Soak the Bankers

This is the first really smart move Obama has made on the economy since last years stimulus. Americans want action on jobs and punitive action taken against the financial gurus who got us into this mess.

http://www.political-buzz.com/

I might be missing something, but I think there are more than a few issues here. Mind you, I work in the software industry and my knowledge of the financial industry is limited to an introductory course in University.
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The problem is the concept of a “commodity” in the software industry is difficult to define. For a company like Microsoft or EA that produce products that are released in stores, you have a fairly distinct concept of “commodity”, but if you look at online services such as EBay or YouTube or World of Warcraft, there isn’t a commodity available. Why? Because we don’t deliver products, we deliver services and often the most valuable things we have are old servers and the software that ran everything. That’s fine for the three I listed, but, as was discovered during the the DotCom bust, when a company has software that fails miserably, there is nothing but vapor left behind.

Phlogiston futures! This stuff is rilly gonna take off, I tells ya!

Besides, the Free Market was invented by Saint Ronnie and Baby Jeesus, so leave it alone!

I don’t see why we aren’t taxing every single one of these transactions for 25 cents or so a pop. I am probably average, and I make approx. one trade a month which would mean I would pay $3 a year. It would discourage high volume styles of “investing” that aren’t based on fundamentals.
I might also investigate whether there would be a way to tax the bets made on leverage or margin, I like the idea of the FDIC charging banks based on how much leverage they use.

The unfortunate thing is that the “Fat Cats on Wall Street” and Big Blubber Bankers will merely pass on the cost of any tax to the consumer, as usual.
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With that simply notation mention, the next flaw of the Obama attack on Capitalism through more government regulations will in fact slow the already weak economy, and in the case of banks will just make them more conservative in their strategies at a time when we need them to be taking a little more risk in lending to small business or just business in general to stimulate job growth.
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The other factor which goes completely un-written about, and discussed is the FED. The FED had a record breaking year for profits. They announced profits for the FED was in the order of 56 BILLION that’s right with a big B billion dollars of profits. How is that? Where did the money come from?
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I know just a few short years ago when Exxon announced their record shattering profits, Democrats were calling for “wind-fall profit taxes”, to give the money back to the people and all the other Socialist-like justifications they could to attack business. I am all for everyone, including big business to pay their fair share of the taxes in this country, especially at a time when our deficits are not only through the roof but the stratosphere as we know it. BUT, we also know that these same big businesses unless they pass equal legislation and price controls which will never happen will simply pass it all onto us to pay at the pumps, etc.
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The FED is the only NON-Governmental business which has not been investigated or audited at this point, and was one of the major players in the complete collaspe of the economy. Why is that? What is there to hide? Any thoughts Joe? Anything in that book you read that made you an expert now on all things economic?
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The old adage, “Less is More” is so true. No only in government regulations, but in most things in life period.

Joe,

CDOs and CDSs are derivatives, meaning they are derived from another financial instrument or contract. Now I would agree with you that all forms of derivatives need to be regulated, but I would not agree they all need to be taxed. There are valid reasons for the existence of derivatives, and not all derivatives are “casino-game financial ploys”. Many companies (and individuals), use derivatives to hedge, reducing their overall risk exposure and stabilizing their financials. Some go in the opposite direction, using derivatives to increase their risk exposure in hopes of hauling in major rewards. You need both speculators and producers for this system to work. It is the speculators that provide the liquidity that allows the producers and consumers to hedge their bets and reduce risk.
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CDOs and CDSs serve the same purpose. They are used to hedge debts. When one party hedges, the other party bets. It can’t work any other way. Do they need to be regulated? Absolutely. The Glass-Steagall act should be reinstated for starters so our banking system doesn’t entangle themselves in financial derivatives and consequently risk the foundations of our entire financial system. Should they be taxed into oblivion? Absolutely not. I wouldn’t mind seeing some increase in taxes, but you have to be aware that the tax will reduce liquidity in these markets, which may or may not be a good thing.

There were wage and price controls imposed about 39 years ago. I forget… which party did that?

JK:

“I’ve never been very interested in business news”

You should have stopped after that sentence. I know once you saw a story that involved higher taxes your left wing ideology scored a coup over your brain. Although you did have one further sentence that was partially correct. Taxes inhibit certain behaviors like earning income for state and local governments, companies pension plans.

State and local government use derivatives to protect cash flows against bond isses they use for projects. This will increase the cost of issuing new bonds which will either: 1) be passed on to taxpayers or 2) limit the states ability to float debt for projects.

Companies use interest rate and currency derivatives to protect itself from volatility of earnings which determine jobs.

State pensions funds like CALPERS use derivatives to hedge investments which are used to pay pension benefits. Without hedges, unfunded liabilites (already huge) grow. The result? Wait for it— more taxes.

Banks use derivatives to hedge commercial and industrial loans. Again 2 results. Higher lending costs to the borrower or less lending resulting in less job growth.

Smaller firms, the engine of job growth, have more exposure to higher interest rates will have higher borrowing costs, again lowering hiring.

Proof? Before the financial crisis sececuritization accounted for 59% of the mortgages, 50-60% o fthe credit card debt and 90% of the auto loans. Now this markets are virtually dead. Taxing it will assure that.

Obama proposes a tax on the banks not to punish them, he says but to get back the tax payer money. Which is French for I need that money to re-distribute wealth. No mention form Obama that the shortfall in the return of TARP funds might be related to the government ownership and subsequent union giveaway of 2 auto companies that received TARP money that taxpayers will never see. The only US automaker that is doing well is Ford, that capitalist pig who refused TARP money.

Obama and his team remain in a pay grade that is way over their heads. All we are seeing is a vengeful child who has found out that the candy is all gone and he doesn’t have any to pass out to his friends..

Rusty,

The other factor which goes completely un-written about, and discussed is the FED. The FED had a record breaking year for profits. They announced profits for the FED was in the order of 56 BILLION that’s right with a big B billion dollars of profits. How is that? Where did the money come from?

From what I understand, the Fed profit came from interest payments on all the investments they’ve done to help stabilize the economy. In order to push mortgage rates down, the Fed purchased large amounts of securities from the US Treasury and from banks. The mortgage-backed securities were purchased for very cheap since no one wanted them at the time, but they do pay interest. The Fed has also done currency swaps with foreign central banks, which accounted for $2.6 billion of those profits. Fees charged to banks for Fed services also accounted for $700 million. I don’t think the Fed needs to be audited to understand where it’s profits are coming from. Furthermore, Fed profits return to the Treasury and the tax-payers, whereas Exxon Mobil profits get spent on maintaining their regulatory comparative advantage over alternative fuels.

Two points– first off, taxing banks that are “too big to fail” is a great way to incentivize banks (and consumers, if/when the big banks pass along the impact of the taxes) to avoid becoming so big that they can make bets that they know that society will have to cover if they fail. This is Econ 101 stuff, a great victory for common sense that we should have imposed a decade ago. See that noted left-wing rag, the Economist, on this point: http://www.economist.com/blogs/freeexchange/2010/01/risk_externality
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I agree with nathan7777 that there’s a distinct strain of populist know-nothingism in this post. But the larger point, that it’s bad for America for so much of our wealth to be in the finance industry, is incontrovertibly true. Noted far-leftist Paul Volker put it this way: “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence” and that the only beneficial financial innovation of the past 20 years was the ATM: http://www.ritholtz.com/blog/2009/12/volcker-only-financial-innovation-has-been-atm-machines/

So people who buy shady financial products will pass on the price of a tax to those selling shady financial products. Not much of an issue.
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Though it does seem to raise a point of “how does this incentivize them to actually check the deal out?”
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As for the Fed, a few notes: while technically it isn’t “Government owned” and officially it is private, the Fed is fairly heavily regulated (remember how TARP had to go through Congress before the Fed could lend out the $700 billion?), doesn’t pay insane bonuses to its employees for profits and surpluses, isn’t a for-profit company, isn’t publicly traded and beholden to investors, and, perhaps most importantly, the Democrats are talking about using the money the Fed got back to finance a second stimulus. Regardless of your personal opinions about the second stimulus, I’d think talking about spending the money the Fed got back which would almost certainly include the “profits” the Fed made would certainly be taxing the Fed’s “windfall profits” without, y’know, the messy taxation thingy as they electronically transfer the money to the government.
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BTW: The Fed made the $56 Billion on TARP loan repayments (which were made with interest). Mind you, they probably wrote down those TARP loans thinking that many of the assets they were pulling in were probably worthless which might also inflate that number.

