Joseph E. Stiglitz-America's socialism for the rich: Corporate welfarism

[kpete]

America's socialism for the rich: Corporate welfarism

Joseph E. Stiglitz | Tue, 06/09/2009 10:47 AM | Headlines

With all the talk of "green shoots" of economic recovery, America's banks are pushing back on efforts to regulate them. While politicians talk about their commitment to regulatory reform to prevent a recurrence of the crisis, this is one area where the devil really is in the details - and the banks will muster what muscle they have left to ensure that they have ample room to continue as they have in the past.

The old system worked well for the banks (if not for their shareholders), so why should they embrace change? Indeed, the efforts to rescue them devoted so little thought to the kind of post-crisis financial system we want that we will end up with a banking system that is less competitive, with the large banks that were too big too fail even larger.

It has long been recognized that those America's banks that are too big to fail are also too big to be managed. That is one reason that the performance of several of them has been so dismal. When they fail, the government engineers a financial restructuring and provides deposit insurance, gaining a stake in their future. Officials know that if they wait too long, zombie or near zombie banks - with little or no net worth, but treated as if they were viable institutions - are likely to "gamble on resurrection." If they take big bets and win, they walk away with the proceeds, if they fail, the government picks up the tab.

This is not just theory; it is a lesson we learned, at great expense, during the Savings & Loan crisis of the 1980s. When the ATM machine says, "insufficient funds," the government doesn't want this to mean that the bank, rather than your account, is out of money, so it intervenes before the till is empty. In a financial restructuring, shareholders typically get wiped out, and bondholders become the new shareholders. Sometimes, the government must provide additional funds, or a new investor must be willing to take over the failed bank.

more:
http://www.thejakartapost.com/news/2009/06/09/america039s-socialism-rich-corporate-welfarism.html

[slay]

1. "but the big shots don't care, they're all sitting pretty thanks to corporate welfare"

"What's that now? They get billions in subsidies from the government - it's supposed to create jobs, but that's not how it's spent. They use PACS and soft money to support congressmen, who will vote for weapons programs again and again." --- Part of the lyrics to the awesome - only ever aired once and since banned - SNL short "Conspiracy Theory Rock" by the great Robert Smigel. I'm amazed he was even able to get this on the air once! It's so true though.

Conspiracy Theory Rock vid link: http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=3179529

[snot]

2. Thanks! Media almost completely amnesiac re- the fact that we've been here before,

and dealt with it more sensibly.

Among other things, we should amend anti-trust law to say, "too big to fail" = too big not to be broken up.

[DCKit]

4. What ^ you said.

Since when did any lottery winner get over a billion $$$?

[Karenina]

3. . .

[bbgrunt]

5. Stiglitz is always spot on, but WHY is the Jarkarta press the one publishing this?

[chill_wind]

6. K & R. n/t