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Comment by jcromartie | Hacker News Reader

What I hate about all of this is that, to the baby boomer generation, any point of view that wants to hold banks and Wall St. accountable for what they have done is "communism" or "socialism" or "fascism" or some other nonsense. It's like anything that goes against any business is automatically discredited.

It is absolutely plainly obvious that banksters basically hate you and the government is right along with them. Look at the UBS whistleblower Bradley Birkenfeld, who is in prison right now while every single one of the 19,000 tax cheats who diverted billions in taxes are free (save for one guy on a two-year probation). He was wealthy right along with his clients... but he went against the grain. It's interesting to note that Eric Holder was a lawyer and represented UBS at one point, and won't touch the case.

But you just can't make this point in some circles.

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There's an interesting split in the libertarian movement over these kinds of issues. The "paleolibertarians" associated with folks like Murray Rothbard, Lew Rockwell, Ron Paul, etc., see large businesses, especially in finance, as corruption-ridden entities deeply entangled with the state, rather than any sort of free-market entities, and so see dismantling them and holding them to account as properly part of a libertarian agenda. The "D.C. libertarians" or "business libertarians", associated with folks like Cato, the Koch brothers, Club for Growth, etc., are more likely to see the American business community as essentially on the correct (i.e. libertarian) side of things, and advocate for them to be unfettered more from government regulation as a way of improving things.

you dont need to dismantle them actively. take away the protections they enjoy and watch the market eat them.

Are you thinking about things like patents and copyright? It may help, but it probably won't be sufficient: being big gives an influence that tend to feed on itself. Monopolies for instance, may last long.

> ...being big gives an influence that tend to feed on itself. Monopolies for instance, may last long.

This is exactly why I don't believe that unregulated markets will necessarily be competitive ones.

My belief is that without a strong central government, monopolies engaging in anti-competitive behavior will make the market inefficient.

What exact protections are you talking about? The market is already rewarding the most efficient banks.

treating liabilities (demand deposits) as assets, using theoretical selling prices of assets to leverage. in this they are protected by legal tender laws and FDIC. banks basically get heavily subsidized insurance for their investment business at taxpayer expense.

Sorry, but that's highly misleading. Demand deposits are liabilities on the commercial bank's financial statements. The "cash" is an asset, which is owed to the depositor. That's very basic financial accounting.

Banks pay for FDIC coverage, like you or I pay for car insurance.

they absolutely do not pay an amount commensurate with the amount and risk insured. In a for profit insurance system the insuree is paying more than their expected liability, the banks pay much less than this and the taxpayer adopts the rest of the burden.

also banks use demand deposits to back their loan liabilities. the only reason customers put up with such a thing is again FDIC.

That is absolutely untrue. Taxpayers do not pay for any FDIC insurance.

In all fairness, those of you downvoting the parent need to address the following:

The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.

Source: http://www.fdic.gov/about/learn/symbol/index.html

I remember there being some talk about FDIC potentially needing to borrow from the Treasury during the financial crisis however as far as I know, it didn't happen.

That's a bit like the way Fannie and Freddie received no direct appropriations... before they collapsed. They had an implicit guarantee, which was worth just as much as cash, and wound up costing a lot.

When people trust the FDIC, it's not based on the idea that they're an independent entity charging sufficient premiums to handle any eventuality. They're not; they predict they will be below their legally-required reserve level through 2017 and not hit their target reserve level until 2027 (with rosy economic assumptions):

http://problembanklist.com/fdic-deposit-insurance-fund-to-re...

http://problembanklist.com/fdic-projects-losses-of-billion-o...

The FDIC only inspires confidence because of the understanding that if necessary the full resources of the government would back it.

Not so far, but if we ever let more than one of the TBTF banks go, then the FDIC will be taking out billions in loans at sub-market interest from the taxpayer.

Government-supplied insurance is a bit different than private-sector-provided insurance, though. It's essentially the "public option" for banks.

there is one protection already taken away..

What do you think the amount of reserves banks have to have on had is now? Its the lowest its been 20 years...02%

What does that mean?

