Comment & Debate
Tracy Corrigan. “Obama’s bank tax will only work if there’s a master plan in place.” Telegraph. January 14, 2010: “In the case of the UK, it now appears highly probable that the Government will eventually recover all the money it injected into individual banks. That is hardly the point. The cost of the banking crisis was much greater than these capital injections. Just look at the size of the national debt.”
Peter Cohan. “Why Obama’s $90 Billion Bank Tax Is Fair Play” Daily Finance. January 17, 2010:z “When the Securitization Factory Broke Down
Although we don’t have a compete explanation of what caused the financial crisis, we know that its core problem was securitization — bundling loans into securities based on those loans’ cash flow and selling the securities to investors.
Wall Street built and operated this securitization factory. And when it ran out of the original raw material it was using — mortgages from people who had a good chance of repaying — it started pushing mortgages onto people who had no chance of repaying. Then Wall Street borrowed around $30 for every $1 of capital used to fuel this factory. When those loans indeed weren’t repaid, the securities became toxic. And we all know what happened next.
The cost of securitization gone toxic is staggering: $30 trillion in 2008 global stock market losses, record foreclosures of 2.8 million in 2009, 27 million people underemployed, 10% unemployment, a government bailout that could hit $23.7 trillion, and the public’s indignation at watching the very bankers who caused all this pain pay themselves record bonuses just a year later.”
Chris Beam. “Bank Shot.” Slate. January 14, 2010: “For starters, because they helped cause the crisis in the first place—an original sin that somewhat devalues the collective cry of Wall Street. Second, because the bailout is a lot more than just TARP. If the bailout consisted of merely the $700 billion lent to financial institutions, the banks might have a stronger case. But the bailout was more than that: It was the FDIC guaranteeing bank debt. It was the government rescue of money-market funds. It was the Federal Reserve restarting the securitization market. It was the backstop of the commercial paper program. Taxpayers assumed a huge amount of risk through these programs, and the banks profited. Third, because this is how TARP was supposed to work: The legislation that created it, the Emergency Economic Stabilization Act, stipulates that the financial industry has to pay back all the money it owes. It just didn’t specify how.”