the biggest losers.
So the big wigs made out before and after the crash. Just as they are setting themselves up this time around.
Some tar and feathering is in order.
That gives them far too much credit. These aren’t Boardwalk geniuses, they’re actually rather myopic and often dumb. The party kept rolling right along until the rug was pulled out from under them and when it was Wall Street fell to blind panic. Had the Bush Administration been less criminally sympathetic they could have gotten anything they wanted in terms of financial reform, so desperate were the Banker’s Row Brain Trust for some sort of bailout.
I guess you’re not including in your comment the Great Vampire Squid, Goldman Sachs, who bet very heavily against those packages of loans they were selling out of the other side of their mouths.
They were still net long mortgages and lost money on their overall mortgage book.
Basically, dealers are structurally long. There isn’t enough capacity in the system for credible counterparties to provide shorts to enable dealers to go net short. Remember AIG?
Can’t leave out Hank Paulson.
He got his revisionist tale in early and has been quiet of late. And so far, Bernanke is telling his version of events to sympathetic audiences for big bucks.
Shouldn’t Paulson be in prison?
True, but the sentence is “Shouldn’t _______ be in prison?” Fill in the blank from a list of names long as a city block.
Indeed, the unpunished felons from finance could populate a small town. Put up a fence around the Hamptons and make it a prison farm. Angola-by-the-Sea.
Instead, they’re still running things, if only their mouths.
Because of the way Obama handled the financial crises it ranks as one of the worst economic blunders in American history.
Le’s face it, there is a 800 lb gorilla in the room that no one of talks about. The US has a very serious race problem that is so pervasive and ruinous to the society at large. It is in its DNA. Bankers and mortgage service providers specifically targeted black neighborhoods to drain off as much wealth as they could from these people — yes, targeted by zip code.
The reason Obama, Summers, et al., refused cramdowns and came up with the crappy HAMP program was because they did not want to be caught bailing out black homeowners. To prove his color blindness Obama, after having bailed out his Wall Street banker friends, refused to lift a finger for Shorebank. Shorebank was a Chicago area bank that provided real bank services such as business credit, mortgage loans, etc in black neighborhoods. When they were ensnared in the financial crises meltdown, Obama let them fold. No bailout money for them. They closed their doors. Reports indicate many former middle-class black Chicago neighborhoods are now blighted and look more like a lunar landscape.
Sure, Summers and Geitner are trying mightily to re-write history but what they are covering up is the race card that played out in making sure black Americans would be at the shortened of any economic recovery. The country is paying a huge price for this bigotry.
Interesting. I wonder if it would be possible to spot a racial skew in the banks chosen for bailout vs. the ones allowed to fail on a nationwide basis?
Interesting ideas here.
We could look at the detailed ZIP code mapping done on foreclosure and short sales – and easily overlay it with demos from the census.
It’s certainly apparent that minority borrowers got the worst interest rates, were sold over-priced home insurance and also stuck with extra fees in closing. The predatory lenders ate their lunch, for years.
And no-one stuck up for them….
Actually I really like Larry Summers – because he is so crass – and he is clear on the issues. In the past he said, dump pollution in Africa, because it is more economically efficient as they are poorer – and l will not even go into his views on women in academia.
He is continuing to run the American-family-business-economics (Samuelson, Arrow), that the educational institutions lap up as high-brow, and is as unapologetic as he was apoplectic about not getting the Fed Chair. He was most clear in his INET interview with Martin Wolf.
But now finance has weathered the crisis, and this has given BigFinance more confidence. And in agreements like the WTO GATS have locked in changes that will be hard to break – Dodd Frank is completely challengeable at the WTO because of Art VI limits on domestic regulations (no regulations that were not anticipated at the time commitments were entered into). And the WTO was how they got (the already eviscerated – because of court granted exemptions) Glass-Steagull Act – a case of the tail wagging the dog. The much under studied tale by C Raghavan on GATS needs to be re-read.
The issue is political, not economic. And can Warren stand up to Summer’s & Co? Perhaps she is far to polite for this fight… after all, Summer’s will take his pound of flesh!
Apologies for the duplicate post… the link to Raghavan’s piece is:
an essential read if the global financial architecture is to be understood… so as to allow a fuller appreciation of the ‘banality of evil’ (as Hannah Arendt aptly put it) of Larry Summers, Bob Rubin, Geithner, Bob Vastine, US Chamber of Commerce, etc…
Except that Glass-Steagall was the New Deal-era program that separated investment and commercial banks. I think you mean Gramm-Leach-Bliley.
I have a dream!
Larry goes back to Harvard, loses billions more for them with his gambling problem.
Harvard goes broke, and as a result that conveyor belt churning out future financial criminals grinds to a halt.
Ah, but that would leave MIT, Stanford, et al still churning out the new kleptocrats.
Yes, but Harvard has a hold on our culture, and graduates are given a free pass others aren’t. The 2008 debate where Hillary was accused of being mean was a perfect example. It was framed as trailer trash married to a graduate of a state school challenging the sage advice of our would be scholar-in-chief. W was clearly a drunken idiot, and he was treated as a visionary. It’s my gut feeling other institutions would be challenged.
Larry Summers is an obvious example of a madman hiding behind that particular institution.
not sure who you’re talking about. hillary went to wellesley, then yale law. bill went to georgetown, got a rhodes scholarship to attend oxford, then yale law. hardly state schools or places where you find ‘trailer trash.’
they didn’t attend harvard, but is yale any less a member of the elite?
After he’s done Harvard in, Larry could be passed around and finish the other ones off.
I’m sure they believe his nonsense, like altruism is a rare good.
