TL;DR Theatre Presents: ZOMG WTF BANKING CRISIS, Act II: "I Can Has Bailaut Nao?"

[crossfire]

Welcome to TL;DR Theatre, where we're presenting ZOMG WTF BANKING CRISIS, a play in two acts. This is Act II: "I Can Has Bailaut Nao?" in which we will talk about the choices we have for fixing this banking crisis.

Since this got a little long (okay, it got a lot long...hey, this is TL;DR Theatre, remember?), here's a quick Table of Contents:

A

Comments

[twfarlan]

Calling for blood after hearing only one side of an argument is what reactionaries and fundamentalists do. Reasonable, rational people listen and think. Yes, I'm sure there are people saying, "So you naturally are about to scream for blood."

The only real question, to me, is this: what causes the least harm to the least amount and effectively resolves the problem? The answer is nationalization. Yes, this means that some people who are currently wealthy and think themselves powerful based off that get the short end of the stick. Thing is, based off the idea that the person who screws up ought to suffer the punishment, they have only themselves to blame. They were greedy and short-sighted, and now we all have to suffer. If we're all going to suffer, saint and sinner alike, then let the sinners carry their rightful share. "Next time, don't fuck up."

[crossfire]

Oh, I meant calling for my entrails because I'd set myself up as one of the Bad Guys in my hypothetical uber-simple First Bank of Crossfire. :)

Nationalization is how you fix banks that have this problem. It's just how it's done. You can't expect the taxpayers to pay through the nose for toxic assets, not without some sort of promised return.

But like I said, nationalization is going to cost some very powerful people almost everything they have. And I don't think the people at the top are ready to have that conversation. Yet.

[richdrich]

What happens *after* nationalisation? You've got the banks being owned by the Department Of Banking or whatever - they don't know how to run banks, so they have to pay people to run them. Who might well carry on in their own sweet way irrespective of who the nominal owner is.

The second bit of course, is that you've described how the banks run out of money and the government bails them out. What happens when the *government* runs out of money (as it seems possible the Brits have).

[crossfire]

After nationalization, the government sells the banks back to investors. In some cases, the government only holds the banks for a couple of hours, just long enough to process the paperwork involved in transferring the cash replentishment and resetting the bank's financials and then the paperwork involved in the sale to investors. If I remember correctly, the FDIC nationalizations in Oklahoma and Texas only took a couple of days.

By selling the banks back to private investors, not only does the government get out of the banking business as quickly as possible, it recovers some of the money used in the bailout. Not all of it, but some.

When the government runs out of money, and your banks are still in trouble, chances are very good your country will go bankrupt. The results will be terrible economic depression and quite possibly social and political collapse.

[kightp]

*applauds*

Well done. Thank you for helping me organize my vague thoughts around this.

The media and Congress surely are not helping right now, what with the false populist "get the torches and pickaxes, let's go kill us some execs" rhetoric and all. Yeah, I'm kinda pissed off at rich people myself right now, but that isn't helpful...

[pernishus]

I'm kinda pissed off at rich people myself right now, but that isn't helpful...

...unless (one supposes) one has torch, pickax, and appropriate victim close to hand, -- along with (one again supposes) a very good lawyer, public and judicial sympathy, and an assuageable conscience...

Burning the Mad Scientists and their Castle is another of those activities that, while temporarily satisfying while under way, palls considerably in retrospect...

[randomdreams]

A related article in the New Yorker compared it to arguing with a madman who has a pocketful of dynamite and is locked in the closet with you. While you might be technically correct about not wanting to give into the madman's wishes, you're not going to win the argument in any meaningful sense.

[crossfire]

Oh yes. You are absolutely right. And there are some places with such deeply depressed markets that it'll take a long time to get back to the pre-bubble values, let alone the bubble values.

The thing is, we don't have to have the market recover to the bubble values. We don't even need it to get to pre-bubble values. If we believe Citibank and Bank of America's financials, they are really well-capitalized (I was surprised, actually, how well capitalized they are). So we just need the market to come back some, so that these toxic assets stop eating up the banks' equity and making them insolvent. I'm not sure how much recovery we'll need, but my instincts say it's not unreasonable

[randomdreams]

One of the things I find interesting about the whole situation is the idea that money can disappear, in vast quantities -- that it would be an easy matter for 40% of the 'money' in the world to just vanish, because suddenly everyone realizes that they overvalued everything. That's a sort of inflation in itself. Much of the 1929 depression was caused by enormous leverage and the resulting collapse when either the fulcrum or the applied force shifted just a little. In this case it seems like we had smaller leverage, but many more levers all interconnected, leading to the same problem. I wonder if some amplifier control theory from electronics wouldn't be useful -- but that probably only works with systems that aren't intelligently, actively gamed to maximize their amplification. It's an inherently difficult system to stabilize

[feylike]

well 40% of "money" disappearing really depends on how you look at it. IMHO what happened to cause this mess is that credit was too cheap for too long. i think that if you look at "money" in terms of (as i understand it) "M0" -- cash and demand deposits -- then not much has disappeared. it's in "softer" money that the "value" has evaporated, because it was mispriced. units of currency are both circulating currency (M0) and bookkeeping units for "less concrete" assets, and it's the latter that are getting us into trouble.

[randomdreams]

That's what I find tricky about money/value: there aren't any actual hard-coded numbers, just relative scarcity and demand, but we (individually and culturally) assign fairly hard-coded numbers to some values. When those move, it's very difficult for people to deal with.