The next flare-up:
The Federal Deposit Insurance Corp. is pushing for a shake-up of Citigroup Inc.’s top management, imperiling Chief Executive Vikram Pandit, people familiar with the matter said.
The FDIC, under Chairman Sheila Bair, also recently pressed a fellow regulator to lower the government’s confidential ranking of Citi’s health — a change that would let regulators control the firm more tightly.
***The FDIC traditionally hasn’t been nearly as assertive in management of a large firm. But Ms. Bair’s agency is heavily exposed to Citigroup. The FDIC is helping finance a roughly $300 billion loss-sharing agreement with the company.
It also insures many of Citigroup’s U.S. bank deposits. Citigroup has issued nearly $40 billion in FDIC-backed debt since December, according to Dealogic, a financial-data provider.
Some government officials believe that Citigroup should be given more time to implement its new capital plan, but it is unclear which regulator might ultimately prevail because the bank depends on large amounts of federal aid.
Since late 2007, Citigroup has had more than $50 billion in write-downs and loan defaults. It’s in substantially worse shape than many of its peers, many of whom have been able to raise billions of dollars in fresh capital recently.
I’m wondering what the last year would have looked like without the FDIC.
Redhand
I’m wondering what the last year would have looked like without the FDIC.
What, ya mean ya don’t think little Timothy Geithner is protecting the taxpayer? . . . Neither do I.
beltane
FDR almost deserves his own holiday. Without the FDIC this recession could easily have eclipsed the Great Depression.
Zifnab
http://i172.photobucket.com/albums/w7/calnutz/city.jpg?t=1244207801
eric
@beltane: not until we name a holiday for ronald reagan.
alas, were i but joking. can you imagine the apoplexy if Obama sought to have an FDR day?
I think it might be fitting to figure out which day of the year ought to be named for reagan.
it is a no-brainer, that W gets April Fools day.
eric
KJ
There would have been a complete and permanent collapse of the banking industry.
ChrisS
I wondered, in the same vein, whether the some of protections that came into existence during the 1930s allowed people to be less proactive in preventive an economic collapse.
Xenos
@ChrisS: The protections certainly avoided collapses up to now. I don’t think that made people especially rash in the last decade – that was due to the preeminence of free market ideology under Summers and Greenspan, and the malevolent neglect of Commissioner Cox.
someguy
@ Xenos
You kind of have to wonder, given the disasters it produces and the systematic lack of economic security it provides, especially for the most vulnerable people in society (the elderly, the infirm, children and minorities) whether people are ever going to wise up. The so-called free market is just another tool for consolidating power in the hands of oligarchs. It clearly doesn’t work for most of us.
I guess in a Christian Capitalist nation, the ethos is that if something doesn’t work, what you need is more of it. But that’s okay. Even if it doesn’t work, most Christian Capitalist Americans are far too big to fail…
Barry
ChrisS
“I wondered, in the same vein, whether the some of protections that came into existence during the 1930s allowed people to be less proactive in preventive an economic collapse.”
No, the guys in charge ran things into the ground; nothing but a collapse could have changed that.
Zifnab
@ChrisS: Well, that’s kinda the idea. People aren’t traditionally pro-active in preventing collapses of any kind. It’s very hard for a bunch of rich powerful people to go and tell a bunch of other rich powerful people, “Hey ease off the gas a bit because you’re going to break the economy.” That’s how you get big nasty fights.
Politically speaking, it’s much easier to just build in a safety net that lets people fuck up without leveling the rest of the market than it is to build a barrier seperating businesses from their future fuck-ups.
geg6
Anyone who thinks the protections we have in place, as meager and obviously ineffective as they’ve been when they’ve actually even been used the last decade or two, were any sort of proximate cause in this crisis is living in la la land. Thank FSM we’ve had them and they’ve had the feeble enforcement they’ve had. Without them, we’d be in a Mad Max movie right about now.
Halteclere
If it wasn’t for the FDIC I would have pulled all my savings and all but the barest minimum of my checking money out of Bank of America.
But luckily, because of the existence of the FDIC, we haven’t had a good banking run in a while.
Mike
No question: there wouldn’t be a bank left standing.
Zifnab
@Halteclere: This
Comrade Dread
Well, a free market is the greatest in terms of efficiency and meeting demand for goods.
We don’t exactly have a free market. We have a market where by powerful lobbies influence government regulation and laws designed to provide them more favorable conditions. (In addition to other regulation that is more necessary and deals with oversight).
