I am speaking at an AEI panel today, with Tim Bitsberger,  Joshua Rosner of Graham Fisher & Co., Walker Todd, of the American Institute for Economic Research, and R. Christopher Whalen of Institutional Risk Analytics.

Summary:

The credit crunch and financial panic of 2008 triggered a remarkable series of government interventions and bailouts, including huge government investments in financial firms and ballooning of the Federal Reserve balance sheet. What have been the effects of these massive interventions, and what do they imply for the future? What is 2009, with a new administration and Congress, likely to bring? What should be done or not done? At this event, a panel of experts will address these and other questions.

If you are in the neighboehood, come on by.

Category: Bailouts, Credit, Derivatives, Politics, Really, really bad calls, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

27 Responses to “Bust, Bankruptcy, Bailouts: What Should We Do Now?”

  1. VennData says:

    Careful, whenever a “Conservative” starts referring to “Social Spending.” Immediately ask them for the details. In the case of the current GOP media machine’s coordinated efforts to label parts of the stimulus as “Social Spending” that refer to the State’s health care costs (that the Feds mandate they pay by the way.)

    Then ask them if how people who are sick can benefit from any job-creating scheme, anywhere.

  2. ottovbvs says:

    Now there’s a bunch of open minded people. Who knows you could bump into 36,000 Hassett.

  3. going broke says:

    Do now? …Bank, Balance and Behavior… comes to mind.

    Bank your Bucks!
    Balance the Budget!
    Bureaucratic Behavior!

    I doubt the last two will happen in my lifetime, but, one can dream.

  4. JohnnyVee says:

    Nationalize the banks–wipe out equity and debt. Create a viable bank and sell it back to private sector. It seems more like a controlled bankruptcy. Why not?

  5. stinger says:

    First time entering the comment but…
    here’s the bailout of main street
    1. chapter 7 bankruptcy roll back to prior 2005 rules
    2. chapter 13 bankruptcy cram down mortgage and car loans
    3. bankruptcy attorney make a boat load
    what should we do….. don’t know what should happen but what will happen you can take the above to the bank, oh not there they are still in trouble, ok take it to the credit union…. ooops who know what’s toxic in the loan portfolio anywhere…. ok like the godfather said, take to to mattress.

    how did do for the first time?

  6. Lars39 says:

    “Bust, Bankruptcy, Bailouts: What Should We Do Now?”

    1. Define: What did we do/not do to allow this to happen?

    2. Fix number 1.

  7. kim palma says:

    Bankruptcy a very toxic part of every person who’s in the bank, thanks for your blog hope to read something how to avoid being bankrupt. Nice blog, thanks for the info.

  8. gemonticillo_11 says:

    thanks for the blog…!!! it helps me how to avoid bankrupt its nice..

  9. call me ahab says:

    ok- so I have to ask. Bank stocks have been rallying the past few days based on the government purchasing the bad assets of banks and thereby cleansing the balance sheets- so why do the sotckholders get to benefit from this government largess? They have invested in poorly run undercaptalized bankrupt institutions but yet- they will be allowed to profit from their poor decision. Does anyone else have a problem with this? The fact that the same management is still in place is another sore spot with me.

  10. Patrick Neid says:

    I hope some time is spent one possible outcome—that all the plans may fail or make things worse. Then what?

    Is the cure worse than the sickness?

  11. HCF says:

    > They have invested in poorly run undercaptalized bankrupt institutions but yet- they will be allowed to profit from their poor decision. Does anyone else have a problem with this?

    Absolutely! This is a direct transfer of wealth from unwitting taxpayers to incompetent stakeholders. I think that we should offer NO support to shareholders, preferred shareholders, or unsecured junior debt holders. The ONLY role of the Treasury and Fed should be to protect counter-party risk to enable transactions to complete. How the hell did we get in the business of protecting private citizens making bets?! Overall, it just makes me ill watching all this…

    HCF

  12. Tom K says:

    Not a whisper on the Big Picture about the “stimulus” bill making it’s way through congress. It looks like a goodie bag full of rewards to those who voted for change: http://online.wsj.com/article/SB123310466514522309.html

    The MSM deserves an F for not informing the American people what’s in this bill. You have to turn to a conservative editorial page for that. What happened to those inquisitive skeptics in the MSM? Oh I forgot. Their guy won.

  13. DL says:

    Tom K @ 4:41

    Even more important than what’s in it is the question of how it’ll exacerbate the existing government debt situation, and how this relates to social security and medicare, not to mention the inevitable inflation that will be induced to extinguish some of the debt.

    Particularly on MSNBC, their attitude is, the more government debt we’re obligated to pay, the better off we are.

  14. km4 says:

    In the past, when excessive debt burdens were accumulated by government, they tended to do one of two things: either they defaulted—this is the Argentine solution—where you say, “Ah, I’m sorry, I’m afraid we’re not going to be able to meet the interest payments this month, and never again will we make the interest payments.”

    The other scenario is inflation, where the real debt burden is eroded because the money that it’s denominated in loses value.

    I don’t think we’re really going to be out of the woods here until something of that sort happens to the huge debt burdens of the U.S. economy. Either these debts will have to be fundamentally written off in some way, or inflation will have to reduce the real burden.

    Ferguson: Cancel U.S. Debt
    http://paul.kedrosky.com/archives/2009/01/28/ferguson_cancel.html

    It appears that the Obama admin is trending towards default.