Too late to sic Cass Sunstein on this guy?

http://michaelfury.wordpress.com/2008/09/24/as-wall-street-is-transformed-a-reminder-from-aaron-russo/

Nathan–

Agreed that there is some value in allowing investors and especially producers to hedge against loss–and that regulating these instruments is an important first step. But what we’ve seen is a major distortion in the market, with hedges being made against collections of collections of collections of loans–in this case, bad loans, subprime mortgages. And so, yes, I think a little less liquidity would be a good thing, especially since regulators in other countries are moving in the same direction. I don’t see what the speed of all these transactions has gotten us, except a smokescreen–and papers profits that don’t benefit the economy.

And as for ForgottenLord above, you’re right–services are goods, especially in a service-oriented economy.

@nathan and forgotten:
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Would you mind citing your sources for your information. I am definately interested in reading more about the FED and any audits that you have a link to which show what you say is true.
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I find the FED a very interesting entity that goes un-noticed for the most part and is equally just as shrouded at the same time.
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What I have been able to find thus far is the FED is a “Privately held” entity, with no Government oversight with the exception of the FED Chairman is scrutinized and approved by the Senate. Other than that, most of the people who are on the board are not disclosed, nor are any public records available on their actions.
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Nothing like we would see say with the Department of Labor or Treasury.
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Links?

Your right wing brain maintains a permanent lock on your reason skills. One can look at this two ways. Obama really is a socialist/Marxist/communist/antichrist and wants to destroy America’s economy. Or Obama is really trying to do what he believes is best for the American economy (and I happen to agree with him). I personally don’t care whether you agree with him or not, because I’m fully aware that your capacity for logical thought is severely impaired.
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Take for example this sentence of yours: The only US automaker that is doing well is Ford, that capitalist pig who refused TARP money. You see Ford’s increase in market share, you see the lack of government money at Ford, and you immediately conclude that Ford must be doing well because it didn’t take TARP money. Does that really make sense? Doesn’t it seem much more logical that Ford didn’t take the TARP money, because it was already doing well?
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Ford was in a much better position than Chrysler and GM before the financial crisis hit. Ford had paid most of it’s debt obligations and had a decent amount of cash reserves prior to the credit crunch. Ford didn’t need to borrow lots of money to stay afloat. The only reason GM and Chrysler are still here is because of the government. You think the government destroyed GM and Chrysler. Any reasonable person can see that it’s the other way around.
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As for your other points: State governments clearly don’t pay any taxes, so they wouldn’t be taxed. Also, a bond is not a derivative and a tax on derivatives would not increase the cost of issuing a bond. Where are you getting this from?
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Your other points about reduced lending is more accurate, but for the wrong reason. Lending costs would not increase, but liquidity would definitely go down. Not as many loans would be available. However, we’ve had decades of very low interest rates and easy credit, and it led to this financial crisis. A decrease in the availability of credit may be a good thing. It will reduce growth, but it would also help avoid speculative bubbles. Average sustained growth over decades would increase if we can reduce the appearance of bubbles.
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Your right wing, easy money, growth at all costs mantra may lead to rapid expansion, but it can also lead to rapid contractions, hurting the economy in the long run.

“Two points– first off, taxing banks that are “too big to fail” is a great way to incentivize banks (and consumers, if/when the big banks pass along the impact of the taxes) to avoid becoming so big that they can make bets that they know that society will have to cover if they fail.”

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Again, taxing the banks will merely end up as a consumer pass-through. Or if what I have read about this proposed tax that they will only tax the “too big to fail” banks, once they pass the tax onto the consumer, the consumer will simply move their accounts to those banks which are not being taxed. So much for increasing the Treasury coffers to offset any debt.

Joe Klein:
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First, I’d like to commend you for your honesty, but I’m sorry, I still don’t quite understand.
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You say you’ve just now, in the year 2010, finally understood the meaning of the term “credit-default swaps” by way of reading a novel, and so have an inkling of what AIG’s “Financial Products” division was selling, and what the meaning of those arrangements were. Unlike many of us, you apparently didn’t feel prompted to read credible, informed commentary such as Yves Smith ( link to naked capitalism ) or Bill McBride ( link to Calculated Risk ) since September, 2008, when we were first confronted with the public acknowledgment of a bottom dropping out. I wonder if you’ve now thought through what it meant for the Obama Treasury and the Federal Reserve to have borrowed so much money from foreign creditors in order to keep AIG capable of fulfilling the obligations of those credit-default swaps held by firms like Goldman-Sachs. Have you?
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I guess we should take this to mean that, when you wrote ( link to Joe Klein’s “Populist Rage? …Never Mind” )

I mean, AIG insured mortgage-backed instruments that any qualified CPA could have seen were as solid as a soap bubble and thereby came close to bringing down the world’s financial system–that’s outrageous.
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Today Geithner proposes a bank bailout plan. The markets love it–the Dow is up 350 points as I write–and so we can move on. No more calls for Tim’s head; the bank thing actually may get straightened out.

, you had no idea what you were talking about? It certainly looks like you were terribly confused –you excitedly shouting up the Dow, as opposed to this piece’s realizations about Wall Street today– but did you not feel the slightest bit constrained by your lack of expertise at the time?
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Presumably you also now believe that you know what happened in the financial industry’s collapse, and what caused the world’s largest institutions –the “too big to fail”– to fail. But you then go on today to prescribe state policy specifically to influence market actors?
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Am I missing something? Are you really this besotted by hubris? Do you really have this much faith in your own capacity for spontaneous genius? It certainly seems so. Are these new prescriptions of yours substantially informed by depth of understanding, or breadth of fact, or a series of minor epiphanies? Aren’t they simply a product of your ideological tendencies, something you would have been just as likely to say prior to reading the intriguing novel? How can you possibly feel entitled to hand policy opinion down from the mountaintops, given your record on this subject?
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It also seems that you remain unaware that there is a written record of your pieces that is made available over the internet to anyone who desires to understand what you have said about any subject at any given moment, and thus have an opinion of your credibility.
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For example, when you wrote, in March of last year ( link to Joe Klein’s “Don’t Panic — At Least Not Yet” ):

Reaganism was distinguished by…the belief that government was “the problem” and so less of it was better, tax-cutting (for the wealthy), deregulation…In many cases, especially deregulation–I’m talking about you, Lawrence Summers–Democrats were complicit in the excesses. In almost every case, a mild form of Reaganism was a plausible corrective for the Democratic excesses that had gone before.

