13 Responses to Rob Johnson on Zombie Banks (Moyers Pt. 1)

1. BooRadley February 28th, 2009 at 9:38 am «

   Thanks Jane.

   digg is open.
2. perris February 28th, 2009 at 9:43 am «

   I’ve been reading that since houses are worth less then owed even on those who have good loans, most people with those loans are gonna walk away from them too

   so this is not just a sub prime thing, now the wave of prime loans are going to default, leaving the banks having payed more for homes then they can get for them
3. ubetchaiam February 28th, 2009 at 10:28 am «

   humpty dumpty sat on the wall, humpty dumpty had a great fall…..and all the king’s horse’s and all the kings men couldn’t put humpty dumpty together again.
   The whole premise of the actions taken so far by the Fed and the Government is based on the idea they can make things ‘the same again’.
   Unless-and until- Bernanke and Geithner and Obama recognize that there is a difference between saving the banking elite and saving the BANKING system, this ripoff of the taxpayers will continue.
   And if they don’t recognize that the days of ‘affluenza’ are over, they won’t be taking the necessary steps to transform the economy.
   We’re lucky that there isn’t an alternative currency ready to become the world’s reserve currency or we’d be in a lot deeper trouble than we are.
4. selise February 28th, 2009 at 10:30 am «

   i haven’t listened to last night moyer’s show yet. so if this was covered, my apologies for for the repeat…

   yesterday i was reading mason’s prepared statement (he testified before the joint economic committee on thursday). interesting reading. anyway, one of the things that struck me from it was a reason, one i hadn’t really considered, about why it is so important to shut down the zombie banks. here’s a bit from the statement:

   Insolvent banks – regardless of their purported systemic importance – are value destroying institutions that need to be closed. If insolvent banks were car companies, they would be relying on worn machinery and ill-trained staff to produce East-German Trabants that break down as soon as they leave the production line. In fact, the loan products these banks created did break down almost immediately after they were produced, in that they exhibited early-payment defaults and often involved payments and fees that the borrower could not afford. The mortgage delinquencies we see today are therefore the result of faulty management, bad supervisory systems, ineffective proprietary software, and ill-targeted employee training, not mere exogenous economic shocks, and the banks that produced those products are insolvent as a result. Insolvent institutions therefore need to be shut down in the public interest: while the economy needs loans to fuel economic growth it needs high-quality value-creating loans that borrowers stand a chance of repaying, not value-destroying loans that disrupt economic activity even further.

   his emphasis in the original.
• Hugh February 28th, 2009 at 11:08 am «

  I read the Mason statement too. We are throwing good money after bad with the zombie banks and it has very clearly not worked. At the moment, I don’t see a way for what Mason calls “value-creating” loans to be made unless the government directly or through nationalized banks makes them. In the current economic climate and with the zombies being zombies, they are being incentivized not to make loans.
• selise February 28th, 2009 at 8:18 pm «

  they are being incentivized not to make loans.

  sure looks that way to me too. just another reason to hate the summers / geithner approach is that even if it could work to get them to make loans, their business model is to make value destroying loans, at least according to mason.

  not really on topic for this thread, but another part of mason’s statement that i liked was this bit:

  The key problem with financial markets right now is that commonly-produced standardized financial ratios are meaningless. Without information, investors do not know the value of their holdings, cannot sell those holdings, and cannot rationally allocate funds derived from those sales if they could.1 Without funds, firms cannot invest in new projects that create economic value – that is, jobs, income, and economic growth. Nonetheless, existing policy proposals have all been about suppressing information: information about bank conditions, about other sources of risk, and even about government programs meant to address the situation.
• ubetchaiam February 28th, 2009 at 12:53 pm «

