No, it wouldn't have been fast enough. We were less than a day away from complete financial collapse of the entire global market.

The better question is why it wasn't handled far sooner. I read an article in mid 2006 that described what was going to happen EXACTLY as it did. No one was listening...they were making too much money.

CKRoberts, if you want to read some nice research on the end of the Great Depression check out Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War By Robert Higgs.

Higgs has a PhD from John Hopkins and is an economic historian.

Here is a link to the PDF version of the article. http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

"The better question is why it wasn't handled far sooner."

- the banks are making record profits, and the economy was overheating anyway.
They don't care about your hopes and/or dreams.

Well everybody and their mother has there own theory about the Great Depression and why it lasted so long. I wouldn't trust any single source as a great majority of them tend to be ideologically motivated.

I believe I said that " No one was listening...they were making too much money."

We keep saying the bailouts were absolutely necessary to avoid catastrophe.
Iceland didn't bail out bank shareholders and they are recovering nicely compared to nation's that pursued massive bailouts i.e. Greece, Portugal, Ireland.

http://www.theglobeandmail.com/report-on-business/international-news/global-exchange/globe-correspondents/icelands-no-bailout-stance-hasnt-chilled-investors/article2060163/

http://www.telegraph.co.uk/finance/financialcrisis/8187476/Iceland-offers-risky-temptation-for-Ireland-as-recession-ends.html

I believe I said "the banks ARE making record profits."
Presently.

I have a lot more diplo $D, you should listen carefully.

It's a bit of an apples and oranges comparison and it is conflating two very separate issues. The AIG bailout was necessary because of the wide use of credit default swaps (CDS)which is a relatively new financial instrument that banks used to cover risk...a hedge. A form of insurance but utterly unregulated. The use of this type of instrument allowed banks to become incredibly over-leveraged because on their balance sheets they were covered by these CDS's. The way it works is simple. Let's say a bank makes a risky, but, as a result, very profitable, investment. The risk is defered by paying a third party a fee for their promise to cover the value of the investment if it goes bad. The problem is that CDS's were unregulated in that the party offering the CDS had NO capital requirements (as does EVERY other form of insurance) to cover the value of the CDS. AIG was the third party for a vast amount of these CDS's. When the financial system started to implode and these bad risks (read sub-prime mortgages bundled with other mortgages in other financial instrument called Collateralized debt obligations or CDO's that were so byzantine in construction that it became impossible to determine their value..a big problem) suddenly all of these credit default swaps came due. If these CDS's were not honored suddenly the bank balance sheets are suddenly in the red...in this case, the world over..in other words world wide bank failure. Credit freezes up completely businesses can't run, can't pay employees, grocery stores can't buy food...ect ect. We were 24 hours away from just that.
As far as Greece, Portugal, Ireland ect. The sovereign funds of those countries were severely exposed and, coupled with the economic slow down, forced the interest rates of their bonds higher and higher to where they could/can no longer cover their debts.
The problem with your proposition is that it is an emotional reaction to the idea of a "bailout". Quite understandable but not very useful in plumbing the depths of what actually has happened.

NOPE.

and, just for the record, I think these banks and the people who run them are, for the most part, rapacious bastards. I remember reading a quote from a CEO from one of the large investment banks (I can't remember who) who said "To be a successful investment banker you have to enjoy pulling the wings off of flies"

TARP was perhaps the most despicable piece of legislation ever enacted and forced onto the American people. The only "good" thing about the bailouts were that they vividly demonstrated to the entire world that the American federal government is not democratic or representative of its people at all; rather, when the push comes to shove, it is always the special interests who actually influence the government. Calls and emails to representatives against tarp were coming in by the thousands (even slowing down congressional websites), but after the first failure of tarp in the house, the big banks and lobbyists made the calls---and tarp passed.

The bailouts didn't solve "too big to fail"---too big to fail has gotten far worse since then. The largest SIX banks have assets that are equivalent to SIXTY percent of the GDP of the United States. The bailouts weren't even really used for what they were intended for---at the end of the day, they literally were just money thrown at the banks which the banks could use for whatever they wanted. And what happened? The big banks took over smaller banks and got even bigger. So what happens if another financial crisis or run on the banks occurs---no one is really willing to answer that question.

The Fed guaranteed customers of money market funds after the bailouts were passed, and this likely would have been enough to calm the markets. The entire idea of a "frozen credit market" were false----lending had not collapsed during the crisis. Furthermore, even after the potential bankruptcy of some of the largest American banks, the ratio of lenders to borrowers would likely have remained the same---some of the "middlemen" would have been gone. The bailouts were used to hand out money to allow the largest banks to survive (Hank Paulson and Goldman Sachs---conflict of interest?) as well as some of the most politically-connected companies (auto companies/UAW).

