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Archive for the ‘White House’ Category

Supporters of an escalation of the Afghanistan war often ask that we give military options a chance.  They also respond to criticism of the surge by asking “okay smart guy, what would YOU do to fight Al Qaeda in Afghanistan?”  Several pro-war posters also asked that pro-military arguments be given a chance.

Well, initially, the U.S. admits there are only a small handful of Al Qaeda in Afghanistan. As ABC notes:

U.S. intelligence officials have concluded there are only about 100 al Qaeda fighters in the entire country.

With
100,000 troops in Afghanistan at an estimated yearly cost of $30
billion, it means that for every one al Qaeda fighter, the U.S. will
commit 1,000 troops and $300 million a year.

There are
probably more than 100 homicidal maniacs in any large American city.
But we wouldn’t send soldiers into the city to get those bad guys.

Indeed, a leading advisor to the U.S. military – the very hawkish Rand Corporation – released a study
in 2008 called “How Terrorist Groups End: Lessons for Countering al
Qa’ida”. The report confirms what experts have been saying for years:
the war on terror is actually weakening national security.

As a press release about the study states:

Terrorists
should be perceived and described as criminals, not holy warriors, and
our analysis suggests that there is no battlefield solution to
terrorism.

There are additional reasons why prolonging the Afghan war may reduce our national security, such as weakening our economy.

But if you want a military solution anyway, Andrew J. Bacevich has an answer.

Bacevich
is no dove. Graduating from West Point in 1969, he served in the United
States Army during the Vietnam War. He then held posts in Germany,
including the 11th Armored Cavalry Regiment, the United States, and the
Persian Gulf up to his retirement from the service with the rank of
Colonel in the early 1990s. Bacevich holds a Ph.D. in American
Diplomatic History from Princeton University, and taught at West Point
and Johns Hopkins University prior to joining the faculty at Boston
University in 1998. Bacevich’s is a military family. On May 13, 2007,
Bacevich’s son, was killed in action while serving in Iraq.

Last year, Bacevich wrote in an article in Newsweek:

Meanwhile,
the chief effect of allied military operations there so far has been
not to defeat the radical Islamists but to push them across the
Pakistani border. As a result, efforts to stabilize Afghanistan are
contributing to the destabilization of Pakistan, with potentially
devastating implications. September’s bombing of the Marriott hotel in
Islamabad suggests that the extremists are growing emboldened. Today
and for the foreseeable future, no country poses a greater potential
threat to U.S. national security than does Pakistan. To risk the
stability of that nuclear-armed state in the vain hope of salvaging
Afghanistan would be a terrible mistake.

All this means that the
proper U.S. priority for Afghanistan should be not to try harder but to
change course. The war in Afghanistan (like the Iraq War) won’t be won
militarily. It can be settled—however imperfectly—only through politics.

The
new U.S. president needs to realize that America’s real political
objective in Afghanistan is actually quite modest: to ensure that
terrorist groups like Al Qaeda can’t use it as a safe haven for
launching attacks against the West. Accomplishing that won’t require
creating a modern, cohesive nation-state. U.S. officials tend to assume
that power in Afghanistan ought to be exercised from Kabul. Yet the
real influence in Afghanistan has traditionally rested with tribal
leaders and warlords. Rather than challenge that tradition, Washington
should work with it. Offered the right incentives, warlords can
accomplish U.S. objectives more effectively and more cheaply than
Western combat battalions. The basis of U.S. strategy in Afghanistan
should therefore become decentralization and outsourcing, offering cash
and other emoluments to local leaders who will collaborate with the
United States in excluding terrorists from their territory.

This
doesn’t mean Washington should blindly trust that warlords will become
America’s loyal partners. U.S. intelligence agencies should continue to
watch Afghanistan closely, and the Pentagon should crush any jihadist
activities that local powers fail to stop themselves. As with the
Israelis in Gaza, periodic airstrikes may well be required to pre-empt
brewing plots before they mature.

