[lbo-talk] CBO on TARP

Jordan Hayes jmhayes at j-o-r-d-a-n.com
Wed Mar 30 17:26:51 PDT 2011


Miles writes:


> Nationalize the financial system.

Doing that in the best of times would be tricky; doing it in 2008 would have been disasterous. I mean, it was a <credit crisis> afterall; nationalization of all the banks would have quintupled that crisis by basically saying: everyone's credit is broken. Which wasn't the case. Some banks did get nationalized (temporarily), and that process continues today. I'm certainly for that.

On the other hand, I think I know what you mean by this ... but: what do you mean by this? Have any models in non-totalitarian countries?

---

Here are two things I think we could realistically do today:

- Offer a national option for consumer banking. Sort of like the Post Office banks in other countries. If you didn't want to bank with these bastards, you shouldn't have to. And they would provide some competition to the rest of them, sort of how USPS keeps FedEx and UPS from going off the deep end. They could use the Bank as a platform to educate consumers about their finances, help them with conservative retirement options, reward savings (say by offering higher interest rates on accounts up to a certain amount: small balance, big rate!) and generally treat consumers as partners in their own success rather than as sheep to be fleeced[*].

There's a lot of people who feel like they have no other choice than to bank with one of the giants, because that's all that's available in their town or even neighborhood. And it's usually not even a good idea: if you don't have much in the way of banking needs, you're a nuissance to a big bank; so they have to charge you fees just to make it work out. Bleah. A Post Office bank would change that: a no-frills bank for normal people with simple needs that doesn't have to have go-to-the-moon type services would be Just Fine for a large swath of the population.

- Similarly for mortgages: the way lenders "distinguished" themselves in the bubble was based on whether they could attract -- and dupe, in a lot of cases -- new customers. I don't think there's a one of them who didn't break ethics [in the best case] or laws [in the worst case] in the name of the race to the top of the bubble. In my book, that means they should lose the franchise. Way too many people got hurt by those actions; they shouldn't have to be pawns in some game they don't understand.

I believe that the government should become the monopolist for arranging home loans for owner-occupied vanilla mortgages up to a certain dollar amount; everything else should be regulated in the same was as 'sophisticated investor' products. They can securitize the mortgages as Freddie and Fannie have been doing for decades, pay less-than-market rates in exchange for the security involved with guaranteeing them and use the spread to pay for operations, save for a rainy day, and absorb losses in down markets. Keep the little guy out of it. This was *supposed* to be what the GSEs were going to do, but in the drive to make them go public, have shareholders, and act more like "real" banks, they got caught up in the same loop.

There has to be an *alternative* if only for risk management reasons.

---


> All of the funds that are now being siphoned off to pay
> extravagant exec salaries and generate corporate profits
> could actually be used to support the common good (e.g., financing
> infrastructure improvements).

Or we could just fix the tax treatment of a few hundred corporations ...

/jordan

[*] Sometimes dealing with the government is just so much more pleasant than dealing with a business. Case in point: the other day I got a notice from a tax authority (erroneously) charging me an "underpayment penalty" (funny story: I overpaid by $0.02, which triggered an underpayment penalty. Ah, software ...). I called them and talked to a very nice person in the phone tree who said "Uh-oh, this is the third call I've gotten today for this reason ..." and then explained that they have recently upgraded their computers and some mistakes were made. Looking further, she said that it wasn't an underpayment -- it was a late payment -- that triggered the penalty (whoops, two software bugs!). I sent a check on January 17th, and they cached it on the 20th of February: 20 days late beyond the due date. Ok, so now what? She said: one thing about the new software, is that it has gummed up everything else too! At this point, if I was talking to a bank about a credit card payment, it would be penalties, interest, sorry, have a crappy day. Or if it was the cable company, your TV would be blank. Instead, since it's a government, they have a process by which you can just sign an afidavit saying: I swear I sent this on January 17th. It's even on their web site. Done and done. Have a nice day. Thanks, I will!



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