On the precipice

I had not realized how close we came to a total collapse of our economy back in September. Check this out from Zero Hedge.

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.

We are no better off today than we were 3 months ago because we have a decrease in the equity positions of banks because other assets are going sour by the moment.

Right is right

bailoutIf a bank takes a bailout of a billion dollars or more (maybe less), it should be declared bankrupt. Sorry, but if taxpayers have to pony up that kind of serious money it is clear that such an institution is bankrupt by any normal measure. It may be necessary to the economy to save the institution and its depositors and borrowers but there is no need to save the shareholders or the managers that drove the bank into a ditch so large that without a bailout it would fail.  Otherwise we are insuring against failure. Economist James Galbraith explains to Amy Goodman of Democracy Now.

Geithner speaks, markets plunge (update)

This guy is not doing the job. He is proposing another vague plan, short on details, much like TARP 1.  The markets promptly reacted, negatively. Other reactions were compiled by Andrew Sullivan here. Wonkette has their take here.  The markets close down about 4.2%. Yikes.

Update: Paul Krugman at his best.

An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can’t understand.

I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation.

Geithner wins

The problem with some of President Obama’s selections is that they are too tied to industry and failed policies. Exhibit A is Timothy Geithner. The New York Times is reporting that he prevailed in the internal policy debate on the next round of bank aid. He fought against conditioning the aid on forcing out existing management, and wiping out shareholders’ equity.

Abandoning any pretense about limiting the moral hazards at companies that made foolhardy investments, the plan also will not require shareholders of companies receiving significant assistance to lose most or all of their investment. Some officials had suggested that the next bailout phase not protect existing shareholders. (Shareholders at most banks that fail will continue to lose their investment.)

Nor will the government announce any plans to replace the management of virtually any of the troubled institutions, despite arguments by some to oust current management at the most troubled banks.

Finally, while the administration will urge banks to increase their lending, and possibly provide some incentives, it will not dictate to the banks how they should spend the billions of dollars in new government money.

This is the wrong approach. From a policy perspective, those who invested in a failed company that needs taxpayer aid to survive should lose their investments.  And demonstrably incompentant management should also be removed.

Quote of the day

Republican Florida Governor Charlie Crist, announcing he will appear with President Obama at a rally in support of the stimulus plan tomorrow in Fort Myers, Florida.

“I am eager to welcome President Obama to the Sunshine State as he continues to work hard to reignite the US economy.”

Looks like not all Republicans are against the plan after all. (via TPM)

State secrets (updated x3)

Today we will find out of the Obama administration will follow Bush’s lead in arguing for a “state secrets privilege” to keep past torture episodes out of the courts totally. The administration has already said (via Eric Holder) that there will be no prosecutions of front-line CIA personnel. Will it al least allow the facts to come out?

Update: ABC News is reporting that the Obama administration’s position is no different than the Bush administration on the state secrets privilege. This is another failure on the part of the Obama administration in its promises to protect civil liberties and end torture.

Update 2: More from the New York Times.

The court papers describe horrific treatment in secret prisons. Mr. Mohamed claimed that during his detention in Morocco, “he was routinely beaten, suffering broken bones and, on occasion, loss of consciousness. His clothes were cut off with a scalpel and the same scalpel was then used to make incisions on his body, including his penis. A hot stinging liquid was then poured into open wounds on his penis where he had been cut. He was frequently threatened with rape, electrocution and death.”

Update 3: Even more from Glenn Greenwald and Andrew Sullivan.

The Obama administration will continue the cover-up of the alleged torture of the British resident. The argument is that revealing the extent of the man’s torture and abuse would reveal state secrets. No shit. This is a depressing sign that the Obama administration will protect the Bush-Cheney torture regime from the light of day. And with each decision to cover for their predecessors, the Obamaites become retroactively complicit in them.

So what are they hiding from us? Wouldn’t you like to know?

Compromising compromise

Paul Krugman (who recently won a Nobel prize in economics, is very unhappy with the way that so-called “centrist” senators have affected the stimulus bill.

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.