Obama’s approval rating dropped sharply in 2009 when he was bailing out Wall Street instead of Main Street.
Thanks Yves, for staying on this. It is nice to see Larry Summers given a berth at FT in which to keep this topic alive.
Since I went through a Chapter 11 bankruptcy and had two cramdowns, I can speak with some authority on this topic. Yes, the cramdowns were approved by the judge, and voted on by my creditors. The problem then became that Ocwen/Deutsche Bank, and Wells (ASC)/BofA Trustee/Morgan Stanley trust, refused to acknowledge the cramdowns, and began sending back my payments within four months of plan confirmation.
Letters to the OCC did no good. Letters from my attorneys did no good (my attorney said in the old days one letter to a bank about violation of Federal law would do the trick – now they just ignore them.) I had to reopen my BK case, and the new judge would not rule on the violation of the plan. So I had to sue and go to trial in her court. (A stack of returned payment checks was not enough evidence to her of violation by the bank of The Plan.) So-called “Judge” Sandra S. Klein, U.S. Bankruptcy Judge of the Central District of California. She spent ten years in the BK Trustee’s office investigating fraud. She thinks BK fraud is only committed by debtors, and she thinks her job as BK judge is to punish debtors (not to find a balance that would be most beneficial to creditors/debtors.) She is determined to wipe out debtors. Trust me, watching her relish doling out her punishments to debtors from the bench is like watching Judge Judy high on some sex drug. (Yes, Klein does model herself a “Judge Judy” right down to the hair cut and the New York, or whatever that nasal accent is. Scary stuff.)
Six years in and Wells is still refusing my payments from the cramdown.
My point here is that yes, cramdown is a great idea. But, if you have an administration, a Department of Injustice, an OCC, an FDIC, etc. that are all determined to move heaven and earth to save the banksters, and not hold them accountable, cramdown will not work. I ended up being the bad guy in the eyes of the “court” even though I had made all my payments, and even had paid off my creditors a year early.
And anyone who reads my occassonal blather here will remember that Chase foreclosed on my paid up, but termed out former WaMy loan that they got for free from the FDIC when the FDIC wiped out WaMu shareholders and gave Jamie Dimon a $40 Billion dollar loan portfolio for free. Which he quickly liquidated to raise cash to offset the London Whale fiasco.
We live in a lawless society, where all three branches of government are owned by the rich. So Yves, while I agree with you, the implementation would not have worked. Not any more than than the banks following the law on foreclosure. (I know I am lucky enough to have been able to scrape together to hire lawyers. But I’ve spent $200K on lawyers over the last six years, and BOY, has that made for a diet of rice and beans, as the Mexicans say.)
Many thanks, Yves. The FT article made me gnash my teeth because it assumes the readers either have Alzheimer’s or were born with yesterday’s rain.
Another great Levitin article in the Harvard Law Review for NC readers who are neither senile nor naive. You can read it here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2401298
THE POLITICS OF FINANCIAL REGULATION AND THE REGULATION OF FINANCIAL POLITICS:
A REVIEW ESSAY
That first line is just fantastic Yves, so simple and yet such a deep commentary on how the intertubes have really screwed up the older model of propaganda. Outside of NYC/DC, bailouts are tremendously unpopular. Even Congressional Representatives voted against EESA.
Geithner did give us a hilarious creature, though – TurboTax Timmah!
I do not understand why experts insist on legitimizing anything the pompous, blubbery fool Summers has to say by analyzing, critiquing or refuting his logorrhea. (I DO love that word.)
It only encourages him.
But in today’s FT Summers says we suffer from a system which rewards people who can work the political system rather than those who create real wealth. I feel disorientated. He has said something I agree with!
Have the scales fallen from his eyes at last?
No, it’s that broken clock thing.
Great post. Summers’ and others’ professionally self-serving rhetoric would try to convince one that it was the tip of the iceberg that ripped a hole in the Titanic, not the submerged ice.
Thanks for the posting.
History continues to be written by the winners but social anthropologists, if we continue to exist, will have plenty to say about inheritance, accumulating private ownership of property and the class system.
Summers continues to do what he is paid to do, defend the financial machinations of his paymasters. They continue to be in charge. It must be working…….until the moment it doesn’t……which is coming closer.
I must be ignorant because I thought the reason cramdown was not pursued aggressively is that cramdowns in the world of pooled securitized mortgages, combined with credit default swaps, amounting to trillions of dollars, would have flat cleaned out all the monolines. To be clear, I strongly supported cramdowns, but I don’t understand why the issue of getting holders of CDO bonds to accept cramdowns was not even mentioned in the article above. Wasn’t that an issue? I also understand that Geithner payed off AIG CDS holders in full, placing the majority of the financial loss on the U.S. Treasury.
A major benefit of a painful cramdown barrage would have been an improvement in people’s perception of their well-being. People who have had a nasty financial problem resolved are likely to be more apt to consume new stuff than those who see the sword of Damocles poised over their heads. I tend to think that real world economics follows a quite different Calculus than that laid out by Sir Isaac Newton.
So glad you see the significance of the work of Amir and Atif with their House of Debt project.
They also cross-posted quite intelligently with MikeNorman’s Blog on a most-oft misunderstood of modern money issues…..the history of full-reserve banking.
That history greatly informed Hyman Minsky’s late proposal for a new National Monetary Commission.
….to meet the monetary and financial needs of a progressive democracy.
As Ben Dyson of Positive Change UK explained on Max Keiser recently,
“full reserve banking means the government is creating the money.”.
Positive Change was another battle.
Ben is, of course, with Positive MoneyUK.
See his book on Modernizing Money, co-authored with Drew Jackson.