March 16, 2020

"I don't think I've ever heard Althouse use the word 'destroys' in reference to a debate."

Said The Vault Dweller in last night's debate conversation, after I said "Biden is doing well. I thought he destroyed Bernie on the issue of saving the banks."

Here's the part of the transcript I was talking about. The moderator, Ilia Calderon asked Sanders about his vote against bailouts following the 2008 financial crisis. Sanders stood by his vote based on the "illegal behavior" the banks engaged in and because of his concern about "massive income and wealth inequality." The "working person" should not "suffer" for something they did not control.

Then:
BIDEN: Had those banks all gone under, all those people Bernie says he cares about would be in deep trouble. Deep, deep trouble. All those little folks, we would have gone out of business. They would find themselves in position where they would lose everything they had in that bank, whether it was $10 or $300 or a savings account. This was about saving an economy. And it did save the economy. And the banks paid back. And they paid back with interest....
I'm skipping some squabbling, and then:
BIDEN: Look, the fact of the matter is that if, in fact, the banks had all been -- gone under, we would be in a great depression. We would have not -- how do you get out of that? Now Bernie is saying that I guess he's going to do a wealth tax or something, that the top 1 percent could pay for everything. And they should pay for everything that occurred. We were talking about tens and hundreds of billions of dollars. That's what this was about. And the fact was that it saved the economy from going into a depression. After we passed the Recovery Act, which I was the one that went out and got the three votes to get it changed, that had $900 billion in it and was the thing that kept us from going into a great depression

98 comments:

tim in vermont said...

"BIDEN: Had those banks all gone under, all those people Bernie says he cares about would be in deep trouble. Deep, deep trouble. All those little folks, we would have gone out of business.”

So it wasn’t waste to read Geithner’s book. That’s their story and they are sticking to it. At least Biden remembered the talking points. I am not really sure that rescuing a lot of extremely wealthy individuals from the consequences of their reckless gambling with the economy was the only way forward, but tax cheat Geithner was pretty convinced, and he has such an honest face!

narciso said...

had Geithner just prevented lehman from collapsing, you wouldn't have had this crisis, the next time, they'll take your money, like they did in Cyprus,

Fernandistein said...

The moderator, Ilia Calderon

Oh noes! A foreign national meddling and interfering in our democratic elections.

we would be in a great depression.

Although there were economic cycles, there weren't any "great depressions" until the feds got into the baking business.

Fernandistein said...

Banking.

BleachBit-and-Hammers said...

actual Biden === 'I need those little people to pay taxes to I can finagle international deals with Ukrainian energy companies to make my dead-beat son wealthy. He needs another Porsche, you lying dog face pony soldiers. You work for me.'

John Lynch said...

Biden's right. Although George W. Bush deserves credit, too. If you read about what happened in 1930 when the banks failed, you'll understand.

This is Milton Friedman stuff- the Great Depression happened because with the banks went a big chunk of the money supply.

AlbertAnonymous said...

I think we need about 6 more of these Democrat socialist debates.. keep em talkin.

gilbar said...

They would find themselves in position where they would lose everything they had in that bank, whether it was $10 or $300 or a savings account.

so, Jo Biden was saying that the FDIC was going to fail; and the government too?
i don't understand

John Lynch said...

I have less than zero confidence Bernie Sanders would do the right thing in a crisis. He's impervious to history.

rhhardin said...

The problem was counterparty risk. People taking no risks would lose their money because the lent money to counterparties who lent money to counterparties, leading to somebody who dependended on AIG to insure what he had invested in, and AIG was taking an uninsurable risk insuring phony mortgages. All the policies went bad at once.

Banks were just a link in the chain that were bailed out so everybody downstream wouldn't have that problem.

M Jordan said...

I agree this was a Biden’s finest moment. He’s totally right and though his is the “establishment “ argument, it’s the correct one. Bernie is a Pied Piper leading intellectual children to doom. I’m not a Biden fan but I despise Bernie with the heat of a thousand suns.

tim in vermont said...

