The Liquidity Crises and why a solution is absolutely required - a personal explanation

[grantcart]

cross posted by request



In 1985 I went into the furniture business in S.E. Asia. for an Australian company. In 1987 I started my own company with a few thousand dollars and 4 employees. I had developed a reputation in the area and within a few months I had millions of dollars of orders from American manufacturers and IKEA. We were able to become one of IKEA's largest suppliers in sofa's. We were able to get the business in part because we had very good quality control and because our costing was done on an open book basis - we showed them how we calculated all of our costs. Ingmar Komprad (the owner and I K of IKEA) visited our factory, a very rare occurence.

By 1990 Eastern Europe was transitioning from communism and in 1992 the Soviet Union fell. The costs of absorbing East Germany and the huge economic changes in Europe caused a massive interuption in business and interest rates went through the roof (Denmark set their prime at 21%).

People in Europe stopped buying cars and furniture. We had a long term contract and continued to manufacture and ship. I got a cal from IKEA and they wanted me to come to Sweden and they were willing to pay for the trip. Once in Sweden they took me to one of their massive warehouses. It is the size of a football stadium, all of the material is handled by robots and run by 4-5 guys. Outside of the warehouse stood thousands of containers.

The problem was that all of the product that was not selling (like big sofa sets that we made) were inside the warehouse and all of the things that people were willing to buy were sitting in trailers outside. For them it was a product liquidity crises all of their liquidity (in this case access to warehouse space) was tied up in non performing assets. They had decided to start taking out product and destroying it (If they gave it away it wouldn't do any harm to them but it would depress the market further and force other smaller retailers into bancruptcy and that they would not do.) Even as we continued to ship they had no space for the product. The good assets were sitting there and pretty soon their stores would be empty of the product their customers wanted and filled with the product that no one wanted to buy now. (The point of the trip is probably obvious - it was a nice way to explain why they wouldn't be ordering any more product - that and similar cancellations meant that the factory failed)

This is what our entire economy is facing - all of the liquid capital - the paper that is sold - is tied up in non moving assets that they cannot sell even at a discount.


I was able to raise capital for the factory that paid for the land and the buildings.

In order to function we put the land and building up for collateral and borrowed money for our working capital, equipment, inventories, letter of credit etc. You have to borrow to pay for inventory before you make it and then you have to give your customers time to pay you (accounts receivable). While we were able to make a profit from day one the real major challenge of a company, especially a new one is not profit (except for the dot.com industry) but cash flow. You need to borrow for payroll and raw material and then you pay those loans off and then in a couple of weeks you borrow again. It is a part of the daily regular business.

What is happening is that the bottleneck of cash liquidity has become exactly like the inventory liquidity listed up above. The financial banks do not have the liquidity to offer loans to good businesses because they cannot move the bad assets that they have.

Let me make this clear. If this is being reported accurately and the normal day to day loans that good profitable companies get to make payroll and pay for inventories and buy equipment, etc. are frozen and they cannot get them - even for a very short period of time, then hundreds of thousands of good companies with good jobs will fail.




Letting the liquidity of the banks freeze will cause massive huge dislocations and once started will cause domino effects that could reach that of 1929. Anybody who has run a business knows this simple fact - almost no business has enough capital to operate without borrowing from time to time - it would be like saying no one could buy a home if they couldn't pay the whole price at once. Virtually no one would have a home.




I have no idea if the plan that is being negotiated is a good one or not. I seriously doubt that anyone involved in this likes doing it. It is extremely unfortunate that this is called a "bail out" because that seems to indicate that shareholders will retain their value. I do not believe that is the case. It is also not a bail out of 'Wall Street'. It is providing assistance to the part of Wall Street that buys and sells commercial paper. If it provides that assistance and props up shareholders value then it is a "bail out". If it does not result in shareholders regaining value then those share holders are not being bailed out.


If it is done correctly then not one cent of taxpayer's money will be at risk - if the assets do not result in a return of investment then the government can add a recovery tax on the banking industry to make them pay.


I understand that some will be against anything that looks like it is assisting businesses.

It can be understood as simply giving a blood transfusion to the liquidity of the economy. If our elected representatives ensure that there are built in recovery measures then it can be done without risk and like similar type of loan guarantees to Mexico and Chrysler the government can actually gain back revenue. If it was the right thing to do for Mexico, in a similar situation, then why not our own system - if payback guarantees are established.


