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Can somebody help Paul Krugman out?


The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.


UPDATE Yves shares her views:

The Obama Administration, if the Washington Post's latest report is accurate, is about to embark on a hugely expensive "save the banking industry at all costs" experiment that:

1. Has nothing substantive in common with any of the "deemed as successful" financial crisis programs

2. Has key elements that studies of financial crises have recommended against

3. Consumes considerable resources, thus competing with other, in many cases better, uses of fiscal firepower.

The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting).


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gqmartinez's picture
Submitted by gqmartinez on

...means we don't have to question him or his intentions. Certainly not until a few months pass.

I believe Obama is "persuadable". But not with the constant justification.

Mandos's picture
Submitted by Mandos on

Nationalizing the Medium-sized Bank of Midwestern State is somewhat different from nationalizing Zombie Citi. The latter is conspicuous and Not In American Culture.

pie's picture
Submitted by pie on

We're doomed. Just read this at Eschaton:

CNBC says AIG, 80% owned by gov't, will report $60 billion loss on Monday.

Too bad money doesn't grow on trees, eh?

pie's picture
Submitted by pie on

as I read an email from Paul Begala that just came:

Just when you think we finally heard the single most outrageous Republican excuse for trying to obstruct President Obama's agenda for change, something like this comes along.

Republican Congresswoman Michele Bachmann, a national GOP figure, actually said that one of her excuses for 'just saying no' to President Obama's economic recovery bill was because "we're running out of rich people in this country." Huh?

Isn't she the one who hid in the bushes to spy on a gay rights rally in a park? Some (many?) politicians are morons. And they keep getting elected by bigger morons.


LC's picture
Submitted by LC on

I'm baffled by this desire to wipe out all the shareholders. BofA, WFB, and Citi together employ over 700,000 people - most of whom do not earn 6 or 7-figure salaries but most of whom, I would guess, own some company stock in those companies. So wiping out shareholders means not only wiping out the guys with oodles of shares but the little guys who are probably still hoping that some time in the next decade or two the money they put into their 401Ks may actually be worth something.

This, of course, goes for all the other banks and companies that we are helping out. And, sure, you can say that any employee who put 100% of their 401K into the company was a fool - but it still hurts if the employee allocated only 10-20% to the company stock.

And, no, I do not work for a bank - but I did once work for a large corporation and I know how I would feel if my 401K stock were wiped out in the blink of an eye if there were some other way to save the company.

zuzu's picture
Submitted by zuzu on

The natural consequence of making a bad investment is losing your shirt.

The shareholders made a bad investment. So, if the market were free, they'd be losing their shirts.

Instead, the taxpayers are being asked to lose *their* shirts so the shareholders don't lose theirs. Privatizing profit while socializing risk.

pie's picture
Submitted by pie on

I'm baffled by this desire to wipe out all the shareholders.

The stock market is risky. We lost a bundle after 9/11. Then my husband lost his job. Then we dipped into the retirement and lost that. We lost just about everything, actually.

Well, we're still here and things are looking up. Life is what you make it.

We will not be investing in the stock market again any time soon.

Whose fault is that?

Salmo's picture
Submitted by Salmo on

If the corporate form means anything, and clearly there is room for debate about that, it means that when the corporate entity is insolvent, the equity held by its shareholders is gone - wiped out. The financial reporting and political spin about this fairly basic point is remarkable.

Damon's picture
Submitted by Damon on

That argument above by LC is really quite amazing. Whether he/she knows it or not, what they are essentially asking is why won't the entire country just take a hit for this company's stockholders. It's a request with quite a bit of hubris in it. It's asking far too much. And, as you said, if the corporation goes under like it looks to be doing, they'll lose their shares in it, anyway.

Please, LC, let's not contrive a story about the government destroying the shareholders, here. The corporation has done that virtually all on its own.