Geithner's book sort of convinces me that it was amateur hour at the highest levels of our government during the financial crisis, and the White House got played by the pros in the financial markets. Maybe it gets better as I read it further, but I am convinced that our financial system is doomed because every time the wealthy investors lose money, they demand a reset from the government, in the form usually of punishing savers, so they can get their money back.

Then there are the high frequency sharks who milk the markets during turmoil, it’s like curing a disease with leaches.

Drago said...

David Schuster Twitter
"Tonight @JoeBiden lied about his record on social security, abortion rights, bankruptcy bill, green new deal, war in Iraq, gay marriage. If lying no longer matters, so be it. But democrats need to prepare to drop their moral high ground against @realDonaldTrump."

West Texas Intermediate Crude said...

Yes, what gilbar said.
Eagerly awaiting a multi-Pinocchio rating from WAPO for Biden's ignorance of FDIC, recognizing that zero small savers would lose a dime if their bank went under.

narciso said...

then there was the fact that the banks were carrying products, that were mandated by government policy, the banks who adapted to the grift, paid off biden and Obama,

tim in vermont said...

"If you read about what happened in 1930 when the banks failed, you'll understand.”

They needed to maintain liquidity, but they didn’t really need to protect the wealthy and reckless gamblers out of fear of “scaring the market”. The market needed to be scared. People needed to know that their gambling carries risks beyond just the collateral damage to the working man.

Drago said...

Its pretty clear the Bernie Bros didnt see Biden destroying Sanders.

They saw a senile establishment tool continue a 40 year record of lying and plagiarizing and misrepresenting while being assisted at every turn by the "moderators" and the dem party.

Bill Peschel said...

"Eagerly awaiting a multi-Pinocchio rating from WAPO for Biden's ignorance of FDIC, recognizing that zero small savers would lose a dime if their bank went under."

Agreed. If you don't let the banks suffer the consequences of their actions, you've enabled the next financial crisis, which we're currently undergoing in slow motion with our inability to stop our spending spree.

narciso said...

this is like a memoir by the x.o., leaving out he could have recommended to steer away from the iceberg,

Bob Boyd said...

You know, Bernie has a point.
Only kidding. He doesn't.

Tommy Duncan said...

It is useful to remind Americans that the Recovery Act wasted $900 billion of their hard earned money on "shovel ready" jobs that never existed and were never created. But rich Democrat constituents did well.

tim in vermont said...

Now they want negative interest rates, so that they can take money out of grandma’s savings account for the privilege of having it in the bank.

John Lynch said...

Small savers would lose a lot of dimes when the economy collapsed and they lost their jobs. That's what happened in 1930.

tim in vermont said...

I would have been satisfied with a few prison sentences handed out in the early Obama years, but the banks put Obama in there for a reason. A Citibank executive had accurately named Obama’s cabinet before he was first elected. Thank you Wikileaks.

John Lynch said...

TARP is what mattered. Recovery Act... eh. Keynsian stimulus that didn't have much impact. Biden is conflating the two.

Sebastian said...

Wait, so W's rescue plan was right after all? For some reason, I don't recall O and Joe touting big-bank salvaging as W's great move.

"And they should pay for everything that occurred."

Do you consider the notion that the "1%" can and should pay for "everything" "serious"? If so, what, by your standards, would be an unserious proposal?

tim in vermont said...

"Small savers would lose a lot of dimes when the economy collapsed and they lost their jobs. “

Thats the argument, that the financial system that we have created would collapse, and I guess, that no other financial arrangements for our economy are possible, including any and all systems that would impose market discipline for failures.

narciso said...

chase's subprime chief, was named treasury chief after Geithner, remember it was prince talal, that helped select the Obama cabinet,

Meade said...

Note to Bernie and his sandersnistas: Sometimes you go forward with the revolution given you, not the revolution you thought you wanted or wish to have at a later time.

tim in vermont said...