If a true liquidity crises occurs and the banking system for businesses freezes the result will be massive collapse of businesses and massive unemployment. Having said that I feel completely incompetent to comment on the value of one plan against another and trust Obama and the advisers he has to make sure the best deal for the taxpayers is made key to the plan.

[lostnotforgotten]

1. I Was Unemployed For Five Long Years - Not One Stinking Politician

(Republican or Democrat) or one stinking bank, or one stinking business was there for me.

You think I give a rat's ass about a bunch of fat cat old white men and their golden parachutes.

Kiss my ass.

I survived for five long years without a job, I can do it again.

As far as fat cat businessmen or politicians go, they just might make a great next meal!

Not no, but hell NO, to these bailouts!

[grantcart]

2. what you did not understand is that if an economic system loses its liquidity

then it will collapse and it will create millions of unemployed workers.



If you read the article then you would have understood that anything that resembles a "bail out" that saves either shareholder equity or executive compensation is not acceptable.


There are two different issues involved: first maintaining system liquidity and the second keeping up share value in the market.



I care about the first and do not care about the second. Keep the healthy companies running as they normally would and the shareholders in the unhealthy companies should lose thier shares. No golden parachutes for either shareholders or executives.


Now answer me this: Why should a good company (whether it has 3 employees or 3,000) that has always done the right thing and has good credit be wiped out and all the employees lose their job simply because the normal kinds of loans that they have always gotten are no longer available, even though they have good credit and good collateral?

[lostnotforgotten]

3. And My Reply To Your Same Comment Earlier

I Got It - I Have An MBA - My Anger At Our Institutions Is So Profound

For what I had to endure that I believe a Cleansing catharsis is the only way forward.

I realize that you will not agree - so be it.

I lived through hell and I am prepared to live through hell again to make these SOB fat cat Republicans and Democrats pay with their economic and possibly corporeal lives.

My anger knows no bounds when it come to this topic.

I am seething with disgust with what the politicians and a placid citizenry have allowed this country to become.

For me this bailout is my Boston Tea Party.

Let the house burn down!

[HamdenRice]

6. This is sad and scary, and the reasoning is like that of a right winger

You are admitting basically that your choice is based on emotion not reason. You went through 5 years of unemployment and it seems like it was a terrible experience. Now you are saying that you would rather do that again so some other person suffers than ensure that you and millions of others do not have to experience it.

That may feel good to you, but it is not good policy for the rest of us.

[lostnotforgotten]

12. You Lived Through What I Did And You Would Feel the Same

War is hell and lived through the economic version of that.

It called Post Economic Stress syndrome.

Let those that made this possible eat some of the economic bullets this time!

[earth mom]

53. BULLSHIT. It is the right wing who wants & demands a bailout.

This bailout is and of itself RETHUGLICAN.

So don't you DARE start twisting this shit and putting it on the backs of dems!

DON'T YOU DARE. :grr:

[nadinbrzezinski]

7. Serious question, what is the alternative?

I want one...

[vanlassie]

16. A Gentle Question....WHO needs the catharsis?

If you are still suffering this much over your past situation, you are not in a position to be wise now...just angry. It's too bad because your viewpoint is important. .......Said in kindness.

[lostnotforgotten]

18. I Say The Country Does - Millions Feel The Same Way I Do

This bailout goes through and the seething anger below the electoral surface will fester and explode!

[vanlassie]

23. It just sounded to me as though you may be less effective

than you could be, if your anger is blind and all encompassing. I may be wrong.....

[nadinbrzezinski]

5. Thanks for trying but people are way, and I mean this from the bottom of my heart

WAAAYYYYYYY too angry to even try to understand this

This is what happens to the boy that cries wolf... the wolf shows up and nobody believes him

[lostnotforgotten]

9. I Understand What He Is Saying - I Lived Though Hell - It's Now Time For The

Sleazy Republican and Democrats that made this possible to live through hell as well!

There is no changing my mind on this.

You lived through what I did and you would most likely feel the same.

[nadinbrzezinski]

10. WHAT IS YOUR PLAN? WHAT IS THE PLAN FOR CHANGE?

This is your boston tea party, they had a plan

WHAT IS YOURS?