Were U.S. resources unlimited
and U.S. interests in Afghanistan more important, upping the ante with
additional combat forces might make sense. But U.S. power — especially
military power — is quite limited these days, and U.S. priorities lie
elsewhere.

Rather than committing more troops, therefore, the
new president should withdraw them while devising a more realistic —
and more affordable — strategy for Afghanistan

In other
words, America’s war strategy is increasing instability in Pakistan.
Pakistan has nuclear weapons. So the surge could very well decrease not
only American national security but the security of the entire world.

I think that diplomatic rather than military means should be used to
kill or contain the 100 bad guys in Afghanistan. But if we are going to
remain engaged militarily, Bacevich’s approach is a lot smarter than a
surge of boots on the ground.

Moreover, it would save hundreds of billions or trillions of dollars…

War hawks also ask “what would YOU have done after 9/11?”  Gee, I don’t know . . . maybe gotten the Taliban to turn over Bin Laden?

BONUS UPDATE 2-FOR-1 AFTER THANKSGIVING PACKAGE DEAL SPECIAL: If you don’t hear about alternative plans such as Bacevich’s from the corporate media, here is why …

5 Reasons that Corporate Media Coverage is Pro-War

There are five reasons that the mainstream media is worthless.

1. Self-Censorship by Journalists

Initially, there is tremendous self-censorship by journalists.

For example, several months after 9/11, famed news anchor Dan Rather told the BBC that American reporters were practicing “a form of self-censorship”:

There
was a time in South Africa that people would put flaming tires around
peoples’ necks if they dissented. And in some ways the fear is that you
will be necklaced here, you will have a flaming tire of lack of
patriotism put around your neck. Now it is that fear that keeps
journalists from asking the toughest of the tough questions…. And
again, I am humbled to say, I do not except myself from this criticism.

 

What we are talking about here – whether one wants to recognise it
or not, or call it by its proper name or not – is a form of
self-censorship.

Keith Olbermann agreed that there is self-censorship in the American media, and that:

You
can rock the boat, but you can never say that the entire ocean is in
trouble …. You cannot say: By the way, there’s something wrong with
our …. system.

As former Washington Post columnist Dan Froomkin wrote in 2006:

Mainstream-media
political journalism is in danger of becoming increasingly irrelevant,
but not because of the Internet, or even Comedy Central. The threat
comes from inside. It comes from journalists being afraid to do what
journalists were put on this green earth to do. . . .

 

There’s
the intense pressure to maintain access to insider sources, even as
those sources become ridiculously unrevealing and oversensitive.
There’s the fear of being labeled partisan if one’s bullshit-calling
isn’t meted out in precisely equal increments along the political
spectrum.

 

If mainstream-media political journalists don’t start
calling bullshit more often, then we do risk losing our primacy — if
not to the comedians then to the bloggers.

 

I still believe that
no one is fundamentally more capable of first-rate bullshit-calling
than a well-informed beat reporter – whatever their beat. We just need
to get the editors, or the corporate culture, or the self-censorship –
or whatever it is – out of the way.

2. Censorship by Higher-Ups

If
journalists do want to speak out about an issue, they also are subject
to tremendous pressure by their editors or producers to kill the story.

The
Pulitzer prize-winning reporter who uncovered the Iraq prison torture
scandal and the Mai Lai massacre in Vietnam, Seymour Hersh, said:

“All
of the institutions we thought would protect us — particularly the
press, but also the military, the bureaucracy, the Congress — they
have failed. The courts . . . the jury’s not in yet on the courts. So
all the things that we expect would normally carry us through didn’t.
The biggest failure, I would argue, is the press, because that’s the
most glaring….

 

Q: What can be done to fix the (media) situation?

 

[Long
pause] You’d have to fire or execute ninety percent of the editors and
executives. You’d actually have to start promoting people from the
newsrooms to be editors who you didn’t think you could control. And
they’re not going to do that.”

In fact many journalists are warning that the true story is not being reported. See this announcement and this talk.

And a series of interviews with award-winning journalists also documents censorship of certain stories by media editors and owners (and see these samples).

