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We Should Have Let Them Fail

Tex

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I think a few of you on this group have stated that the current economic bad times would have been a lot less severe than if we had let the banks fail. At this point, I would have to agree with that. The nation has to stand behind depositors, but I think the bankers need to be held accountable instead of retiring to the Hamptons.

This author put it pretty well when he went through the causes of our collapse and he hit the nail on the head as to who made off skimming off profits while the economy was leveraged to unrealistic levels.

We have to stop allowing this to happen and go after the people's assets who caused the problem. We have to stop allowing politicians to be bought by the highest bidder and the courts protecting the scammers with the no ex post facto law arguments that Wall Street pulled out of their butts to escape responsibility.

Teachers and unions didn't cause this financial collapse as many would have you believe. Public employees didn't either. It was politicians and their high level bureaucrats who sold out to a few campaign dollars.

Tex

John R. Talbott

Author, "How I Predicted the Global Economic Crisis*: The Most Amazing Book You’ll Never Read"
GET UPDATES FROM John R. Talbott



What is constraining consumer demand and preventing an economic recovery and thus causing unemployment to remain at high levels? Consumers have too much debt.

What is depressing the housing market in which approximately one third of homes in the US are worth less than the mortgage balance leading to increased foreclosures? Homeowners have too much debt.

What is the biggest problem with the global financial system? Banks have too much debt.

What is one big thing wrong with our federal government? It has too much debt.

What is wrong with our local and state governments? They have too much debt.

What is wrong with the governments of Greece, Ireland, Spain, Italy, Portugal, Japan, Iceland, Belgium, Singapore, France, the United Kingdom, Egypt, India, Hungary and Germany? They all have too much debt.

What are we doing to our young people who graduate college with enormous amounts of student loans and huge government liabilities facing them? They have too much debt.

When I say a person or a bank or a city or a country has too much debt I mean literally they have so much debt that it is unlikely they will be able to pay it all back from their expected future cash flows.

The sixty trillion dollar question, which is just about equal to the total debt in the world, is how did we get into this mess and whose fault is it.

Some economists argue that debt levels are not relevant to societal well being because for every borrower there is a lender, so with each loan made, no wealth is created and with each default, no wealth is lost. While intellectually pure, this line of reasoning does not hold if much of the lending is coming from outside your country (China) or if by lending the money to someone it increases the likelihood that they will piss it away. Think of Greece borrowing to pay its government workers to take eight weeks vacation, U.S. homeowners taking second mortgages against their houses to buy cars, boats and vacations or our government borrowing to finance two trillion dollar wars halfway around the world.

We have heard some espouse the theory that with regard to mortgage debt, the homeowner is just as guilty as the bank because he or she signed the mortgage note and agreed to pay it back.

But wait a second, when someone offers you $500,000 in low cost financing to buy a $500,000 house with no money down and gives you the contractual right to put the house back to them in foreclosure if things don't work out, how is this the homeowner's fault? This is free money. You should take as much of this as the bank is giving away, and that is pretty much what Americans did during the housing boom.

No, when loans go bad there is only one entity truly responsible: the lender. The borrower may have done some incredibly stupid things with the money, but it is up to the lender to anticipate and prevent these actions by conducting thorough due diligence, determining the credit quality of the borrower, judging his or her character and future earnings prospects, limiting the borrowing amount or by enacting tough restrictive covenants in the loan agreement.

When banks make bad loans, they don't fire the banking client who borrowed the money, they fire the banker who extended the funds on such loose terms.

So the answer to why all these entities; consumers, homeowners, financial institutions, local and sovereign governments and students have too much debt is because some stupid lender gave it to them. And in most circumstances the lender was a commercial bank.

I used to have a good friend back when I worked on Wall Street who went to cocktail parties with me and when asked what he did for a living said, "I am a commercial banker and I am sorry". I often think his greeting would be even more appropriate today.

To those of you who mistakenly believe that the government caused this crisis, you are partly right. They didn't do their job in properly regulating the banks. But they were paid by lobbyists of the banks and they garnered campaign contributions from the banks not to regulate. They in effect were, and still are, paid employees of the banks. Bankers make tens of millions a year, congressmen make a couple of hundred thousand. It was the banks who were successful in removing any meaningful regulation on their lending activities, their derivative activities and their balance sheet leverage. It is the banking lobby that is preventing any meaningful reform of our financial system. Heck, the Fed which is supposed to monitor the banks is owned and controlled completely by the banks.