Anger is not enough....

Oh never mind, there is no plan, just fucking emotion

I hope you can live with 20 million people starving (extrapolated from the 1930s numbers) and 50-70 million economic refugees.

And that is the tip of the damn iceberg

[BzaDem]

13. He just wants everyone to live through the same hell he did. Doesn't matter if they deserve it.

This is luckily why we have representative democracy, and people like him don't make these decisions.

[nadinbrzezinski]

14. I know that, but still this anger... libertarian anger, needs confronting

[BzaDem]

11. Nope. I will not wish ill on millions of innocents just because I have lived through hell. Sorry.

[grantcart]

35. I understand and that's why I volunteered for the beating

Its why I kept the OP to a very narrow point - "If" there is a liquidity crises then an action must be taken


I am not going to write a single word about which one should be adopted.


I may be insane but I am not crazy.

[BzaDem]

8. OK then, because you were unemployed you don't care that millions of others will be unemployed soon

if we don't do anything. Glad to hear that you are a "Democrat." Because if I didn't any better, I would not assume so.

[lostnotforgotten]

15. I Am A Progressive Independent - I Gave Up On The Democrats When They Would

Not fight the stolen elections in 2000, 2002, 2004, and 2006.

I watched my vote get switched in 2004 by a DS&S voting machine. Reported it to the Democratic party. They did nothing. Still have done nothing.

[nadinbrzezinski]

17. We know the past, what is the plan for the future? How are you going to go

from point A to point B

Oh wait, anger blinds

[lostnotforgotten]

19. I Volunteered Over 1,000 hours In 2004 - Never Again As The Democrats

Would not fight for honest elections.

[nadinbrzezinski]

20. WE GET IT, what are you planning to do IN THE FUTURE?

GET THIS? FUTURE

You want this to collapse, fine I get it, what is YOUR PLAN to rebuild this?

Get it now?

[HamdenRice]

4. Thanks for your explanation! nt

[DeepModem Mom]

21. Thanks -- and K&R. nt

[CHIMO]

22. You Are Presuming

That the banks will begin lending once this is passed.

I doubt it. They will still be scared that they will loose. The plan seems to be based on an assumption that it will work.

There is no philosophy other than that of reducing legislation for corporations. Who says that the government can't get out of this mess by taking control and giving the market liquidity? No one. But no one is proposing this.

[grantcart]

26. I do not understand why banks would not continue to lend to good customers that

have nothing to do with the mortgage industry


Again those customers - your local businesses as well as corporations - have good assets to back up the loans.


If banks do not loan out money they will fail so your argument doesn't make any sense - they do not make any money from collecting deposits - if they do not put those deposits out into the community then they make no revenue. No revenue means bank failure.

[CHIMO]

29. No Loans

Mean no losses.

At the moment they are scared of losses.

If your logic was correct then they would have no problem making those same loans now.

[grantcart]

30. The reason that they don't make the loans now is because they can't borrow any money

that is the entire point --- it is not that they have money and don't want to loan its that they have excellent customers but that the all of the liquidity is gone -- the system is frozen.


You may have heard that on Friday WaMu failed. It did not fail because of bad debts (although it has a bunch and may have eventually failed any way), it did not fail because it did not have good customers to loan to.

It failed because of an old fashioned bank run - the largest in world history -- just like 1929. Over the last two weeks depositors withdrew something like $ 18 billion from Washington Mutual.

That is what we are talking about - a liquidity crises.

[CHIMO]

32. Here We Disagree

There is plenty of money out there sloshing around. People buying government securities below asset value.

There is no shortage of cash.

Again you are assuming what they are feeding us.

Everyone is afraid to lend. Bailing out the losses will not embolden them to lend. They are afraid to lend.

[grantcart]

34. 100% wrong -- reread the OP please

I clearly stated that "If this is being reported accurately".


Now I will admit that with the largest bank run in world history - larger than any single bank run in 1929 and allof the shareholders losing all of their equity on Friday it would seem to give some weight to their argument.

Obviously the people who are looking at this need to have concrete evidence. If that evidence exists then they must solve the problem.