“a plausible corrective”? Plausible to you in your vast ignorance, you mean?
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Did you not recall that Larry Summers was Bill Clinton’s Treasury Secretary at the time the Gramm (Phil)-Leach-Bliley act was signed into law by Bill Clinton, thus creating the financial industry monsters now threatening this government and our nation? Has it slipped your memory that Third Way New Democrats like you hailed this development as just such a “plausible corrective” –specifically for FDR’s “excesses that had gone before”? Can it be that you just forgot that the Lawrence Summers to whom you apparently felt comfortable addressing your remarks had been appointed Barack Obama’s Chief Financial Adviser, the Director of Obama’s National Economic Council? What were you telling him to do, exactly?
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Do you now realize your colossal incoherence on this subject, Joe Klein?
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Was it plain ignorance or ideological adherence to Third Way centrist principles that led you to write in 2005 ( link to Joe Klein’s “Incredible Shrinking Democrats” ) :

Bush’s private investment accounts, combined with a reduction in benefits or higher taxes, is one way for baby boomers to lighten the burden of our retirement upon our children. There are other ways, but none without pain. A far more profitable—and absolutely necessary—reform would be a market-oriented overhaul of Medicare, but Dems just say no to that too.
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All of which leaves Bush with a lot of room to lead. His speech last week was striking, and not just for that memorable hug. It could easily have been delivered by a New Democrat..
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There is, then, a profitable discussion to be had between “ownership” Republicans and “third-way” Democrats about transforming the stagnant bureaucracies of the Industrial Age.

, and to label efforts by liberal –not Third Way centrist– Democrats to oppose Bush’s Social Security privatization plan “more interested in preserving the past than in discovering the future”?
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Are you now ready to revise your ideas on Social Security and Medicare “market-oriented reforms”, Joe Klein, given your new-found knowledge of the financial instruments upon which privatization plans ultimately depend? Are you ready to stop slandering “Old” (laughable, given how much younger I am than you) Democrats’ insistence on government’s adversarial posture toward the industries it must dominate and restrict for the good of the nation to prevail?
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Are you ready to be honest, and admit that you were a loud cheerleader for the New Democrats’ approach to the industry that the Republican “Congress, incredibly, banned from regulation” along with the New Democrat White House, and its Treasury Secretary who sits a Obama’s economic right-hand today?
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Are you ready to dispense with pablum such as “brought under the regulatory umbrella“, and get serious about cutting the “too big to fail” institutions holding the American people and credit markets hostage down to manageable size?
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Are you finally ready to shed the New Democrat ideology that has caused so much failure of judgment all these years, and join the important discussions in the reality-based community over our beloved nation’s future as a serious –not a “Serious”– participant, Joe Klein?
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Thank you so very much for taking the time and trouble to read and consider this criticism. Hopefully it was less time than it took to read “I.O.U.: Why Everyone Owes Everyone and No One Can Pay“.

“Stupid is as stupid does.” We now have people like JK (admittedly ignorant about business until he read ONE book!) solving the ills of the economy. Amazing. JK and BHO still haven’t grasped the reality that all taxes, fees, levies, etc. businesses pay are ultimately passed on to us, the consumer/taxpayer. Or, perhaps they have, but in full appreciation of the gullibility and lack of knowledge demonstrated by a majority of the general public, disingenously support the notion because they won’t be found out to be tricksters.

Thank you so much for responding to commentary, Joe Klein, it is always enlightening and greatly appreciated.

When one party hedges, the other party bets. It can’t work any other way.
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nathan7777,
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When you put it that way, it sounds like a casino operation.
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And I guess I’m left with the question: how does any of this ADD any real value to our society? Beyond Wall Street, who benefits from this “gambling”?
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It doesn’t sound like a whole lot of brainpower is being devoted to inventing the “next generation” mousetrap. Our resident MOTUs seem to be sitting on the sidelines, waiting for the next great mousetrap to fall into their laps so they can fund the start-up and reap a profit.

I agree Joe, but I’m not so sure a tax is the right way to do it. You could probably get the same result, but I would prefer that parties be required to post collateral on derivatives much like stock investors have to do when purchasing options. I could be convinced, maybe, that a tax is appropriate, but that tax would need to be adjusted to fine tune the amount of liquidity available, and do you really want Congress in control of that? I think there needs to be a clearing house and exchange for derivatives, preferably under an SEC type organization (with teeth, and under close watch for corruption). You could even charge fees to use the service, which would effectively be a tax. If Congress thinks they need to get involved, then they can, but keep the day to day operation of the regulators away from the circus that is Capital Hill.

Amen for rational voices!!

Like Stuart, I would like to thank Joe Klein for his candor.

Unfortunately, I also have to agree with Stuart that Klein’s previous writings on economic issues are undermined by his ignorance of the subject matter.

Understanding what went wrong on Wall Street requires a basic understanding of how all the pieces fit together.

My right wing brain allows me to see reason that taxing everything that moves and government involvement in anything will fix this country.

There is a correlation between Ford not taking money and that it was doing better. It was doing better because it had lower labor costs than either GM or Chrysler. Despite one of the other big lies of the Obama administration neither GM nor Chrysler union workers gave up anything in return for being handed ownership. They continue to struggle with management because of government oversight. With union ownership and the government meddling both companies will struggle and taxpayers will never see the return of that TARP money.

States issue putable bonds. They use derivatives to protect against having to buy back those bonds that are put. If the cost of those derivatives rise the cost of the financing for the state rises (taxpayers cost).

An yes we have seen over the past year that reduced liquidity has been outstanding for the economy.What will reduce growth is higher unemployment which is occuring because smaller firms cannot access credit.

Having the federal government overly involved in business along with rising taxes will hurt the economy in the short-medium and long run.

That is an economic principle left wings haven’t learned and will never learn.

And as for “Obama really is a socialist/Marxist/communist/antichrist and wants to destroy America’s economy. Or Obama is really trying to do what he believes is best for the American economy”
Both are correct and we are on our way to becoming Haiti

aguy,
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It adds value to our society by increasing liquidity in the market. Too much liquidity can lead to bubbles, as we’ve clearly seen, but liquid markets are much better at providing effective and timely service for everyone involved. I’m going to use commodity swaps as an example because it’s easiest to understand and I know more about them.
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Say you are a refinery that uses a lot of crude oil. You need to set a budget for the year that you think you can work with. To set that budget, you need to know your expenses. A large portion of your expenses are going to come from your commodity input, crude oil. You could go to the spot market and buy oil at the spot price (the market price for that region) and pay a different price every day. However, you are taking on an enormous amount of risk because of variability in that spot market. What you want instead is a fixed price deal. You can’t get that at the spot market.
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To get a fixed price deal, you use a commodity swap with a financial institution, be it an investment bank or a large energy company or whatever. You pay them a fixed price for a predetermined amount of time, and they make payments to you based on a market price. So, you pay them $70 a barrel for a year, and they make variable payments to you, which you then use to buy oil at market price. You are effectively getting oil at $70 a barrel, regardless of the market price, and the investment bank can make (or lose) money by attempting to forecast the market. One party is reducing his risk, and the other party is increasing it.
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You can do this will all sorts of things other than commodities. You can do it with debt, with interest rates (interest rate swaps make up the vast majority of all swaps), with equity, with currency, etc. Farmers use swaps to hedge against crop prices, and airlines use it for jet fuel (Southwest Airlines is famous for this).
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A swap is only one form of a derivative, but they all tend to increase liquidity. When you pay fixed price for your electricity, you are benefiting from derivatives. When you get a loan to buy a car, or finance your business, or buy a house, you are benefiting from derivatives. If you own a business, you can take on debt (or purchase debt) and then hedge it by using a CDS. Too much liquidity can be bad, but not enough can also be bad. Our housing bubble was a case of too much liquidity. The credit crunch was a case of not enough liquidity.
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Derivatives are not inherently bad, but when some forms of derivatives are not regulated, it can get out of control.

You just don’t have that nuanced understanding of taxes. Only the rich pay and they never change any behavior as a result of a tax and companies will never pass it on. the tax to its customers because they are in business to serve government.