To those of you who think Fannie and Freddie caused this crisis on their own, please realize that this is a global crisis brought on by banks worldwide even in countries that have never heard of Fannie and Freddie. Certainly they played a role, but it was because they were organized just like the banks as for profit companies with executives compensated with management stock options. They really are not part of the government but are stand alone entities that benefit from what were implied debt guarantees. Congress didn't tell Fannie and Freddie what to do, Fannie and Freddie told Congress what to do as they were the two biggest lobbyists in Washington D.C. Fannie and Freddie didn't go into subprime lending because Congress told them to because Congress was getting incredible lobbying pressure from poor people to increase home ownership rates (what a joke), they went into it because that is where the short term profits were. They begged Congress to throw them into that briar patch and then they giggled and ran away just like B'rer Rabbit. (By the way, poor people didn't cause this housing crisis as the biggest percentage of mortgage defaults were in our wealthiest cities of Los Angeles, San Diego, Phoenix, Las Vegas and Miami).

So, a smart reader like yourself would have to ask, why would a bank which is a for profit entity do something stupid and over-lend to almost every person, corporation, government entity and sovereign credit on the face of the earth? The banks have a number of unfair tax advantages and subsidies that lead them to do stupid things such as depositor insurance, tax deductibility of interest expense, low government mandated interest rates and the belief that they are too big to be allowed to fail.

But I think the greatest error made by bankers is in matching the silly lending terms of the aggressive banker across town because they know they must or they will go out of business. Unlike other industries, banks deal in such long maturity assets and liabilities that their mistakes are not revealed as bad loans for many years in the future, long after most of the current crop of bankers have retired and moved to the Hamptons. This long-lived nature of the bank's balance sheet is the primary reason the free market does such a poor job moderating their activities and why government regulation is required in banking, just like it is in the insurance industry, another long lived asset/liability business. The profits and bank fees happen up front in the short term, but the true costs of stupid lending don't show up until the next crisis or recession, and then they all show up at once. Collective action problems like this are never managed well by a completely free and unregulated market.

So how do we get rid of all this debt in the world? Well, we missed a perfect opportunity. We should have allowed these overleveraged banks to fail and then restructured them with new managements and much reduced levels of debts. As part of the restructuring, the banks would have set up reserve accounts to allow for the restructuring of all their bad loans, in effect they would have created a pocket to put all their bad loan losses in and thus would have been much more motivated to restructure troubled mortgages, underwater homes and even underwater nations' debts. They would have taken their lumps and moved on. It is crazy to insist that anyone who lends money to a bank deserves to be repaid at the rate of 100 cents on the dollar when the bank has invested the money in bad loans and has lost it.

By continuing to not recognize the bad loans, the banks limp along, restricting their new lending and assuring that the economy limps along with them. Consumers, governments and yes, even the banks stagger along under their crippling debt loads. And yes, I was a banker once, and I'm sorry.

John R. Talbott is a best selling author and consultant. His new book is mandatory reading for anyone interested in learning the real reasons for this crisis and how to protect yourself going forward. You can read more about John and the new book at www.stopthelying.com or at amazon.com.
 

Tex

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Ex Post Facto Law & Legal Definition

Ex post facto is a Latin term meaning "from a thing done afterward." Ex post facto often refers to a law that applies retroactively, thereby criminalizing conduct that was legal when originally performed. The U.S. Constitution prohibits ex post facto laws. However, the Supreme Court has held that that the prohibition of retroactive laws applies only to criminal, not civil, laws.

A sentencing law violates the ex post facto prohibition if it operates both retrospectively and to the potential disadvantage of the defendant. This is not limited to substantive changes in the content and criteria of legal rules. Restrictions on the extent of favorable discretion that a court can exercise are within the ex post facto prohibition, too.

The ex post facto clause generally prohibits states from enacting any law that “changes the punishment, and inflicts a greater punishment than the law annexed to the crime, when it was committed.” For example, sex offender registration laws have been held not to violate the ex post facto clause on the basis that they are not intended as punishment, but as a deterrent against future offenses.

Tex
 

Tex

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Mike said:
Both of my senators voted no.