On NPR yesterday they had various small town business owners interviewed from around the midwest who all got on the radio and say that they were denied their normal credit lines to pay their next payroll.


If you are wrong however and a real liquidity crises does exist then massive bank failures and bankruptcy of the FDIC are entirely possible and the colllapse of hundreds of thousands of small businesses and massive unemployement are entirely possible.


However to recap - I don't believe or disbelieve any of it - my narrow point is that if there is a real liquidity crises happening then some solution (and I don't recommend any particular one) will be required urgently.

[CHIMO]

36. I Read

The opening post. And I responded to that.

Doing things over and over again and expecting a different outcome leads nowhere.

I agree that there is a liquidity crises with the lenders. They are afraid to lend. Some of them are overextended.

Others are buying them up.

I agree with you that there is a crises. But relying on the people who brought about the crises to get out of the crises is down right crazy.

For any example. Why hasn't anyone required Warren Buffet to head up the solution? I think that he might be a respected person.

If we put our heads together we could come up with much better solutions than relying on those who put us there in the first place.

[grantcart]

43. If we agree that a liquidity crises needs a solution then we are in 100%

agreement.


I don't have proof that one exists and if one exists I don't have a solution.


Thanks

[CHIMO]

44. I Am Sure

That there is a solution. In fact I am sure there are many solutions.

It's a Wonderful Life
http://en.wikipedia.org/wiki/It's_a_Wonderful_Life

[WillowTree]

54. Ummmm.......no. No loans means...

....no INCOME for the banks. Depositors expect to be paid interest on their deposits and the money to pay it comes from the interest they charge their borrowers. For that matter, where, exactly, is the money supposed to come from for them to even pay for employee salaries and office supplies and the light bill if there is no income from the interest they charge for loans?

I mean, do you really not understand that most basic of principles?

[A HERETIC I AM]

24. Nicely explained. n/t

[yellerpup]

25. Excellent post and a succinct explanation of WHY.

K&R! :dem: :dem: :dem:

[Bozita]

27. My gut says "fuck 'em!" But my mind says that without a deal, the bad shit's gonna hit quickly ...

... and with devastating results.

I'm afraid. I admit it. Very afraid.

[grantcart]

33. I think the question is, who is 'em?

If you mean the shareholders and executives of the banks involved I don't have a magic opinion on that.

My point is very narrow it would be extremely unwise to have a situation where all of the millions of other businesses and the millions of employees who work for these companies - businesses that had nothing to do with the mortgage crises should be fucked.


In other words is your gut telling you that your local baker (for example) should also get 'fucked' because of a mortgage crises which they had nothing to do with and derived no benefit?

[Two Americas]

28. I don't believe it

I do not believe that anyone is advocating "doing nothing." There are dozens and dozens of thoughtful and intelligent and practical alterantive plans available that put the working people first, rather than the wealthy and powerful.

Rejecting plans that help the wealthy and powerful - the people who caused this emergency - and that could make things worse for all of us, is not the same as advocating "doing nothing."

What we need to trust our Democratic politicians to do is to listen to us. Trusting them should not be used as a reason to not speak out loudly and defend the interests of the working people. The politicians cannot represent things that they do not hear, and we live in a representative democracy. "Trust our leaders and be quiet" is not an option.

The pro-market pro-bailout people are using several different approaches. We are right to be suspicious of this.

The Sales Pitch

Dense, impenetrable thickets of verbiage are thrown up that sound so esoteric and academic and technical, that everyone wanders away convinced that this is just all over their head and they will never understand economics. For any one who has been to one of those dog and pony shows where some broker tries to con you into investing in his "financial products," this approach will be very familiar. "Bore them to death until they give up and sign on the dotted line" seems to be the approach. Since I obviously don't know anything about this, best to trust the experts. Try not to bring up the fact that they stand to make a lot of money of they can get us to roll over for them.

Threat Level Red!!!

This was once known as "fear! fear! fear!" but it is now color coded to maximize the anxiety effect. The idea here is that if we don't give the fat cats everything they want, they will make sure we are all homeless, sleeping under a mushroom cloud, with nothing to eat but yellow cake.

