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What Bernie Sanders said

lambert's picture
Submitted by lambert on Sun, 09/21/2008 - 11:40am

Via Avedon, Sanders:

If a company is so large that its failure would cause systemic harm to our economy, if it is too big to fail, then it is too big to exist. If it is too big to fail, it is too big to exist. We need, as a Congress, to assess which companies fall in this category. Bank of America is certainly one of them. Those companies need to be broken apart. We cannot have companies so huge that if they go under they take the world economy with them.

Bingo.

Sanders also introduces a new acroym, CDS --- Credit Derivative Swap.

I can't untangle all that now -- Readers? -- but, falling into rank speculation mode for a moment, it sounds like:

1. The usual suspects, enabled by a complete lack of regulation, managed to backscratch each other into owing themselves more money than there is in the world.

2. As usual, the game of musical chairs is fun until the music stops.

3. When Paulson bailed out AIG, he triggered -- knowingly or unknowingly -- a lot of CDSs, and stopped the music. It's like a margin call on the world economy, and since the swaps involve more money than there is in the world, that's a problem.

4. I'm guessing -- I'm not completely clear on the timeline -- the music stopping was the source of Wednesday's famous "tick tock" in the WSJ (see comments here).

5. If this is true, the $800 billion is the merest stopgap. There's a lot more money in the world than that.

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hobson's picture
Submitted by hobson on

This is disturbing, a fact sheet from the Treasury via Calculated Risk:

Washington – The Treasury Department has submitted legislation to the Congress requesting authority to purchase troubled assets from financial institutions in order to promote market stability, and help protect American families and the US economy. This program is intended to fundamentally and comprehensively address the root cause of our financial system's stresses by removing distressed assets from the financial system.

...Scale and Timing of Asset Purchases. Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets. Removing troubled assets will begin to restore the strength of our financial system so it can again finance economic growth. The timing and scale of any purchases will be at the discretion of Treasury and its agents, subject to this total cap.

...Management and Disposition of the Assets. The assets will be managed by private asset managers at the direction of Treasury to meet program objectives. Treasury will have full discretion over the management of the assets as well as the exercise of any rights received in connection with the purchase of the assets.

Funding. Funding for the program will be provided directly by Treasury from its general fund. Borrowing in support of this program will be subject to the debt limit, which will be increased by $700 billion accordingly.

amberglow's picture
Submitted by amberglow on

-- http://www.reuters.com/article/ousiv/idU...

"Treasury Secretary Henry Paulson said Sunday that foreign banks will be able to unload bad financial assets under a $700 billion U.S. proposal aimed at restoring order during a devastating financial crisis.

"Yes, and they should. Because ... if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said on ABC television's "This Week with George Stephanopolous." ..."

amberglow's picture
Submitted by amberglow on

"Sovereign Wealth Funds" that countries now have will be in on it too-- they're "financial institutions" as well, and bought a lot of this stuff, i've heard.

amberglow's picture
Submitted by amberglow on

"... The administration’s plan would allow the Treasury to hire staff members and engage outside firms to help manage its purchases. And officials said that the administration envisioned enlisting several outside firms to help run the effort to buy up mortgage-related assets. ..." -- http://www.nytimes.com/2008/09/21/busine...

Everything is an opportunity to privatize govt services with them--appalling.

amberglow's picture
Submitted by amberglow on

they don't have real value--that's why the banks are in trouble--and those things are what we'd be buying.

and of course--it takes the "power of the purse" away from Congress and gives it to Corporations and the Executive Branch since this doesn't ever expire-- and has no credit limit at all.

makana44's picture
Submitted by makana44 on

in order to buy up all this bad debt.

Wouldn't that be a case of throwing good debt after bad debt?

But seriously, WHERE is all this money going when we buy up all that 'bad' debt? It doesn't just evaporate into thin air, does it? (or does it, or are we supposed to believe it does?) One would think that it's got to end up in someone's pockets. WHO, or WHAT, perchance might that be?

And this is all happening right in front of our very eyes. The transfer of funds from the U.S. Treasury into...?

What I have heard, and what makes sense to me, is that Obama is one of 'them.' There are many examples of how and why he was inserted on the Democratic ticket so as to leave nothing to chance this year. And that also explains how he, a 'no one' literally came out of 'nowhere.'

Look at who the media loves and hates for your cues. This year they hate McCain. Love Obama. Isn't that all you really need to know?

That...and where does all the money end up?

amberglow's picture
Submitted by amberglow on

messed up, and some of it goes back to whichever politicians helped bail them out.

And it goes to whichever private firms are either "created" and will be crony-staffed--or already existing and ready--to administer and take fees and proft from this Trillion or more in our money.

splashy9's picture
Submitted by splashy9 on

Too big = eggs all in one basket. If that basket breaks, so do all the eggs.

Not to mention that too much power is concentrated into too few hands that way, so they influence public policy too much to benefit those few.

Break 'em up!

Submitted by jawbone on

Default Swaps.

It ain't the subprime mortgage defaults--it's the CDS's, the insurance against failure of the funny money paper which was way, way, waaaaaaay underfunded and totally unregulated which is causing the seizure of credit. No one wants to lend to someone whose insurer may not be able to pay.

As Bernhard wrote:

A $700 billion bailout can not save a unregulated $70 trillion CDS market that is under severe stress. (The bolding was his)

lambert's picture
Submitted by lambert on

Here. Yes, $70 trillion sounds like the "more money than there is in the world" layer. Unless, heaven forfend, there's another layer on top of that.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

Submitted by jawbone on

some earth shattering wisdom, hit preview and was told I had no access to the page. Hhhmm.

Anyway, CDS also is used by us DFH's for Clinton Derangement Syndrome--which seems to have so distracted the poor MCMers, Villager subset especially, that they were utterly unable to do any reporting on that little time bomb Warren Buffet warned about, oh, 5 years ago! From commenter at Moon of AL:

“This is the derivative nightmare that everyone has been warning about,” says Peter Schiff, the president of Euro Pacific Capital at the author of “Crash Proof: How to Profit From the Coming Economic Collapse.”

“They booked all these derivatives assuming bad things would never happen. It was like writing fire insurance, assuming no one is ever going to have a fire, only now they’re turning around and watching as the whole town burns down.”
financialweek.com: Buffett's swaps 'time bomb' goes off on Wall Street

Credit default swaps seemed harmless enough, but they've turned out to be 'financial weapons of mass destruction' Five years ago, billionaire investor Warren Buffett called them a “time bomb” and “financial weapons of mass destruction” and directed the insurance arm of his Berkshire Hathaway to exit the business.
Posted by: constant | Sep 21, 2008 4:53:23 PM | 9

Damn, there really were WMD--in our very own financial institutions. And our brilliant innovators sent them all over the world. We will be well and truly remembered for this....

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