There are many reasons for censorship by media higher-ups.

One is money.

The media has a strong monetary interest to avoid controversial topics in general. It has always been true that advertisers discourage stories which challenge corporate power.
Indeed, a 2003 survey reveals that 35% of reporters and news executives
themselves admitted that journalists avoid newsworthy stories if “the story would be embarrassing or damaging to the financial interests of a news organization’s owners or parent company.”

In addition, the government has allowed tremendous consolidation in ownership of the airwaves during the past decade.

Dan Rather has slammed media consolidation:

Likening
media consolidation to that of the banking industry, Rather claimed
that “roughly 80 percent” of the media is controlled by no more than
six, and possibly as few as four, corporations.

This is documented by the following must-see charts prepared by:

• Media Channel

• The Nation

• Free Press

And check out this list of interlocking directorates of big media companies from Fairness and Accuracy in Media, and this resource from the Columbia Journalism Review to research a particular company.

This image gives a sense of the decline in diversity in media ownership over the last couple of decades:

The
large media players stand to gain billions of dollars in profits if the
Obama administration continues to allow monopoly ownership of the
airwaves by a handful of players. The media giants know who butters
their bread. So there is a spoken or tacit agreement: if the media
cover the administration in a favorable light, the MSM will continue to
be the receiver of the government’s goodies.

3. Drumming Up Support for War

In addition, the owners of American media companies have long actively played a part in drumming up support for war.

It
is painfully obvious that the large news outlets studiously avoided any
real criticism of the government’s claims in the run up to the Iraq
war. It is painfully obvious that the large American media companies
acted as lapdogs and stenographers for the government’s war agenda.

Veteran reporter Bill Moyers criticized
the corporate media for parroting the obviously false link between 9/11
and Iraq (and the false claims that Iraq possessed WMDs) which the
administration made in the run up to the Iraq war, and concluded that
the false information was not challenged because:

“the
[mainstream] media had been cheerleaders for the White House from the
beginning and were simply continuing to rally the public behind the
President — no questions asked.”

And as NBC News’ David Gregory (later promoted to host Meet the Press) said:

“I
think there are a lot of critics who think that . . . . if we did not
stand up [in the run-up to the war] and say ‘this is bogus, and you’re
a liar, and why are you doing this,’ that we didn’t do our job. I
respectfully disagree. It’s not our role”

But this is nothing new. In fact, the large media companies have drummed up support for all previous wars.

For example, Hearst helped drum up support for the Spanish-American War.

And an official summary of America’s overthrow of the democratically-elected president of Iran in the 1950′s states, “In
cooperation with the Department of State, CIA had several articles
planted in major American newspapers and magazines which, when
reproduced in Iran, had the desired psychological effect in Iran and
contributed to the war of nerves against Mossadeq.” (page x)

The mainstream media also may have played footsie with the U.S. government right before Pearl Harbor. Specifically, a highly-praised historian (Bob Stineet) argues
that the Army’s Chief of Staff informed the Washington bureau chiefs of
the major newspapers and magazines of the impending Pearl Harbor attack
BEFORE IT OCCURRED, and swore them to an oath of secrecy, which the
media honored (page 361) .

And the military-media alliance has continued without a break (as a highly-respected journalist says,
“viewers may be taken aback to see the grotesque extent to which US
presidents and American news media have jointly shouldered key
propaganda chores for war launches during the last five decades.”)

As the mainstream British paper, the Independent, writes:

There
is a concerted strategy to manipulate global perception. And the mass
media are operating as its compliant assistants, failing both to resist
it and to expose it. The sheer ease with which this machinery has been
able to do its work reflects a creeping structural weakness which now
afflicts the production of our news.

The article in the
Independent discusses the use of “black propaganda” by the U.S.
government, which is then parroted by the media without analysis; for
example, the government forged
a letter from al Zarqawi to the “inner circle” of al-Qa’ida’s
leadership, urging them to accept that the best way to beat US forces
in Iraq was effectively to start a civil war, which was then publicized
without question by the media..