Obama wants executives to take stock instead of cash and then tax the profits and of course the stocks will continue to go up with lower profits. So the executives compensation wont go down

You simply can’t understand if it exists tax it if you have such a common sense approach to the problem.

I’m afraid that the problem is one of basic psychology. The pattern is one of a left-wing authoritarian follower. Klien knows and understands only what he is told by certain figures he holds in high esteem – today’s financial authority: John Lanchester (the novelist). For FISA, it was Pete completely-wrong-about-the-legislation Hoekstra, on war crimes disclosure his sources at the CIA and, in general, his fellow liberal-hating Beltway “centrists”. Let me repeat: he only knows (i.e., believes) what his authority figures tell him and real liberals, like Krugman or Atrios, who have been elucidating this massive bank fraud for over a year, are generally embargoed from consideration.

SZ:

“Are you now ready to revise your ideas on Social Security and Medicare “market-oriented reforms”, Joe Klein, given your new-found knowledge of the financial instruments upon which privatization plans ultimately depend?”

Just curious. Will the the left approve of derivatives to fund SS, Medicare, Medicaid, HC, federal debt + interests and state and local government pensions since other than leverage how do you get a tax rateto exceed 100% because that is what will be required just for these.

Despite the lefts allergies to the markets how else do you propose to pay for this social justice?

The same Krugman who was a board consultant when it melted down?

“Amazing. JK and BHO still haven’t grasped the reality that all taxes, fees, levies, etc. businesses pay are ultimately passed on to us, the consumer/taxpayer.”
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Actually, they grasp the much more complex reality (too complex for “conservatives” anyway) that so are their crimes, frauds, deadly products, pollution of our environment, subversion of our laws and regulations, corruption of our government, etc. etc. It’s not much of a bargain if it winds up killing you.

No no no. I think it’s you guys that don’t understand. You could strip all taxes, fees, levies, etc.. Sure the economy would be much more efficient. Sure taxes would be lower. Employment might be higher, but you never want to reach full employment anyway. Higher employment means higher inflationary pressure (hence the reason for immigration, to fuel growth without increasing inflation). But then you get the wild wild west of capitalism. You get extremely high income disparity fueling unrest. You get corporate collusion and trusts. You get rampant pollution. You get employee abuse. You get child labor and excessive work hours. And most of all you get the traditional boom and bust cycle which much more frenzied booms and much deeper busts. Taxes, fees, levies, etc are there for a purpose. They do come with trade-offs, but the difference between me and you is that I realize the alternative is much worse. You can legitimately debate how high taxes should be, or much regulation we should have, but the moment you tell me we should get rid of all taxes and get rid of all regulation is the moment I write you off as a lunatic.

Thanks, nathan7777, for the finance lesson.
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What you are saying, then, is that, in many cases, one type of financial transaction is used to minimize the risk to the banks created by the use of another type of financial transaction.
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More liquidity make money available to the rest of us if they decide to loan it or we have anything of value to loan it for.
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Just seems like a lot of the creativity these days is in these areas and NOT something that might help the rest of us who do not own businesses. Works out good if you are making your living from banking and stocks or services. Not so good if you are looking for work. And if the instruments fail as they just did, the rest of us get hurt and hurt badly.
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Not picking on you, just giving a different perspective.

What are you blabbering about, freeper?

Hi Rusty, I don’t post very often, although I do read Swampland every day. But here is a link for you from the economist:

http://www.economist.com/blogs/freeexchange/2010/01/fed_savvy_investor

“The Fed’s high earnings stem from its greater involvement in financial markets, and the profits are turned over to the Treasury to be used to pay down the debt.”

Ford was doing better because they just happened to see the trainwreck coming. I think, frankly, that one of the reasons that happened was that they had a connection to a family enterprise, and real manufacturing. GM? Set up by Wall Street.

Ford fired their CEO and hired an engineer. Their new cars are well-engineered, fuel efficient and they have a very good Sync system that gives you a view of all the data that a traveler needs, and music besides. Not surprising from a man who designed the 727 cockpit controls. Ford had already sold off the brands they couldn’t support when the merde hit the fan.

The greatest harm that Washington did to the car industry is not regulating their fuel consumption more strictly. When oil went up past $100 a barrel, guess who got stuck with dinosaur SUVs?

“Your right wing, easy money, growth at all costs mantra may lead to rapid expansion, but it can also lead to rapid contractions, hurting the economy in the long run.”

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I some how missed the “easy money, growth at all costs mantra” which freeinpa put forth in his comment.
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Could you direct me to that, nathan?
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What hurts more in any economy is when any Government uses taxes to increase the coffers of the treasury to pay for domestic programs on the backs of business. This will decrease job growth, and further decrease needed business investments.
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When governments impose taxes it is for two reasons, to increase government coffers to spend on programs or to penalize.
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Governments do not stimulate growth in any economy. Governments do not stimulate growth in the economy because they have no products to sell, they do not manufacture any products to sell which the off-shoot of that would be jobs.
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Governments however do tax, and then spend. The hope is that when the spending by individuals has decreased, a government can take over and spur on spending to those businesses. However, what we have seen historically is that Democratic run governments tend to spend on social programs, which in turn do not stimulate businesses for the most part. They merely “spread the wealth” to the have nots in our society so that they can hopefully spend. Mainly that spending is in the form of food or shelter. Just the bare basics of life.
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The best alternative is a free market economy with little to no government involvement. The more regulations and taxes, the less any business will invest into their own growth, in turn creating jobs. Jobs decrease, and social welfare programs grow. Once you enter this cycle, the deeper the recession or depression, and the longer the average worker in our society suffers.
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Free markets also tend to weed out the bad businesses. The ones who have become stagnant or are no longer productive. Consider it as an evolutionary concept. The weaker ones die, the stronger ones get stronger and survive. It also spurs on innovation and new ideas. This also is a great growth and job creater. Not tax and spend governments.
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So in conclusion, freeinpa is absolutely correct. GM and Chrysler should have been allowed to fail on their own. Yes, there would have been many Union jobs lost. But, we would have also seen major growth in the auto sector, Union jobs, high paying union jobs would have been reduced, but more people would now be employed. The recession in my opinion would be fully into recovery right now, but because of all the bailouts, we shall see at least another 2, perhaps 5 years of slow growth in this country, and more people who have given up on findng a job, and resort to the social welfare programs for support.

freeinpa:
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I’m not a big fan of the term “Social Justice”, since I don’t really know what it means. I don’t understand how it differs from ordinary “Justice”, for example. You’d have to ask liberals whose primary political goal was “Social Justice” about that.
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As far as allergies to markets goes, we’re not f*cking socialists, as I apparently must repeat over and over again to rightists. We’re liberals, which means that we see the state in a more adversarial role acting on behalf of consumers, ordinary working people, contractors, entrepreneurs, small businesspeople, shop-owners, and small farmers to counter the power of enormous, monopolistic-tendencied, market-controlling, people-controlling industry and finance.
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The Third Way people believe that “regulation” means the state asking the biggest players to write the rules of the market, we believe that this decreases competition and leads to economic stagnation, along with a host of other social ills. That said, we’re unabashed capitalists, too. We need people to have power over the state, lest big government grow unmanageable and unaccountable –the way it is now, under centrist control.
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We’re not allergic to markets, we’re just not market fundamentalists or market-collaborators. Please get that straight. The proliferation of small entrepreneurs is our goal, the Third Way people find it easier for government to deal with gigantic monopolies and cartels, and so protect them at all costs –crushing the little guy in the process, like the natural bureaucrats they are.

Who cares?

