These companies share holders were wiped out. That's exactly what happens with other businesses in bankruptcy. Well, other than Bear and Merrill stockholders getting a small percent instead of zero. That was a necessity because an investment bank really can't operate through a traditional Chaper 11 bankruptcy.
So if you own a bank, you can't be confident that you'll get bailed out when you fuck up on a grand scale.
But there is an issue of industry wide fuck ups and their effect on everyone else. Banks have a very unique feature in that when their competitors falter, they falter with them. In 2008, you have banks with no exposure to the toxic assets having huge issues with liquidity.
The bail outs may cause moral hazard for that sort of counter-party risk. For example, if you are Goldman Sachs maybe you don't ask too many questions about AIG insurance because you figure the government will make good on it either way.
This is a very complicated issue.
Since last time the general public have taken the brunt of the crisis, what kind of lesson did we want the bank to remember ? The article should really be titled, "7 years after the crisis, how the public and politicians ignored the lesson of the crash".
"Banks ignore lessons politicians tell voters that the banks should have learned, while remembering the lessons the politicians actually taught them"
Angry, ineffectual parent: You haven't learned your lesson son. You remember last time you messed up and got away with a bunch of stuff (stuff you made lot of money off of)?
Kid: (Smirking) yeah
Parent: You remember I almost punished you real bad?
Kid: (Smirking) yeah
Parent: Well, you fuck up again. I might almost punish you even worse. I might almost make you really sore. You understand?
Kid: (Smirking even more) yeah, I understand.
> The big banks have surely drawn a lesson from the crash and its aftermath: that in the end there is very little they will not get away with.
and it tells the story of our societies failure and the total failure of our political systems.
Maybe in the history books of the future, it will be written as the beginning of the downfall of our societies.
But one thing is sure, the next crash will not leave us behind with a blue eye only, because the western countries have nothing left, to back-up the gambling losses of the banks.
The wealth of our nations already have been wasted to those, which did not earn it and either a total crash will follow, or revolution or they (those that we let gamble with our money) will be the new aristocrats (or "oligarchs") of a new era of slavery.
Today, the money has the power and the politicians are mere puppets of the money. And we are all busy to survive ourselves and don't see how humanity and the whole planet is killed by greed.
I live in Argentina, where so many factories were abandoned in our 2001 crisis that workers decided to re-open many of them. Would American workers have it in them if there were a serious liquidity crisis?
Beyond that for most people in a capitalist system, the basic process was one of commodity > money > commodity. Meaning that people made stuff to earn money, to buy more stuff.
But for the capitalists instead it was money > commodity > money+. Putting money into the production of stuff so as to earn even more money on sales.
Now where Marx went off the rails was with factory machines. He was sadly working under the preconception that workers were being exploited, and so ended up badly muddling the impact machinery has on the value definition.
Asian real estate tycoons would own the area before the workers could pronounce "transpacific capital monitoring". much less before they were told factory was being shut down.
Bailouts shouldn't come without a price to pay to the people involved.
Do you have any other suggested reading on how Sweden go about doing this?
So, what's the problem?
Much of the trouble comes from financial deregulation. There used to be laws in the US which forced considerable isolation between different parts of the financial system. There was the Glass-Stegall Act (1933-1999), which kept banks and brokerages separate. There used to be a separation between savings and loan companies and commercial banks. Savings and loan companies used to have to lend locally, and actually send people to building sites to see how construction was coming along before advancing more money. There was the Utility Holding Company Act, which limited public utilities to a tree depth of 3 in stock ownership, just so they could be regulated more easily.
With all that separation, parts of the economy could get into trouble without cascading. A stock market crash didn't affect banks much. The savings and loan mess of the 1980s didn't clobber the stock market.
2008 might have played out very differently if the former head of Goldman Sachs, Henry Paulson, hadn't been Secretary of the Treasury. President Bush was prepared to let banks and brokerages go bust, in keeping with his conservative principles of letting the market decide. Paulson was the one who pushed for a bailout. At the point Lehman went bust, Goldman Sachs was about a month from going bust, too.
A bail in is the power of the regulator to declare a bank non viable and to force losses on debt holders over a week end. This effectively auto-recapitalizes a bank without having the messy consequences of a bankruptcy, by forcing losses on creditors in the same fashion as a bankruptcy.
The article doesn't mention either that banks have more twice the amount of capital they held before the crisis and are required to hold massive amounts of liquid assets.
If tons of huge banks have tons of money on the line in leveraged crude oil futures, then there would be resistance to global movement away from fossil fuels. Larger financial markets should in theory provide oil to the gears of the economy, but I think that if the industry becomes so bloated it will actually cause additional friction.
Please point me in the right direction if there is anything written on this topic.
And, I can't help but delve one level deeper.
Who's money were the banks playing with? Pension funds, mutual funds... in other words, funds in which the ordinary taxpayer had his/her money.
Whom did the taxpayer bail out? His/her own money - which they "invested" in these funds/banks for safekeeping without sufficient knowledge of the risks.
Unfortunately, we haven't learned our lesson either. We still like to allow others to manage our money and risks for us.
