Let Banks Fail

Summary

When small banks fail, they go into receivership and are taken over by banks with more responsible management, who assume their assets and liabilities. But no bank is big enough to take on the trillion dollar liabilities of insolvent big banks like Citi, B of A and others. Why should we? There are however plenty of responsible bankers who stand ready to step in once we've cleared out the bad bankers. But there's no reason to saddle them with the big banks losses either.

News

• Whose most indebted? Consumers? No, Banks
• Scrap the Summer-Geithner Plan. Its worse than we though.
• Its time to LIQUIDATE the banks, says Congressional Panel
• Geithner's stress tests for banks are a sham. according to former S&L crisis regulator. (Video)
• Bush Co. hollowed out the system before leaving. U.S. Govt's Pension Guaranty fund, which previously invested very cautiously, was blown on stocks before the 2008 crash. The fund's purpose was to insure that people who worked their whole lives would still have a pension even if their company went bankrupt. Now this insurance fund is looking bankrupt. Question: was this done to pay off foreign (eg Chinese) Fanny/Freddie creditors?
• The banks are still insolvent, in spite of their claimed profits last quarter. Turns out, all of their supposed profits came from taxpayers via AIG's controlled collapse.
• The Dirty Dozen Find out who did this to the economy, at least a few of the big names.
• Banks sinking faster than gov'ts are bailing them out The sinking/bailing metaphor works very well here. Could the sinking of the Titanic have been prevented if they'd just bailed out more water?
• Nationwide Protests against Banks! Thursday, March 19th. Join a protest in your city. I hope we see more of these.
• AIG uses terrorist tactics to scare Geithner into giving incompetent bankers extra pay. sign MoveOn's petition against the bonuses.
• "Bury big banks" says Sen. Shelby (R-Ala) Comment: Its good to see opposition to big banker larceny coming from both sides of the political spectrum (see B. Sanders video below)
• Good Bank in MN Asks: Why bail out Wall Street Greed?"
• FDIC going bankrupt after bailing out so many small banks
• What could AIG's shareholders (that's you) buy with $62 billion?
• I thought it was strange that an insurer (AIG) would fail due to toxic assets when insurance companies are heavily regulated while derivatives (CDO's, CDS's) are not. Barry Ritholtz explains that there were really two AIG's, and insurance company and a speculative hedge fund. You, the American citizen, are bailing out the hedge fund's bad bets.
• Kill the Zombie banks
• Black Hole Alert: AIG
• Why Bankrupt Autos when the banks are more insolvent? :
• Responsible banks don't need your taxes

Background

• For good background on the Financial Crisis see: Baseline Scenario
• Cost of Banker Bailout, as of Nov. 2008: $8,500,000,000,000 ($8.5 trillion). This is more than the cost of WWI, WWII, and all other wars the US has fought! However, amazingly, it is a mere drop in the ocean of debt, most of which is off the books in the the Shadow Banking System How big is this ocean of banker debt? Hundreds of trillions of dollars:
• Derivatives are the $800 trillion elephant in the room
• In fact, at one point, the total notional value of all derivatives topped out at over 1 quadrillion dollars = $1,000,000,000,000,000 !!!
• These debts, which far exceed the total GDP of the world, cannot be payed of by bailouts of a few trillion dollars. There is no way to pay them off, even with all the wealth in the world. The must be cancelled, and the gambling adicts who made them must pay the piper, and hopefully get into a rehab program quickly. The sooner we can do this the sooner we can start spending money where it belongs:
• Calculated Risk: Lehman Bankruptcy is a Model.
• While the meltdown situation is somewhat complex, this maxim is very simple: YOU CANNOT BORROW YOUR WAY OUT OF DEBT. But we are being told that the solution to too much debt is more debt!!! That's like someone saying: "I'm going to drink myself sober"

Questions

A: They've already failed. The only question is who will be dragged down with them in failure, their investors or your children? Other things which were "too big to fail": The Hindenberg, The Titanic, The Roman Empire, etc.

Q: Don't the banks have our economy hostage ? If we let them fail won't that collapse our stock market? Just look what happened after Lehman Bros. failed. Don't we have to give in to their demands, and give them however many trillions of dollars they ask for?

A: They may have the American stock market hostage, its true. But the stock market is not America. People only invest in the stock market money they can afford to lose (read the prospectus: "may lose value"). Any part of our economy dependent upon ONE company is inherently weak, and bound to fail eventually. The sooner we can clear our economy of these tumors, the healthier it will be. And in any case, is this how America deals with hostage takers?

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