Pardon me for writing a general response to Major, Sam Fisher and Uolj. You all raise good points and as I said before I'm conceding that I have no better solution and I'm not necessarily arguing for the sake of arguing but stating my own unease with the situation. I understand that yes the FDIC has existed for decades and that yes that the government has taken over failing financial institutions such as the S & L's. While those models might have worked well we are talking about a major expansion of government powers and perhaps by nature I am skeptical anytime we have a huge expansion of government powers. I can't help but compare the line of argument that you and Geitner are pushing to the line of argument that we heard from the previous administration regarding expansion of government power in all sorts of areas. The GW Bush Admin. argued that the government has carried out surveillance and seizure almost since the beginning of the country and things have generally gone well so why not in a crisis greatly expand that power though FISA and extraordinary rendition? I think there is a danger in simply accepting on the basis of trust the necessity of the expansion of government in times of crisis. You might be right and this might very well be needed but I have a hard time just accepting it on the basis of trust in Geitner, Bernanke and etc.. Let me ask this again of you who are strongly supporting this. DO you not have any reservations over this, do you not see any possibility of abuse, or any other problems?
To answer your questions directly in the very limited form of the FDIC I have no problem, insuring deposit accounts up to $200K. That said just because FDIC has worked doesn't mean that a large expansion of federal power to sieze other financial institutions is automatically a good thing.
Actually, I can't say whether I fully support it or not, I haven't looked at the details closely enough. However, at this point the general idea sounds fine to me. I'm always a little skeptical whether these kinds of things are wise or whether they will be implemented correctly, but nothing will ever get done if those possibilities stopped us. I am not in any way scared of becoming communism or even a socialist government. Anything is possible but the chances are so remote it's not even worth thinking about. This administration has actually done nothing to indicate that we'd seriously be headed in that direction. For this particular idea, I see possibility of abuse, but because it is not a major change I'm not worried about it going through. The potential for benefit seems clearly greater that the potential for harm. Still, I'm always open to new information (and seeing the actual legislation).
No, the FDIC has done more than just insure deposit accounts. Again, look at the RTC. There's your precedent for this.
The FDIC does a lot more than insure deposit accounts. I may be wrong, but I don't think there are that many companies that could be affected by this proposal, so I wouldn't call it major. My guess is that there are many more banks already under these rules and only a few major financial institutions that aren't banks that would be included as well.
One of the problems is we don't yet how many institutions these new powers will affect. Right now the talk is focussed on hedge funds and insurance companies, how many of those might be seized and what is the criteria for seizing I have yet to see a clear answer.
That's not a very appropriate line of argument - this isn't the creation of new kinds of power or expanding power to new areas, rather it's the exercise of the same power that has been exercised for years with respect to a new class of firms that have found a loophole. It would be akin to expanding wiretap laws governing landlines to cellular communications - that's not an expansion of power in the same sense to which you are comparing it (illegal wiretapping in violation of FISA). Similarly - it's actually not different from what the government is already doing now but in a much worse way. Having to cobble together last-minute preferred stock and warrant purchases at gunpoint is what the government has to do now, which essentially gives them the burdens of ownership (financially) without the corresponding benefits. Finally, you are focusing way too heavily on the failing firm aspect of it - that is the last case scenario to avoid the chaos of Chapter 11 (where a federal bankruptcy judge can decide who gets what - is that socialist too? Guess who pays his bills). The enhanced oversight, ability to borrow from the Fed, etc will be the key components.
Thank you for being open minded. As I said I have no better solutions and at the moment am trusting the Admin.. This might just be own bias as a believer in federalism but it makes me uneasy anytime I see such an expansion of federal power. Its the same reason why things like the PATRIOT Act and FISA makes me uneasy.
True, and clear answers are important. At this point, though, the proposal seems fairly limited, and the reasoning seems to be that these regulations are necessary to avoid seizure (or the current alternatives). I don't think they expect to actually take over companies at all. I think they are just trying to provide that option so that the mess with AIG doesn't repeat itself if things get that bad. The real meat of the proposal is increased oversight so things don't ever get that bad. Honestly, if this passes (and fits my current assumptions), I'd be surprised if they seized any companies in the next 10-20 years.
Except the previous Admin. used that exact same line of argument regarding expanding wire tapping powers that they were just closing a loophole on foreign communication. What that led to was the argument that warrants weren't needed for things like international call even involving Americans since it wasn't a new power but an expanded power involving a loophole on foreign telecommunication. I agree the current situation isn't good and the Geitner's proposal would certainly make things smoother and less costly. That still doesn't address concerns regarding potential abuses or other problems. Yes anytime when government steps in to run a private business that is socialist in practice but as I said we don't have a pure system and such a pure capitalistic system doesn't exist. That said I will look at court ordered restructuring and receivership as a necessary evil but I also am a little more comfortable that a court is doing it and a court has ruled on it. What Geitner is proposing though is to have the Fed or the Executive branch do that. That to me is like NSA saying that they and not the courts have the final say on wiretaps.