The Administration is working on mechanisms of a tax that would be less likely to be passed on to consumers, and part of the trick is the fact that only the “too-big-to-fail” banks are being targeted. This actually creates an incentive for the big banks NOT to pass on the tax to consumers, because if they did so, the smaller banks would be able to compete (not subject to the tax) with more favorable rates for consumers, thus strengthening the competitive power of smaller “not-to-big-to-fail” banks.

freeinpa,
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GM and Chrysler did win concession from the unions. http://money.cnn.com/2009/04/26/autos/chrysler/index.htm
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Also, state’s do buy derivatives on their bonds, but any tax system could easily exempt states from having to pay taxes. State governments don’t pay sales taxes do they?
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An yes we have seen over the past year that reduced liquidity has been outstanding for the economy.What will reduce growth is higher unemployment which is occuring because smaller firms cannot access credit.
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Clearly you wouldn’t want to reduce liquidity at a time that we need more of it. The problem is when we have too much and need less of it. The government needs to have a mechanism to influence the liquidity generated by derivatives markets, and right now no mechanism exists for that purpose. It could come in the form of a tax, although I disagree with Joe on the tax part. I would prefer that it come in the form of a clearing house or exchange that sets requirements and charges a nominal fee.

freeinpa, Krugman sat on a panel in 1999 sponsored by Enron. You know, the company whose president was on the short list for energy secretary.

Typical memorized and persistent right-wing smear of a man who thinks circles around you.

“You can legitimately debate how high taxes should be, or much regulation we should have, but the moment you tell me we should get rid of all taxes and get rid of all regulation is the moment I write you off as a lunatic.”
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Which would be more intelligent than the entire Beltway press corps and every “conservative” voter for the past thirty years. The problem for corporatists (the people who invent this absurd dogma) is that, if you engage in a conversation about the correct levels of taxation and regulation, they’ve already lost (the way they see it). Better to inculcate people in idiotic hostility toward all taxes and regulations to: 1) conflate their own interests with the interests of our super-rich corporate owners and 2) make them hostile even to taxes and regulations that are necessary and prudent.

Thank reality!
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However this is not quite what I was looking for, but a start none-the-less.
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It doesn’t explain WHO the Fed is. WHO the players are or really HOW they made all those “profits” in the first place.
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This is however kinda scary from the article you cited.
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“There will probably be losses down the road when the Fed has to sell some of its holdings to mop up excess liquidity in the economy.”

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I was also looking for info on how much money the FED has printed in order to “buy” up all those toxic assests. Basically in my research and economics classes, and I did study under the “man” himself, Alan Greenspan when he was at the American University in the late 70′s, Washington DC.
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I saw a show on TV where it showed all the printing of money the FED did, how they simply put all that almost now worthless money over to buy up the toxic assets, but the question going forward “can the balancing act” of the FED stop a complete bust of our dollar? Will this eventually end up as a total devaluatoin of the dollar and you will need to take a wheel barrow as they did in Germany in the 1930′s just to buy a loaf of bread. I guess time will be the judge.

I fully understand their logic, reality. However, I do hope that the FDIC has enough money to cover the eventual “run on the banks” as people move money from the big banks to the small ones. It could create a “panic-like” atmosphere when we are already very vulnerable.

Rustydog:
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Do you understand that the Fed doesn’t literally “print” money?
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I’m not being argumentative, do you understand how money is created in our system?

Just seems like a lot of the creativity these days is in these areas and NOT something that might help the rest of us who do not own businesses. Works out good if you are making your living from banking and stocks or services. Not so good if you are looking for work. And if the instruments fail as they just did, the rest of us get hurt and hurt badly.
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Do you buy anything, afguy? If you buy something from a business, chances are you are benefiting from a more liquid market. Do you own a house? If you do, then you are definitely benefiting from more liquid markets. Do you own a car? Do you own a boat? Do you own a credit card? Have you ever financed anything? Have you ever taken out a loan? Do you invest in mutual funds? Do you have a pension? Do you drive on roads and highways? Do you enjoy your clean water? Is your electricity delivery system functioning well? Do you have gas or fuel oil heating?
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I’m not picking on you either, but market liquidity does trickle down to the consumer. I agree with you that a large part of the economic growth this country has seen in the last decade or so has been growth in the financial sector. But businesses employ people, and businesses benefit from liquid markets as much as consumers do.
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The problem is not so much that we had too much financial innovation, but that we were swept away by the allure of high rewards and low risk. I think our country was focused on growth at all costs and was not paying attention to the swelling speculative bubbles fueled by so much liquidity in the derivatives markets. And yes, we all paid a price when that bubble burst.
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I agree with you that we need to be focusing on other areas for innovation. Health care delivery, infrastructure development, space exploration and development, sustainable energy, green technology, mass transportation, higher education, and so on. But growth in all of these areas will require liquid financial markets, because like or not, a lot of the capital for start up companies and technology research comes from the financial sector, and the financial sector makes a lot of their money by amplifying their risk exposure through derivatives.

nathan7777

The “concessions” by Chrysler and GM had little to no affect on current costs. They froze wages, not lowered and put in a 2 tier pay system which affect new workers not current ones. Given the lousy auto markets new workers are not likely any time soon. And since the UAW and the government own the majority, they will be negotiating with themselves since the Obama adminstration has become as wholly-owned sub of the unions. cost control for wages and benefits are not likely.

If the government taxes derivatives, when states fo rthier bond issues buy one, the issuing bank may be taxed on it/ They will pass that cost on to the state and thus the taxpayers.

As for controlling liquidity, the worst place to control it is with the government, since it has been proven i the past year, politicians will sell or give away their mothers to garner votes. Recall how well the Democrats ran the House Bank. For less than 1000 people it could not help but kite checks.

The takeover of businesses and corporate meddling by the government has shown no ggod will come with them controlling liquidity.

Stuart:
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Do you understand that you’re dealing with the equivalent of the preoperational stage of intellectual development?

No thanks, I’m not going to dig through months worth of Time and CNN articles to find the ones explaining how the Fed has limits to what it can do (most of which were published over the course of the past year) and even stating how the Fed needed Congress to let it release more money which is why it went to Congress for TARP. I am not going to dig through the weeks of articles that would eventually lead me to discussions about how the Dems were talking about using TARP money being returned to fund a second stimulus and the many articles about how TARP money is being returned with considerable interest though I’m almost certain that you not only read that article but went out of your way to accuse the democrats of being idiots/socialists/wasting taxpayers dollars/etc. I am not interested or concerned sufficiently in finding an Audit I never claimed existed. I have other things to do.
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I will, however, direct you to the wikipedia article which says, amongst many things about regulation, “In particular, the United States Government does not own shares in the Federal Reserve System nor its component banks but does take all of its profits”.

shepherdwong,

So, if I get your drift, we should tax, regulate, etc. business out of existence because it is inherently evil. Good to get the liberal agenda out in plain view.

I know Barry and he does a fine job in his blog. Key piece that was at the end of his article about Volcker was the “co-conspirators” involved Geithner and Summers. The foxes now guarding the hen house. The benefits of the financial innovation? Allowed for credit in housing, auto and general credit. Was it all good? No. But doesn’t the poor innocent consumer share that blame. When they were the recipients of the nobody and including the liberal blowhards in Congress complained. On the contrary they wanted more.

Indignation at the banks only is a disingenuous.

nathan7777,

As is typical, because you (correctly) identify me as “conservative” (what an invective…) you (incorrectly) imply words/thoughts I did not say or think. I fully recognize and acknowledge the need for taxes to support government. If you can show me anywhere where I stated otherwise, I am happy to apologize. Quit being so reactionary. What I am merely pointing is that there IS a price to pay for all taxes regulation and it is WE who will continue to pay for them. That being the case, we should tread lightly, lest we bankrupt ourselves in the pursuit of social justice.