Unfortunately, until the citizenry gets off their collective ass and lights a fire under their government, these regulations, laws, subsidies, and favors will never be repealed and government will continue to cater to business during good times and bail them out during bad.
Because if you leave them alone, Democrats will do nothing, and Republicans will seek to repeal laws and regulations that provide oversight or counter negative externalities.
ChrisS
were any sort of proximate cause in this crisis is living in la la land.
Don’t get me wrong, I think the banking system, their GOP and democratic allies in the congress, and the financial sports media certainly pushed this disaster.
A few years ago, I thought the economy was heading for a cliff, just based on the increasing costs for the triumvirate of property costs/energy/medical care combined with stagnating wages for the middle and working class. I had no idea how it could be sustainable. My only question then and now, in a hypothetical way, was whether the safety net in place prevented some people in the mushy middle from understanding the seriousness of the coming correction. More importantly, how would one have illustrated a looming disaster in order to protect some of the regulations that were being legislated out of existence if some of those very regulations and protections were hiding serious flaws in the system.
flounder
I think the best news I’ve heard in a while was hearing yesterday that Countrywide crook Angelo Mozillo was indicted. Maybe some of these other Master’s of the Universe are next on the docket.
NonyNony
@Comrade Dread:
Likewise, Real Communism has never been tried, so the failures of so-called “Communist” countries don’t actually mean that Communism is a bad idea.
There’s a difference between “in theory” and “in reality”. In reality, the last 30 years have been an example of what unchecked “free market” ideology does to a country ruled by elected officials. You’re not going to get the mythical free market anymore than the Russians were able to implement the mythical Communist Utopia or anymore than I am going to be able to run across Bigfoot in the parking lot of the local Kroger.
The best you can do is be pragmatic – let the government take care of functions that are unsuited to letting a “free” market run unchecked and let the market take care of functions where the “free” market can provide the greatest good to the citizens of the country. We’re citizens first, consumers second. Too many politicians and ideologues tend to forget that what’s best for “consumers” and “businesses” may not, in fact, be best for the citizenry (see the US healthcare “system” for one glaring example).
burnspbesq
@flounder:
Be fair. Right now he’s not even an alleged crook. This is a civil enforcement proceeding by the SEC, not a criminal indictment.
I join you in hoping that if the facts presented to a grand jury support an indictment, that he will be indicted. But the fact that the civil complaint has been filed is not cause for optimism, in my view.
Facebones
Well, since I am/was a Washington Mutual customer with considerably less than $150K in the bank, last year would have really really sucked without the FDIC. I probably would have been first in line at the run on the bank.
Comrade Dread
And I would counter that, in this case, semantics are important.
Because if you call this a ‘free’ market, you ignore the fact that many laws, regulations, and government practices favor specific corporations, prevent competition, and harm the consumer, you are overlooking a large part of the problem.
In short, you would be confusing what Republicans mean by “Free Market” with the generally accepted economic meaning, and these are two entirely different things.
Despite my libertarian leanings, I have no doubt that additional government oversight and consumer protection laws are needed, however, that is only half of the equation in moving us closer to a more beneficial marketplace.
Stooleo
OT. BJ 25th in political blogs..
Zifnab
@Comrade Dread:
I think you might be misunderstanding something, Dread. The businesses and their employs and the lobbyists they contract that work tirelessly to get the laws changed to favor their practice or industry? They’re the citizens you speak of.
Corporations – contrary to legal definition – are not really people. But the people within said corporations who number in the millions – be they auto workers’ unions or Halliburton employees or Microsoft engineers – regularly write their legislators and push their governments to make their industries more profitable and their jobs more secure and lucrative. These people already “light a fire under the government”. They just don’t always push said government in the direction you think it should go.
Elie
“We’re citizens first, consumers second.”
I totally agree. We had better change our educational system to reflect that. Right now, we are “raisin” mall rats and couch potatoes afraid of their own shadows.
I think that the thing that I like best about Obama’s brief tenure is not only his sense of intellectual energy, but his sense of bravery.
We will need both in spades — the current flaccid system will not give us what we need so will have to be revamped.
maya
I suppose it’s too late to go back to using pretty little shells for currency, huh?
r€nato
@KJ:
and the recession would have been over by now.
At least, that’s what the libertarians and know-nothings tell me. Just let it all collapse! The fitter and stronger will survive!
r€nato
Heckuva job Bushie.
Tell me again, fright-wingers, how Bush ‘kept us safe’ for the last 7 years?