The Preemptive Attack

Long before anyone has had a chance to post anything critical of the bail out, or even think about it, we have dozens of posts like this: "I am sick and tired of these nut case socialists saying "let it fall" or fantasizing about their glorious revolution! They are actually hoping for a depression to further their petty little personal agendas of revolution and communism, with blood and mayhem. All rational people should reject anyone criticizing the bailout!"

Cooler Heads Must Prevail

This is a variation of the preemptive attack. "Now some people will get all upset about this, but we need to all calm down and not go into panic mode or get too emotional about this." Of course, that pisses off everyone, so it is something of a self-fulfilling prophecy. This is a particularly destructive and malicious approach though, because it places the blame on the victim, as though it is people's reactions to perpetrations that are the problem, not the perpetration itself. "If we all can just accept being robbed without getting upset, then it won't really be a crime" seems to be the "logic" there. "could you please stop bleeding and moaning after I stab you? That is only making things worse, and it implies that I have done something wrong, which is not fair to me."

The Dreaded Loyalty Test

"Our revered and beloved Democratic party leaders have, in their great wisdom, have caved in and rolled over and are acting like demoralized cowards, crawling and cringing to the right wingers. We must do the same, in order to be loyal and to support them. What, do you want the Republicans to win?" Every time a Democratic politician gives in to the right wing, or even says any little thing that is moderate, wishy washy, compromising, tentative or weak, there is a chorus of people yelling "That's it! Yes! Moderate, wishy washy, compromising, tentative and weak! We have your back! We love you! We will support you no matter what!" Of course, the politicians listen, since we do have a representative democracy, and think "huh, that must be what they want. I guess I will keep giving them more of that." Any questioning of this is met with "whaddya gonna do? Vote for McCain??"

Smear, Smear, Smear

When all else fails, personal attacks, smears and character assassination are next. You are a purist, troll, marxist, comrade, dreamer, socialist, loser, melodramatic, naive, impractical, unrealistic, fringe, far left, radical, ideologue, psycho, nut case, disloyal....

[grantcart]

31. Your response has absolutely nothing to do with my OP

I have specifically not discussed any particular plan.


I do not have any interest in a plan that seeks to maintain shareholder value in stricken firms.


Obviously I am not concerned about Executive compensation.



My point is very narrow: A liquidity freeze can in fact trigger a systemic collapse of our economic system. It has happened before. On Friday WaMu had the largest bank failure - not because of bad debt but because of a run on the bank.


The 'Liquidity Crises' needs to be addressed and whatever solution is agreed upon can be done in such a way that absolutely guarantees that public money is returned.


You may wish to start a thread that actually addresses the points in your reply which I presume is based on the ongoing negotiations based on the original Paulson plan.

I have no comments on that particular plan - it is clearly out of my limited area of expertise.

You may wish to start a thread that addresses those issues seperately.

Thank you for your comment.

[Two Americas]

37. we are so far apart

We are so far apart that you don't recognize that we are talking about the same thing.

The liquidity freeze is a symptom of a much larger problem, and any plan to solve that as though it were the problem is merely postponing what needs to be done.

No one is advocating "doing nothing" or ignoring the problem. Some of us are arguing for doing nothing to help the wealthy and powerful people who caused this catastrophe, and instead doing something for the working people.

[knowledgeispwr]

38. Many on this board have advocated doing nothing over the past week

And there are people rejecting ideas because they feel that those they feel caused the crisis won't be punished enough. I think it's valid to want retribution, but I differ with those who say "screw it, let it all come crashing down" because they do not see how a credit crisis would affect them.

[Two Americas]

40. not true

The "it" that people don't want to prop back up is the predatory and exploitative game - deadly game -being played by the wealthy and powerful few. The working people have been in a crisis for quote a while now. It is time to address their crisis.

You support the working people, or you support those who have been preying on them. There is no compromise possible - you can't compromise between the desires of the thief and the desires of his victims. Claiming that you can is either to deny the truth, or to side with the thief.

Forcing people to negotiate with the perpetrator at the perpetrator's bidding is forcing people to surrender to servitude.

Surrender if you must, but many of us - most of the people in the country now - are saying "never!!!" and are going to keep saying that.

[MadHound]

39. Really? From what I'm hearing on various media outlets

It's not liquidity, that there's plenty of cash sitting on the sidelines right now. The trouble is that one bank really doesn't trust the other, they don't know what's on their balance sheets and don't know if the bank that they do short term lending to today will go belly up tomorrow. A crisis of trust, not liquidity.