So why has the American press has consistenly served the elites in disseminating their false justifications for war?

One of of the reasons is because the large media companies are owned by those who support the militarist agenda or even directly profit from war and terror (for example, NBC – which is being sold to Comcast – was owned by General Electric, one of the largest defense contractors in the world — which directly profits from war, terrorism and chaos).

Another seems to be an unspoken rule that the media will not criticize the government’s imperial war agenda.

And
the media support isn’t just for war: it is also for various other
shenanigans by the powerful. For example, a BBC documentary proves:

There
was “a planned coup in the USA in 1933 by a group of right-wing
American businessmen . . . . The coup was aimed at toppling President
Franklin D Roosevelt with the help of half-a-million war veterans. The
plotters, who were alleged to involve some of the most famous families
in America, (owners of Heinz, Birds Eye, Goodtea, Maxwell Hse &
George Bush’s Grandfather, Prescott) believed that their country should
adopt the policies of Hitler and Mussolini to beat the great
depression.”

Moreover, “the
tycoons told the general who they asked to carry out the coup that the
American people would accept the new government because they controlled all the newspapers.“

See also this book.

Have you ever heard of this scheme before? It was certainly a very large one. And if the conspirators controlled the newspapers then, how much worse is it today with media consolidation?

4. Access

Politico reveals:

For
$25,000 to $250,000, The Washington Post has offered lobbyists and
association executives off-the-record, nonconfrontational access to
“those powerful few”: Obama administration officials, members of
Congress, and — at first — even the paper’s own reporters and editors…

The
offer — which essentially turns a news organization into a facilitator
for private lobbyist-official encounters — was a new sign of the
lengths to which news organizations will go to find revenue at a time
when most newspapers are struggling for survival.

That may
be one reason that the mainstream news commentators hate bloggers so
much. The more people who get their news from blogs instead of
mainstream news sources, the smaller their audience, and the less the
MSM can charge for the kind of “nonconfrontational access” which leads
to puff pieces for the big boys.

5. Censorship by the Government

Finally,
as if the media’s own interest in promoting war is not strong enough,
the government has exerted tremendous pressure on the media to report
things a certain way. Indeed, at times the government has thrown media owners and reporters in jail
if they’ve been too critical. The media companies have felt great
pressure from the government to kill any real questioning of the
endless wars.

For example, Dan Rather said, regarding American media, “What you have is a miniature version of what you have in totalitarian states”.

Tom Brokaw said “all wars are based on propaganda.

And the head of CNN said:

There
was ‘almost a patriotism police’ after 9/11 and when the network showed
[things critical of the administration's policies] it would get phone
calls from advertisers and the administration and “big people in
corporations were calling up and saying, ‘You’re being anti-American
here.’

Indeed, former military analyst and famed Pentagon Papers whistleblower Daniel Ellsberg said that the government has ordered the media not to cover 9/11:

Ellsberg seemed hardly surprised
that today’s American mainstream broadcast media has so far failed to
take [former FBI translator and 9/11 whistleblower Sibel] Edmonds up on
her offer, despite the blockbuster nature of her allegations [which
Ellsberg calls "far more explosive than the Pentagon Papers"].

 

As
Edmonds has also alluded, Ellsberg pointed to the New York Times, who
“sat on the NSA spying story for over a year” when they “could have put
it out before the 2004 election, which might have changed the outcome.”

 

“There
will be phone calls going out to the media saying ‘don’t even think of
touching it, you will be prosecuted for violating national security,’” he told us.

 

* * *

 

“I am confident that there is conversation inside the Government as to ‘How do we deal with Sibel?’” contends Ellsberg. “The
first line of defense is to ensure that she doesn’t get into the media.
I think any outlet that thought of using her materials would go to to
the government and they would be told ‘don’t touch this . . . .‘”

Of course, if the stick approach doesn’t work, the government can always just pay off reporters to spread disinformation.