Zifnab
@r€nato: He never attacked us again?
AnotherBruce
I don’t think that, for a lot of reasons including and beyond the FDIC, that Franklin Delano Roosevelt was far and away the greatest President of the 20th century and one of the 3 greatest Presidents the United States has ever had.
It doesn’t get mentioned often enough, because we let the wingnuts get away with revising history.
b-psycho
@Zifnab:
Since the corporation as we know it is, as you acknowledge, a creation of government, there’s in all honesty two paths to take here:
-Try to drastically redefine corporate status to something fitting a “public” purpose, i.e.: what’s described on the 2nd page of this.
-Dismantle the damn things.
Neither is remotely easy to do, and both involve a huge period of painful adjustment due to their artificial power & presence in the economy. To admit my bias though, I suspect the 2nd would be more likely, since the contradictions in our system are so tight as to make reform impossible & collapse likely in the long term.
bago
A corporation or bureaucracy are inherent mechanisms of organization. You will never be rid of them. It WOULD be interesting to set up a 3-way power balance structure like Rock Paper Scissors and see how sustainable that game model would be.
NonyNony
@Comrade Dread:
My point is that if you really, honestly think that you can, in a country governed as a democracy, get a “free” market like the ones you find outlined as thought experiments in economics textbooks, you quite probably haven’t been paying attention to human nature.
What we’ve had for the last 30 years is as close to a “free” market as you’re going to get in a country governed via elections. Much like what the Soviets dealt with post-Lenin was as close to a Communist Utopia as we’re actually likely to see on this planet ever. It’s nice to have an ivory tower where you can make up all the rules that people are supposed to live by to make your imaginary system of economics work “correctly”, but at the end of the day the economy that we have is never going to match the thought experiments you find in economics textbooks because such systems cannot actually exist in reality. They’re useful for understanding economic principles, but are not the basis for a realistic view of what an economy can actually be.
This was Greenspan’s (and many, many, many libertarian economists) greatest failing – the failure to understand that economics is not actually a “hard science” but rather a branch of sociology. You can come up with all the fancy mathematical models you want about how an economy “should” function, but at the end of the day what will inevitably happen is that some asshole will come, examine your ivory sandcastle, and find just the right spot to kick it and turn it into powder.
Personally, I’d prefer a pragmatic approach to dealing with the economy. I WANT environmental regulation. I don’t WANT exploitation of workers. There are all kinds of rules, regulations and codes of conduct written into our laws for a reason – because we don’t want corporate “citizens” behaving like assholes and ruining it for the rest of us. And yeah, the assholes will find ways to exploit those rules – does that mean that we should remove the rules altogether? That seems kind of silly to me.
Calouste
@Stooleo:
So what does it say about the political discource in a country that a blog where people talk about pets, wine and music half of the time is the 25th most influential political blog?
Wile E. Quixote
@AnotherBruce
Yeah, if you ignore that “putting 140,000 people into concentration camps” thing ol FDR was pretty great. Oh, and you also have to ignore his childlike trust in Josef Stalin as well. And that unfortunate “National Recovery Administration” idea, you know, the one where the government was going to resolve the depression by embarking on a massive system of cartelization and by allowing major industries to collude and fix prices. Oh, and his appointment of anti-semite to the position of assistant secretary of the visa division that handled requests for visas from European war refugees.
Please, Roosevelt was a good president but while I’m tired of ignoramuses such as Amity Shlaes revising the history of the 1930s to prove that Roosevelt did nothing to fix the Great Depression and that it all would have been OK if we’d just let the free market run its course and John Toland and the other revisionists who claim that FDR knew about Pearl Harbor but did nothing because he needed a casus belli to get us into World War II, I’m similarly tired of the “greatest president evah!” bullshit from his hagiographers.
Roosevelt’s hagiographers brush off the ugly racism of Executive Order 9066 as if it were a minor peccadillo, his appointment of the virulently anti-semitic Breckinridge Long, and the fact that Roosevelt did virtually nothing to de-segregate the armed forces, despite promising to do so. When you press Roosevelt hagiographers about this they hem and haw and either try to claim that Roosevelt didn’t want to do these things but was forced to by political exigencies or that yes, he did do all of these things but we should give him a pass because of all of the good things he did, the “Hitler built the Autobahns” defense.
