Chaos and Opportunity

Seems to me the outrage over the AIG bonuses presents an opportunity. If the feds are ever going to nationalize failing financial institutions, now would be the time to do it. The public will understand.

Unfortunately, what this episode shows us is that the Obama Administration is being much too cautious — or much too something — in dealing with the financial crisis. Let us not be weenies, Mr. President. Although the President may be, as Glenn says, “sounding the right note,” talk ain’t gonna cut it.

See also the Talking Dog and Balkinization.

11 thoughts on “Chaos and Opportunity

  1. What is amazing is that after two months in office (and a 2 1/2 month transition beforehand), the Obama Administration hasn’t once suggested anything in the nature of legislation to solve the problem of “regulatory arbitrage,” to wit, one unified financial regulator (securities, banks, hedge funds, insurance, commodities, YOU FREAKING NAME IT) so that never again (or at least, not for a while) can the big boys just sneak in between the regulatory holes and bring down the system. Hell, you’d think criminalizing credit default swaps if nothing else, would be a no-brainer.

    Instead, other than hundreds of billions of (borrowed) taxpayer dollars flowing out the door to prop up already large, rich and powerful institutions (who in turn pay large bonuses to their own fat cats), the Government (neither Team Bush nor Team Obama) has done nothing to deal with the systemic problems… which is why many believe that the effect of all of these bailouts will be little more than to simply belay an even bigger collapse/crash.

    This is not “change we can believe in.”

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  3. I think too many of the people on Obama’s economic team come from the University of Chicago School of Economic’s. And that’s the group that led us down this path from the time of Leo Strass, to the unfunny Uncle Miltie, to Greenspan.

    They specialize in ‘disaster creation,’ not disaster recovery.

  4. I think there’s a lot of undoing from the past administration that’s biting us all in the behind. It’s like cleaning up toxic waste and finding another sinkhole deeper than the others. Let’s just keep bringing these things to light and hoping sooner rather than later that chaos becomes abundance.

  5. A word to the wise is sufficient?

    I don’t consider this whole episode of bonuses to be a distraction..I see it more as a focal point that’s bringing attention to credit default swaps and how damaging the alternate universe of financial dealings has been to our economy. Talk about derivatives?…I see this whole financial mess we’re facing as being a derivative of a Ponzi scheme. And the only way it can end is by collapsing.

    When the current value of existing credit default swaps exceeds the value of all the economies of the entire have know that something is terribly out of whack, and that you have a big big monster on your hands.

  6. talking dog, I’m not all that sure we have a law problem per se. What we have is eight years of not funding the enforcement agencies, and staffing them with people who are not inclined to (or were told not to) enforce the rules.

    And I’m not convinced that outlawing credit default swaps is necessary. I think they should repeal the 2000 law (I think it was passed in 2000) that said that speculation in the credit default swap market was exempt from the state gambling laws. Making that illegal again would bring stability to the system, and give us the added benefit of removing insane people from the market. (Anybody who speculates on derivatives is, by definition, certifiable.)

    What we do need to do, imo, is set some rules on how big banks and insurance companies are allowed to get. Then if somebody finds themselves in an unhedged CDS hole in a bad market, they can be properly punished by quietly going out of business without their retention bonuses and without taking the world with them. And the guys who buy these “products” will learn that they have to do some homework to make sure the seller is sound. Proper regulation should provide the information to make that informed decision.

    In other words, I personally don’t think it’s the government’s place to tell someone how much risk they can accept. I think it’s the government’s place to make sure that this risk isn’t assumed by the taxpayers if they take on too much and fail.

    PS: We also need to beat some sense into the CEO of AIG, preferably using the business end of a shovel. I think the Bush administration had a whole bunch of guys specially trained and authorized for that kind of work.

  7. Can Obama legally nationalize AIG?

    We pay for it, we own it? Pretty sure there’s no law against that.

  8. Can Obama legally nationalize AIG?

    We did a lot of that in the last banking crisis; shouldn’t be an issue. I haven’t really heard anybody in or outside government raise it as an issue. Youngstown Sheet & Tube Co. v. Sawyer apparently (but vaguely) limits the president’s power to sieze private property in an emergency, but as Joan said, if we own 80% of the thing, it’s pretty much already nationalized.

  9. I hope someone will get some laws on the books that will regulate enough that we don’t have anymore “too big to fail companies”. If a company gets that big, there should be some indicator to say, you deal with it if they fail. I also think a ban on bonuses in companies not making a profit might be reasonable.

  10. So Obama is less aware of opportuntiy and shifting winds than those here? Or does he just have a different sense of timing? Time will tell. What will happen when those on political left and right call for Geithner’s head? The lynch mob has hardly gotten warmed up.

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