" I don't recall O and Joe touting big-bank salvaging as W's great move.”

Geithner gives Bush credit in Stress Test, but he also points out that Obama told him “Let me handle the politics."

John Lynch said...

Aunty Trump

There WAS a world collapse in the 1930s. How'd that work out?

What they did in 2008 was exactly what should have been done in 1930. The Fed then was too into letting the market punish banks. Turned out to be a poor decision.

I grew up listening to my grandfather's Depression stories. No, thanks.

narciso said...

why was this depression worse than the ones in 1873 and 1893

Todd said...

BIDEN: Had those banks all gone under, all those people Bernie says he cares about would be in deep trouble. Deep, deep trouble. All those little folks, we would have gone out of business. They would find themselves in position where they would lose everything they had in that bank, whether it was $10 or $300 or a savings account. This was about saving an economy. And it did save the economy. And the banks paid back. And they paid back with interest....

If this were true, what is all that FDIC insurance for? "All those people" would not have lost anything if they did not go over the $250K per account, unless the FDIC rules changed. How many "little people" have more than $250K in a single bank account?

John Lynch said...

Anyway, we get to watch 2008 happen again in real-time, so we'll see how all this works out. If the "PUNISH THE BANKS" people win, we're all fucked. That way leads to 25% unemployment.

I feel a lot better with Biden keeping Bernie out of the White House, whether he wins the general election or not. Thank you, Democrats. We can't afford vanity socialism right now.

Left Bank of the Charles said...

The idea of TARP was that all the big banks had to take the bailout so that the public couldn't tell which bank(s) actually needed the bailout. The federal government ended up earning a small profit on the bank bailout, making it perhaps the least expensive bailout of all time.

Bailing out people who were having trouble paying their rent or mortgages would have cost some real money, but perhaps we should do it this time.

Sebastian said...

"If this were true, what is all that FDIC insurance for?"

What does it say about Dems and their constituents that it takes obvious BS for one candidate to "destroy" another one?

TreeJoe said...

Conceptually, I don't disagree with the Fed backstopping banks that followed their own and federally required guidelines for reserves and were in danger of failing.

What I have a problem with is that the system was built up and fell down over incredibly fraudulent mortgage and loan-assessment practices - false income reporting with no systemic verification, faulty credit rating, faulty bond rating practices by the top rating agencies. Top to bottom fraudulent activities by everything from individual mortgage lenders to the "independent" agencies who are supposed to protect the institutions and economy from inaccurate risk assessment.

They completely failed.

I would at minimum have expected:

- The rating agencies to go out of business as fraudulent enterprises
- Mortgage agency heads who allowed rampant fraud to go on - put them out of business and or be jailed significantly for fraud

....but instead Biden oversaw an administration who helped prop up the economy and just "move past" that dark underbelly of the economy. They may have done some good, but Sanders is right that they also protected and shielded those who did great harm from ever being called to account.

If Sanders was a decent debater, he would have been able to show Biden is the face of corrupt protectionism.

tim in vermont said...

"What they did in 2008 was exactly what should have been done in 1930. “

Including letting the people who cooked up the whole crisis hold onto their ill gotten riches?

I agree that the TARP was right, what was wrong was looking the other way on the people who caused the problem, and protecting the market from discipline is the way to ruin.

AllenS said...

If your bank goes under and you lose everything that you have, "whether it was $10 or $300", you're pretty much fucked irregardless.

MadisonMan said...

All those little folks, we would have gone out of business.
Spoken as if Joe Biden were one of the little folks.

narciso said...

the problem was the government that mandated through direct and indirect ways, that banks lend to those who couldn't pay, then the fed ramps up the rates, and pops the bubble that paul Krugman, had encouraged to solve the other one,

but this is kabuki like the muppets,

narciso said...

in Europe, the collapse forced the fall of Bismarck's own form of state capitalism, the dirigisme of wagner and moller that operated in Austria, typical of the credit anstalt bank,

Meade said...