Famed Watergate reporter Carl Bernstein says the CIA has already bought and paid for many successful journalists. See also this New York Times piece, this essay by the Independent, this speech by one of the premier writers on journalism, and this and this roundup.

Indeed,
in the final analysis, the main reason today that the media giants will
not cover the real stories or question the government’s actions or
policies in any meaningful way is that the American government and
mainstream media been somewhat blended together.

Can We Win the Battle Against Censorship?

We
cannot just leave governance to our “leaders”, as “The price of freedom
is eternal vigilance” (Jefferson). Similarly, we cannot leave news to
the corporate media. We need to “be the media” ourselves.

“To stand in silence when they should be protesting makes cowards out of men.”
- Abraham Lincoln

“Our lives begin to end the day we become silent about things that matter.”
- Dr. Martin Luther King Jr.

“Powerlessness
and silence go together. We…should use our privileged positions not
as a shelter from the world’s reality, but as a platform from which to
speak. A voice is a gift. It should be cherished and used.”
– Margaret Atwood

“There
is no act too small, no act too bold. The history of social change is
the history of millions of actions, small and large, coming together at
points in history and creating a power that [nothing] cannot suppress.”
- Howard Zinn (historian)

“All tyranny needs to gain a foothold is for people of good conscience to remain silent”
- Thomas Jefferson

Ratigan cuts to the chase, bypassing the hollow rhetoric by Administration propaganda queen Christina Romer, who can’t beat enough drums on today’s pathologically ludicrous BLS numbers, yet is completely unwilling to discuss how the White House will proceed to recoup any of the taxpayer-subsidized windfalls at Wall Street firms. Any considerations of windfall tax, be they in the form of a Tobin tax, now openly supported by such people as Warren Buffett and John Bogle, or directly imposed, seems to not be on the White House’s agenda currently or any time in the future. How is it so difficult for Obama to understand that Main Street is demanding some quid-pro-quo of firms like Goldman, whose employees are covertly purchasing Ferraris even as excess bank reserves hit another all time record yesterday, and instead of lending money out the banks continue to collect a risk-free 0.25% on these excess reserves, thereby once again picking taxpayers’ pockets.

Yes, we all know they need the cash as they are well aware their balance sheets are in much more deplorable conditions than loose FASB regulations force them to disclose. However, the animosity is growing, and more and more the anger directed at Wall Street is becoming anchored at Obama and his Robert Rubin (i.e., Goldman Sachs) cronies, who despite their assumed ideological adherence, are seeminly much more pro-Wall Street than even previous Republican administrations. This will be a heated issue for the President, especially once details of individual Wall Street record bonuses become all too public.

Visit msnbc.com for breaking news, world news, and news about the economy

? Washington’s Blog.

Why isn’t the government breaking up the giant, insolvent banks?

We Need Them To Help the Economy Recover?

Do we need the Too Big to Fails to help the economy recover?

No.

The
following top economists and financial experts believe that the economy
cannot recover unless the big, insolvent banks are broken up in an
orderly fashion:

• Nobel prize-winning economist, Joseph Stiglitz

• Nobel prize-winning economist, Ed Prescott

• Dean
  and professor of finance and economics at Columbia Business School, and
  chairman of the Council of Economic Advisers under President George W.
  Bush, R. Glenn Hubbard

• MIT economics professor and former IMF chief economist, Simon Johnson (and see this)

• President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)

• Deputy Treasury Secretary, Neal S. Wolin

• The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine

• The Congressional panel overseeing the bailout

• The head of the FDIC, Sheila Bair

• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

• Economics professor and senior regulator during the S & L crisis, William K. Black

• Economics professor, Nouriel Roubini

• Economist, Marc Faber

• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

• Economics professor, Thomas F. Cooley

• Former investment banker, Philip Augar

• Chairman of the Commons Treasury, John McFall

Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.

In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer – who was Ben Bernanke’s thesis adviser at MIT – say that – at the very least – the size of the financial giants should be limited.

