Why are the Governments bailing out the banks with such vast amounts of money?

[GRG55]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

We can't export things as cheaply as other countries can due to the cost of labor here among other things. You'd have to bring wages in line with what others are being paid around the world first, and that means drastically reducing the standard of living in the US to 3rd world levels...

This is absolutely not correct.

And if you've ever spent any time in third world countries observing how their labour markets and production processes work you would instantly understand why. The USA's comparative standard of living is going to fall, but it'll never get anywhere near "3rd world levels" for the majority of the workforce in the USA.

USA wages have come down on a comparative basis as the US Dollar has been depreciated, and US exports are now rising as a result. This isn't the only thing that has to change in order to deal with the chronic and absurdly large global trade and current account imbalances, but it's a start.

[sunskyfan]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

Oh come on ... we have been told why. Here is the official story:

Once upon a time a few mistakes that naturally happen in the economy. Sub-prime loans were made to bad people among us and a bubble formed in housing that busted. And, because some very well meaning people all Wall Street, who were doing what they were suppose to do so well that they got so big that if they failed all basic services in our economy would collapse and we would loose our houses and the big bad wolf of accountability would eat us. Not only would the big bad wolf eat Wall Street and these well meaning people who know their jobs so very well but it would also eat the money that people had put into Wall Street for safe storage and productive investment. Money that we had earned by working so hard buying things from China and elsewhere. This money was so hard earned and needed that the government even rewarded both the people and the companies they worked for for storing it at Wall Street for the rainy day of old age when they would really need it. Well, the people did make a little mistake when they thought that not only could they make money by buying things but could also make money by buying houses from stupid people and sell them immediately to stupider people. Who could have predicted this would be a bad thing? SO, in order to save us from the big bad wolf of accountability the government had to give money to the banks and as much as the banks needed. But don't worry they have already started to pay that money back and the whole thing will be over and the big bad wolf will go back into the woods again.

[vinoveri]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

The money center banks buy massive amounts of government debt. That is why they are given a monopoly on money creation.

The government could create all the money it wanted to without the banks, so why doesn't it? Because that would give away the game. Inflation must never be *perceived*. The Mishes of the world must be continually misled with deflation scares. The banks lend money into existence which is not perceived to be "printing money".

This point, that the central banking system was created in the US, and the government gave the power of money creation to the banking cartel in exchange for a guarantee by that system to always be a willing buyer os US gov debt, has been made by both Hudson and Gary North.

Remember though that this system was created in 1913 and the US dollar was backed by gold, so the government would not have been able to create all the money it wanted w/o going of the gold standard. Now of course their is no backing by gold or anything, so I would agree that the gov does not need the banking cartel to buy its debt, b/c it can inflate at will be printing money ....

Inflation generated by the gov sending everyone a check seems much more equitable than the surreptitious and unjust game of inflation (which rewards those who get the new money first) that is going on now.

[marvenger]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

Steve Keen shows convincingly that money is created endogenously in the banking sector. I think you probably just need to look at the pay packets of bankers versus governmant officials to know where the real power lies.

Also, as more money gets endogenously created, the bankers start earning more as they're taking a margin from a larger base and their commission fees from deals go through the roof. Business and asset owners also must get a massive boost in this phase it generally seems as wages and savings of workers don't seem to go up as much the money supply so the other side of all the debt must be business profits and asset sale profits being deposited at banks. As theres more and more claims on rental income from these relatively few creditors and the banks, from the expanading monetary base outpacing GDP growth, interest rates have to be lowered to keep the money flowing. But as Hudson says, a debt that can't be repaid won't be repaid, the combination of zombie banks, inflation from printing and debt deflation to cope with this situation i still have little idea about, zombie banks seem to be going strong at the moment.

The main government expenditure seems to be military which is used to maintain political and business terms favourable to the US and its citizens standard of living, but more in tune with the profits of large TNC's who the US gov makes a favourable environment for, I would think. China is one of the big business owners collecting lots of deposits, but they're not under the protection of the US government. What a complicated world.