Perhaps rather than injecting a trillion dollars worth of "trust" into the system(which, by the way, will lead to dollar devaluation, inflation and the downgrading of US Treasury Bonds:scared:), why not require the banks to make their accounting transparent, at least until this crisis of trust is over. That way they can tell immediately if a bank is eligible for short term loans or not. That way the rotten ones are culled, the healthy ones prosper, and we're not dumping a trillion dollars into some supposed cure which will actually be worse than the disease.

[grantcart]

45. Yesterday the largest bank run in world history led to the largest bank failure

http://www.utvi.com/news/latest-business-news-us/11011/fleeing-depositers-sent-wamu-crashing-.html

WASHINGTON: As depositors lost confidence in Washington Mutual Inc, and began emptying their accounts, regulators abandoned hopes of saving the largest US savings bank and conducted a secret auction.

"It was a full-time effort the last several weeks to do everything possible to keep the institution alive," said Washington Mutual's regulator on Friday, a day after it was seized then sold in the biggest US bank failure ever.

Office of Thrift Supervision Director John Reich told reporters that the bank's liquidity was being monitored daily.

But in a span of nine days leading up to its failure, customers withdrew about $16.7 billion in deposits forcing US officials to sell Washington Mutual out of receivership for just $1.9 billion to JPMorgan Chase &

[mmonk]

41. It's hard to explain to people here.

[lostnotforgotten]

42. Naomi Klein "The Shock Doctrine"

eom

[Two Americas]

46. another view

Just Say No

Michael Collins
"Scoop" Independent News

"We are being blackmailed.."

(Wash. DC) We're being blackmailed into accepting the responsibility and debt for the worst managed financial institutions in the history of this country. The starting price, our debt, is $700 billion dollars.

What's really about to happen is that the failed financial institutions will be rewarded for their bad behavior. As a result, they and others will be encouraged to do it again. It's just a matter of time.

We're under the gun and told that we have just days to make a decision to bailout these mismanaged entities. The last thing they want is an open hearing on the problem. Deliberation is deadly for them.

We're told that our world will collapse; there will be a systemic breakdown if the president's bailout legislation is not passed. Without it, we'll all be eating stale beans and rice for the rest of our lives.

How do you argue with a premise like that - vote yes and you get a chance to live. Vote no and you'll be soon living in a cold house or damp shelter, if you're lucky enough to be off the street.

This is the same type of argument that was used to pass the Patriot Act after 9/11. It had to be passed right away. The vulnerability to attack was blamed on the Constitution. We were asked to forget the president's disregard for the many warnings of just such an attack. The people paid for that egregious error through the loss of constitutional rights.

Now we're told that to avoid economic ruin and all that portends, we must give up common sense, evaluation, and deliberation and allow more debt to be piled on our backs.

The largest financial institutions have made very bad decisions. They bought into schemes that were senseless. Subprime loans sold as premium securities and the looming credit derivatives melt down -- 50 times larger than the subprime problem -- are obvious losers just on the face of it.

How can grouping subprime loans create a stock that's anything other than subprime? What kind of institutional investor would bet your retirement on a subprime investment?

Why would anyone other than a very experienced financial expert get into anything as complex as credit derivatives? Because the commissions on sales were huge. For buyers, the short cut to profits was too good to resist.

So what are we supposed to do? Give $700 billion to these companies to keep them afloat. While those who marketed these flawed products bear some responsibility, the responsibility and blame grow as you move up the management chain to the top. They all knew what was going on. They ignored the certain risk and failure of these schemes for their personal benefit.

The culprit financial products, subprimes securities and derivatives, were bought and sold by many in the financial industry, including the firm formerly headed up by the Secretary of the Treasury. Why should we trust any of them to decide who gets bailout money or how the firms receiving it are managed?

The debate in Congress is shaping up to be one over style rather than substance. Both Republicans and Democrats agree that some sort of bailout bill needs to happen. But the Democrats want oversight and monitoring, as if that will change a single thing. The Republicans want centralized control by one person, the Secretary of the Treasury, with no review of who gets how much corporate welfare.

Here's a message for the grossly irresponsible politicians, regulators, and financial firms.