Even the Bank of International Settlements – the “Central Banks’ Central Bank” – has slammed too big to fail. As summarized by the Financial Times:

The
report was particularly scathing in its assessment of governments’
attempts to clean up their banks. “The reluctance of officials to
quickly clean up the banks, many of which are now owned in large part
by governments, may well delay recovery,” it said, adding that
government interventions had ingrained the belief that some banks were
too big or too interconnected to fail.

 

This was dangerous because it reinforced the risks of moral hazard
which might lead to an even bigger financial crisis in future.

If We Break ‘Em Up, No One Will Lend?

Do we need to keep the TBTFs to make sure that loans are made?

Nope.

Fortune pointed out
in February that smaller banks are stepping in to fill the lending void
left by the giant banks’ current hesitancy to make loans. Indeed, the
article points out that the only reason that smaller banks haven’t been
able to expand and thrive is that the too-big-to-fails have decreased
competition:

Growth for the nation’s smaller banks
represents a reversal of trends from the last twenty years, when the
biggest banks got much bigger and many of the smallest players were
gobbled up or driven under…

 

As big banks struggle to find a way forward and rising loan losses
threaten to punish poorly run banks of all sizes, smaller but well
capitalized institutions have a long-awaited chance to expand.

BusinessWeek noted in January:

As big banks struggle, community banks are stepping in to offer loans and lines of credit to small business owners…

At a congressional hearing on small business and the economic
recovery earlier this month, economist Paul Merski, of the Independent
Community Bankers of America, a Washington (D.C.) trade group, told
lawmakers that community banks make 20% of all small-business loans,
even though they represent only about 12% of all bank assets.
Furthermore, he said that about 50% of all small-business loans under
$100,000 are made by community banks…

Indeed, for the past two years, small-business lending among community
banks has grown at a faster rate than from larger institutions,
according to Aite Group, a Boston banking consultancy. “Community banks
are quickly taking on more market share not only from the top five
banks but from some of the regional banks,” says Christine Barry,
Aite’s research director. “They are focusing more attention on small
businesses than before. They are seeing revenue opportunities and
deploying the right solutions in place to serve these customers.”

And Fed Governor Daniel K. Tarullo said in June:

The
importance of traditional financial intermediation services, and hence
of the smaller banks that typically specialize in providing those
services, tends to increase during times of financial stress. Indeed,
the crisis has highlighted the important continuing role of community
banks…

For example, while the number of credit unions has declined by 42
percent since 1989, credit union deposits have more than quadrupled,
and credit unions have increased their share of national deposits from
4.7 percent to 8.5 percent. In addition, some credit unions have
shifted from the traditional membership based on a common interest to
membership that encompasses anyone who lives or works within one or
more local banking markets. In the last few years, some credit unions
have also moved beyond their traditional focus on consumer services to
provide services to small businesses, increasing the extent to which
they compete with community banks.

Indeed, some very smart people say that the big banks aren’t really focusing as much on the lending business as smaller banks.

Specifically
since Glass-Steagall was repealed in 1999, the giant banks have made
much of their money in trading assets, securities, derivatives and
other speculative bets, the banks’ own paper and securities, and in
other money-making activities which have nothing to do with traditional
depository functions.

Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still
have trillions in bad derivatives gambling debts to pay off, and so
they are only loaning to the biggest players and those who don’t really
need credit in the first place. See this and this.

So we don’t really need these giant gamblers. We don’t really need JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are dedicated lenders.

The Fortune article discussed above points out that the banking giants are not necessarily more efficient than smaller banks:

The
largest banks often don’t show the greatest efficiency. This now seems
unsurprising given the deep problems that the biggest institutions have
faced over the past year.

 

“They actually experience diseconomies of scale,” Narter wrote of
the biggest banks. “There are so many large autonomous divisions of the
bank that the complexity of connecting them overwhelms the advantage of
size.”

And Governor Tarullo points out some of the benefits of small community banks over the giant banks:

Many
community banks have thrived, in large part because their local
presence and personal interactions give them an advantage in meeting
the financial needs of many households, small businesses, and
agricultural firms. Their business model is based on an important
economic explanation of the role of financial intermediaries–to
develop and apply expertise that allows a lender to make better
judgments about the creditworthiness of potential borrowers than could
be made by a potential lender with less information about the
borrowers.