That means each bank bank, individually, has to have .02% cash reserves or by law it has to close until it gets cash from the Federal Reserve to bring it up to that total..

Translation: all it takes is some depositors pulling out $200,000k to make a statement to any bank branch and put in a credit union which by most state laws cannot enter into transactions that bet against the customer..

This has already happen in Wisconsin..after that vote to ban unions..

We have the power folks..will we exercise it or sit on our lazy asses?

This has already happen in Wisconsin..after that vote to ban unions..

I'm pretty sure the vote you describe never occurred.

I understand that differences of opinion can exist on the function of the government and it's interference in private commerce but seriously:

"First, the proposed settlement only calls for loan modifications that would produce a greater “net present value” than foreclosure — that is, for offering deals that are in the interest of both homeowners and investors. The outrageous truth is that in many cases banks are blocking such mutually beneficial deals, so that they can continue to extract fees."

Can we not all agree that practices like that are predatory and an abuse of power? I really want to hear an argument about how an institution that holds as much sway over someones life as a mortgage holder would be justified in taking actions like this. The Republican party is traditionally ani-government intervention but they are elected by people, a non-trivial number of whom have to be getting screwed as badly by this as people who vote Democrat. I can't really see any grey area here unless the article is grossly misrepresenting the facts of the situation.

It's interesting to note that Eric Holder was a lawyer and represented UBS at one point, and won't touch the case.

This is bad? It's exactly what he should be doing.

I don't think that this is a criticism of Eric Holder, I think it has more to do with the fact that someone besides the Attorney General would have to take the lead on this.

I'm not sure if it's baby boomers or rather just the people who are part of the establishment. The establishment rallied pretty hard to get TARP pushed through despite massive public resistance. And now all we have gotten for it is low interests (again) and a junk bond bubble waiting to explode in our faces.

Sorry, but even Paul Krugman, as well as every other Nobel Laureate in economics, supported TARP. A collapse to the financial system would've wreaked havoc to the economy (ala The Great Depression). "All we have gotten now" is a stablization to the system that didn't collapse, and didn't cause massive bankruptcies and unemployment.

"If we don't do what I want it will be the Great Depression" is an unfalsifiable claim with little evidence to back it up.

The main evidence it has supporting it is the a "post hoc, ergo propter hoc" claim (there was a bank crisis before the great depression). But this ignores a huge number of other factors which also contributed to the GD - massive ecological disaster, huge drops in trade caused by Smoot-Hawley et al, new anti-competitive laws and onerous regulations, new technology making millions of workers obsolete.

The claim that a banking crisis caused the GD is popular mainly because banks are easy to model. It's kind of the economic equivalent of looking for your keys near the streetlamp rather than in the dark alley where you lost them.

The overwhelming cause for the Great Depression was tight monetary policy, and trying to let the market "sort it out" without providing any stimulus (e.g., QEs). When you have a highly illiquid economy with no spending or consumption, you get no growth; that factor prolonged the Depression. That conclusion is supported by economists across the aisle, from Paul Krugman to Milton Friedman, to everyone else in between -- including all living Nobel Laureates in Economics. That premise is the Fed's main justification for the recent QEs.

The government did not try to let the market sort it out. That is simply revisionist history.

Please go read up on the New Deal as well as the Hoover administration (Hoover doubled the budget deficit in an attempt to spur recovery, resulting in FDR calling him a Socialist during the election campaign).

That's absolutely untrue and intellectually dishonest. The Feds, as indicated by Friedman and Krugman, were tight with the money supply. Because money wasn't flowing, the economy wasn't running. Please go and read the causes for The Great Depression on any economist's website (or even Wikipedia).

http://en.m.wikipedia.org/wiki/Causes_of_the_Great_Depressio...

I didn't dispute that the feds were tight with the money supply. I disputed the claim they tried to let the market sort it out. They didn't.

Among other things (since you want to take a 100% Keynesian view), the government created sticky nominal wages and prices (with minimum wages and price floors). Hey, remember why Keynesian economics claims we need to print money?

This is getting a little absurd. First, I'm specifically referring to the Feds in its tight control of the money supply during the Depression. They restricted the money supply. If you have another term for what the Feds did (note the difference between the Feds and the federal government), then so be it.

