Obviously the investors in Citi can not be zeroed out due to diplomatic concerns. This is because we do not want to upset large holders of T-Bills like Saudi Arabia.

http://yglesias.thinkprogress.org/archives/2009/02/private_investors_in_citigroup.php

I voted for Obama in the last election because I hoped he would be different then Clinton. As long as there are only two parties in this country this is all we can expect. Breaking their hold on politics is the only way to change this.

EJK: How are the party "differences" anything other than cosmetic? Do you think it's a coincidence that Santelli got lathered up over $100M while billions pour into Citi and AIG every day?

This is blatant, outright class warfare.

Regarding AIG:
http://www.oneradionetwork.com/money%10finance_-_articles/the_economy_-_articles/aig_is_said_to_pay_$18.7_billion_to_goldman,_socgen_for_swaps_20081214654/

Obama is going to keep pouring money down that black hole because without AIG all of Europe's banks (levered at 40:1) are insolvent overnight. On the backs of the US taxpayer, naturally!

There is no need to look outside the borders of the US - financial industries in this country are plenty powerful. The media and some economists have also glorified the Fed and its Maestros as actual or potential saviors when the actual record of the Fed has been pretty dismal from its inception. Of course these Maestros favor pumping in taxpayer money to keep the banking structure as is.

But there is still a major barrier to anything smacking of "socialism" because our national enemy for 45 years was socialist. A true leftist political movement essentially vanished during this period.

This morning, William Isaacs and William Gross both said that the taxpayers are going to have to fund these giant banks or the whole system collapses. They really don't understand what they're saying. They are asking the taxpayers to pay to save the managers and owners of some of the worst run businesses in human history. They don't even say that we'll eventually have to break them up or anything of the sort. They seem to contemplate business as usual going forward. This means that the banks own us. After such an egregious deal, I doubt that many people will feel comfortable with the system we have. These men must be praying for a huge turnaround of some kind in which the taxpayers losses won't seem so bad in the future. If they're wrong, people will not accept the private ownership of businesses that depend on the taxpayers covering their losses. If they are wrong, they are guaranteeing the permanent nationalization of banking going forward.

Obama is still struggling with choosing a course of action. Much of what we see are trial balloons -- will they rise rapidly, slowly, or even sink, which way and how far will the winds of public opinion carry them?

I wonder how long it will take Obama to settle on a course of action. To date, Treasury has bought into the bank holding companies and the Federal Reserve has propped up their subsidiary banks with loan and guarantees. The total economic -- holding company plus subsidiaries -- are double dipping. The result is that only the shareholders of the holding companies stand to profit from the preferred stock purchases, loans and guarantees funded by the taxpayers.

In the next thirty days we shall find out whether and how Obama will correct this one-sided situation.

Don the libertarian Democrat wrote, This morning, William Isaacs and William Gross both said that the taxpayers are going to have to fund these giant banks or the whole system collapses. They really don't understand what they're saying.

Of course Gross understands what he's saying: he's "talking his book".

"Change" my *ss. Obama is fighting for the status quo.

Thank you Dean for pointing out a profound travesty of justice perpetrated by both sides of the political elite.

This morning, William Isaacs and William Gross both said that the taxpayers are going to have to fund these giant banks or the whole system collapses.

What else would you expect them to say?

Call Nancy Pelosi @1-202-225-0100 SAY NO TO BANK BAILOUTS.

Was Dean able to stay awake through the whole event? And did the participants get lunch?

I hope the "system" does collapse, because the current one sucks. Did anybody in the media think of that?

Exactamente Dean! And with Bernanke's clarifications in testimony today, it is clear that the intent is to continue pumping in capital to the zombies (including I imagine AIG) to protect the bondholders and shove it to the taxpayers. By now, Treasury and the Fed must know this won't work, so the only reasonable conclusion (as far as I can see) is to protect the fat cats. This is an f'ng nightmare!!!

This is what you get when you have a disinterested, intellectually unengaged voter base and an incompetent and/or corrupted press corps. Every time the public gets riled up, they are led astray by the press, often through the simple use of manipulative catch phrases: Socialism; Nationalization; Entitlements.

The sooner the mainstream media finally collapses, the better the chances for our "experiment in democracy". Long live the blogosphere - it may be our only hope.

Dean, when I saw your name on the list of participants in this seminar, I was delighted. Thank you so much for standing steadfast. I'm not an economist; I can't follow all the ins and outs of the various proposals and arguments about multipliers, etc etc etc. But what I can see is the growing number of people right here around me who have no health care, work two jobs and are fearful about losing them, people who are counting their dollars and wondering if they will last as long as their days. These people don't deserve to be made responsible for the failures in judgement of the likes of Citi's CEO. Nor should they be subjected to the hugely misleading rantings of quite well-off people like Santelli and Matthews, people who will be among the last to feel any bad effects from this terrible crisis and who have never, ever, made the plight of the lower 3/5s of this society any of their concern.lr[srt

I was just at a White House conference listening to a lot of people talking about cutting Social Security and Medicare benefits for retirees. How can the same government that hands tens of billions of dollars to Citi's shareholders and top executives cut key benefits for the retirees? Why aren't the news reports calling attention to this massive give away to some of the nation's richest people?

WTF, I thought that was not going to happen on Obama's watch...what gives Dean, who is spouting this?

"Why aren't the news reports calling attention to this massive give away to some of the nation's richest people?"

Most of the news reporting corporations are owned by some of these very same super rich people or they are at least friends with the people getting bail out money. In other words, most of the new reporting corporations are "in on it."