When I look for greatness in a president I look for the willingness to do something regardless of its political cost, such as Harry S. Truman’s 1948 executive order desegregating the armed forces or his firing of Douglas MacArthur, which destroyed his chances of running for president in 1952. Dwight Eisenhower’s decision to support the Supreme Court by sending troops into Little Rock in 1957 and removing Orval Faubus’s control over the Arkansas National Guard by federalizing it cost him big time with the wingnuts in his own party. Lyndon Johnson’s whole-hearted and unhesitating support for the Civil Rights Act of 1964 also meets this standard. But FDR, despite all the good he did, never did a single thing that would have caused him any significant political pain.
Wile E. Quixote
@NonyNony
Yeah, this sort of thing is one of the reasons why I no longer consider myself a big L “Libertarian”. I used to argue with leftists about how fucked up Marxism/Communism was and their response, when you bought up the failings of the Soviet Union, China, North Korea, Cambodia, etc was essentially “ur doing it rong” and that everything would be better if Trotsky had been in charge instead of Stalin. I don’t know what happened but one day I was online reading a discussion thread and I realized that Libertarians were doing the same thing. You’d bring up the Gilded Age in the US as an example of what an unregulated free market would look like and they’d essentially do the same thing that the leftists did and say “ur doing it rong” or point out that the market wasn’t really completely free and that there was government intervention on the part of powerful economic interests. You’d counter this by saying “Yes, I’ll concede that point, however the amount of regulation in the market was much less than it was today, and despite that they still had all of these major problems which the market was not solving” and you’d basically be ignored or told that you didn’t get it or they’d bring up Underwriter Laboratories as an example of how the private sector could provide consumer protections and say that if we had more of this sort of thing that we wouldn’t need all of those government regulations, etc, etc, etc.
It annoyed the Hell out of me that these people, with whom I considered myself to be in ideological agreement, would point out to some failure of government regulation or the phenomena of regulatory capture and rent-seeking as being prima facie examples of the evil of government interference in the market but then if you pointed out the failure of markets to provide services such as consumer protection or protection against fraud would shit themselves blind with outrage if you said that these constituted prima facie evidence that markets needed government regulation.
Hilzoy had a great piece on the free market a few months back. I wish I had saved it. Basically she said, and I’m paraphrasing poorly, “Look, let’s suppose we have the example of a baby food company that is selling tainted food. Yes, in the ideal free market world this company would eventually be driven out of business for selling a product that sickened or killed its consumers, but could we perhaps have some government interference and require plant inspections because that seems a lot more reasonable than ending up with a bunch of dead children.”
It’s funny how the market fundamentalists cite Adam Smith but seem to have never read this paragraph from <a href=”The Wealth of Nations”
Yes, if we lived in a world where everyone was perfectly rational and behaved ethically (assuming that we could even agree on criteria of what constituted rational and ethical behavior) we could get by without government. But we don’t live in such a world, we live in a world where some people will look at the cost of behaving ethically compared to the profits that can be received by cheating and who will decide to cheat. Libertarians have come up with beautiful examples of how a free market could prevent and punish this sort of thing but have never put any of them into practice, which means that we either let people behave this way, the “some rules don’t work, therefore we should remove all rules” argument that the Libertarians make and turn the market into something resembling the Hobbesian war of all against all, or we can put up with the government.
jcricket
Old saw from my days in physics as an undergrad: “The difference between theory and practice, is that in theory, there is no difference”.
There are a lot of great Adam Smith quotes about how free markets require government regulation, and that when companies get too big and powerful free markets break down, etc.
Frankly, all Libertarianism economic theory is bunk. There can be no market without contract law. There can be no law about contracts without the implicit or explicit threat of state enforcement through the legal system. Hence all contracts (except gentleman’s agreements) are between party A, party B and the state.
So given that government needs to exist in order for the market to function, the question is how much government, where, in what ways, etc. There are, frankly, a lot of studies that say increased regulation of financial markets encourages greater investment because investors gain transparency and can therefore trust they are investing in something “real”. Just like people will buy more stuff from a company they know will support the product, or when the product has a guarantee behind it (i.e. if you suspect any given jug of milk contains melamine, you’re likely to buy less milk).
So far from “putting up with government”, companies should welcome and encourage the government to protect consumers, level the playing field for all companies (not just the big), which encourages entrepreneurship, consumerism and consumer investment.
I’d conclude that Libertarians are, therefore, fucking useless in discussing economics. Their fundamental premise is busted, much like the “government is the problem” conservatives.
Yutsano
That we’re not a bunch of uptight assholes?