Loose monetary policy during a drought is not just supported by Keynesians (who really emphasize more expansionary fiscal policy), and is definitely not a 100% Keynesian view. Monetarists, for instance, support it widely. As do other economists. Friedman supported it, as does Bernanke, Greenspan, Summers, Mankiw, et al. To claim that an expansionary monetary policy is 100% Keynesian is just absurd and distorts the positions of other economists.

Let me repeat: I didn't dispute the existence of tight monetary policy. I disputed that the federal government tried to let the market sort it out. Also, when you said "Feds", I assumed you meant people in the Federal Government (including the Federal Reserve, but not limited to it). Typically the Federal Reserve is simply shortened to "the Fed".

Lastly, if you read your own link (to the Wikipedia article on causes of the GD), you'll discover that there are many proposed explanations (including, for example, protectionism).

That's it for me.

Never mentioned is the fact that the government had a fixed exchange rate for gold, yet was inflating the dollar from 1914 on. By 1929, the dollar had nearly halved in value, yet there was the same exchange rate for gold. What this essentially means is you could double your money by exchanging cash for bullion.

This precipitated a run on exchanging dollars for gold, a run that continued to collapse banks until FDR suspended exchanging dollars for gold.

Do you even attempt to check your statements, or do you believe an appeal to consensus will simply make people listen to you?

Nobel laureate: http://en.wikipedia.org/wiki/Joseph_Stiglitz

Dissention: http://www.telegraph.co.uk/finance/recession/5045421/Geithne...

Wait and see. We're not even close to out of the woods yet.

GDP is up. Dow is back to 12,000. Banks are liquid. Output is as high as it's ever been. Krugman and friends, not to mention the more conservative economists, do not share your views. I really don't understand the populist sentiment.

Now I agree with you. The bank bailouts were supported by just about every economist with a brain. They worked, not ideally, but well enough, and better than some expected.

But the populist sentiment comes from that the lowest bracket of society is still not out of the recession. The recession is over in the technical meaning, but tell that to the down-and-out and see how they react. It's also not the case that the financial system is totally repaired, though thankfully it looks like the perverse incentives in home mortgages are going away, at least.

Well, GDP growth doesn't exist in a vacuum. It's spread throughout every demographic. Every demographic is consuming more than it's ever consumed (highest GDP). Now, I'm assuming you might mean high unemployment as your main complaint. We have more funds now than we've ever had to subsidize unemployment checks without affecting inflation rates. The unemployment checks are going out to many and are in abundant supply. Contrary to what you might hear, the most disadvantaged brackets are being taken care of.

>"the lowest bracket of society is still not out of the recession"

If by the lowest bracket you mean "the bottom 80%", then yes.

Most of that is government stimulus which cannot last forever. The banks are definitely not liquid. They are basically insolvent. You can tell this because they don't mark their assets to market.

The government stimulus (QEs) can last forever because we have a monopoly on our currency. The Fed can print as much money as it wants. Of course, too much stimulus causes inflation. Banks have the cash, and are lending.

"...while every single one of the 19,000 tax cheats who diverted billions in taxes are free..."

Maybe because we live under a rule of law that says you're innocent until proven guilty.

Plenty were proven guilty. They were just rich enough to get away with it.

Birkenfeld was sentenced in August of 2009. UBS paid $780 and avoided all criminal charges. Individuals have since been fined or put on probation, or set free... except for Birkenfeld.

Extremely wealthy tax evaders can afford to pay measly slap-on-the-wrist fines for their crimes. $780 million for UBS is a complete joke compared to the billions in evaded taxes.

Can you cite specific sources? I'd like to know specifically what you're referring to.

I don't know why you'd want to discuss this issue at all when you know that the people who disagree with you happen to do so out of base motives.

Incidentally, "every single one... save for one guy," might not be the best way to phrase it.

because turning everything into either an emotional or moral appeal is the best way to have a systemically sound economy right? this illustrates exactly why populist systems don't work.

Are you saying we have a populist system today?

yes, currency creation is public via legal tender laws.

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