Don't tell us you're going to do it right this time when you're the people who got us into this mess.

Don't tell us you that your interests are the same as ours. You haven't been able to have just one vote to eliminate the loophole that allows oil speculation responsible for high gas and home heating oil prices. Why should we trust you now?

Don't tell us that we can't survive without these decadent financial entities.

This bailout makes no sense. Listen to people with alternatives to financial blackmail. Find solutions that impose a minimum of harm to the innocent and that create opportunities for all citizens. Talk to some smart small business owners, union people, and a variety of citizens. Deliberate in the open with all assumptions on the table.

Who will stand up for the people and say, let the failed firms bail themselves out or let them do what every citizen does in this situation, declare bankruptcy.

Why is it that the greater your failure, the greater your chances are for a debt canceling rescue? The vast majority of citizens aren't getting that option.

This is the first of many bailouts to come. The time to say no is right now. No bailouts. No socialism for the rich with survival of the fittest for the rest of us. And stop pretending you're doing something by arguing about details when you're doing nothing more than rewarding failure while you set us up for the next take down.

http://www.scoop.co.nz/stories/HL0809/S00311.htm



(reprinted in full with permission of the author)

[grantcart]

48. assume that all of the statements made in your reply are true.

do you think it fair that 100,000 businesses that have nothing to do with mortgages or finance not pay their payroll simply because the liquidity in the system is frozen behind the bad decisions of people in the mortgage business?

You ignore the possibility of a systemic breakdown the day after the largest bankrun in world history has just taken place.

[Two Americas]

50. of course not

Small businesses need relief and protection immediately. I work with hundreds of struggling small family farms. I welcome this discussion. It is the unregulated credit, finance and banking industries that are killing them, they are not helping them.

The choice for every small business person is this - will you take the course of George Bailey, side with the people, the employees and the customers, and have the courage to ask that we all fight this together, or the course of Henry Potter and promote the culture of greed and cut throat free market competition that places profits above people and that eventually consumes itself?

We cannot let the small business people fail. We need not. We need not see them as the same as the fat cats. They are not. But we will sooner accomplish this by pulling together against the forces that threaten all of us, workers and employers.

This crisis is more difficult for small businesspeople than it is for any one else. It is going to require more of us, it OKs going to be a difficult transition. But there are many ways that business, and life, will be so much better if we don't all have a gun to our heads and if we are not being divided and conquered by the wealthy and powerful who do not care about us no matter what it is we are doing.

FDR understood that the small businessperson and the worker were not enemies, but shared a common cause, and his words are as true today as they were then.

For out of this modern civilization economic royalists carved new dynasties. New kingdoms were built upon concentration of control over material things. Through new uses of corporations, banks and securities, new machinery of industry and agriculture, of labor and capital—all undreamed of by the fathers—the whole structure of modern life was impressed into this royal service.

There was no place among this royalty for our many thousands of small business men and merchants who sought to make a worthy use of the American system of initiative and profit. They were no more free than the worker or the farmer. Even honest and progressive-minded men of wealth, aware of their obligation to their generation, could never know just where they fitted into this dynastic scheme of things.

It was natural and perhaps human that the privileged princes of these new economic dynasties, thirsting for power, reached out for control over Government itself. They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property. And as a result the average man once more confronts the problem that faced the Minute Man.

The hours men and women worked, the wages they received, the conditions of their labor—these had passed beyond the control of the people, and were imposed by this new industrial dictatorship. The savings of the average family, the capital of the small business man, the investments set aside for old age—other people's money—these were tools which the new economic royalty used to dig itself in.

Those who tilled the soil no longer reaped the rewards which were their right. The small measure of their gains was decreed by men in distant cities.

Throughout the Nation, opportunity was limited by monopoly. Individual initiative was crushed in the cogs of a great machine. The field open for free business was more and more restricted. Private enterprise, indeed, became too private. It became privileged enterprise, not free enterprise.

