On Mar 24, 2009, at 12:12 PM, Jordan Hayes wrote:
>> What do you mean, "will not work"?
>
> http://mailman.lbo-talk.org/lbo/Week-of-Mon-20090223/002952.html
>
Michael Pollak's argument comes down to two propositions: (1)
Contemporary insolvent US banks are "investment banks" dealing in
financial instruments of such incredible complexity that even the
people who "created" them are unable to understand them fully; and (2)
the US has so few qualified regulatory personnel (the vast majority
having been fired by Clinton and Bush) that it is only the originators
of those incredibly complicated financial instruments who, despite
themselves not fully understanding them, are qualified to manage (I
didn't even see the word "unwind" in his document) them.
What's wrong with these arguments? (1) The function of an *investment bank* is to underwrite the issuance of new securities to finance enterprises of the nonfinancial economy. There is absolutely nothing "complicated" or mysterious about it. Nor is there anything mysterious about the derivatives (futures, call & put options) needed for hedging in product and stock markets. What is so incredibly complicated are the incredibly toxic derivatives on derivatives on {derivatives on derivatives} etc. None of which serve any positive economic function at all and could be wiped out (together with all the fictitious capital represented by them) with only the most salutary effects on the real productive economy. (2) The paucity of current regulatory personnel is overshadowed by a vast mass of fully qualified former (especially retired) bank examiners, FDIC regulators, and bank managers. Of course they may not have the expertise in managing incredibly complex financial instruments brought to the table by the Paulsons, Madoffs, Geithners, Stanfords and Summerses. But they (unlike those experts) know at least that worthless garbage belongs in the ash pile.
Shane Mage
> This cosmos did none of gods or men make, but it
> always was and is and shall be: an everlasting fire,
> kindling in measures and going out in measures."
>
> Herakleitos of Ephesos