A small, but growing, body of research suggests that the financial
services provided by large banks are less-than-perfect substitutes for
those provided by community banks.

It is simply not true
that we need the mega-banks. In fact, as many top economists and
financial analysts have said, the “too big to fails” are actually
stifling competition from smaller lenders and credit unions, and
dragging the entire economy down into a black hole.

The Giant Banks Have Recovered, And Are No Longer Insolvent?

Have the TBTFs recovered, so that they are no longer insolvent?

Negatory.

The giant banks have still not put the toxic assets hidden in their SIVs back on their books.

The tsunamis of commercial real estate, Alt-A, option arm and other loan defaults have not yet hit.

The
overhang of derivatives is still looming out there, and still dwarfs
the size of the rest of the global economy. Credit default swaps have arguably still not been tamed (see this).

Indeed, Nobel prize winning economist Joseph Stiglitz said recently:

The
U.S. has failed to fix the underlying problems of its banking system
after the credit crunch and the collapse of Lehman Brothers Holdings
Inc.

 

“In the U.S. and many other countries, the too-big-to-fail banks
have become even bigger,” Stiglitz said in an interview today in Paris.
“The problems are worse than they were in 2007 before the crisis.”

 

Stiglitz’s views echo those of former Federal Reserve Chairman
Paul Volcker, who has advised President Barack Obama’s administration
to curtail the size of banks, and Bank of Israel Governor Stanley
Fischer, who suggested last month that governments may want to
discourage financial institutions from growing “excessively.”

While the big boys have certainly reported some impressive profits in the last couple of months, some or all of those profits may have been due to “creative accounting”, such as Goldman “skipping” December 2008, suspension of mark-to-market (which may or may not be a good thing), and assistance from the government.

Some
very smart people say that the big banks – even after many billions in
bailouts and other government help – have still not repaired their
balance sheets. Tyler Durden, Reggie Middleton, Mish and others have looked at the balance sheets of the big boys much more recently than I have, and have more details than I do.

But the bottom line is this: If the banks are no longer insolvent, they should prove it. If they can’t prove they are solvent, they should be broken up.

The Government Lacks the Power to Break Them Up?

Does the government lack the power to break up the TBTFs?

Wrong.

One of the world’s leading economic historians – Niall Ferguson – argues in a current article in Newsweek:

[Geithner is proposing that] there should be a new “resolution
authority” for the swift closing down of big banks that fail. But such
an authority already exists and was used when Continental Illinois failed in 1984.

Indeed, even the FDIC mentions Continental Illinois in the same breadth as “too big to fail” banks.

And William K. Black (remember, he was the senior regulator during the S&L crisis, and is a Professor of both Economics and
Law) – says that the Prompt Corrective
Action Law (PCA), 12 U.S.C. § 1831o, not only authorizes the government
to seize insolvent banks, it mandates it, and that the Bush and Obama administrations broke the law by refusing to close insolvent banks.

Whether or not the banks’ holding companies can be broken up using the PCA, the banks themselves could be. See this

And no one can doubt that the government could find a way to break up even the holdign companies if it wanted.

FDR seized gold during the Great Depression under the Trading With The Enemies Act.

Geithner
and Bernanke have been using one loophole and “creative” legal
interpretation after another to rationalize their various
multi-trillion dollar programs in the face of opposition from the
public and Congress (see this, for example).

And the government could use 100-year old antitrust laws to break them up.

So
don’t give me any of this “our hands are tied” malarkey. The Obama
administration could break the “too bigs” up in a heartbeat if it
wanted to, and then justify it after the fact using PCA or another
legal argument.

Is Temporarily Nationalizing the Giant Banks Socialism?

Many argue that it would be wrong for the government to break up the banks, because we would have to take over the banks in order to break them up.