Your Senator was the ranking member of the committee for a long, long time and actually voted against the repeal of Glass Steagal (Shelby) so good for him. It did pass the Senate 90 to 8 so the bad rules that allowed the excess was bipartisan.

Many of these post depression laws have been ignored by politicians who sell out the lessons learned in the Great Depression. It is one reason the economy is in the mess it is in today.

Again, GOOD FOR Senator SHELBY!!!



The Glass-Steagall Act - History, Repeal, Possible Rebirth
Did the Repeal of the Glass-Steagall Act Contribute to the 2008-09 Recession?

By Rosemary Peavler, About.com Guide
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The Banking Act of 1933, widely known as the Glass-Steagall Act of 1933, separated banking according to the types of banking business - commercial banking and investment banking. It was passed when a large portion of the U.S. banking system collapsed during the Great Depression in the 1920s and 1930s.
History and Meaning of Glass-Steagall Act

The stock market crashed in the U.S. in 1929. That was, essentially, the beginning of the Great Depression. Very similar to the beginning of the Great Recession in 2008, the stock market had reached new highs before 1929 driven by speculation. The Glass-Steagall Act was a reaction to the fact that banks, before the Great Depression, had mixed the commercial and investing activities and regulators felt that this had caused some of the problems. In other words, mixing the commercial and investment banks functions caused banks to take too much risk with depositors' money.

Banks were accused of being greedy....taking on too much risk with depositors' money in hopes of scoring big investment rewards.

After the enactment of Glass-Steagall, commercial banks could accept depositor's money and make loans but could not become involved in selling or trading securities or underwriting. They certainly could not trade in risky or speculative financial instruments.

Investment banks could underwrite securities and sell securities, but they could not accept bank deposits or make loans to customers.

Glass-Steagall had other provisions. Banks could not pay market interest rates on deposits, for example.
Why the Separation between Commercial and Investment Banks?

Some lawmakers in the early 1930's, during the Great Depression, felt that risky activities by banks had contributed to the crash of the stock market and the Great Depression itself. Depositors' money was used for speculative trading. Depositors' money, as a result, was lost. As a result, two Democratic lawmakers, Senator Carter Glass of Virginia and Henry Steagall of Alabama sponsored bills which became known as the Glass-Steagall Act of 1933.

The thinking was that separating the powers of commercial and investment banks would protect depositors' money and it did until the Glass-Steagall Act was repealed in 1999 by the Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act was passed along party lines by a Republican vote in the Senate. The banking industry had been lobbying for the repeal since the 1980s.

One of the arguments for repealing the Glass-Steagall Act was that the banking industry was losing market share to securities firms. Another was that the securities activities the banks were seeking were low risk by their nature and could provide diversification for the banks. Obviously, the types of risky, exotic securities like credit default swaps had not been thought of at that time.
Creation of the Federal Deposit Insurance Corportion

Along with the other provisions of the Glass-Steagall Act, it also created the Federal Deposit Insurance Corporation (FDIC). The FDIC is a government corporation that insures the safety of depositors' money up to $250,000 per depositor per bank.

The FDIC examines and supervises member banks for safety and soundness and supervises failed banks. Like the Glass-Steagall Act, the FDIC grew out of the events of the Great Depression. Because there was no deposit insurance at that time, there were bank runs. Depositors fled to banks when the Depression hit to try to withdraw their money. This made the Depression worse.

When 2008 came and the Great Recession occurred, the FDIC increased its depositor insurance amount to $250,000 from $100,000 per bank per depositor to increase consumer confidence. That limit will expire at the end of 2013 and will revert back to $100,000.
Will Glass-Steagall be Reborn?

Due to the Great Recession of 2008-09 and the fact that the investment banks on Wall Street used depositors' money to make risky investments, President Obama is thinking about re-enacting at least parts of the Glass-Steagall Act. He would like to name his new act the Volcker Rule after Paul Volcker, former Chair of the Federal Reserve, who is a defender of the Glass-Steagall Act.

The Volcker Rule, at least according to Obama's first thoughts, would stop banks from playing the market with depositors' money, participating in hedge funds and making private equity investments. In addition, there would be no more mergers between big banks. The thinking is still fluid on this rule, so nothing is certain yet. However, the Volcker rule or something like it would end the "too big to fail" mentality and clean up the banks. It just might save us from another financial crisis.