In 2008, if the government were hell-bent on spending bailout money to begin with (not necessarily endorsing this, but just pointing it out), for chrissake give it to the people who were losing their jobs, their incomes, and their homes. Don't give it to the big banks, who were the ones really at fault. And with the massive monetary expansion of the Federal Reserve during the crisis and later (QE & QE2), the American taxpayers will still be on the hook for the big banks and Wall Street with inflation and potential hyperinflation.

The banks were definitely at fault and acted like shameless bastards. But lending had slowed to a trickle and would have collapsed. I would have much rather it gone to people losing jobs ect.....but there was not enough time. The fact that it went to the worse people is not mutually exclusive to the fact that it was necessary at the time and it certainly, by no means, fixed anything. The house of cards remains to be blown over by the next wind the comes our way (read european debt crisis) but it does change the fact that the LIBOR rate was rising to unprecedented levels in mid to late 2008, credit was freezing, it had already disrupted shipping world wide and was getting worse...but statements like "TARP was perhaps the most despicable piece of legislation ever enacted and forced onto the American people" is not an argument and never will be. I don't know why people keep thinking that it is.

does not change*

First off, people should listen to greysoni because everything he is saying is 100% true, and his description of the necessity of the AIG bailout was spot-on. Without the AIG bailout, millions would have lost even more money as the big 4 investment banks would have sustained serious losses or gone under. And its not just the ultra-rich who have a stake in these investment banks, but the mutual funds of almost every state pensioner in the country are through these four firms, as well as countless other private pension funds.

Now, to address everyone

@fiedler - we're developing rail guns to put on our aircraft carriers to help our Aegis class cruisers shoot down the ICBM's, so even though I know you were being sarcastic, they are a legitimate threat to our carrier fleet, much larger than the submarine fleet.

@Draug - though they say Social Security will go "bankrupt" in 20 years or so, what that really means is they'll pay 75% of benefits instead of 100%, and that's without reforms either. But its a tax that every person will reap the benefits of later in life. Idk what exactly the payout is, but I think its somewhere around $1,000 a month, which to me sounds like a pretty good deal.

@Bob +1 to that. The Graham-Leach-Bliley Act should be reversed and Glass-Steagall reinstalled. They wanted to let American banks compete with major European banks who dealt in both areas, such as Credit Suisse and Deutsche Bank, but I think its a horrible idea.

@Spyman - its all about balance. A perfect example is China. With no social safety net, Chinese citizens are saving a lot, but this is dampening domestic demand, actually weakening the economy, making it more vulnerable to external shocks to credit markets, foreign exchange markets, and export demand. The US is on the other side of the spectrum, as we need to be saving more than our current dismal savings rate.

@redsox - I agree with about every other thing you say. TARP is what saved our financial system, so frankly I don't care if thousands of uninformed people called in against it. Most likely these people didn't know how our financial system worked. And maybe consumer credit markets didn't freeze, but the inter-bank loan market sure as hell did, and once that goes down, the entire financial system comes crashing down around it moments later.

But I do agree that there was a lot of mismanagement of TARP, that there were significant conflicts of interest within many positions of government of officials who used to work for banks and such (this is a real sticking point for me, and I wish to hell that those people would get out of government) and I do agree that the to-big-to-fail problem worsened after the crisis.

And I believe someone raised the question about the great depression. A few things worsened it: First off, the government raised taxes instead of lowering them or providing a stimulus. Secondly, the government did little to protect banks from further losses, leading to a further banking crisis. And third, the Fed wanted to "punish" those who speculated on the stock market (not realizing the extent of the crisis) and didn't conduct and monetary policy immediately aimed at alleviating the crisis. Money supply went through a huge contraction in the M1 and M2. There are other reasons for sure, but those are some main ones.

so what''s this thread about then?

The commercial banks were lobbying mightily from the 60s onward for repelling of Glass-Steagal, since they wanted to compete with the money market funds that were ruling supreme in the capital markets. DIDMCA and Garn-St.Germain did the same to S&Ls as reinterpretation of Glass-Steagal and GLB did to banking. S&Ls could then engage 10 % of their assets on capital markets and pay unlimited interest rates on the deposits. A S&L implicitly has a very dangerous structure of the balance sheet, since it borrows short-term from depositors and lends long-term on mortgages. The deregulation amplified this problem by rising the interest rates via competition and aloowing the S&Ls to engage in riskier investment. The sector skyrocketed in teh early 80s thanks to construction sector boost and busted when the bubble bursted. That should ring a bell.

The rise of too-big-to-fall started in 1994 when Riegle-Neal overruled McFadden and the banks could easily branch out across the union. By that time, Glass-Steagal was so emasculated by constant reinterpretation of Greenspan's FED (the amount of possible gross revenues derived from investment banking was 25 % for commercial banks in 1996) that no one took it seriously. When Travelers and Citicorp merged into Citigroup, the biggest commercial/investment/insurance financial corporation in the world, they gave a shit about such blatant breaking of Glass-Steagal because they knew there would be no punishment and there was wasn't since GLB was passed in 1999.