"Bailing out people who were having trouble paying their rent or mortgages would have cost some real money, but perhaps we should do it this time."

Agree. And it doesn't need to be either/or. It can be both.

madAsHell said...

The Demented vs. The Disheveled.

daskol said...

Haven't read Geithner's book, but Gretchen Morgensen's Reckless Endangerment was an outstanding early draft of history on how we got to the crisis. Not as much about the bail out, which remains and should remain a controversial topic. The market reactions to the Fed's interest rate cuts as well as announcements about additional quantitative easing reveal something pretty scary: we haven't any bullets left in that gun.

narciso said...

but that crisis, served as pretext to impose Obamacare, once they had secured their 60th vote through voter fraud or phony indictment, to take over the auto companies, forcing them into bankruptcy that spoiler, left fiat entirely in charge of Chrysler, Obamacare btw did nothing to improve the critical needs of hospitals, as we find out with this crisis,

narciso said...

yes she's very good, as opposed to ross Sorkin's doorstop which misses the point, same for Nocera, and other inquesters, like Charles ferguson, the interesting thing I found out about lehman, through the valukas report, that the core of their holdings was a large public housing project called tishman speyer,

Big Mike said...

Bernie’s response should have been a mix of what Todd commented at 8:00, and the following: “Bad management got those banks into trouble and I could not in good conscience support any bail out that left those bad managers in their posh offices, sitting behind their mahogany desks and drawing their obscene salaries. The plan didn’t rescue the savers, it rescued incompetent bank presidents.”

tim in vermont said...

If you have a program like TARP, the government should be taking stock from the bank in return for the funds, and sell the stock on the open market, in addition to demanding repayment.

Ken B said...

There is a good case for Biden's claim (just not for his role in it). The Fed and bank regulators do seem to have prevented a sudden deflation. That could very well have lead to a depression. But it was an international effort. And the *bailout* was a give away. It would have been better, after the regulators intervened, to sell the assets to sound banks like the Canadian banks.

narciso said...

you give an electric shock, to a healthy heart, how do you expect it will react, the markets were healthy, the prospect were troubling,

rcocean said...

Yes, that was the Banker's "Party line" - Bail us out or the Economy will collapse. Leaving aside that no real attempt was made to correct the faults that lead to the Financial crisis, this is bullshit - boob bait.

Some banks collapsed and we gone on just fine. And lots of other banks/investment firms didn't' have to bailed out. Some AIG/Goldman Sachs stockholders would've taken a haircut but that's about it. The idea seems to be that if these financial institutions engage in risky and/or illegal behavior and profit by it, well that's OK. But if they lose money, we should bail them out, otherwise the Sky will fall.

We should have let the Beloved "Free Market" do its magic. But mysteriously, only average people are supposed to suffer when the "Free Market" goes to work. When its rich people, we need the Government to step it.

tim in vermont said...

"I could not in good conscience support any bail out that left those bad managers in their posh offices, sitting behind their mahogany desks and drawing their obscene salaries.”

Remember what they said at the time? These people were the only ones who knew how to run these complicated institutions! They could have done it from their jail cells, in lieu of making license plates.

rcocean said...

People who shouldn't have gotten loans were given money because the bankers were making a ton of money. The scam artists who owned Country-wide made out like bandits. The Washington Mutual Crowd that got out in time, also made $millions. The whole derivative market should never been allowed, it didn't help the economy. Of course, when you say that, the "Free Marketeers" show up to babble about how we need to let "the Market" do whatever it wants, because it makes us all rich - except when it doesn't. Then we need the taxpayer bailouts.

Biden - no mater how left-wing he is on everything else - is a "Safe Bet" for the Power elite. He loves Goldman Sachs, Globalism, Open borders, and his comments on rolling back the tax cuts shouldn't be taken seriously. And he'll work out a deal to cut Social security if requested to by the Big Donors.

rcocean said...

Amazingly, when it comes to protecting the workers from unfair trading practices and the excesses of Globalism and massive immigration, I trust Trump more than Biden.
And Biden has basically said he will destroy the shale oil companies and stop coal mining.

