It would have been nice to see some real reporting on the relationship between Secretary Geithner and Mr. Summers, and their former patron Robert Rubin and the other senior executives of the major banks how those relationships have shaped his views on what is best. I think it is primarily the interests of senior bank management and board of directors. Many of these people belong to that group of 400 Americans who in 2006 alone earned $105 billion dollars. http://www.nwotruth.com/income-of-400-richest-americans-doubled-during-bush-era/

I must admit that I have not been as sanguine as you have been about avoiding a depression. Keynesian stimulus by the Government and a very agressive liquidity policy by the FED may ameilorate the bust and good policies may speed a recovery, but I believe late Hyman Minsky and Steve Keen have it right that when you have had such a huge credit bubble, where both individuals, businesses, and big banks were acting as "ponzi borrowers" and depending on ever rising asset prices to liquidate the debt, the deflationary force of all that debt as asset prices fall is greater by a factor of ten to one over the Government stimulus. Even if credit became available, most people do not want to take on anymore debt, especially now that the find themselves underwater with their mortgages and need to save larger amounts for retirement and major purchases. For those who keep working, they won't start spending again until the their personal balance sheets show less debt and more savings. As you point out, the deflation does increase real wages for those of us still working, hopefully speeding the process, but I expect it will take at least years, and as this was one of the biggest bubbles in history, the resulting crash will very severe and similar to what happen in early 1930s.
I link to an interesting article in in early 2007, written at a time when the geniusess who run our banks now say who could have known that this was a bubble and it was starting to crash (unless of course you were Dean Baker, Nouriel Roubini, Meredith Whitney, or Robert Schiller). http://www.dailyreckoning.co.uk/economic-forecasts/hyman-minsky-why-is-the-economist-suddenly-popular.html

What Dean has been saying all along, not so much in his blog as in his books, is that we have become a socialist nation, with the welfare going to financiers. And this fact is largely unnoticed by the media - it is taken for granted even by the likes of the NY Times (and such supposedly liberal pundits as Paul Krugman), that the finance industry must be bailed out before doing anything else.

There may be a big difference between the coming depression and the thirties - this time the speculative finance industry may survive with taxpayer assistance, and continue to set policy. They were largely wiped out in 1929-33 and had comparatively little influence between 1933 and 1981.

Pre-Keynesian economists were right that the system sometimes has to be purged, but it's the people at the top that need to be replaced.

Dean,

You don't know and have no proof that regulators are concerned about protecting the interest of shareholders and executives. You disagreed with regulators' actions and their policies indirectly perserve the shareholders' value. Shareholders have seen their stakes dropped almost to what? $5 ranges from how high just a year ago?

Regulators are not in the business of running the likes of Citigroup or BoA. They certainly could take over and replace the executives but there are often more negatives doing this way than keep it private.

And of course, politicis are one reason. Did Chrysler go nationalize?

In defense of Krugman, he has been pretty critical of Obama administration and this total bailout. Minsky was a Keynsian, or at least shared more with Keynes the belief that markets were unstable and had to be managed to prevent bubbles from forming. That has been Dean's point the regulators (principally Alan Greenspan) failed stopped the bubble from forming. Further, the bigger and faster the bubble is growing, the harder it is politically to burst it by policy since politically influential groups and persons who are making vast sums of money immediate because of the bubble will use their political clout to chill regulators (think of all of Tony Mozilo's "friends" like Senator Dodd and Senator Frist). Only now, in the "who could have known" phase do the politicians forget their former "friends."

"This is the biggest, most hare-brained scheme," said Dean Baker, the co-director of the Center for Economic and Policy Research. "If this passes, I'll be amazed."

One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."

Plus, he added, it gives a credit to others who would buy anyway.

"I actually like this bill," Baker said sarcastically, "because, with home prices in Washington plummeting, I'm considering buying a house."

He also raised the possibility that it could be gamed: What's to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?

For this to work, a sales transaction needs to go through with lenders, title companies, etc. You have emphasized that many homes are underwater so how would lenders accept lower purchase price from the "arranged buyer" than the loan amount?

Ah? The seller has plenty of readily available cash to pay the difference to the lenders?

The reviews of Mr. Geithner's plan, if you can call it that, are not good. What has he been thinking about since black weeks of early September? I wonder what he, Larry, and Bob would have done if some finance minister from Japan, Indonesia or Thailand had come to them with such a plan back in 1997-98? Well, actually we know what they said:

From 1998 TV interview:
Adam Smith:

"What should the Japanese do?"

Larry Summers:

"Japan faces a real challenge in restoring confidence in the markets. Three things are crucial. One, working through the banking system by closing failed institutions and supporting viable institutions and selling off bad assets.

"Second, continuing to stimulate its economy through strong and sustained fiscal policies to promote growth.

"Three, work to continue the process of deregulation and openness in its economy. These are not issues of politics between us and them or any other country and them. These are issues that have to do with restoring market confidence which is so important for Japan and for the global economy."

But when it is Bob Rubin's CITIBANK, and his former bank Goldman Sachs, that are the zombies that might have to be closed, I guess a different rule applies.

Meanwhile the idiots in the media appear still not ot have heard of google.

What's not transparent about robbery?

I have found, in general, that the media does know how to Google, but appears to use it to find porn and the latest on Paris Hilton, rather than information on the current issues of the day. Sometimes you end up writing things like "a few minutes on the Internet would have told you more than you ever wanted to know about (blank).

