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Letters to the Editor

Let them fail

February 21, 2009

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To the editor:

How about some good, old-fashioned failure? Instead of rewarding banks that make imprudent loans, car company execs who can’t seem to get it right and consumers who knowingly take out loans they can’t afford, why not let them all fail?

Banks that have made prudent loans will buy the failed banks and profitable car companies will buy the failed ones for pennies on the dollar. Homeowners who entered into loans they couldn’t afford can renegotiate with the new bank owners or avail themselves of the bankruptcy system.

This doesn’t mean all workers will lose their jobs. The failed businesses will surely be reorganized and it does mean that bad execs will be gone, but someone still has to write good mortgages and assemble cars consumers want to buy.

The stimulus plan may or may not work, who knows? But it’s certain we’re saddling future generations with huge debt on a bet, huge debt that in the end may only temporarily prop up failed businesses that will ultimately fail again.

Doug Wahl,
Lawrence

Comments

Richard Heckler 5 years, 10 months ago

We're tired of being ripped off by shrewd bank executives and their political counterparts!

We know that President Obama is hearing from Wall Street. We know that he is hearing from the financial 'wizards' and the lobbyists who helped wreck our economy in the first place. And we know that he's hearing from the inside-the-beltway Democrats who are terrified of the "N" word - nationalize.

As part of our effort to help President Obama "do the right thing" CommonDreams.org has just launched a petition to President Obama urging him to nationalize the insolvent banks.

Sign here...

http://www.commondreams.org/further/president-obama-its-time-nationalize-insolvent-banks

Richard Heckler 5 years, 10 months ago

I say do away with the upper level management executives, saving the lower level jobs,spinning off whatever recent bank purchases,cutting management pay to practical levels and no more outrageous stock options and golden parachutes.

Then go for it.

jafs 5 years, 10 months ago

Unfortunately, with the scale of the problems with banks, etc. there's no guarantee that letting them fail wouldn't mean massive unemployment.

There may not be enough prudent banks who want to buy other ones, or car companies, etc.

If there were a way to ensure that those who are responsible would suffer, and those who were just working at lower levels wouldn't, I'd be all for letting them fail.

jafs 5 years, 10 months ago

What's wrong with merrill's suggestions?

Flap Doodle 5 years, 10 months ago

I saw the title and thought this was about the Barry, Biden & Burris show. Never mind.

independent_rebel 5 years, 10 months ago

If Andrew Jackson were alive today, he punch Richard Heckler right in th nose.

Nationalize the banks? The USA is doomed.

gl0ck0wn3r 5 years, 10 months ago

"Richard 'Give me your money' Heckler (Anonymous) says… I say do away with the upper level management executives,saving the lower level jobs,spinning off whatever recent bank purchases,cutting management pay to practical levels and no more outrageous stock options and golden parachutes."

I've yet to get an answer from anyone who suggests similar things, but I'll try again. Richard, based upon your extensive lawnmowing experience, could you define "practical level" as it relates to management pay? What measurement would be used to determine a "practical level?" Further, how do you define an "outrageous stock option" in regard to a regular stock option plan? Lastly, how do you define - exactly - a golden parachute? In turn, what is fair retirement compensation and how would you determine it?

It seems to me that the LTE is looking at one side of the problem. If he is willing to let the banks fail, why not let the people who knowingly purchased homes they could not afford fail as well? Why should people who have played by the rules be penalized because others were too immature to act like financially responsible adults?

lucky_guy 5 years, 10 months ago

The problem here is the old "Us vs Them" problem. Remember the old POGO cartoon. "We have met the enemy and he is us". We all took part in the ride up. A bank failure is a problem for everyone, remember they only have to actually have a small percentage of their money on hand (20% I think). The rest is invested (gone). If the investments are bad the gov or stockholders (your 401K) get the shaft. There is no "Them" anymore, it is all "US".
Another thing "reorganization" is "nationalization" at this point. All the big bucks in the private sector are gone or locked up or someone would be buying all the bad banks now. Everybody is waiting for the gov to sort out the toxic from the good assest loans, until that happens and some kind of sell off occurs, ain't nobody in the private sector gonna do nothin'.

kneejerkreaction 5 years, 10 months ago

Glock, I think homeowners were included in the group to let fail.

I would agree, let the homeowners fail too, that is, if they can't renegotiate with good banks.

Unfortunately, this LTE scenario was not even considered. If we trust in the Free Market system when it is good, shouldn't we trust in it when it is bad?

Want to know how much a trillion dollars is? If you spent $1,000 every MINUTE from the time Christ was crucified up to now, that would equal a trillion dollars.