I also trust Trump more on social security. Biden is much more likely to cut a deal that will screw over senior citizens. Trump is actually to Biden's LEFT on some issues.

rcocean said...

Many of these banks and investment houses instead of getting bailouts, would have just merged or been taken over by other banks/financial institutions. Their stock holders would have been hurt (like EF Hutton) but no tax money would've been needed.

The Godfather said...

Gee, it’s a shame the federal government didn’t have any regulations for financial institutions BEFORE the Great Recession to prevent it.

tim in vermont said...

"Their stock holders would have been hurt (like EF Hutton) but no tax money would've been needed.”

But the boy geniuses would have lost their jobs and their golden parachutes clawed back. That could not be allowed to happen.

Birkel said...

Government got us into the financial crisis.
And Biden says it is what got us out.
It's a convenient lie.

But that doesn't mean Bernie is correct, either.

stlcdr said...

Wait, why would the banks go under if they have all the money?

MikeR said...

Interesting that he "destroyed" Sanders on something that is a counterfactual: He's making claims about what would have happened otherwise and no one knows one way or another.
Well done.

dreams said...

I didn't watch the debate but I'm happy to accept this interpretation of it.

https://www.facebook.com/ForAmerica/videos/212346309975133/UzpfSTEwMDAwMDE4NTA1NTg5NzozMzY5ODQ5MTI2MzY0NTU2/

Michael K said...


Agreed. If you don't let the banks suffer the consequences of their actions, you've enabled the next financial crisis, which we're currently undergoing in slow motion with our inability to stop our spending spree.


I still recommend Nicole Gelinas' book, "After the Fall," which explains how the crisis began and what could have been done other than bailing out all the crooks.

rcocean said...

"Gee, it’s a shame the federal government didn’t have any regulations for financial institutions BEFORE the Great Recession to prevent it."

They had plenty of regulations, just the wrong ones. And many of those they had either weren't enforced or the banks would get by with a slap on the wrist.

n.n said...

I also trust Trump more on social security. Biden is much more likely to cut a deal that will screw over senior citizens. Trump is actually to Biden's LEFT on some issues.

Or center. Conservatives, and, on the right, some libertarians, recognize that Social Security has fixed outlays and is a manageable, funded public smoothing function that promotes the general Welfare. Medicare is a funded public smoothing function, but the prices, not costs, that make it less viable are progressive. Medicaid is an unfunded public smoothing function that was propped up with short-term redistributive change negotiated by Obamacares. Conservatives do not support Planned Parent any more than they support Planned Parenthood.

rcocean said...

"That way leads to 25% unemployment."

That's just bullshit. Boob Bait. Prove that no bailout would've resulted in 25% unemployment. All the bailout supporters have is hysteria and snark.

n.n said...

"Gee, it’s a shame the federal government didn’t have any regulations for financial institutions BEFORE the Great Recession to prevent it."

There are... were regulations that would have prevented or mitigated its progress, but were ignored under the rubric of social justice, which evolved in diverse directions (e.g. excessive leverage, growth, unbacked and bad loans) with corruption and eventually a dysfunctional convergence. Not unlike the labor and environmental arbitrage, and democratic gerrymandering, that provided an incentive to outsourcing, insourcing, offshoring, and enabled the Green deal among other less than viable choices.

Lucien said...

Bailing out people and companies injured by external shocks that they had nothing to do with (Major League Baseball), or that result from government action (bars ordered to close) is different from bailing out companies that create the trouble they find themselves in.

n.n said...

Prove that no bailout would've resulted in 25% unemployment.

Well, what may have been. That said, there would have [likely] been a hard reset, dislocation (or rather restructuring). The counterpoint is that the divergence or misallocation of resources and growth would have been corrected in short order and the result would be a more stable system.

Yancey Ward said...

