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People don’t understand the disaster that would have happened if the Big Wall Street Financial houses had gone under.
Timothy Geithner and Henry Paulson are 2 of the greatest Public Officials of all time. They saved USA from the complete financial meltdown that would have turned the World Economy into a global depression spanning decades.
Might take issue there a little ruby. Paulson is thought to have really screwed up over lehmans and there were seemingly signs that he froze (understandable)
im not Brown fan at all, but Paulson simply didnt show the same leadership or deciveness. Its generally thought that if lehmans had been saved, then the crisis wouldnt have accelerated
Not sure if Ruby had /sarcasm on – he certainly should have done, posting things like "Timothy Geithner and Henry Paulson are 2 of the greatest Public Officials of all time."
After bailing Bear Stearns, Paulson arbitrarily refused Lehman taxpayer money in order to introduce moral hazard into a sector he had allowed to overheat.
But then almost immediately he "went frit" on moral hazard, and lavished taxpayer money on AIG so that (it only subsequently emerged) it could pay off billions in bets made by his old colleagues at Goldman Sachs.
His actions were seriously flawed on both counts. Moral hazard is essential but he addressed it in a half-assed, disorderly way with Lehman.
And the way Goldman – in no way a systemic player – was given a boost in status and showered with public money is incredible.
Geithner was Tonto to Paulson in those events, before succeeding him.
Their actions at the minimum contributed to – some would put it a lot stronger – the crisis.
For Clivexx, Gordon Brown did what his advisors at the investment banks told him to do. Similarly flawed response – just kicked the can down the road: allowed the investment bankers a few more bonus rounds and himself a bit longer in power. Only much later have we seen (and even then very limited) mea culpas from him.
What both of you miss is the elephant in the room: the global crisis has not been solved – short-view politicians have just been kicking the can down the road, causing it to snowball both economically and politically.
In the words of George Friedman of Stratfor:
"Financial panics are an integral part of capitalism. So are economic recessions. The system generates them and it becomes stronger because of them. Like forest fires, they are painful when they occur, yet without them, the forest could not survive. They impose discipline, punishing the reckless, rewarding the cautious. They do so imperfectly, of course, as at times the reckless are rewarded and the cautious penalized.
Political crises — as opposed to normal financial panics — emerge when the reckless appear to be the beneficiaries of the crisis they have caused, while the rest of society bears the burdens of their recklessness. At that point, the crisis ceases to be financial or economic. It becomes political.
…..The greatest systemic risk, therefore, is not an economic concept but a political one. Systemic risk emerges when it appears that the political and legal protections given to economic actors, and particularly to members of the economic elite, have been used to subvert the intent of the system.
In other words, the crisis occurs when it appears that the economic elite used the law’s allocation of risk to enrich themselves in ways that undermined the wealth of the nation.
Put another way, the crisis occurs when it appears that the financial elite used the politico-legal structure to enrich themselves through systematically imprudent behavior while those engaged in prudent behavior were harmed, with the political elite apparently taking no action to protect the victims.
……Financial panics that appear natural and harm the financial elite do not necessarily create political crises.
Financial panics that appear to be the result of deliberate manipulation of the allocation of risk under the law, and from which the financial elite as a whole appears to have profited even while shareholders and the public were harmed, inevitably create political crises.
In the case of 2008 and the events that followed, we have a paradox. The 2008 crisis was not unprecedented, nor was the federal bailout. We saw similar things in the municipal bond crisis of the 1970s, and the Third World Debt Crisis and Savings and Loan Crisis in the 1980s.
Nor was the recession that followed anomalous. It came seven years after the previous one, and compared to the 1970s and early 1980s, when unemployment stood at more than 10 percent and inflation and mortgages were at more than 20 percent, the new one was painful but well within the bounds of expected behavior.
The crisis was rooted in the appearance that it was triggered by the behavior not of small town banks or third world countries, but of the global financial elite, who took advantage of the complexities of law to enrich themselves instead of the shareholders and clients to whom it was thought they had prior fiduciary responsibility.
This is a political crisis then, not an economic one. The political elite is responsible for the corporate elite in a unique fashion: The corporation was a political invention, so by definition, its behavior depends on the political system.
