DeLong: Geither and his WTF thinking... And PK's latest.

http://delong.typepa...s-may-9-2014.html

Brad's a big admirer of Summers, so keep that in mind. Still...

Remember: in the winter of 2008-2009, every single major New York bank -- with the exception of Goldman Sachs and perhaps J.P. Morgan Chase -- was insolvent if marked to market: the only value their equity and option holders had came off of the fumes from expected government bailouts that were supposed not to enrich bankers and bank shareholders but keep the economy from collapsing, and on expectations of future reflationary policies that would push asset prices up above their winter 2008-9 values.

For Geithner to after the winter of 2008-9 to talk about the major New York banks as anything other than dumb, lumbering giants that had failed to understand the consequences of their own leverage, the risks they were running, or even what the factor loadings on the securities they held in their portfolios were--that suggests a substantial disconnect from reality indeed...

They were bankrupt in the winter of 2008-9. The accepted principle for dealing with a financial crisis is the "Bagehot Rule": (a) lend freely to solvent but illiquid institutions (b) at a penalty rate so their executives and shareholders do not profit from the moral hazard they created, and (c) shut down insolvent institutions so executives and shareholders in the future do not think they will escape the consequences of the moral hazard they created.

It appears from Geithner that Summers was just trying to follow what had been the standard playbook since the 1870s. What did Geithner think he was doing?

Yup.

Rather than merging the worst players and making the big banks even bigger, many of the worst should have been shut down. And "lend freely at a penalty rate" should have been the guiding star.

Oh, and did you see Krugman's latest NYT OpEd - http://www.nytimes.c...w-thats-rich.html

Last year, those 25 hedge fund managers made [$21B in income in 2013] more than twice as much as all the kindergarten teachers in America combined.

That's personal income in one year, not wealth.

Something's gotta change...

Cheers,
Scott.

Post #389,330 by Another Scott 5/10/14 8:20:39 AM Reply	DeLong: Geither and his WTF thinking... And PK's latest. http://delong.typepa...s-may-9-2014.html Brad's a big admirer of Summers, so keep that in mind. Still... Remember: in the winter of 2008-2009, every single major New York bank -- with the exception of Goldman Sachs and perhaps J.P. Morgan Chase -- was insolvent if marked to market: the only value their equity and option holders had came off of the fumes from expected government bailouts that were supposed not to enrich bankers and bank shareholders but keep the economy from collapsing, and on expectations of future reflationary policies that would push asset prices up above their winter 2008-9 values. For Geithner to after the winter of 2008-9 to talk about the major New York banks as anything other than dumb, lumbering giants that had failed to understand the consequences of their own leverage, the risks they were running, or even what the factor loadings on the securities they held in their portfolios were--that suggests a substantial disconnect from reality indeed... They were bankrupt in the winter of 2008-9. The accepted principle for dealing with a financial crisis is the "Bagehot Rule": (a) lend freely to solvent but illiquid institutions (b) at a penalty rate so their executives and shareholders do not profit from the moral hazard they created, and (c) shut down insolvent institutions so executives and shareholders in the future do not think they will escape the consequences of the moral hazard they created. It appears from Geithner that Summers was just trying to follow what had been the standard playbook since the 1870s. What did Geithner think he was doing? Yup. Rather than merging the worst players and making the big banks even bigger, many of the worst should have been shut down. And "lend freely at a penalty rate" should have been the guiding star. Oh, and did you see Krugman's latest NYT OpEd - http://www.nytimes.c...w-thats-rich.html Last year, those 25 hedge fund managers made [$21B in income in 2013] more than twice as much as all the kindergarten teachers in America combined. That's personal income in one year, not wealth. Something's gotta change... Cheers, Scott.
Post #389,336 by boxley 5/10/14 10:39:12 AM Reply	WTF! Rather than merging the worst players and making the big banks even bigger, many of the worst should have been shut down back when it was happening taht is what I stated should happen, bang em down. You on the other hand carefully explained that the government HAD to bail them out. Any opinions expressed by me are mine alone, posted from my home computer, on my own time as a free American and do not reflect the opinions of any person or company that I have had professional relations with in the past 58 years. meep
Post #389,338 by Another Scott 5/10/14 11:23:23 AM Reply	Not all of them. From 2/14/2009 - http://forum.iwethey...iwt?postid=304151 HTH. Cheers, Scott.

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