Transaction tax: Guess who will really be paying such a tax and forever … Main Street. Like all costs that increase, businesses pass the cost onto the consumer. It would not surprise me if they use the increased tax cost as an excuse to increase fees much more than the cost of the tax. The disastrous debt derivatives that the banks created were not even traded on the highly regulated securities exchanges. The exchanges and their securities did not participate in the financial crisis.

newfreedomblog,
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Yes, the government taxes to raise revenue to pay for programs. It’s not a difficult concept. By saying all taxes should disappear, you are effectively telling me that we don’t need any of the current government programs. Period. I at least thought you would say we need defense. But what about road building, schools, clean water, pollution, social safety nets, etc. Are you saying we don’t need the FDA, SEC, FDIC, Fed, USDA, NTSB, NASA, National Science Foundation, USAID, Social Security Admin., Federal Energy Regulatory Commission, EPA, Peace Corp, Medicare, Medicaid, CHIP, FCC, CIA, OSHA, etc? Which ones would you keep? Which ones would you get rid of? The only way to eliminate all taxes is to get rid of all of them.
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You know another reason why the government taxes? Negative externalities. If a chemical plant upstream dumps solid waste into the river, who is going to account for the deleterious effects downstream? Certainly not the chemical plant. So the government regulates and taxes that activity to include the cost of that negative externality in the cost of doing business.
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Sure you could strip all taxes, fees, levies, etc.. Sure the economy would be much more efficient. Sure taxes would be lower. Employment might be higher, but you never want to reach full employment anyway. Higher employment means higher inflationary pressure (hence the reason for immigration, to fuel growth without increasing inflation). But then you get the wild wild west of capitalism. You get extremely high income disparity fueling unrest. You get corporate collusion and trusts. You get rampant pollution. You get employee abuse. You get child labor and excessive work hours. And most of all you get the traditional boom and bust cycle which much more frenzied booms and much deeper busts. Taxes, fees, levies, etc are there for a purpose. They do come with trade-offs, but the difference between me and you is that I realize the alternative is much worse. You can legitimately debate how high taxes should be, or how much regulation we should have, but the moment you tell me we should get rid of all taxes and get rid of all regulation is the moment I write you off as a lunatic.

As for controlling liquidity, the worst place to control it is with the government, since it has been proven i the past year, politicians will sell or give away their mothers to garner votes.
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And leaving it up to industry is the better solution? I don’t want congress controlling it either, which is why you need an independent agency like the SEC doing it. It’s still part of the government, just not the legislative branch. We do have more than one branch of government remember?

randomkirk:
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“…if you engage in a conversation about the correct levels of taxation and regulation…
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vs.
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“…we should tax, regulate, etc. business out of existence because it is inherently evil…
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Good to get your complete lack of reading comprehension and understanding of observable reality out in plain view.

SZ:

I think you are being a bit koy. You know perfectly well what social justice is. It is the redistribution of wealth fro the perceived haves to the perceived have nots.

====

“We need people to have power over the state, lest big government grow unmanageable and unaccountable –the way it is now, under centrist control”

This runs counter to all of the arguments you an dthe supposed other liberals have made regarding the current pass the HC bill at all costs.

===

And to achieve the goals you suggest implies a greater volume of regulation which requires a bloated government that needs more money (taxes) This stands as a block to entrepreneurs and small businesses that you deem you wish to help. More regulation and bigger government only begats more regulation and a bloated corrupt government. So you goals while admirable do not square with the method you want to achieve it.

Small words for you. Is shepardwong promoting as a source of brilliance the same Krugman who was a paid consultant to the board at Enron as it melted down in the energy futures market.

Krugman had a underwear bomb that actually went off. And he still didn’t know it. If he was right on anything it was a 5 sigma event.

Well, although I like the Economist better than the WSJ, this is a decent primer on how the FED operates to influence monetary supply:

http://blogs.wsj.com/economics/2007/08/12/how-does-the-fed-inject-money-into-the-economy-a-primer/

You are trying to highlight the obvious fact that taxes are an inefficiency and society lives with the cost of that inefficiency. I know that. You know that. Everyone knows that. You, however, are trying to use that fact as a counter argument to introducing new taxes or adjusting the tax rate. It’s not an argument against taxes, just an acknowledged trade-off. I’m saying that I think regulating the derivatives market, which will of course introduce inefficiencies and reduce liquidity, is a necessary trade off to eliminate the enormous amount of liquidity that helped spawn the speculative housing bubble. One way of reducing liquidity in that market is to levy a tax on financial derivatives. Of course it will reduce growth in that sector. That’s the point. However, rather than a tax, I would prefer regulating the market via an exchange or a clearing house under the purview of an SEC like entity (if not the SEC).

I agree with you that we need to be focusing on other areas for innovation.
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That was my point. Thanks for the civil conversation. It’s appreciated.

Read the wikipedia article on the Fed, rusty. It has plenty of sources for you.
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Also, any of the links in this google search will provide plenty of information on where the Feds record profits came from:
http://www.google.com/search?q=fed+record+profits&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

And those advisory meetings to discuss economic issues were on ? wheat? toy production in China?

I have friends who worked on the Enron trading desk and if Krugman did not know what was happening he was the only one. Which goes to the point of how little he should stick to theoretical economics.

If he was there without any knowledge of what Enron was doing while he collected money from them and wrote puff pieces in Fortune he was a whore and an idiot.
But that is redundant for liberals

freeinpa:
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No, I’m being completely honest. I don’t actually understand what proponents of “social justice” are talking about, because I’m not that kind of liberal –I’m a neo-neo-liberal. Maybe they’re talking about the disparities of health care outcomes that seem to correlate with race, maybe they’re talking about something else, I don’t know. Ask one of those liberals, because I still haven’t figured out what the difference between that and normal justice is.
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I do know that soaking the middle class to pay for programs to help the poor isn’t justice, social or any other kind.
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As far as wealth redistribution goes, there’s something wrong with a system that redistributes wealth upwards to the least physically productive people, and the people who can afford to take the most risk gambling and pissing their money away on tranches of CDO’s. Socializing the risk and privatizing the profit of financial elites isn’t liberalism, which is why we’re scandalized by the Obama Administration doing just that.
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We’re not in favor of the US of A looking like some banana republic where the top income earners live like princes, and the rest of us don’t get a fair shot at moving up in life, and have to be content with less and less. We’d like to turn the economy around from where it’s been going over the past two decades, and reverse the trend of wealth redistribution from the middle class to the rich and super-rich. It’s not Robin Hood we’re after, it’s an end to wealth welfare policies.
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Speaking of welfare for the biggest and the wealthiest that soaks the middle class, that brings us to HCR legislation. I’m sorry you haven’t been paying attention to what I’ve been writing about this topic ( link to my commentary “The real villains are the profiteers and their enablers in the Democratic party. “ ), but if you had been reading it, you would have known that I think that this health care legislation is worse than doing nothing at all, and I oppose it as it currently exists. I’m working hard to try to help my fellow liberals understand just how badly they’re being played by the centrists who came up with this monstrosity. Other liberals who comment here are, too.
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When you talk of a bloated government that needs taxes to regulate the big guys, no, I disagree. It doesn’t. All it needs to do is not pass laws repealing depression-era laws that would have prevented Citibank from merging with Travelers’ Group Insurance –therefore letting Citigroup write and sell insurance policies against its own debt risks– and let the DOJ do its work. That or any number of trust-busting actions to break the “too big to fail” down into operations that can’t hold the rest of us hostage is what I’m talking about. Your ideology is speaking for you, because you’re thinking I’m proposing some kind of vast new bureaucracy like the idiotic Dept. of “Homeland” Security and its color codes, when I’m just talking about changing the current relationship between the state and industry.
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Your impressions of liberals and liberalism aren’t informed so much by real liberals like me as professional rightist entertainers who try to make us look as bad as possible, truth be damned. You should start believing your own eyes, instead of what comes out of the mouths of people who are paid to piss you off, probably.

sheperdwong:

12.4 Who cares?

Boo-hoo. Yep that’s my goal in life is to win to the affection of the learning impaired left.-NOT I will sleep like a baby knowing that a left wing dimwit could doesn’t care what I have to say.