Except for the fact that foreign telecommunications existed when FISA was drafted......nonbank financial institutions able to inject huge levels of risk were not around back in the 1930's. Further - that wasn't a situation where new rules were proposed, that was a situatin where the Administration argued that the existing regime was inadequate and decided to secretly ignore it - that is not the situation here and it's a disingenous comparison to make. I've asked you to specifically articulate these concerns beyond the level of slogans and generalities several times - we have 70 years worth of experience to draw on in the FDIC context. When was this power abused? No it's not socialistic in practice. You're just flat wrong. Socialism is not "the government running a private business". You're as wrong as i'd be to say that anytime a law is repealed, the government is anarchistic in practice. Dude, if you are telling me that federal bankruptcy court is the best way to unwind these businesses - you have never been to federal bankruptcy court. That's why I said you should follow the Lehman bankruptcy....it is a complete disaster. There is This is simply not a civil rights issue and there's no credible basis for you for making it one. The reason being is that there are no constitional protections for worthless shares of companies that nobody wants.
So then you are saying this is a new power and not an expansion of existing power. The current Admin. is arguing that the existing regime is inadequate and is asking for expanding powers. I give them credit for not secetly doing this but to me I see this as basically being the same as when the Bush Admin. went to Congress last summer to ask for expanded FISA power. I will concede I don't have specific examples of where the FDIC has been abused but given there is quite a track record of abuses of power in various sectors of the government pardon me if I am skeptical of just relying upon trust in the government when it asks for an expansion power. In the end you are relying upon your trust in the government. Perhaps my leanings are more libertarian than you are. What do you consider socialism in practice if you think government running businesses isn't? I agree the courts are imperfect and bankruptcy court is rarely pretty that said we do have a seperation of powers and I am not comfortable with just granting more powers to the Executive and the Fed. As I said before this very well might be the best and only way to deal with these problems. I can't argue a better position but am stating my own unease. I will agree this is primarily ideological and philosophical. If you have a different ideological leaning that is fine and the current Admin, that I voted for, agrees with that. My unease may very well be unfounded and things work out, or hopefully this power never used, but my skepticism regarding greater government power is both at the heart of the founding of this country and one that has served us well.
This is just dumb. SamFisher is absolutely, positively, 100% correct on this topic. The government is not taking these entities over to hold them and run them forever. They are acting as a receiver, just like any Court appointed receiver would. This is the logical alternative to bankruptcy. A bankruptcy for one of these entities could very well be catastrophic. It is just the nature of the beast. It isn't taking things over at will. It is acting as a receiver in a situation where the entity is insolvent. You either do not understand the distinction, or you are being intentionally obtuse to SanFisher's point.
The reservations would be in the details, but the general idea has been needed for a long time. Yes, it's an expansion of government regulations - but that's because you have a new industry that didn't exist when the original regulations were created. When horse carriages became motorized cars, you had to expand regulation to cover these new vehicles. When trucks were developed, you had to expand regulation again. Same thing here. You created original regulations to manage banks. Now you have mishmashes like AIG or Lehman Brothers. You have to update the regulations to include them as well. People have been calling for this stuff for years - but the financial industry won out and prevented this kind of regulation. And that's a big part of why we're in this mess in the first place. I find it bizarre that people don't want to bail these companies out, and also don't want to change how we handle these things in the future. So basically, people are arguing that every 15-20 years, we should just have a global meltdown.
You can call it whatever you want - expanded, new - it still is incredibly different from the FISA context for a number of reasons. First, the government ends up taking power over failing massive firms in some format anyway. In the FISA context, the governmetn doesn't end up eventually listening to your telephone call anyway if it doesn't have a warrant. Second, FISA is a law enforcement power that only the governmetn can exercise - private actors can't exericise them. A private actor can exercise ownership over a failed nonbank financial institution - but nobody wants to, because it is too costly, hence the failure thereof. The government can too, but only in chapter 11 or in the hodgepodge AIG context which has proven incredibly messy - essentially the government is assuming all of the liabiilties of ownership but not obtaining the full panoply of benefits of ownership, which is a raw deal. This FISA comparison is really not compelling - the reason being that the contexts - a failed firm whose interests are equityholders and creditors and governed by contract, but which become worthless without failure vs. private citizens and constitutional protections, are too differnt. The government here is essentially throwing a life preserver to a drownign firm and its risk bearers - I don't really see the rights violation issue there where it is limited to failing firms only. There's quite a track record of abuses throughout history of everything, public and private, in every conceivable way. Getting more specific, as Major stated, there's a huge multi-trillion dollar track record of abuses in letting unregulated nonbank financials act like asshats - hence the current mess. Put this up against the FDIC/Fed Reserve record post-Depressioon. I"m pretty confident I have a better argument here. Again, I direct you to the FDIC/Fed context and the "government running businesses". Do you think that when they take over a bank, Tim Geithner goes and sits in the bank president's office, puts his feet up on the desk next to the green lampshade, and smokes cigar while Ben Bernanke heads to the vault, neatly stacks piles of $20 bills and hands out free toasters to the first 100 customers? No that's not what happens. The government basically guarantees the deposits by creating a new entity, then restructures the company and sells it or its assets off to private investors. There's very little actual management involved. But as far as what do I consider "socialism in practice" - I would call it engaging in policies with aims towards furthering the goals of the Marxist version of scientific socialism (let's leave old school utopian socialims out of this context). That involves the state taking over the means of production and operating them in the name of the people, and distributing the proceeds accordingly. That does not mean, the state taking over a firm to protect the stability of the market and the firms, creditors, counterparties, depositors, etc, restructuring it, and then selling it off to private investors. That's why I find your use of the term socialism to be ridiculous. If you view certain aspects of each out of context, sure one can make that parallel. But it's a pretty shallow comparison, and not one that should be given much credence.
LOL The implication that gets me is that the government wants to take over these institutions. the government has enough on its plate and I'm sure most of its officials would agree.