Oh yeah and the Casino derivatives market where a few big banks and hedgies with all the profits of these business owneres that they don't know what to do with get make stupid bets with the biggest moral hazzard of the all time the FED guaranteeing losses in the name of the interests of taxpayers exposed to systemic risk. What a cluster f(&^.

[mesyn191]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

The USA's comparative standard of living is going to fall, but it'll never get anywhere near "3rd world levels" for the majority of the workforce in the USA.

There is nothing special about the American market nor American workers that will guarantee a much higher or even mildly higher wage vs. their foreign counterparts. Also our gov. is just as corrupt/incompetent as any of those 3rd world gov. and will cheerfully allow private enterprises to strip people of what little wealth they're able to get in the name of free enterprise and deregulation or even industry written regulation, that is if they don't do it first.

USA wages have come down on a comparative basis as the US Dollar has been depreciated, and US exports are now rising as a result.

This means nothing. Exports could double and we'd still be in a dire situation economically since exports are such a small portion of our GDP. In order to grow our exports enough to be a major factor in our economy we'd have to lower costs somehow, either by being "cute" and depreciating the currency without also increasing workers wages appropriately or by simply paying people less and leaving the currency alone. To me it seems the gov. has gone with option 1 and not option 2.

[dcarrigg]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

The question I am raising is "Why is the banking system in such a state of collapse that 15 trillion dollars is insufficient to bring it back to life?" and what are the implications of that answer?

My answer, although less sophisticated than Oddlot's, I believe is illustrative.

We had "innovation in financial markets."

Whenever you hear the term "innovation in financial markets," and there is no announced corresponding innovation in algebra, you can be certain that wild bets are being made.

FV = P (1 + r / n)^Yn

Same as it ever was.

[iyamwutiam]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

Could it be that banks with their creation of credit which is basically unlimited fund the covert hegemony of other nations resources. Which of the big Western Banks aren't financing companies both US and foreign as well as countries (Citigroup-Mexico/Argentina)?

Armies are not the only way to gain footholds in companies and countries. See Dole/Chiquita/Coca Cola/ McDonalds etc for how companies can exercise powerful leverage on economies far from home.

With out the ability to make as much magical money as they wish -could they leverage currencies and bring them to their knees as they did with Asian Crisis and Russia/Eastern Europe recently?

They know what their doing...its just us -who don't see the full picture. The minute the finance sector is exposed and bankrupted -kiss your standard of living goodbye. A few examples -Standard/Citi/Chase/RBS/Societe Generale-they are appendages of the government in reality-watch their actions and not their words. Who is going to buy 8-10 billion dollars of ADDITIONAL shares of a bank that is basically insolvent and is diluting their shares by an additional 20-40 percent?! No one -yet miraculously -they are all sold out at their price -how many of these shares do you think are really being bought by the individual investor? Even the shielks have now pulled out their money from the banks -after the scare of economic collapse and recently -even the Singapore Soveriegn fund.

[Godozo]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

The Big Banks are being floated because you can't buy a big bank with a small bank. Small banks, however, can be readily taken over by big banks.

It's a quirk of Depositor Insurance: You need a way to insure fluidity of monies, and it's better to keep the monies in a bank than to give it to the depositors to stuff under mattresses.

As to the question of "Why not break up the banks to smaller banks?", it's too smart an answer and would work wonders. And the government doesn't want that; especially in their drive to privatize their activities (and thus evade responsibility for abusing their expanding powers). So we get fewer, bigger banks instead of more, smaller, more locally responsible banks.

[marvenger]

Re: Why are the Governments bailing out the banks with such vast amounts of money?

yeah I totally agree with you about the financing ability and the control of resources. But its the corporations that are in control, the make the money, its the government that is used to make a favourable environment for dominant capital. A hedge fund manager made two billion buying banks at their lows betting they would recover, or betting that there wouldn't be a major power shift just yet.