How about turning to the lender of last resort, the Federal Reserve and have the government borrow from its own central bank? This money is virtually free because the Federal Reserve rebates any interest it receives to the Treasury after deducting its costs, and the federal debt is never actually paid off but is just rolled over from year to year.
Half a percent interest loans that are never paid off are basically free money. For the government, the difference between borrowing credit created with accounting entries by a private bank and the same sort of credit created by the Federal Reserve is that borrowing from the Fed is nearly interest-free.
If private banks and private corporations now have multi-billion dollar credit lines with the Federal Reserve, then Congress should have one too. In fact Congress, which gave the Fed its charter to create the national money supply, should have been the first in line.
The Fed has the unlimited ability to write numbers into an account but has restricted its purchase of government securities to what is necessary for providing liquidity to the private banks. Funding the government's budget shortfall would avoid the interest burden by simply tapping into the credit line of its own central bank.
It wouldn't be inflationary because the scenario most feared today is actually deflation – a lack of available dollars to fuel the economy - adding new interest free money to the money supply will not inflate prices if the money is used in the production of new goods and services.
If the goods being produced are income-generating assets – railroads, bridges, alternative energy sources, low-cost housing, medical services – so much the better. The projects can be "monetized" and the funds received from the central bank can then be repaid to the central bank from the income the assets produce. These repayments would extinguish the debt and avoid inflation. Ideally, the projects could actually turn a profit, generating income for the government and reducing the tax burden on the public.
If the notion of funding the government through its own central bank seems too radical and unprecedented to be entertained, consider the radical moves the Fed has already been taking in the last year. Without so much as a by-your-leave from Congress, the Fed just "monetized" $1.2 trillion in private debt, turning commercial loans into money.

Excellent Post Mr Baker ...

Why indeed ...

EJK wrote, I voted for Obama in the last election because I hoped he would be different then Clinton.

I voted for Obama, but I knew he'd be very similar to Hillary, because they had very similar voting records in the US Senate.

Why aren't the news reports calling attention to this massive give away to some of the nation's richest people?

One could use "massive give away to some of the nation's richest people" as a description of the Citi bail out and to describe the more than 75% of SS payments that go to the rich and middle class who do not need it.

And to play the devils advocate, even though I am outraged by the Citi Bailout:

One could see the corporate tax (which can be very regressive when poor people own stock through a retirement plan or mutual funds) exists as insurance because the corporate person protects stock holders, and because it protects stock holders it indirectly protects management by allowing stock holders to hold management less accountable.

Corporation Stock holders would likely say we have been paying this tax for so long surely that present value of the past taxes greatly exceeds the amount of the bailout.

BTW if you agree with me that the Corporate person should not protect stock holders and management from paying damages due to their action you will object to the S-Corp even more than the Corporation because S-Corp status gives the protection at zero cost.

Just put the big banks to death. I'm tired of hearing this nonsense that we can't do without them, otherwise known as "Too Big To Fail".

We don't need big national banks, and what is happening now is why I'm about to cancel my accounts and credit card with the big national bank I do business with. People need to be encouraged to pull out of the big banks and go with smaller, better capitalized and less risk-exposed local banks.

None of what is happening now should be surprising. Letting banks get big and do what ever they want, including the merging of commercial banking with insurance, inevitably leads to banks that are under capitalized and over exposed to risk. It's just ridiculous to keep giving them more taxpayer money to bankrupt banks, just so the executives can keep paying themselves their outrageous salaries.

I think that liberal criticisms of Obama's economic policies fail to grasp how he skillfully uses his political instincts to achieve the results which liberals (myself included) desire.

Obama may well appreciate that the large banks are now functionally insovent, i.e, "zombie banks." However, he also knows that, if he moves precipitously to receivership, he runs the blow-back risk of being characterized (unfairly) as a wild-eyed liberal, or a socialist, who nationalizes banks like some dictator in South America.

By moving incrementally, he preserves his popularity in the teeth of conservative/GOP nonsense, so that, when he seeks the best (only?) policy of an orderly FDIC receivership, he brings the public along with him.

Need a good example? Look at the stimulus legislation. Obama emphasized his attempts at "bi-partisanship," and was met with GOP intransigence. Nonetheless, a stimulus bill was passed, and the public now approves overwhelmingly of Obama (and even the Dems in Congress are polling better). Meanwhile, the GOP is digging its own grave by appearing unwilling to compromise. Now, don't you think a brilliant Chicago pol like Obama anticipated that? He didn't just get to be elected President because of his intellect - never forget his political smarts.

True, the stimulus certainly was too small from an economic perspective. However, by preserving his approval, and by marginalizing the GOP, Obama has the political capital to fight on for economic recovery and financial restructuring.

Could his strategy nonetheless fail? Sure. But is it a wise manner in which to proceed? Absolutely. I hesitate to question the political instincts of a relatively inexperienced African-American whose brilliant strategy took him to the White House so quickly. I am giving my liberal, politically astute and economically knowledgable President the benefit of the doubt on this one.

The credit markets rule the world. The power is at places like PIMCO, where hundreds of billions of state and private pensions reside. That's the bonds, folks.
Sure, it would be great to swap the bonds into common stock. Way less expensive for the taxpayer, certainly. Except that's not what credit markets signed up for. You would have to literally kidnap Bernanke to get him to do that. He will sweep as much taxpayer money into these banks as common stock (that's where it's headed) as he can before he'd give a bondholder a haircut.
Reality is tough sometimes.

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