Tex
 

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Glass-Steagall: One Democratic senator who got it right
By
Madonna Gauding
Published: October 7, 2010Posted in: Congress, Economy, Financial reformTags: Byron Dorgan, Democratic Party, Glass-Steagall Act
Glass-Steagall: One Democratic senator who got it right

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On November 4, 1999, Senator Byron Dorgan (D-ND) took to the floor of the senate to make an impassioned speech against the repeal of the Glass-Steagall Act, (alternately known as Gramm Leach Biley, or the “Financial Modernization Act”) Repeal of Glass-Steagall would allow banks to merge with insurance companies and investments houses. He said “I want to sound a warning call today about this legislation, I think this legislation is just fundamentally terrible.”

According to Sam Stein, writing over a year ago in the Huffington Post, only eight senators voted against the repeal. Senior staff in the Clinton administration and many now in the Obama administration praised the repeal as the “most important breakthrough in the world of finance and politics in decades”

According to Stein, Dorgan warned that banks would become “too big to fail” and claimed that Congress would “look back in a decade and say we should not have done this.” The repeal of Glass Steagall, of course, was one of several bad policies that helped lead to the current economic crisis we are in now.

Dorgan wasn’t entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders also cast nay votes. The late Sen. Paul Wellstone opposed the bill, and warned at the time that Congress was “about to repeal the economic stabilizer without putting any comparable safeguard in its place.”

Democratic Senators had sufficient knowledge about the dangers of the repeal of Glass Steagall, but chose to ignore it. Plenty of experts warned that it would be impossible to “discipline” banks once the legislation was passed, and that they would get too big and complex to regulate. Editorials against repeal appeared in the New York Times and other mainstream venues, suggesting that if the new megabanks were to falter, they could take down the entire global economy, which is exactly what happened. Stein quotes Ralph Nader who said at the time, “We will look back at this and wonder how the country was so asleep. It’s just a nightmare.”

According to Stein:

“The Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8 and reversed what was, for more than six decades, a framework that had governed the functions and reach of the nation’s largest banks. No longer limited by laws and regulations commercial and investment banks could now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp. The new law allowed it to be permanent. The updated ground rules were low on oversight and heavy on risky ventures. Historically in the business of mortgages and credit cards, banks now would sell insurance and stock.

Nevertheless, the bill did not lack champions, many of whom declared that the original legislation — forged during the Great Depression — was both antiquated and cumbersome for the banking industry. Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.

“Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” said then-Treasury Secretary Lawrence Summers. “This historic legislation will better enable American companies to compete in the new economy.”

“I welcome this day as a day of success and triumph,” said Sen. Christopher Dodd, (D-Conn.).

“The concerns that we will have a meltdown like 1929 are dramatically overblown,” said Sen. Bob Kerrey, (D-Neb.).

“If we don’t pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world,” said Sen. Chuck Schumer, D-N.Y. “There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive.”

Unfortunately, the statement by Chuck Schumer sounds very much like it was prepared by a lobbyist. This vote underscores the way in which our elected officials are so heavily swayed by corporate and banking money that our voices and needs become irrelevant. It is why we need publicly funded elections. Democratic senators, the so-called representatives of the people, fell over themselves to please their Wall Street donors knowing full well there were dangers for the country at large, for ordinary Americans, in repealing Glass-Steagall.

It is important to hold Democratic senators (along with current members of the Obama administration) accountable for the significant role they have played in the current economic crisis that has caused so much suffering for ordinary Americans. In case you were wondering, the current Democratic Senators who voted yes to repeal the Glass-Steagall act are the following:

Daniel Akaka

Max Baucus

Evan Bayh

Jeff Bingaman

Kent Conrad

Chris Dodd

Dick Durbin

Dianne Feinstein

Daniel Inouye

Tim Johnson

John Kerry

Herb Kohl

Mary Landrieu

Frank Lautenberg

Patrick Leahy

Carl Levin

Joseph Lieberman

Blanche Lincoln

Patty Murray

Jack Reed

Harry Reid

Jay Rockefeller

Chuck Schumer

Ron Wyden

Former House members who voted for repeal who are current Senators.