Shouldn't we have taken a bit more time? Bush rushed into his spending package and had NOTHING to show for it.

Why do they think it will be any different this time?

camper 5 years, 10 months ago

They definitely deserve to fail. I also don't mind seeing the fat cats (those who generally spend their time at the country club and don't really do any work other than watching there investments....but still consider themselves superior) lose their shirts.

But unfortunately, if the banks fail, there will be a ripple effect, and everyone (including the blameless) will be hurt. This will also undoubtedly add to a world crisis. I sometimes forget, but it is helpful to remember some of the contributory factors that led to WWII. The depression was one of them (especially in creating social unrest in Germany). We should all be concerned about how this crisis can impact the the world.

I'm not totally against letting them fail though. If we do, I'm going to make sure I have enough fishing tackle and enough gas money to drive South where it is warmer and you could live outside.

Chris Ogle 5 years, 10 months ago

merril says- We're tired of being ripped off by shrewd bank executives and their political counterparts!.... nationalize the insolvent banks


you know, kinda like social security.... which should be named motivation to work longer.

US home loan act.... 75 yrs @ 1/4%..... Tax on loan... 85%...welcome home Merrill

Sigmund 5 years, 10 months ago

Let the bad banks (and lawnmowing services) fail. The better ones survive and they, and we, will be better off for it.

gl0ck0wn3r 5 years, 10 months ago

"hawkperchedatriverfront (Anonymous) says… I would propose Nationalization of Lawn Mowing Services."

Especially since most lawn mowers aren't green. Professional lawn mowing services add quite a bit to the carbon footprint!!1

Sigmund 5 years, 10 months ago

gl0ck0wn3r (Anonymous) says… “hawkperchedatriverfront (Anonymous) says… I would propose Nationalization of Lawn Mowing Services.” Especially since most lawn mowers aren't green. Professional lawn mowing services add quite a bit to the carbon footprint!!1"

Let's also not forget that many lawn and tree services do not pay their employees living wages and/or pay them "off the books" so as to avoid paying employer portion of federal taxes which cheats us all.

Chris Ogle 5 years, 10 months ago

"Especially since most lawn mowers aren't green"

My MTD mower is. . The neighbors made fun of my MTD because it wasn't a John Deere, so I painted it green and named it Jill Doe. Works great for a bug fogger too.

Al Gore would be pissed, but I feel safe. He probably doesn't know how to start it, so the whole carbon thing would look pretty darn good to him.... He invented the internet, you know.

camper 5 years, 10 months ago

I also wonder if the bad banks do fail, what kind of stress will this put on the FDIC. Are they secure enough to prevent a run on banks? Or would this bank failure create the need to bail out the FDIC.....to prevent our bank accounts from vanishing.

purplesage 5 years, 10 months ago

The Pres adheres to Kenseyan economic theory. That guy believed Americans are not smart enough to govern themselves. So much for the Constitution. The Obama administration is, at the core, elitist, and thinks it can do for us better than we can for ourselves. That includes government running banks and industry. Our lives and the extent of our liberty as Americans is at risk. This is not government of, by and for the people.

Chris Ogle 5 years, 10 months ago

hey hawk- did you mean horse doovers? I'm In!!

Chris Ogle 5 years, 10 months ago

Hawk- .... invite merrill, he cut the horse doovers in half, and paste them to the plate.

camper 5 years, 10 months ago

Purple. I hear what you are saying, and are correct. However, I believe that we need a balance between individual efforts and collective efforts. I placed my bet (or vote) on thought that President Obama understands this....and I trust he does.

Joint ventures between the government and business can prove to combine resources that would otherwise be unable too. I believe that Keynesian & Free Market economic principals both have merit.....but I lean more toward Keynes in time of recession.....Free Market in good times.

kneejerkreaction 5 years, 10 months ago

Camper,

If you believe in Free Market in good times, why wouldn't you believe in Free Market in bad times?

kneejerkreaction 5 years, 10 months ago

The government owning businesses that are vital to our economy is tantamount to socialism if not communism.

Have you ever known the government to be efficient?

UPS & FedEx are Free Market delivery companies. Would you like the US Post OFfice to take over these two companies? If that happens, you won't be able to track your package anymore, rates will be raised at will and hours of operation restricted. Please.

This country was built on the Free Market system. It works. It'll fix itself, maybe with A LITTLE help from the Fed. Gov. But democrats are already saying that if this stimulus doesn't work, it just wasn't big enough. HUH?!?

How the heck do you come up with that logic?

camper 5 years, 10 months ago

Kneejerkreaction. It is not that I don't believe in it, it is just that during times of severe economic recession (or depression) it is not quite strong enough.