Good grief! That Biden quote about the little guy losing his $10 or $300 savings account is a fucking lie, or just another sign that Biden is the biggest moron in the world. Accounts like that would have been made whole by the FDIC, unless the government itself failed.

Now, Biden might be on more solid ground about the banks taking the economy deeper down the recession, but that didn't necessarily require the government bailing out the shareholders. We do have a bankruptcy process that can be used to reorganize failed businesses without stripping them completely. Really, GM and Chrysler went through this process and reemerged on the other side (though that process was corrupted to some degree by politics). There is no reason to think the same couldn't have happened to Goldman Sachs, Bank of America, Morgan Stanley, and J.P. Morgan, or any other bank/financial firm.

As it turned out, in the end, all that was probably needed early in 2008 was reversal of the mark-to-market rule- a rule that was changed in March 2009, right at the very bottom of the bear market.

n.n said...

The war in Iraq began with the first Bush's response to Iraq' invasion of its neighbor, was sustained with a ceasefire and second chance during Clinton's administration, ended during the second Bush's administration, then saved and progressed to a greater Middle East war during the Obama administration.

tim in vermont said...

I turned on Bloomberg finally. FIrst headline? Russia Russia Russia, Christoper Steele! Trump is a Russian agent!!! Blah blah blah!

tim in vermont said...

"All the bailout supporters have is hysteria and snark.”

And repetition, don’t forget repetition.

n.n said...

the little guy losing his $10 or $300 savings account is a fucking lie, or just another sign that Biden is the biggest moron in the world. Accounts like that would have been made whole by the FDIC, unless the government itself failed.

It was a public smoothing function that covered the system, the big guy, the middle guy, and mitigated the at-risk investments of the little guy. Obama did something similar with a greater investment and lower return.

Michael K said...

They had plenty of regulations, just the wrong ones. And many of those they had either weren't enforced or the banks would get by with a slap on the wrist.

Gelinas' book points out that much of this began when banks failed after making high interest loans that exceeded the FDIC limit but they bailed out those investors anyway.

Ralph L said...

that didn't necessarily require the government bailing out the shareholders.

My Wachovia stock is now (as Wells Fargo) a fifth of its peak value (before First Union bought it in the early Aughts)--but it is still infinitely better than my GM stock. Diversity does have value when it comes to portfolios.

Big Mike said...

Remember what they said at the time? These people were the only ones who knew how to run these complicated institutions!

@Aunty Trump, and if Biden had come back at Sanders with that line, Bernie could respond with “Oh, c’mon!” 😁

More seriously, the large and complicated institutions should have been broken up into smaller institutions capable of being run be more ordinary individuals making ordinary salaries.

Jason said...

1. FDIC is designed to cover individual and small clusters of bank failures. Not systemic collapses.

2. Large employers routinely float commercial paper to make their payrolls. And then deposit that money in demand deposit accounts before paying employees. As of Lehman Weekend, The commercial paper market was freezing up because of counterparty risks. And FDIC wasn’t going to cover GM’s payroll account, or the State of California’s payroll account, or the Houston public school district’s payroll account. In days, millions of paychecks were going to bounce, if they got issued at all.


Ralph L said...

In days, millions of paychecks were going to bounce

Yet it took several weeks for TARP to pass, and then they just sent cash to the banks instead of buying MBS as was planned. Most of the panic seemed to be in DC, not Wall Street.

Achilles said...

BIDEN: Had those banks all gone under, all those people Bernie says he cares about would be in deep trouble. Deep, deep trouble. All those little folks, we would have gone out of business. They would find themselves in position where they would lose everything they had in that bank, whether it was $10 or $300 or a savings account.

This is a bald faced lie.

It can't get any more lie like than this.

This is the epitome of a lie.

Even "If you like your doctor you can keep your doctor" was less of a lie because it was predicting future events. That was still a lie, but this is talking about past events that are completely the opposite of what he said they were.

I find it pathetic that Ann thinks this is Biden's finest moment.