Mark Udall

Debbie Stabenow

Bob Menendez

Tom Udall

Sherrod Brown

No longer in the Senate, or passed away, but who voted for repeal:

Joe Biden

Ted Kennedy

Robert Byrd

These Democratic senators would like to forget or make excuses for their enthusiastic vote on the repeal of Glass Steagall, but it is important to hold them accountable for helping their bank donors realize obscene profits while their constituents lost jobs, savings and homes. And it is important to demand that they serve the interests of the American people.
 
A

Anonymous

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Anyone that understands that we have a corrupt govt would have known at the time they were robbing us. Wall Street owns this country and Goldman Sachs is one of the owners of the Federal Reserve. Along with AIG, Lehman, Bear Sterns, Goldman Sachs caused the crisis with the derivative betting. Yet, when we the people bailed out the banks these are the same people that got all of the money. They gave it out to the criminals that work for them as bonuses for destroying the dollar.

You were an idiot of you bought the lies at the time.

Now, today, we need our govt to default on the debt. It is the only way to cause a revolution in this country which is the only way people will wake up.

Here Tex is saying after we got raped, "you know we probably should have not let them rape us because my butt still hurts"....brilliant....
 

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yep, many people on Ranchers, said they should let them fail.


http://ranchers.net/forum/search.php?search_id=1959616356&start=12
 

Tex

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shaumei said:
Anyone that understands that we have a corrupt govt would have known at the time they were robbing us. Wall Street owns this country and Goldman Sachs is one of the owners of the Federal Reserve. Along with AIG, Lehman, Bear Sterns, Goldman Sachs caused the crisis with the derivative betting. Yet, when we the people bailed out the banks these are the same people that got all of the money. They gave it out to the criminals that work for them as bonuses for destroying the dollar.

You were an idiot of you bought the lies at the time.

Now, today, we need our govt to default on the debt. It is the only way to cause a revolution in this country which is the only way people will wake up.

Here Tex is saying after we got raped, "you know we probably should have not let them rape us because my butt still hurts"....brilliant....


Shamu, the problem wasn't that I have perfect 20/20 hindsight and that my butt hurts, but that I was not privy to the details of the bail outs.

We had to stop the financial collapse and unfold it in an orderly way. That is how you unravel banks. You take them over, protect the depositors, and unravel the numbers. That process requires accountability of those who created the problem and instead they got a free walk and just paid off Washington. No responsibility. They got to keep the money they made and had banked.

In the unraveling, these entities should have been held accountable but neither republicans nor democrats have held them accountable. Instead they have both been paid off by them so they could keep their money. We get no action on this most important issue because the two parties would rather take the money, not do their job, and blame each other.

We only know these things after they happen because we are not privy to the details of the accountability part and only find out about it long after that nothing happened. Every one of the board members and top investors should have lost their money instead of allowing them to flee with it. That is what happens with bankruptcy. You lose your money. These guys got to keep it and had taxpayers pay them to keep their businesses going.

I think we can blame our republican and democrat politicians for this. We don't seem to have political parties anymore, we the demoblicans who pander to the money.

Sheila Behr, the head of the FDIC said we didn't hold the people accountable we needed to.

Dodd Frank wasn' t strong enough.

We didn't fix the problem.

Then we get the spinsters to pass around the internet something about the customers having to pay for the sins of the financial industry with transaction fees. The transaction fees need to be on the people who created the mess, not the little depositors. The big money gets away again.

My biggest problem is that I was in the industry, saw it happening and could do nothing about it. Those deals were made in the backrooms of Congress and still are today.

Tex
 
A

Anonymous

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Tex,

once you understand what LB and I are telling you on this site, you would have KNOWN this is what they were doing.

I was not a member of this site at the time but would have told you so if I had been.

Now, the best thing for our govt to do right now is DEFAULT ON THE DEBT.

this will cause the markets to freefall and a unwinding of the derivatives. we will also lose our status as the reserve currency very soon afterwoods....

what you will notice at first is longer lines at McDonalds and crime rates will go up...

you will then find yourself spending $25 on a loaf of bread...etc....

but, it is coming no matter it is just a case of when now...

our nation has been destroyed by idiots like we see on this site...they bent over and allowed it to happen...

the people that screwed us took the stolen money bought gold and properties outside of the usa....

Hank Paulson is down in south america now...

bush jr. bought property down in south american as well...with huge amounts of water...he knows that our water supply is poisoned here.
 

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