While CDS might serve as an insurance of sorts, the majority of them before the crisis were naked CDS, where you bet on the creditworthiness of entities you have zero stake in. That's no an insurance, that's a bet that your neighbour's barn would burn down. Lehman Brothers was a big issuer of CDS and when they went under, a huge counterparty risk loomed over the market. When even your "insurer" isn't stable, you have no way to eliminate your risk exposition.

There were other sources of counterparty risk as well and together they led to the freeze of the markets, since no one wanted to risk engaging in a contract with a soon-to-fall institution. This cut off financing to banks since they leisurely went on REPO markets for short-term financing to finance their long-term investments. Even the more prudent bank managers has to ramp up enough leverage since, as Charles Prince put it "When the music stops, in terms of liquidity, things will be complicated. But, as long as the music is playing, you've got to get up and dance. We're still dancing." And there sure were liquidity problems once the musice stopped playing.

http://www.youtube.com/watch?v=TdJbMt2Mocg&feature=share

I'm in kind of a hurry, so I hate to be short with this pretty interesting conversation, but I'm glad that everyone seems to be recognizing what the original discussion was getting at. Some of you think this big government action like the bailouts et cetera was necessary, and that's a thing that I don't know that we can come to an agreement on. But there are obvious moral hazards in this or any other time that government gets involved in society, the economy, or military action. Everyone seems to recognize this fact. Us libertarians and libertarian leaners say that those problems as the most important to be concerned about. I personally am simply not convinced that the risk to the economy out in foreign affairs justifies what the American government has done and is doing. A lot of people agree with me at least to some extent.

Glass Steagal had nothing to do with the financial crisis. I don't know why so much attention is paid to it. Most of the institutions affected by the financial crisis were not Commercial-Investment hybrids. G-S had nothing to do with derivatives, etc.

@goldfinger - 1000 a month doesn't cover my monthly ongoing expenses (food, gas, electric, gas, insurance, fuel for the car, cellphone, cable, etc.) so how is it a good thing that they take money i could invest myself and give me back a pittance for 20 or 30 years? Seriously. The money they take could be put into my IRAs and make a lot more. And why the fuck am I limited omit how much a year I can save? No, the government doesn't have a clue how people can and will save if they're allowed to.

"so how is it a good thing that they take money i could invest myself and give me back a pittance for 20 or 30 years?"

Social Security has resulted in elderly poverty being negligible despite the financial crisis and anything else. The age group with the lowest poverty rate is the elderly. That's because of Social Security. We models of privatized social security scams and they're all terrible failures. Look at Australia's superannuation scam.

http://www.youtube.com/watch?v=gqqG4LJ8cjo

The repeal of the Glass-Steagall act placed the deposits of ordinary Americans at risk as it allowed commercial banks to take the same risks as investment banks hence the reason so many commercial banks failed after the 2008 crash. Their were many small community banks that did not suffer in that climate precisely because they did not take those risk despite their ability to do so. Granted the FDIC was their to pick up the pieces and it is fortunate that the FDIC did not run out of money. I am not sure if they received addition funds during the crisis. The repeal DID broaden the effects of the crisis and created greater systemic risk. Not a cause per se but a contributing factor.

OK, Putin, do you agree that the primary direct cause of the 2007-08 financial crisis was the non-performing housing debt being tranched off into AAA bonds?

Sure the bond raters lost their objectivity, but the overall problem was that collaterized debt obligations in general involved a bunch of complicated shenanigans that amounted to little more than balance sheet manipulation. So it a problem broader than housing, I would say, although certainly mortgage backed securities were popular. I mean AIG sold insurance on stuff that was absolutely worthless, and then when it all came crashing down they were SOL. Basing your entire business on short-term financing (as most investment banks did) with debt instruments = recipe for disaster when liquidity dries up.

" hence the reason so many commercial banks failed after the 2008 crash. "

I'm not aware of large commercial banks failing during this crash. Plenty of investment banks, but not so much with commercial banks. From my recollection JP Morgan actually did quite well out of it. So did Bank of America.

I could be wrong.

"Iceland didn't bail out bank shareholders and they are recovering nicely compared to nation's that pursued massive bailouts"

Why do you keep distorting the truth about this. Iceland was bailed out by IMF. Iceland is also a tiny country whose population is smaller than most US cities.

I don't know where Iceland was mentioned, but Putin is right. The banks in Iceland had loaned out a larger sum of money than the nation's GDP and when they went under, the entire nation almost lost their savings.

And Putin is also right with respect to the fact that major commercial banks that didn't tread into investment banking (there aren't that many of these) didn't face substantial losses. The losses BoA and JPM sustained were losses from the institutions that they took over.