“Which ones would you keep? Which ones would you get rid of? The only way to eliminate all taxes is to get rid of all of them.”

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I do not believe that I proposed to eliminate all spending and all taxation. If you got that impression then you were simply are wrong.
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Suffice that to say, I was simply responding to the fact that you indicated due to freeinpa’s lack thereof a “left-wing” brain, he was wrong to say that the bailouts were wrong.
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I simply suggested in allowing free market forces to correct the problem first before resorting to new government intrusion into the free market economy.
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You are a liberal, a “left-wing” brain. Your solution to the problem is big government, taxes and spending programs.
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I believe that a smaller government with less intrusion is better and historically has been much better in stimulating jobs and growth. You have no precedent to cite examples which prove your points, only a Krugman-like theory to back up your claims. I happen to like more proven examples rather than theoretical possibilities.
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Will there be be bigger and worse falls? Possibly. Will bubbles exist as they have in the past? Possibly. Can you say that by involving government more into our economic system will be better, the same or worse? You can’t. If anything, a more “socialistic” approach has been proven to be a complete failure. With the current exception of China, all socialist programs have failed. Miserably.
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China is at a precipice in my mind. Soon they will have to make a choice to go full fledged Capitalism or go back to a more Socialist form of Government, Society and Economics. I some how believe that “market forces” will cause China to make a choice. A potential collaspe I predict is in the cards for China, unless we continue to buy buy buy from them, which I believe is also coming to a end soon. China will then be faced with a choice to either scale back or buy up everything they manufacture. Build big warehouses to store it all in hopes that we start buying again.
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I’ll wait to be proven wrong.

“If he was there without any knowledge of what Enron was doing…”
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It was a FRAUD, you partisan moron. If anyone outside the organization knew what Enron was doing, it presumably would have been stopped before the wheels came off. I swear it’s like explaining the world to a (not-very-bright) five-year-old.

Deep down I knew there was a more reasonable person in there.However I will respectfully disagree on several points. First some liberals hide behind other labels like progressive or centrist because liberalism as it has stood for the past 40 years is for nothing but wealth re-distrinution, taxes, more government and more regulations.Many are nothing but socialists under a different label.

While you state your desire to build up the middle class by reversing the repeal of some laws like Glass-Stegall, the end result is still more government. To oversee these re-regulated entities requires more laws more government more bodies. Under that guise we had the creation of EPA, HUD, Department of Education, EEOC and possibly the soon to be HC 100 plus agency bonanza and the countless Congressional Committees to oversee all important things like steroids in baseball or a playoff system for the BCS. Regardless of your high minded intentions, the demand for government grows because of the always present perceive sleight of someone and the need to protect the unsuspecting poor or middle class from big bad business.

As far as I am concerned there is nothing as “too big to fail”. The banks always knew that the boneheads in government would bail them out regardless. That makes the government the least likely of anyone to take the correct action in a crisis. This country was based on individual accomplishment and responsibility. The left has turned it into group politics and that no one can ever suffer for their mistakes and businesses took advantage of that as well.

My impressions of liberals are not from rightest professional entertainers (Which I assume is code for Beck and Limbaugh). Read the antics of some of the left here . If the impressions of the left by the entertainers are a caricature, they only prove that art imitates life.

Yes, it is, although the bottom line that the Fed increases the money supply by letting the biggest banks lend money they don’t have to other banks is a bit opaque.

I should add in fairness that the subject of the WSJ piece wasn’t this : ( link to the Federal Reserve’s explanation of the “Discount Window” ).

“It was a FRAUD, you partisan moron”

Yes and you are a non-biased truth seeker. BAwhha hhahah! Good one.

So was Maddoff. And folks who bothered to look knew it. Just as several analysts who looked at Enron.

So he was offering economic advice based on???? Not knowing anything of what they were doing. That would make him a typical liberal blowhard like you. A pompous know it all who knows nothing.

Yes stuart, I know the Bureau of Engraving and Printing ACTUALLY PRINT the physical dollars we each hold in our hands.
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But, it is the FED who controls the suppy of such dollars, right? In controlling the supply they determine if we need to “print” more (increasing the suppy, making it easier to get money through loans etc) or pull back on the supply, decreasing the amount of dollars we can potentially borrow.
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I didn’t mean litterally that the FED printed money. That is used as a means of expression to show who actually controls the supply of money.
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The increase or ease of borrowing money through the FED will determine who can borrow and how much. They “lend” those dollars to Commercial Banks. But at the same time the easier it is to get the dollars, generally the lower the value. If the FED continues to borrow dollars by “printing” them, the lower the value of our dollars become, increasing inflation (increasing the cost of the things we buy), and lower our overall net worth.
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The opposite is true, that if you decrease the “money supply” things will cost less or be harder to afford. Our dollars will be worth more, but we have less of them to spend.
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Fiat money is only as good as the FED is able to juggle it around. I hope dear Ben is good at juggling, especially the amount of debt that we have recently taken on, which also equals an INCREASE in the money supply from the FED. Meaning the “FED JUST PRINTED THE MONEY”. There were no tax dollars collected or a windfall of pennies from heaven. Bush and Obama just said “PRINT MORE DOLLARS”. “We will pay it back, we promise we will. The same increase in dollars that will devalue what I have saved up in the bank.

Oh, and shepperdWRONG
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KISS MY LILLY WHITE A$$

freeinpa:
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OK, maybe I’m not doing a good enough job making the case. You still seem to think that we think that good ol’ fashioned Teddy Roosevelt trust-busting requires acres of bureaucracy; we don’t. You still seem to think that the giveaways of hundreds of billions of dollars to the monopolists and cartels is a liberal policy; it isn’t. You still seem to think that Obama (and his administration) is one of us; he isn’t, he just was less than honest with liberals during the biggest political opportunity of his life.
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If I’m doing so poorly convincing you that this is the God’s honest truth, then maybe a professional can do better. Let’s see if Time’s WordPress blog software will allow embedding video today:

Well, the preview pane is showing a video, that’s good.
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In case WordPress still doesn’t like it, here’s a link to something you should watch ( link to The Case Against Tim Geithner )
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Now that’s real liberal analysis, not liberals apologizing for centrists because they’re Democrats (and all we’ve got).

I’m sorry sheppedWRONG. I shouldn’t have shouted at you or called you an A$$wipe basically.
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I know you are a mere prepubescent little worm, please forgive me.
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Oh, and STFU when you do not have anything intelligent to contribute.
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Ummmm I feel better now.

“I’m sorry sheppedWRONG. I shouldn’t have shouted at you or called you an A$$wipe basically.”
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Eh, don’t sweat it. Knowing that I struck a nerve is thanks enough.

nathan7777

“It’s still part of the government, just not the legislative branch. We do have more than one branch of government remember?”

Yes and where does the SEC get its funding? Wait for it —The legislative branch. The same one that threatened the SEC on funding over accounting conflict of interest rules as the Senator from Connecticut and Arthur Andersen halted rules.