There need to be some qualifications to this like "I think this will convince a lot of stupid people to vote for Biden" or "Stupid ignorant people will eat this up."

Achilles said...

Jason said...
1. FDIC is designed to cover individual and small clusters of bank failures. Not systemic collapses.

That is either a lie, or FDIC is a fraud. Which do you think would make people more angry?

2. Large employers routinely float commercial paper to make their payrolls. And then deposit that money in demand deposit accounts before paying employees. As of Lehman Weekend, The commercial paper market was freezing up because of counterparty risks. And FDIC wasn’t going to cover GM’s payroll account, or the State of California’s payroll account, or the Houston public school district’s payroll account. In days, millions of paychecks were going to bounce, if they got issued at all.

Well, somehow they managed during the weeks it took to get TARP passed as it was first proposed Sep 21 and finally passed October 3. Lehman fell on Sept 11.

This is the best part of the whole deal:

"Over the next six months, TARP was dwarfed by other guarantees and lending limits; analysis by Bloomberg found the Federal Reserve had, by March 2009, committed $7.77 trillion to rescuing the financial system, more than half the value of everything produced in the U.S. that year.[20]"

Almost all of that went to Europe.

Char Char Binks said...

Althouse destroys like Jorben Shapiroson -- with FACTS and LOGIC!

Bob Boyd said...

If Tulsi had been on that stage last night with those two old boobs, she'd be the front runner today.

cubanbob said...

Biden is an idiot but even an idiot by chance is occasionally right. For all of those here commenting that Bush's TARP wasn't necessary are out of their minds. Everyone who had a bank account got bailed out. Remember every bank that was in trouble was a federally regulated bank and their loan portfolios were blessed by the regulators. The government pledged the full faith and credit of the United States for the mortgage backed securities. I was buying them and never would have bought them but for that guarantee. After the debacle I was putting my cash in numerous banks but up to the $250m limit. I wasn't looking for the lowest interest rate, hence the lowest risk but rather the highest rate since the federal government guaranteed the banks. Those who argued that business could have met payrolls and vendor obligations are again out of their minds. No they could not. No bank trusted any other bank. Banks were not going to pay demand notes ( checks, wires, ACH) until they received full funds credit from the issuing bank. After the debacle banks were stingy in their credit facilities. Why take risk and get hammered by the feds when you can borrow at the discount window for next to nothing and use the cash to buy government securities and make money on the arbitrage? How bad it could have is an unknown but expecting other banks to buy banks in trouble, especially foreign banks is also crazy unless the discount is enormous, so much so that the bailed out bank would have cost the feds far more net than what the cost actually was.
The cascading effect of the runs on the banks would have resulted in a 1930 depression. The better solution is to get the federal government out of the mortgage lending business and limit the amounts it will cover in FDIC insurance and offer the depositor the option to purchase excess coverage based on the banks true credit risk. My suggestion is not a panacea, it would result in disruptions and costs but it would limit the government's exposure. Just remember in case of such a massive bank run your credit and debit cards and checks are not going to accepted until the funds actually clear the payee has bupkis.

Bob Boyd said...
This comment has been removed by the author.
Unknown said...

FDIC cover deposits. Investment banks failed.

TARP saved you by bravely spending your money.

Democrat claims to "save you" are always lies.

tim in vermont said...

"Most of the panic seemed to be in DC, not Wall Street.”

It was a game of showdown, and Wall Street walked away with the pot.

tim in vermont said...

“I was buying them and never would have bought them but for that guarantee.”

Hmmmm...

Tina Trent said...

The banks had to pay back TARP funds but the unions and leftist activist groups didn’t, and they got ungodly amounts of our money. Also, by handing all that money to big banks, Obama destroyed a lot of community and small banks. People seem to overlook the negative effect on banks that weren’t chosen “winners.”

cubanbob said...

Aunty Trump said...
“I was buying them and never would have bought them but for that guarantee.”

Hmmmm..."