But in a deeper sense, the crisis is one of both political and corporate elites, and the perception that by omission or commission they acted together — knowingly engineering the outcome.
In a sense, it does not matter whether this is what happened. That it is widely believed that this is what happened alone is the origin of the crisis. This generates a political crisis that in turn is translated into an attack on the economic system.
The public, which is cynical about such things, expects elites to work to benefit themselves. But at the same time, there are limits to the behavior the public will tolerate. That limit might be defined, with Adam Smith in mind, as the point when the wealth of the nation itself is endangered, i.e., when the system is generating outcomes that harm the nation. In extreme form, these crises can delegitimize regimes. In the most extreme form — and we are nowhere near this point — the military elite typically steps in to take control of the system.
This is not something that is confined to the United States by any means, although part of this analysis is designed to explain why the Obama administration must go after Goldman Sachs, Lehman Brothers and others. The symbol of Goldman Sachs profiting from actions that devastate national wealth, or of the management of Lehman wiping out shareholder value while they themselves did well, creates a crisis of confidence in the political and financial systems…. "
The crisis is deep and ongoing, both economically and politically. The trillions in bank derivatives are still out there and the decision to put public money behind them / try to inflate them away through QE needs serious revisiting.
The way the situation continues to be mishandled is causing many people in the US and EU fundamentally to question the legitimacy of their political and financial elites. Their numbers will increase as the consequences for food prices, fuel prices, jobs, etc start being felt much more than the present already-uncomfortable beginnings.
Look around the world and you’ll see grassroots anger translating into civil disobedience / disorder against political and financial elites.
No reason to suppose that the US or the EU are immune from such trends.
Rubysgodinthesaddle:-
While Cuba does have a great Health System.
The "great" parts of Cuba’s health system just aren’t available to the ordinary Cuban. Top party apparatchiks and top military bods can access it. The ordinary worker has to make do with a health system that is pretty basic. Cuban "great health care" is simply a myth, readily swallowed by the Guardianistas but shown to be false when put under half-decent scrutiny. Trouble is, too few people have the inclination or the time to find out the truth about this myth and so the myth gets repeated and repeated and then believed.
But in a deeper sense, the crisis is one of both political and corporate elites, and the perception that by omission or commission they acted together — knowingly engineering the outcome
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Some of what he says is fair enough but thats just paranoid rubbish. You really think the leaders of the banks and corporations and governement ‘engineered" the crisis for some pie in the sky ideal? they all got togetehr and said ‘lets set up something that will ruin the worlds economy" This is nut stuff
Civil disobedience? where? Arabia? Thats nothing to do with banking. Where else? Greece is a case in point but reality will (if it hasnt already) kicked home. They do not want the generals back. Ireland is a mess but wheres the reaction there?
People are rightly pissed off with the banking system but in their hearts they know there is simply no alternative other than tweaking. The only radical options that can be put on the table are state run economies rather than free market. We have seen enough of that to know its an abject failure.
Gordon Brown did take the bull by the horns at the right time. If he didnt do so then what should he have done?
Friedman is not saying the crisis was engineered.
The crisis was the product of good ol’ human greed, stupidity and overweening arrogance both by bankers and by politicians (including guess who?) who thought they had abolished "bust" and need no longer guard against it (removing Glass-Steagall-type protections, etc).
What Friedman is saying is that the "solution" was engineered by political and financial elites, who took the opportunity not to correct but to preserve the precise status quo that created the crisis and to shift the cost of their mistakes onto anyone but themselves. Plus now getting their bonuses underwritten by the public, so keep on making bets without worrying whether the other side has the resources to pay up – public and (via QE) every holder of the currency now guaranteeing the game.
Three years on, nothing has been done to prevent a recurrence – even Brown is now saying as much. In other words the "solution" has been nothing to do with banking, which continues as before. Its to do with consequence-shifting. So name whatever civil disobedience you want – Arabia, Greece, wherever it will be next:- all of them are to do with the hoi polloi getting hit that bit too hard by their political and financial elites (whoever makes and decides which laws are enforced against whom is an elite, whatever the dogma they put out).