  That’s what Johnson- and obviously many others- are saying BUT the resistance is ‘remarkable’.
  (Not really; here’s an article by the the ultra conservative AEI.
  Succintly “And what they’ve tried to do is actually lobby—what’s interesting is you can’t lobby in the same way in Europe that you can here. I mean, you don’t have campaign contributions, so you can’t do those whole things.”
  The above succintly reflects this program which had to do with toxic chemicals but the ‘bailouts’ are but another ‘toxic substance’ poisoning our country.)
  Until a solution is enacted to getting the money out of politics (public financing and more), we will continue to have what Greg Palast calls ‘the best democracy money can buy’.
5. ubetchaiam February 28th, 2009 at 12:58 pm «

   Oh, and “There will be Blood‘
• selise February 28th, 2009 at 8:27 pm «

  i’ve read that ferguson interview. while i hate his politics, i don’t think he’s crazy and i mostly agree with this:

  Heather Scoffield: Will globalization survive this crisis?

  Niall Ferguson: It’s a question that’s well worth asking. Because when you look at the way trade has collapsed in the world in the last quarter of 2008 – countries like Taiwan saw their exports fall 45 per cent – that is a depression-style contraction, and we’re in quite early stages of the game at this point. This is before the shock has really played out politically. Before protectionist slogans have really established themselves in the public debate. Buy America is the beginning of something I think we’ll see a lot more of. So I think there’s a real danger that globalization could unravel.

  Part of the point I’ve been making for years is that it’s a fragile system. It broke down once before. The last time we globalized the world economy this way, pre-1914, it only took a war to cause the whole thing to come crashing down. Now we’re showing that we can do it without a war. You can cause globalization to disintegrate just by inflating a housing bubble, bursting it, and watching the financial chain reaction unfold.”

  Heather Scoffield: Is a violent resolution to this crisis inevitable?

  Niall Ferguson: “There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable. The question is whether the general destabilization, the return of, if you like, political risk, ultimately leads to something really big in the realm of geopolitics. That seems a less certain outcome
6. Leen February 28th, 2009 at 1:26 pm «

   Jane/all Ira Glass’s This American Life had a great program on about the bank bailout

   SAVE THE BANKERS (think FDL could sale some bumper stickers)

   Really good
   http://www.thisamericanlife.org/
   Bad Bank

   The collapse of the banking system explained, in just 59 minutes. Our crack economics team, the guys who explained the mortgage crisis, Alex Blumberg and NPR’s Adam Davidson are back to help all of us understand the news. For instance, when we talk about an insolvent bank what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses. Also, two guys go to New Jersey to look at a toxic asset.
7. Leen February 28th, 2009 at 2:15 pm «

   christy has a Salon going on over at the mothership
   http://firedoglake.com/
8. prostratedragon February 28th, 2009 at 8:12 pm «

   I must read the Mason statement, eh? (The Posen one is excellent, too.) The thing is, everyone who was on the scene in either the S&L/banking crisis of the 1980s-90s, which should never have hung on that long btw, or the Japan crisis of the 1990s, knows that this is the hazard of letting zombies hang around.

   The entire point of what William Black calls control fraud** is that these firms at best become sites for irresponsible gambling, but at worst become vehicles for deliberate fraud, partly because the lousiness of the situation appears to excuse a great deal of failure. To take one shining example, Keating did most of his damage in the cause of trying to prevent the kind of regulatory oversight that would have shut him and many others down forthwith from taking place (promoting so-called regulatory forbearance, which is what we have now though none dare speak its name); that is what lay behind the Keating 5 scandal.

   What we have right now is some people, e.g. Mason apparently, Black, a lot of the other people we listen to around here, acting as if they in fact know what they know and experienced the things that happened, while others choose to act as if 20 years ago they were asleep or bound in Plato’s cave or somewhere.

   ====
   **Basically, a deliberate decision on the part of the controlling owners or managers of a firm to run it into the ground. Prof. Black might have a more elegant way of putting it.
• selise February 28th, 2009 at 8:28 pm «

  lol. i haven’t read posen’s statement, but will take a look tomorrow.