Thursday, April 09, 2009

MoonBat Crazy

I kind of wish this crisis happened in 1990 because then Ravi Batra would be head of the TARP oversight committee, and he's looking a lot better than those currently proposing radical transformations of our economy. I listened to MIT professor and pundit Simon Johnson on Bloggingheads outline his master plan to save the economy: nationalize the big banks if they can't recapitalize in 30 days after marking their assets to 'true' value. It's all laid out here. What is the true value of a bank's balance sheet? That's not trivial. Indeed, if we knew that there are lots of interesting solutions. But, he gives himself a good margin for error, estimating the plan will cost $1.5 Trillion. The other part of his plan is cultural, ridding us of the kulaks--oops, 'oligarchs'--by capping their pay, and replacing them with public servants. Nothing like a 2000 word article to instigate a $1.5 Trillion dollar project. I wonder what that RFP would look like.

Who do we replace our evil oligarchs with? Rahm Emmanuel (who made $19MM in 18 months as an investment banker)? Jamie Gorelick (made $40MM at Fannie, appropriate for a former Clinton Attorney General)? These were government officials and representative of the types of people who are useful to corporations. They are even more dangerous because their connections make them valuable precisely because all they do is navigate regulations and government oversight, granting their firms special status relative to those who compete on the merits. We need fewer of these people, more unsympathetic Wall Streeters who everyone knows is selfish and greedy. The last thing we need are bankers who do the 'public good', because saddling these institutions with this vague objective gives rise to all sorts of payoffs under the guise of helping the poor, as it merely makes sure the SEIU, African-Americans, women, the handicapped, and transgendered Native Americans--to mention only a few--are treated fairly. The do-gooders usually end up pocketing more for themselves than anyone; at least a businessman is honest about his selfishness (United Way and CRA blather excepted).

Seeing the jack-boot of corporate oligarchs as our root problem, and comparisons of American bankers to third-world government-sponsored businesses suggest he slipped in some bat guano that might have gone into his ear. As a former chief economist at the IMF, his resume is a gold-plated do not hire for anyone actually trying to solve problems. The IMF is not known as a successful turnaround specialist, though they do have experience spending trillions of dollars. They are filled with government do-gooders who, paradoxically, are painted as part of a capitalist conspiracy by leftists (funny because the only IMF and World Bankers I have known are staunch Democrats). Chief economists are generally people paid to do PR. They don't get their hands dirty actually banking, instead they talk a lot about 'important' things like the money multiplier, the Phillips curve, and how the latest durable goods report is really interesting. If you think executives or any powerful executive group listens to their Chief Economist for practical advice, you probably think the Easter Bunny at the mall has a tough weekend ahead of him.

For $1.5 Trillion less I have a better plan (for $1.5T, who doesn't?). Leave the market alone. If a bank goes bankrupt, let the bankruptcy courts handle it. At least, try my plan for all banks west of Philadelphia, and in five years we can do an evaluation.

7 comments:

Anonymous said...
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J said...

Now that you mention it, I do see some similarities between American banks and third-world government-sponsored businesses.

American banks are super-regulated by the Govenment, dependent on Government monies, and many of them, owned by the Government. They exist in an environment dominated more and more by the Government. Today, only pirate-style operators are truly sensitive to the market.

Anonymous said...

I think we need more people like Hank Paulson and George W. Bush running the banking system.

Since November, the US taxpayer provided $300 billion notional of CDS protection to just three banks -- WFC, BAC, and C.

This is pure capitalism at its best.

Again, none of this would have happened in if the GOP had been in power.

It is all the fault of the Democrats.

Only the idiots like Stiglitz will fail to note that the stock market rallied immediately after the GOP released their budget.

Let us offer thanks that we have people like you, Rush Limbaugh, and Anne Coulter who really understand economics to enlighten us.

Anonymous said...

"Leave the market alone. If a bank goes bankrupt, let the bankruptcy courts handle it."

Banks don't go bankrupt - haven't since the 1930s. They are nationalized, recapitalized, and reprivatized.

Believe it or not, you and Simon Johnson agree - nationalize, recapitalize, and reprivatize insolvent banks.

All for only 1.5 trillion. What a bargain.

Anonymous said...

Let's be serious here.

If we could "try your plan for all banks" with no silly caveats like "west of Philadelphia", Simon Johnson wouldn't need to propose a plan.

Anonymous said...

They let Lehman fail. The result: 20 trillion wiped off from global capital markets, VIX at 80, TED spread at 500 bps, credit markets completely frozen, money market funds breaking the buck...

I wonder what would have happened if they let citi AIG, BAC fail...

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