  15. R.D. says:

    AEI lol The zillionaire director steers policy from a think tank

    to make massive currency trades.

  16. Bob A says:

    who knows
    people might invest again if they think the government has a clue…
    which they haven’t
    for a long long time
    on the other hand
    lotsa bad shit could still happen

  17. Patrick Neid says:

    I had no idea Obama’s biggest supporter, George Soros, was at AEI.

  18. JoWriter says:

    HCF 4:40 pm – you expressed your dismay with unworthy shareholders continuing to get dividends from companies that took govt bailout money. I assume you are aware that some of those shareholders are union and state employee pension funds? Not to speak of various widows and orphans owning mutual funds that hold positions in those companies? What do you suppose would happen if their income levels dropped precipitously?
    Also, as I have pointed out before, companies taking TARP funds must promise not to raise dividends or executive compensation until they pay back what they got from the govt.
    Actually, I agree with you that these funds should lose their dividend income, since I have not supported any bailout package that’s been proposed or adopted.

  19. HCF says:

    @JoWriter

    I am certainly aware of pension funds, unions, widows, orphans, etc. owning (directly or indirectly) the Citibanks, Bank of Americas, etc. of the world. However, imho, the #1 of any fair system is that those who were in line for the gains should also be the first to bear the losses. Nearly every investment, ESPECIALLY stocks and corporate bonds is by definition speculative, so if a person or organization cannot afford to lose money, they should put that portion of money into cash, treasuries, or secured debt. I am not saying that we should not help others or that society as a whole should bear no burden when crap hits the fan. That would be, of course, impossible. However, shareholders, preferreds, and unsecured should be wiped out before even considering tax payer money. In addition, dividends should ALSO be ZERO. No profit, no dividend.

    When Fannie and Freddie became explicitly backed by the government, it was said that PIMCO made several billion in one day. That would be a direct transfer of wealth from taxpayers to private stakeholders. There is definitely something perverse in that… All the bailouts now are like that, but to the nth degree. At least FNM/FRE had implicit government backing… I’m pretty sure that Citibank, et al, never did!

    HCF

  20. Mike in Nola says:

    The limelight is corrupting you, Barry. Run into Wolfowitz, Perle, or Lynn Cheney while you were there?

  21. call me ahab says:

    @ HCF

    well said- I could not have said it better myself

  22. usphoenix says:

    Agree stimulus is goody bag intended to juice tax receipts and keep taxing bodies afloat long enough to recover. But there’s a good chance lots of taxing bodies are about to race the banks to the failure mode. The feds can print money, but the other guys can’t.

    Any politician that says the stimulus plan is meant to create jobs is drinking the kool-aid. It’s a real disappointment to see the dream team fall into the mud already.

  23. bruerr says:

    Instead of bad bank, I propose we call it “The Idiot Bank.” No private firm would pay .80 cents on the dollar for the troubled or toxic assets. They would not value those assets that high. As an example, look at JP Morgan, they got Bear Sterns for 2$ share or 2-10 cents on the dollar.

    Only a Cheshire cat like Tim Geithner would mandate the U.S. pay .80 cents on the dollar, on behalf of tax payers (claiming it is to their benefit because it frees up the banks allowing credit to flow again).

    They are talking like the Federal Reserve will pay .70, .80 or .90 cents on the dollar. Many large banks have already taken tax write off on those assets, equal to .30-.35 cents on the dollar, providing them with savings they would otherwise have had to pay on those assets. Morgan Stanley wrote them down 100 percent.

    If we pay them an additional .80 cents per dollar for assets they already claimed write downs against, isnt that like being an idiot who sets up a laundry service in a town and creates advertising to say he will pay money from his own pocket to wash other people’s soiled laundry?

  24. bruerr says:

    The better solution is to liquidate insolvent banks and find stronger banks to take over their customer base. Instead of 8000 banks, we end up with 4000 (or 2500).

    Since we did not do this last year, we should ask for the 700 Billion back, claiming error in judgment (citing banks did not use it to lend to anyone). Then use that money to facilitate liquidation on insolvent banks and finding stronger banks to take over the accounts and their customer base.

    Let the stronger come to a leadership role and use ANY money to aid the stronger banks during the transition and acquisition of new accounts from the other banks.

  25. bruerr says:

    Solution A:

    Consolidate the sector and protect account holders. Do not protect the officers of insolvent banks. Banking officers of insolvent banks and so many branches are viewed as bloat. It is such bloat that the people do not trust.

    Protect the account holders. Reassuring them as promised. Use maximum effort to protect individual businesses and account holders. In this way the Federal Reserve protects enterprise in other sectors, and spending power of tax payers.

    It also uses its power to find stronger banks with better staff and planning skill, to lead the financial sector out of the recession.

    When the people see the Federal Reserve is mass-foreclosing and consolidating the industry, and it is done (should have started last year), they will start spending again.

    The economy can be improved by getting rid of bloat in the banking industry. When this happens, the public will applaud, some confidence will be restored and spending will resume. People might even start to re-invest their savings again.

    Get rid of the bloat in the banking industry.

  26. Stuart says:

    Would you loan the Treasury funds to buy failed assets at inflated prices? I wouldn’t. So, where does the Treasury gets the funds from to inject bad bank with? This is the question that will drive the performance in all other markets.