I also have to believe in it because Keynesian economics does not work unless governmental incvestment goes into and multiplies within the Free Market. If this investment is doing nothing more than creating governmental beaurocracy then this is no good.....and I can agree that this has certainly happened in the past. I hope Obama can prevent this.

kneejerkreaction 5 years, 10 months ago

Maybe FEMA could nationalize a few banks and run them.....right into the dirt.

kneejerkreaction 5 years, 10 months ago

Camper, a little help, sure, but a TRILLION dollars is too much. The more I hear about the real estate bailout the more I am wondering, "just how on earth are homeowners going to get this money and WHO is it really for".

This 1,000-page plan was chock full of pork and pet projects like a rail system from Las Vegas to Disney World for Harry Reid of Nevada.

If that was such a good idea, private investors would have already done it.

This plan just doesn't make sense.

just_another_bozo_on_this_bus 5 years, 10 months ago

"UPS & FedEx are Free Market delivery companies. Would you like the US Post OFfice to take over these two companies? If that happens, you won't be able to track your package anymore, rates will be raised at will and hours of operation restricted. Please."

The US Post Office is a different animal from UPS and Fedex, with different missions and reasons for existence. If you don't believe me, try to get UPS to deliver a letter for less than 50 cents.

BTW, speaking as someone who has seen the inner workings of UPS up close, it's just not true that they are a model of efficiency and organization. I can tell you that like most big organizations, the left hand regularly doesn't know what the right hand is doing, and they have way more than two hands.

Primarily what makes them go is that their mostly unionized work force works their asses off.

kneejerkreaction 5 years, 10 months ago

I'll tell you who makes the most sense about this mess when you hear him talk, Mitt Romney. He knows politics and he knows business.

He sounds a lot better as a commentator as when he was a talking head running for nomination.

just_another_bozo_on_this_bus 5 years, 10 months ago

The problem with "just letting them fail," is that that will likely have a domino effect, and what were once considered "good assets" would become "toxic assets." And that would likely include almost every mortgage held by anybody that has more than 20 years of payments left on a 30-year note.

camper 5 years, 10 months ago

Kneejerkreaction. I agree with you on your points. I think I heard the other day about an economic calculator that determines how much investment (public & private) is necessary to maintain a flat GNP. I don't know if this would be helpful in determining how much government stmulus is needed....but it was an interesting clip.

kneejerkreaction 5 years, 10 months ago

just_another,

I was referring to packages and with all the inefficiency at UPS & FedEx, they are light years ahead of the US Post Office. I ship a lot and USPO is a disaster.

And, FYI, UPS, FedEx & DHL regularly deliver letters for less than 50 cents. They box them up and deliver them to businesses like Mail Boxes & More in countries all over the world, like Panama that have no Postal Delivery.

kneejerkreaction 5 years, 10 months ago

just-another,

If the asset were good, it will remain good even if the institution that was holding it goes belly up. "Toxic" assets would not be a measure of the free market value of the failed institution.

The purchase of said Failed Institution would be a pennies on the dollar deal and the resulting savngs could be used to refinance the toxic assets or bad loans into good loans. The really bad ones would be forfeited under foreclosoure.

Unfortunately, this approach, this MUCH cheaper approach was not considered.

kneejerkreaction 5 years, 10 months ago

In the case above, the Federal Government could have helped out by sending leagues of accountants into failed banks and make two paper piles - one for good loans and one for bad loans.

John Hamm 5 years, 10 months ago

Let it all fail. Pick up the pieces of what's left.

Chris Ogle 5 years, 10 months ago

just_another_bozo_on_this_bus (Anonymous) says…

“The problem with “just letting them fail,” is that that will likely have a domino effect, and what were once considered “good assets” would become “toxic assets.””

Hi Bozo- tried to sell your house lately?

just_another_bozo_on_this_bus 5 years, 10 months ago

"And, fyi, ups, FedEx & DHL regularly deliver letters for less than 50 cents. They box them up and deliver them to businesses like Mail Boxes & More in countries all over the world, like Panama that have no Postal Delivery."

Hardly the same thing as what the PO does. What you are describing is no different from what UPS/DHL/Fedex do on any of their other packages. Once these bundles get to their "final" destination, there is no delivery to the door. Whoever the final addressee is will have to go pick up their own piece of mail.

just_another_bozo_on_this_bus 5 years, 10 months ago

"Letting the failing banks fail and the successful ones buy up the assets for pennies on the dollar will increase the market share of, and reward, the successful institutions. Since they got the assets for a cheap price they'll be in a better position to weather the storm."