That
may be true. But government regulators in the U.S., Sweden and other
countries which have broken up insolvent banks say that the government
only has to take over banks for around 6 months before breaking them up.

In
contrast, the Bush and Obama administrations’ actions mean that the
government is becoming the majority shareholder in the financial giants
more or less permanently. That is – truly – socialism.

Breaking
them up and selling off the parts to the highest bidder efficiently and
in an orderly fashion would get us back to a semblance of free market
capitalism much quicker.

The Real Reason the Giant Banks Aren’t Being Broken Up

So what is the real reason that the TBTFs aren’t being broken up?

Certainly, there is regulatory capture, cowardice and corruption:

• Joseph Stiglitz
  (the Nobel prize winning economist) said recently that the U.S. government is wary of challenging the
  financial industry because it is politically difficult, and that he
  hopes the Group of 20 leaders will cajole the U.S. into tougher action

• Economic historian Niall Ferguson asks:
  

  Guess
  which institutions are among the biggest lobbyists and campaign-finance
  contributors? Surprise! None other than the TBTFs [too big to fails].

• Manhattan Institute senior fellow Nicole Gelinas agrees:
  

  The
  too-big-to-fail financial industry has been good to elected officials
  and former elected officials of both parties over its 25-year life span

• Investment analyst and financial writer Yves Smith says:
  

  Major financial players [have gained] control over the all-important over-the-counter debt markets…It is pretty hard to regulate someone who has a knife at your throat.

• William K. Black says:
  

  There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

  Instead, the Treasury and the Fed are urging us not to
  examine the crisis and to believe that all will soon be well. There
  have been no prosecutions of the chief executives of the large nonprime
  lenders that would expose the “epidemic” of fraudulent mortgage lending
  that drove the crisis. There has been no accountability…

  The Obama administration and Fed Chairman Ben Bernanke have
  refused to investigate the nature and causes of the crisis. And the
  administration selected Timothy Geithner, who with then Treasury
  Secretary Paulson bungled the bailout of A.I.G. and other favored “too
  big to fail” institutions, to head up Treasury.

  Now Lawrence Summers, head of the White House National Economic
  Council, and Mr. Geithner argue that no fundamental change in finance
  is needed. They want to recreate a secondary market in the subprime
  mortgages that caused trillions of dollars of losses.

  Traditional
  neo-classical economic theory, particularly “modern finance theory,”
  has been proven false but economists have failed to replace it. No
  fundamental reform can be passed when the proponents are pretending
  that there really is no crisis or need for change.

• Harvard professor of government Jeffry A. Frieden says:
  

  Regulatory
  agencies are often sympathetic to the industries they regulate. This
  pattern is so well known among scholars that it has a name: “regulatory
  capture.” This effect can be due to the political influence of the
  industry on its regulators; or to the fact that the regulators spend so
  much time with their charges that they come to accept their world view;
  or to the prospect of lucrative private-sector jobs when regulators
  retire or resign.

• Economic consultant Edward Harrison agrees:Regulating Wall Street has become difficult in large part because of regulatory capture.

But there is an even more interesting reason . . .

The number one reason the TBTF’s aren’t being broken up is [drumroll] . . . the ‘ole 80′s playbook is being used.

As the New York Times wrote in February:

In
the 1980s, during the height of the Latin American debt crisis, the
total risk to the nine money-center banks in New York was estimated at
more than three times the capital of those banks. The regulators,
analysts say, did not force the banks to value those loans at the
fire-sale prices of the moment, helping to avert a disaster in the
banking system.

In other words, the nine biggest banks were all insolvent in the 1980s.

And the Times is not alone in stating this fact. For example, Felix Salmon wrote in January:

In
the early 1980s, when a slew of overindebted Latin governments
defaulted to their bank creditors, a lot of big global banks, Citicorp
foremost among them, became insolvent.

So the
government’s failure to break up the insolvent giants – even though
virtually all independent experts say that is the only way to save the
economy, and even though there is no good reason not to break them up – is nothing new.

William K. Black’s statement that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”) makes a lot more sense.