You own a home? Did you pay cash for it or get mortgage? If you got a mortgage, you benefited from government guarantees. If it wasn't for the guarantee you can absolutely be sure you would have to put down a much more substantial downpayment and the term wouldn't be for thirty years. If the banks couldn't sell their mortgages they could not offer so many people mortgages since their capital base wouldn't be large enough and the credit requirements would be more stringent. If you were in the market today, could you swing 30% down and a 15 year term with a floating rate?

Tomcc said...

Plenty of blame to be shared. I’m surprised that no one has mentioned Barney Frank.

Jason said...

Achilles. That is either a lie, or FDIC is a fraud. Which do you think would make people more angry?

It is not a lie. It's just math. And the FDIC is not a fraud, either. It does what it was designed to do: Make depositors whole in the event of a single bank failure or cluster of failures. It was not designed to cover a massive systemic failure.

I don't give a shit what makes people more angry.

Jason said...

Cubanbob has it precisely right.

Here's a clue: TARP was not the first countermeasure. There was a MASSIVE liquidity injection from the Fed that week, designed to address counterparty risk. Because the engine was seizing. That bought time for TARP.

Jason said...

Here's what I wrote at the time (February of 2009):

The whole scheme relies on the FDIC actually being able to pay off depositors. The problem is they can't. They just can't. There isn't enough capital to do that. As of the end of 2007, the guarantees of $4 thousand billion in insured deposits were perched precariously on a capital reserve of less than 1.25 percent of the total.

That's a lower capital margin than the banks themselves were required to operate with. A lot lower.

And that 1.25% reserve was before IndyMac.

Meanwhile, the FIDC INCREASED its deposit guarantees from $100,000 to $250,000, without any increase in reserves.

Typically, the FDIC's been able to carve out 50 cents on the dollar of saleable assets from banks it has had to shut down. But that's in an environment where asset prices were overinflated and there were buyers available. It wouldn't get anywhere close to 50 cents on the dollar today. Meanwhile, there would be all kinds of family-friendly entertainment as the FDIC struggled to sell its own assets (mostly treasuries) and rescue what was left of its cash and cash equivalents in its reserve fund to pay off depositors.

The FDIC was designed to pick up the occasional local bank failure, and one or two larger banks, so long as they didn't happen too close to one another.

It cannot absorb the Citigroups. It cannot absorb the Bank of Americas. One of these would wipe out the fund. Once FDIC was wiped out it would cause a run on the others. Congress would have to authorize another 500 billion or a trillion overnight to make good on FDIC promises and recapitalize FDIC. They would HAVE to. And then pray that there were still treasury buyers out there. If there is still a market for treasuries, it's going to be at the expense of the money markets, as public debt crowds out private.

The FDIC promise is paper thin.


Link: http://iraqnow.blogspot.com/2009/02/megan-depositors-ought-to-get-their.html

I link to the FDIC annual report from 2009 in the post, if anyone wants to verify my numbers.

cubanbob said...

Jason you were absolute correct in 2009 and today. Every critic here forgets without the interlocking of the banks, investment banks and insurance companies our standard of living would vastly diminished as there wouldn't be the level of capital for investment to have the economic growth to sustain the standard of living we have. The sad fact is once again the federal government is allowing liar loans and little to no down payment mortgages. In the meantime I don't see anyone demanding alternative banking in the form of money warehouses where the renter pays storage fees for their money but has absolute ability to cash out at anytime. Perhaps with zero to negative rates, there will be a demand for such money warehouses. So far I haven't seen any indication for the abolishing of FHA and other government backed mortgages.

tim in vermont said...

"You own a home? Did you pay cash for it or get mortgage? If you got a mortgage, you benefited from government guarantees.”

There is a difference between buying a home in which to live and gambling in the markets. There were mortgages prior to their securitization. My first home I had to put down 20%, which was a lot harder to come by for me, being young, and yet I survived.

tim in vermont said...

Most of the complaints about TARP are about letting the bad actors keep the money they stole.

The Vault Dweller said...

Oh wow, I got my own tag now.