That's a very optimistic scenario. The unfortunately more likely scenario is that following the laissez faire path you suggest would lead to an extreme deflationary cycle, and nearly everyone with a mortgage would end up being upside down. The effect would be that no one would be able to sell their house outright, because they'd be stuck with a large outstanding balance with the mortgage holder. If you wanted get rid of your house, all you could do is find someone you could barter with, and hope the various banks involved went along with exchanging notes and noteholders.

As much as fundy capitalists like to fantasize otherwise, the financial/monetary system is merely an abstraction. Because of the deregulatory hysteria of the last 30 years or so, that abstraction is no longer even remotely anchored to the real economy, which is merely the production and distribution of goods and services. Until some minimal connection between the two is restored, pretty much all bets are off about where the economy is headed.

just_another_bozo_on_this_bus 5 years, 10 months ago

"Hi Bozo- tried to sell your house lately?"

Exactly my point, xbusguy. Just letting the banks fail would likely lead to a situation where most people just can't.

Chris Ogle 5 years, 10 months ago

"Exactly my point, xbusguy"


Not quite Bozo- Not being able to sell is a " current event", not a what if statement.
Hey things could be worse... at least you (hopefully)don't own BOA Stock at 15.00 like I do.

just_another_bozo_on_this_bus 5 years, 10 months ago

"This statement tells me that you have no idea what the free market position is. We've been lamenting that our monetary system isn't tied to anything real ever since FDR took us off the gold standard."

Pegging the monetary system to gold wouldn't make it any less abstract. You can't eat gold, you can't build a house with it, you can't drive it across town. It's just a slightly different form of abstraction.

"Deflation is a symptom of the problem, not the actual problem itself."

By definition, any symptom has an underlying cause. If someone gets shot in the head, those symptoms have to be treated, or the patient will die. Assuming the patient survives, it would be wise for their longevity's sake to avoid getting shot again.

Likewise, while deflation is certainly a symptom of underlying causes, if it's not treated, the patient (as in us) very well may die before the underlying causes can ever be addressed.

"We need to purge the economy of the overpriced assets before we can get well again."

Right now, nearly anybody who owns a house has an overpriced asset. Even if we all could "purge ourselves" of those assets, to whom would we purge them? Would we purge them at below the amount of the mortgages on them? If so, who would eat that loss, the homeowners, or the banks? And once you purge yourself of that asset, where would you live?

just_another_bozo_on_this_bus 5 years, 10 months ago

"Not quite Bozo- Not being able to sell is a ” current event”, not a what if statement."

True enough-- but if the financial system completes its total collapse, that current event becomes a permanent condition. And probably much worse. Millions, and not just those with sub-prime loans, will be unable to make their mortgage payments. Banks will begin widespread foreclosures, and since there will be no one who can afford to buy them for an amount that covers the debt, that debt will crush them out of existence.

So where do those houses go? Most likely they'll get bought up at fire sale prices by the only ones who have any money left. And who would that be? Likely those that profited most from the pyramid scams that created this mess, and the wealthiest of the wealthy get just a little bit wealthier, and the rest of us become part of the new American version of the Third World.

"Hey things could be worse… at least you (hopefully)don't own BOA Stock at 15.00 like I do."

Well, who knows, maybe BOA will end up being one of the big winners out of this.

just_another_bozo_on_this_bus 5 years, 10 months ago

This comment was removed by the site staff for violation of the usage agreement.

Newell_Post 5 years, 10 months ago

Even modern Keynesians forget that Keynes said that government must operate at an economic surplus in good economic times so that they have the reserves to spend in poor economic times to even out the boom-and-bust economic cycles. Politicians of all parties embraced Keynesian deficit spending to fund their favorite programs, and then never managed to get back to balanced budgets on any sustained basis.

just_another_bozo_on_this_bus 5 years, 10 months ago

While the phenomena of credit expansion and creating money out of thin air are quite real, as the current economic meltdown amply demonstrates, the notion that the use of gold will somehow prevent that is nothing but an assertion and an article of faith.


http://www.coinlink.com/Articles/top-ten/the-top-ten-largest-gold-reserves-in-bullion/

"The largest gold holdings in tonnes as reported by the World Gold Council

Gold reserves (or gold holdings) are held by central banks as a store of value. The top 10 Central Bank reserves total 26,014.4 tonnes, or in excess of 836,362,960 troy ounces, equal to about 836.4 Billion dollars.

As one metric tonne equals 1,000 kilograms (or 32,150 troy ounces), one tonne of gold equates to a value of US$32.15 million as of March 2008 ($1,000/troy ounces). In 2001, it was estimated that the total amount of gold ever mined equaled only 145,000 tonnes, with a total value at today’s prices of some US$4.66 trillion.