Or the same legislative branch that chastised the Bush administration over fear mongering that Fannie was in financial trouble ( Thanks Barney)

Or the SEC, that conducted multiple audits in Maddoff without finding anything awry.

The Fed should control liquidity but its independence is comprised daily.

Knowing that I struck a nerve is thanks enough.
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Come on, dude, that’s trollery. You don’t mean that.

shepherdwong,

“…if you engage in a conversation about the correct levels of taxation and regulation…

Good to get your complete lack of reading comprehension and understanding of observable reality out in plain view.

…you partisan moron

…Do you understand that you’re dealing with the equivalent of the preoperational stage of intellectual development?”

OK, I stand corrected…you were saying we should have a dialogue on taxation, regulation, etc. So…do your petulant rants qualify as cogent liberal thought? Why would any reasonable, thoughtful, INTELLIGENT, person want to have one with you?

nathan7777

“I’m saying that I think regulating the derivatives market, which will of course introduce inefficiencies and reduce liquidity, is a necessary trade off to eliminate the enormous amount of liquidity that helped spawn the speculative housing bubble. One way of reducing liquidity in that market is to levy a tax on financial derivatives. Of course it will reduce growth in that sector.”

I will be the first to acknowledge that increased liquidity helped create the housing bubble. But not just the housing bubble. Our entire economy has been careening down the path of destruction because of that liquidity. Our consumer society has been conditioned to expect more more more because our financiers have found ever more ingenious was to generate the capital necessary to feed that demand. How many people in this country were convinced it was their right to own a home, and not something they would need to save at least a modest down-payment for?

Our benevolent government helped create the demand for sub-prime financing to fulfill this notion with its insistent demand that prudent underwriting should be ignored to ensure virtually universal home ownership. If Congress had truly wanted more control over this market, they simply could have raised the FHA and VA loan-guarantee levels to ones that reflected market reality. That way, many, if not most, of the people buying homes with sub-prime financing would have had another, “safer” alternative to consider.

As I said, I agree with your assessment. The problem is: who in government is going to tell the people of this country that they can’t have it all? And, which areas of liquidity do we constrain? Who makes that decision? Union) A benefit to all of us arising from the pain of the past several months is that, perhaps, we are learning that lesson on our own. Now to profit from it…

Just 2 final observations:

1) While you think that you would not need acres of bureaucracy, I can say without fear of contradiction that there is nothing so permanent as any government program and its accompanying bureaucracy. There is never a program or funding cut that is not called draconian even if it means a cut in the growth rate of the spending. And that is courtesy of the left.

2) I agree with your analysis that Obama lied to everyone during the campaign. However those of us on the right were called racists for saying the very things that are now being played out.

I will watch the link tonight.

newfreedomblog,
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You’re speaking in platitudes. “Less government means more jobs”, “fewer taxes means more growth”. I swear conservatives and libertarians repeat these mantras until they can’t think of anything else. Look at the evolution of the American economy from 1700′s until today. Look at the steady encroachment of what you call “socialistic approaches” to regulating an economy. And yet our economy still grows.
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Will there be be bigger and worse falls? Possibly. Will bubbles exist as they have in the past? Possibly. Can you say that by involving government more into our economic system will be better, the same or worse? You can’t.
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I can. Pollution is the most obvious example. Building infrastructure and operating public schools is another. Busting trusts, preventing collusion, and protecting the competitiveness of markets is another. Policing and regulating financial markets is important too. Protecting our food and water supply is a good one as well. Have you read “The Jungle”? You should if you really think the government shouldn’t be regulating and inspecting our foods.
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With the current exception of China, all socialist programs have failed. Miserably.
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You do realize that the US has quite a bit of socialist programs built into the government, correct? Do you consider our country a failure? Canada seems to be doing well. What about the EU? Are all those countries failures? The US has one of the most liberal (small L) economies of all the developed nations. I guess every other developed nation on the planet just a failure.
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Perhaps you should come up with parts of the government you would like to see abolished rather than talking like you want all of it gone.

“Come on, dude, that’s trollery. You don’t mean that.”
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Actually Stuart, I do. I simply don’t have any patience for this crap any longer. One, it’s been too damned expensive for the country and two, reason simply doesn’t work with these people. You must realize that by now even if you choose to be exceedingly polite about it.

William Greider is a noted expert on the inner workings of the Federal Reserve. He wrote an excellent book on it about 20 years ago:
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http://www.amazon.com/Secrets-Temple-Federal-Reserve-Country/dp/0671675567/ref=sr_1_3?ie=UTF8&s=books&qid=1263517612&sr=1-3

In order to get financial regulation, you only need to convince the bankers. And that’s easier done than most people think. They’ve already made two crucial admissions (in congressional committees) which, taken together, are a cry for help.

1. We did was “allowed” or “what we could get away with” (my quotes), i.e. we didn’t break the law. To quote Goldman’s Blankfein directly, “[the investors we sold crap to] were institutional investors. They were professionals.”

His point is that the buyers should have known better. But implicit in his admission is that *he willingly sold crap,* because he was allowed.

2. We were incompetent, to the extent that we were given free will, and we killed ourselves. We exercised no moral compass, and a lack of good judgement.

You can’t have these guys admit guilt more than they already have. The trial is over. They are *asking* to be regulated.

“You can’t have these guys admit guilt more than they already have. The trial is over. They are *asking* to be regulated.”

Regulated by the same useful idiots who were supposed to be overseeing them in the first place. The same people who are now pointing fingers at everyone but themselves.

We may have survived the crisis. The question is can we survive the cure?

@freeinpa:

“If he was there without any knowledge of what Enron was doing while he collected money from them and wrote puff pieces in Fortune he was a whore and an idiot.
But that is redundant for liberals”

Hey, that is a great (and needlessly pejorative) example of why important debate on these issues is almost non-existent. But we are used to a certain group choosing mudslinging over intellectual rigor.

Incidentally, “liberal” and “free” are closely related terms….

Dear Mr. Klein;
I must tell you that when I read a statement such as yours: “what capitalists are supposed to do: investing in products that will help to build our economy” I immediatly ask. Where does it say that? Is this your opinion or a fact stated from a book or research paper?
If this is your opinion, I believe the statement should be preceded by the sentence. “If I were the God of capitalism the first commandment is:”
If it is a fact, you should footnote the referance so that it can be checked.
I don’t mean to be flip but what does the work of a writer such as your self, or an artist, or a musician build for our economy? If the work is judged by someone else not to be of constructive use for the good of the masses should you then be selectivly taxed? Or possibly legislated by the latest governing body.
My point is this. If the banks or their employees or anyone for that matter breaks THE CURRENT LAWS then they should pay thru the courts. Past that sorry Charlie, this is America. You are free to live and work as you please as long as you follow the law.

Ummm…have you read any of shepherdwong’s posts? I assume you two are fellow travelers.

“Soak the Public” should be the title. This tax will only passed on to consumers, as are all taxes.

What does our government need all this money for anyway? I can’t help but be a little worried that the regulation to “save us” results in the government taking more money, and more power.

If you think that the people who are pilfering our country are at all concerned about a 0.15% tax, just wait until you get your next bank statement, and they have passed on a 1.00% tax to you.

A real plan of action would be to charge the executives with misfeasance, or malfeasance, and go after their personal wealth. Provided that you could prove that they did something illegal.

Keep in mind that legislation got us to where we are now. The US government enticed executives to take more risk when they enacted salary caps on publicly traded companies. The only way for these guys to keep their incomes where they were was to back date options. When legislation was passed against back dating options, they started taking on additional risk to jump up their salaries based on non-backdated stock options.

This also served to run up the stock market to abnormally high levels.

People still think that there is money to be made by outsiders in the stock markets… and they still think that our government can regulate us out of trouble.