You ask what Brown should have done?
First, even he’s admitting that as regards the UK it was his "huge mistakes" that let things ever get that far .
Second, having once got the UK into the ordure, he could and should have been a lot more selective and conditional about what he did with the national wealth.
The clearing system was segregable; deposit protection was already in place; he should have left the casino element unsupported by the public. Rewriting insolvency rules to impose a statutory Glass-Steagall along such lines and applying it to whatever is on the ground would not have been difficult (and still is not) for a lawmaker – they can do what they like with their own laws.
He should have ensured the casino operations were allowed to reap what they had sown for their executives and shareholders, and others who decided to get involved in those risks – not the uninvolved.
Feeding a dangerous bull to delay its immediate charge but at the cost of making it stronger and more dangerous, is not "taking it by the horns".
Brown was the main reason UK are suffering from massive Conservative cuts. He showed leadership after the horse had bolted. Plus no one respected him so it really didn’t matter what he said.
With Regards Greitner and Hank Paulson. They had to deal with Dick "dasterdly" Fuld. They managed to scrub out a deal that saved the World Economy. They did everything they could with the circumstances.
AIG was a major writer of Credit Default Swaps and was mainly involved insurance. They had to save them. They were completely different from the Wall Street Bankers. He allowed Lehman Brothers go because the complete inaction of Lehman brother senior staff. Dick Fuld built up Lehman and destroyed it as did his henchmen.
I do not think the 2 amigos could have done anything more.
Wit
I am not asking what Brown should have done in the medium term or how he should have explained his past actions. We were talking about that point in time only and i would like to know what alternative action he should have taken?
The credit i was giving him was for that window where IMo he acted very decisively
Two interesting sites highlighting the brilliant success of neoliberal capitalism, folks:
http://theautomaticearth.blogspot.com/
http://www.lorenzohagerty.com/blog/?p=352appreciate the enlightenment regarding Cuban doctors. I had been foolishly led to believe that they worked in third world countries or in the local barrios, not giving of their talents to the upper crusts in Cuba.What a sucker!
Ah, those Cuban doctors only work in the barrios of the third world at CIA gunpoint – those bringers of freedoms and democracy via bomb-laden drones. "We had to destroy the village, in order to save it", you understand?
NOW NOW GRIMES WE KNOW THOSE DOCTORS WHO WORK IN THE POVERTY ZONES ARE JUST DIRTY ROTTEN RUSKY SPIES.
Ah, those Cuban doctors only work in the barrios of the third world at CIA gunpoint – those bringers of freedoms and democracy via bomb-laden drones. "We had to destroy the village, in order to save it", you understand?
Always a give away posts like this. The hard left really have found it difficult to take that AQ has been hammered in recent times.
The alternative is that AQ would thrive and effectively have a nation state from which to train and launch attacks against the west on an unimaginable scale (including by this stage radiation and chemical i am sure)
Have always believed that the far left were high fiving away on 7/7 and 9/11
Run, run little ones the sky is falling, Chicken Little knows best.Don’t let the wall street stuff be blamed on us.It’s all a communist plot.Run,run little ones.But little sister didn’t we pay taxes to keep the sky from falling?No my child you paid taxes to keep the banks from FAILING,not falling.But which is it little sister the sky is falling or the banks are failing?Just keep running little ones and don’t stop to ask silly questions.
Haven’t been on here in a long while and this thread seems to have gone off in a strange direction!
Back to the "important" issues; who is the best candidate for the Áras?
Micky D, Mitchell, Dana, Mícheál, Gallagher, Barney Curley, Ted Walsh, Oliver Brady, Istabraq?
"The only radical options that can be put on the table are state run economies rather than free market. We have seen enough of that to know its an abject failure."
Enough of what? 14 million unemployed in the USA.Some capitalist economy.Bailed out by whom? The workers of the USA. Some abject failure that system.Unemployment insurance resisted by the Republican congress. Paid for by whom? The workers of the USA.
Capitalism IS a state run economy.There is no such thing as a free market economy.
Can Mary Robinson run again?How about the Archbishop of Dublin? He seems like an honest man.
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