For comparison, the entire global market capitalization for all stock markets was US$43.6 trillion in March 2006."

In other words, if all the gold ever mined (and only a small fraction of that is available as backing for currency,) were divvied up among the world's population, we'd all have less than $800 in gold.

Obviously, a modern economy can't run on that amount of "currency." No government backing their currency with gold could stand even a minor run on its gold reserves, meaning that for their currency to have any "value" would require almost the same faith in the abstraction and the government backing it that we currently have.

just_another_bozo_on_this_bus 5 years, 10 months ago

" But overall regulation has grown, and the biggest growth in regulations and spending happened in these two areas:

1 “homeland security”

You'll get no argument from me that most of the buildup of "homeland security" should never have taken place.

"#2 Banking and Finance—the amount of regulation here has tripled over the last 30 years. So much for the idea that it was deregulation that caused our currect economic problem."

There may very well have been an increase in the gross number of regulations, most of which were rather minor with very narrow focus, but it's the deregulatory behemoths that have directly created the problems we experiencing-- namely, it's the repeal of the Glass-Stegall act that opened the door for the securitization of mortgage debt that has us where we are today.

just_another_bozo_on_this_bus 5 years, 10 months ago

Give me friggin break. An article written by Phil Gramm as some sort of proof that the idiocy of his Gramm-Leach-Bliley Act didn't directly lead to the economic collapse we are now experiencing has all the believability of a murderer proclaiming his innocence while they put a noose around his neck.

just_another_bozo_on_this_bus 5 years, 10 months ago

BTW, there isn't a single firm on Wall Street that's "diversified" enough to survive the meltdown if it continues unabated.

http://www.pbs.org/wgbh/pages/frontline/meltdown/view/

livetocook 5 years, 10 months ago

This comment was removed by the site staff for violation of the usage agreement.

VTHawk 5 years, 10 months ago

HawkPerched: UPS and FedEx don't deliver to your mailbox because the Federal Government doesn't allow it. FedEx does, however, deliver the USPS' packages to Post Offices. That is why you see the FedEx box outside of the post office. The USPS isn't even efficient enough to deliver its own mail without a private company stepping in.

just_another_bozo_on_this_bus 5 years, 10 months ago

"Anyone that gets his news from motherjones is a loon!"

Did you read the article, mike? Is there anything in there that's factually incorrect?

(not expecting an answer, since it's readily apparent you don't read much of anything, especially if it conflicts with your sacred ideology of superpatriotic warmongering.)

just_another_bozo_on_this_bus 5 years, 10 months ago

"The USPS isn't even efficient enough to deliver its own mail without a private company stepping in."

Had any luck getting Fedex to deliver a letter for less than 50 cents, VT?

Poon 5 years, 10 months ago

Sven Erik Alsrom (parrotuya) says…

Nationalize the banks and pay the top brass minimum wage. Make “disreality” show out of it, too. That will show them!

After all, they will get some nice tax cuts!

More and bigger tax cuts!

More and bigger tax cuts!

More and bigger tax cuts!

More and bigger tax cuts!

Poon 5 years, 10 months ago

Sven Erik Alstrom (parrotuya) says…

GOP ideas:

  1. More tax cuts!
  2. Even more tax cuts!
  3. More and bigger tax cuts!!
  4. More and bigger tax cuts for the wealthy!
  5. More de-regulation!
  6. More talking points!
  7. More tax cuts!
  8. Even more tax cuts… 1,999,999. Yet more tax cuts and de-regulation!

feeble 5 years, 10 months ago

10% of employment in Omaha, NE and Souix Falls, SD is in the financial sector. Other midwest cities, from Indianapolis to Cincinnati to Dallas also have significant portions of their local jobs market made up by the financial sector. The economic stress of failing banks will be felt across the nation, far moreso in many midwestern areas than in NYC or LA.

The real trick is to make these institutions smaller and leaner, so that they can be allowed to fail for poor or risky business strategies. Most regional sized banks are doing fine.

The_Sandwichman 5 years, 10 months ago

This is why the banks cant fail:

If a bank failed then the FDIC would have to pay all the depositors of that bank for what they lost. The government can't afford to do that. If a bunch of banks failed, yes some would be bought out, but some would not.

Also, if a bank knows that your bank failed and you might lose money if you don't make them your bank the interest rates will screw you more than you already are. Also, if a bank has fails due to a bunch of bad loans, then how is their competitor that buys them out going to collect money?

Poon 5 years, 10 months ago

Yay!!!!!!!!! Poon gets a Tax Cut!

Sven gets a tax cut!

Sven and Poon gonna stimulate the economy!!!

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