My favorite was William Blum, where it took the media a couple of weeks to find out why Osama bin Laden's endorsement of his book was so entertaining.

James wrote, You don't know and have no proof that regulators are concerned about protecting the interest of shareholders and executives.

Depends what you mean by "proof." In the strictest sense, you can't "prove" that the sun will rise tomorrow.

However, given the actions taken, it's quite clear they're acting in the interests of the banks, and contrary to the interest of the public, if we're talking about a reasonable burden of proof here.

Shareholders have seen their stakes dropped almost to what? $5 ranges from how high just a year ago?

But given that many of the largest banks are insolvent, the actual value of the shares is zero, which is infinitely smaller.

Furthermore, it's not just the shareholders but the bondholders.

Regulators are not in the business of running the likes of Citigroup or BoA.

They don't have to be. The put the bank into receivership. There are standard ways of doing this that avoid the pitfalls you allude to.

They certainly could take over and replace the executives but there are often more negatives doing this way than keep it private.

Wrong.

skeptonomist wrote, ...it is taken for granted even by the likes of the NY Times (and such supposedly liberal pundits as Paul Krugman), that the finance industry must be bailed out before doing anything else.

Re Krugman, it depends what you mean by "bailout." If you mean "fixing the credit system," then you're right. If you mean "fixing the credit system by throwing money at the banks on terms that are lousy for taxpayers," then you're wrong.

does the credit system need to be fixed? yes. the market is not wrong right now. we just had an overextension of credit so it's no surprise that we have less lending.

we run into problems when we say there is no credit available when our benchmark is the credit available in 2005.

"What Dean has been saying all along, not so much in his blog as in his books, is that we have become a socialist nation, with the welfare going to financiers."

Ahem .... It is called Fascism ...

30 year ago, Peter Drucker observed that we had become a socialist nation since the means of production were now owned by the workers, via their retirement funds. Take note of Dr. Roubini's prediction that the failure of the banks will in turn lead to the failure of the hedge funds and then answer the question: Who is the world's largest investor in hedge funds? Answer: the Teacher Retirement System of Texas. To avoid moral hazard must the 3rd grade teacher in Del Rio, TX face the consequences of her actions? (Choosing to become a teacher in Texas.)

This simply illustrates Martin Mayer's Third Law of Derivatives: "that risk-shifting instruments will tend over time to shift risks to those less able to bear them." (see http://www.derivativesstrategy.com/magazine/archive/1999/0899qa.asp). Mayer has decried credit derivatives as "vectors of contagion". Through the magic of credit default swaps, the failure of, say, Citi will suck trillions of dollars worth of investments (of yours and mine and everyone else's) into its black hole. Never forget that when bankers gamble, they gamble with Other People's money.

So let's acknowledge that the RTC approach is not an option. Bank of America is NOT Vernon Savings & Loan.

BTW, if we want "real reporting" on Mr. Geithner's relationship with his "former patron", Robert Rubin, might we also get reporting on Nouriel Roubini's relationship with HIS former patron, Timothy Geithner?

Both Brad Setzer and Professor Roubini have been very open that they consider Secretary Geithner a friend and that the have a relationship with Larry Summers. But I don't think it has biased their opinions on the direction economy or his opinion that most of the big banks and major regional banks are insolvent or soon will be insolvent as asset prices keep falling and the holders of those assets find themselves underwater on the loans secured by the assets.

"a "populist" demand for transparency on bank finances and what they do with government money"

Transparency of bank finances is vital if we are to trust banks.

Why are the Fed and Treasury being so secretive about what kinds of collateral they are getting in return for cash/treasuries and who they are getting that collateral from?

We can only surmise that the collateral is worthless junk, otherwise they'd be divulging the information. So what are the Fed and Treasury trying to hide from the citizens of this country? My guess is that such information will lead us on a trail of corruption and favoritism.

How can anyone trust the banks, government, and our entire financial system when the TRUTH is being hidden from them?

Our government can crack down on excessive compensation if it chooses to do so. The mechanism of choice is taxation.

All government needs to do is to tax excessive compensation as aggressively and punitively as alcohol and tobacco.

The people of the world is the market. I sure hope we know this.

ron alley: ever heard of capital flight? taxing them more is only going to increase the amount of capital flight to offshore tax havens. like bush says, "real rich people don't pay taxes."

you have to have a cap on compensation, which will never happen since 90% of congress has been bought by the securities and financial industry.

I think Rick Kane is absolutely right. Just because Roubini and Setser worked for Geithner doesn't mean they think the way he does or will follow him slavishly. Nor does Geithner's having worked for Summers and Rubin discredit him in any way. These are all very smart people with minds of their own.

Rick Kane's not "exactly" right, it's not easy to forget or forgive PK's silence to t10 years of money center banking shenanigans & the geometricly expanding housing bubble. BUT, Rick Kanes' Larry Summers quote on Japan is CLASSIC & deserves prominant wall space to remind us all of the costs to us from "relative" reasoning common to so many of today's decision makers.

How to deal with Scumbag Bankers:

http://ezinearticles.com/?Marria...iage& id=1750188

Highlight:
"Be Willing To Forgive
Do not allow a stubborn and vindictive nature to put a rift...

Ensure that you are dealing with issues as they arise...Do not constantly bring up their past mistakes. Decide to forgive and MOVE ON."

thinkbeforeyouspeak: That would be Leona Helmsly's quote.
Let that capital go over seas, they can invest in all those chinese knickknacks WE won't be buying.