Franklin D. Roosevelt
Acceptance Speech for the Renomination for the Presidency, Philadelphia, Pa.
June 27, 1936

http://www.presidency.ucsb.edu/ws/print.php?pid=15314

[Two Americas]

52. by the way

I would understand if you see my remarks as romantic and sentimental, as insufficiently cognizant of the harsh realities of the business world. That is intentional. Indulge me. You have the practical and realistic view well in hand, and that is needed and important. I would not try to exclude you or your insights from discussion. But is is going to take both. Of course something must be done and the crisis cannot be ignored. The question is: what should we do? A New Deal approach does not necessarily hurt you. Bailing out the fat cats may. Consider that - that is all I am asking.

[grantcart]

58. Oh I agree with that completely

If it was a 'bail out' of wall street companies I would much much prefer 700 billion to be invested in infrastructure, building housing for the poor, etc.

There is no question that that kind of investment would bring much more substantial benefit to the entire country.

No question about it.

The very limited purpose of the OP is simply to illustrate for people to understand that this is not a wall street bail out but an emergency ressucitation to keep the system liquid.

[lonestarnot]

47. I've read where liquidity is being intentionally drained by banks in the

hopes of profitting from the bail out.

[grantcart]

49. Some banks that did not get into the mortgage business are buying

the carcasses of banks right before or after they go bankrupt but the idea that they are purposefully engineering an artificial liquidity crises is not supported by any major authority.


Many of the authorities that were quoted by Shelby for the Paulson or son of Paulson plan as being against a 'bail out' were interviewed on the radio yesterday and one after another they all said that the believed the liquidity crises was real and catostrophic but did not agree with the proposed 'bail out'.

[lonestarnot]

55. You may want to take a look at this

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4108851

[grantcart]

59. If you read the OP carefully all of the quotes but one are against the Paulson

plan or approach.


The one quote that supports a planned liquidity conspiracy is this


From Mish's Global Economic Trend Analysis

“I suspect that part of what we’re seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,” said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.”


So someone who studies economics and game theory "suspects" that a conspiracy is taking place.



Here is what the "liquidity conspiracy" theory means.

That while all of the vested interests who have major equity in banks are losing all of their money they are sitting by and watching other bankers trick them out of it and they are just being silent about it.


Does that really make any sense at all.


Now I will give you a concrete example. Ever since Silver State Bancorp appointed Andrew McCain as a director I have been watching everything they do. After they were taken over by the FDIC I spent a couple of days investigating all of their shares and all of their directors compensation with the hope of getting a story that the McCain family was taking money out of a bank that was failing.

What I found was that McCain probably was compensated $ 10,000 for being on the board and had about $ 10,000 worth of shares.

What I also found was that the shares were concentrated in the hands of the founders and the families of the original founders. Those families lost $ 50 million dollars in the bank failure.

So the argument is that they are watching their personal fortunes being wiped out based on some entirely phony crises and aren't saying anything about it.

If you are saying that there are bankers who were very conservative on the mortgage business who now have good balance sheets and are going to use that to buy up the losers, of course. It doesn't mean that the liquidty crises is false. Last week we saw the largest bank run in history - that was a fact.

[earth mom]

51. Sorry, but no one has explained why citizens should be responsible for the bad mistakes & losses

of corporations or anyone else. Where's that "personal responsibility" the rethugs are so damn proud of, eh?! :eyes:

Why the hell should I bail out the bastards on Wall Street who have done nothing but gamble for years and now expect all of us to bail them out?!!

Let those goddamn bastards take their losses and slink back into the hole they slithered out of.

[grantcart]

60. you shouldn't bail out anyone

all of the effected corporations should lose their equity and shares just like the shareholders at WaMu that lost billions on Friday.


The point is to explain that there is a liquidity problem and if that is not solved then hundreds of thousands of businesses and millions of workers from companies that had nothing to do with it who will lose their businesses and their jobs if they don't have money to pay salaries and inventories.

The companies that will be the most deeply effected will be the younger companies with less capital. Is it fair that a solar energy subcontractor that has done nothing wrong should become the innocent victim of a lack of liquidity because they cannot get the normal every day working capital even though they have both good credit and good assets to back up a loan?


How many millions of innocent workers should lose their jobs because we want to make really dump on Wall Street - again the mismanaged companies should and have been losing their equity.

[Zynx]

56. Thank you so much for making this argument.

I'm sick of this knee-jerk populism that doesn't understand the nuances of this situation.

[dailykoff]

57. "cross posted by request of AIG and Goldman Sachs"

Once was enough.