Ian Welsh:

Last year myself and Stirling both noted that what would be done by banks if they were bailed out is to horde their money, not lend it out cheap, and save it to buy up competitors, make leveraged plays and so on. That is EXACTLY what has happened. Exactly.

During a downturn, if you have money, you don’t want to lend it out for low gains when you can buy up competitors, cheap. You don’t want to lend it out cheap, when you can make leveraged plays off the bottom of a stock and commodity market which is bound to go up because trillions are being poured into it by central banks. You want to take that money, and buy things while they are cheap, not lend it out for 4 or 5% returns, when you can make many many times that.

Why, exactly, governments expect banks who have better ways to make money to act like retail banks who don’t have any other way to make money but lend out at prime +3 or 4 percent is beyond me. They think they’ll do it out of gratitude for being bailed out, or some sort of sense of civic duty? Most politicians may be stupid, venal and corrupt—but it’s that very greed and venality which means they should understand that banks will do no such thing.

Banks will do it only if they are forced to do it. Remove retail banking from investment banking, insurance and brokerage services, and disallow any risky games on the markets for retail banks. Remove all special facilities from non retail banks because Goldman Sachs should not be doing highly leveraged plays with free money from the Federal Reserve. And reinstitute serious leverage limits, not just for retail banks but for everyone.

As for retail banks, if they don’t lend to the public at rates approved of by the Federal Reserve and Congress, they too should lose their access to special facilities. Banks are given the valuable right to borrow money for almost nothing, and to, in effect, print money by lending out money they don’t have. Those are privileges which are given to them in the expectation that they will use them to benefit the economy. If they refuse to do so, they should lose the privileges.

None of this is rocket science. Those of us who predicted both the crisis and what the bungling of the crisis would cause, however, are precisely the people who are not listened to by those in power. Obama is having his jobs summit, and forget nobodies like me, he isn’t even inviting somebodies like Stiglitz and Krugman.

That's because predicting a crisis correctly disqualifies you for Serious work in Versailles. But, seriously, why would it be any different?

Simon Johnson:

[Brit banking boffins] Haldane and Alessandri offer a tough, perhaps bleak assessment. Our boom-bust-bailout cycle is, in their view, a “doom loop”. Banks have an incentive to take excessive risk and every time they and their creditors are bailed out, we create the conditions for the next crisis.

Any banker who denies this is the case lacks self-awareness or any sense of history, or perhaps just wants to do it again. ...

The Haldane-Alessandri “doom loop” is fast becoming the new baseline view, i.e., if you want to explain what happened or – more interestingly – what can happen going forward, you need to position your arguments relative to the structure and data in their paper. ...

How can we believe that for the regulators, “next time is different“? Most likely, next time will be exactly the same, with different terminology: the financial sector “innovates”, regulators buy their story that risks are now properly managed, and the ensuing bailout (again) breaks all records.

Open Left:

One of the few - and I sincerely stress the word "few" - concrete legislative successes progressives notched in the Republican Congress under President George W. Bush came on the evening of July 26th, 2002, when they humiliated the House into passing a bill sponsored by Rep. Rosa DeLauro (D-CT) banning federal contracts from going to companies that engage in tax "inversions." These are the schemes whereby a corporation that is based in the United States buys a P.O. box in Bermuda and uses it to legally avoid paying American taxes.

As a testiment to Delaware's secrecy, I barely knew it existed.

Reuters:

Move over Switzerland. The tiny state of Delaware beats the Alpine country in a contest for the most secretive financial jurisdiction, a tax justice rights group said on Saturday.

The United States, led by the eastern seaboard state, took in $2.6 trillion in deposits from non-resident corporations and individuals in 2007, according to a survey of financial jurisdictions analyzed by the Tax Justice Network.

Mel Watt, from NC's 12th district, is leading the charge this time. Coincidentally, I'm sure, Bank of America headquarters is also in his district.

If you disagree with this, I suggest you let Mr. Watt, and anyone who has not cosponsored this bill know.

Bloomberg:

Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.

Interfluidity. The wind up:

I have my own normative view of "the great moderation" [see here] and it is not positive.... First, in exchange for apparent stability, the central-bank-backstopped "great moderation" has rendered asset prices unreliable as guides to real investment. I think the United States has made terrible aggregate investment decisions over the last 30 years, and will continue to do so as long as a "ride the bubble then hide in banks" strategy pays off. ... Second, by relying on credit rather than wages to fund middle-class consumption, the moderation dynamic causes great harm in the form of stress from unwanted financial risk, loss of freedom to pursue nonremunerative activities, and unnecessary catastrophes for isolated families. Finally, maintaining the dynamic requires active use of policy instruments to sustain an inequitable distribution of wealth and income in a manner that I view as unjust.

And, in two sentences, the pitch:

In "good times", central bankers actively suppress the median wage (while applauding increases in the mean wages driven by the upper tail). During the reset phase, policymakers bail out creditors.

Sure feels like that to me, looking back at the last 30 years.

And now, the follow through.

Simon Johnson (and some sane central banksters*) diagnose the first; Yves diagnoses the second.

For my money -- BWAH-HA-HA-HA-HA-HA-HA-HA-HA! -- Yves has the right of it:

Yves on Krugman's column today. She writes:

My big beef is that he didn’t go far enough and is WAAY too forgiving of the motivations and actions of Larry Summers and by extension, Team Obama.

Somebody kidnapped Paul Krugman at that White House dinner, didn't they? Krugman wrote:

Why the change in tone? Administration officials are furious at the way the financial industry, just months after receiving a gigantic taxpayer bailout, is lobbying fiercely against serious reform. But you have to wonder what they expected to happen. They followed a softly, softly policy, providing aid with few strings, back when all of Wall Street was on the ropes; this left them with very little leverage over firms like Goldman that are now, once again, making a lot of money.

Yves comments:

Are conservatives paranoid and delusional? Let's take a look:

An eye-opening new report* from the Democratic-aligned research organization Democracy Corps suggests that conservative Republicans, the majority of the GOP base, harbor a well-developed, consistent, peculiar worldview about President Obama and his “hidden agenda” for the country. Armed with “facts” from conservative media, these individuals, fully 2/3 of the Republican Party at this point according to Democracy Corps estimates, believe that the President has been installed by powerful interests to enact socialist policies, violate the Constitution and destroy America. Independents and even GOP-leaning moderates exhibit none of these characteristics, making life difficult for GOP leaders who must choose between support inside the party and support in the country.

But -- work with me here -- how paranoid and delusional is that conclusion?

[I'm leaving this sticky because a synonym for "economic rent" would be really nice to have and propagate. -- lambert]

Go read Numerian for a lucid explation of how GS is making its money. I'll wait.

Now, I want to pull out two paragraphs:

We’ve seen this year the scandal over High Frequency Trading, where Goldman and other firms have computers positioned at the New York Stock Exchange getting information on trades a millisecond before they are posted publicly. Goldman sees where the market is going second by second, positions itself for very short term profits, and in effect extracts a tax on trading by individual investors and mutual funds.

This tax is, exactly, a "rent," a concept which -- lambert blushes modestly -- we were hammering on rather early on, and which our tribunes of the people on the A list still haven't latched on to.

The second paragraph:

LOLfed, as usual, puts it all in perspective:

From Bloomberg, a shocking – shocking – tale of cocaine usage among bankers. I had no idea! The story here is not so much the blow as it is the sudden cessation thereof, as the finance-minded do the math and realize how much their eightball budget has been cut back as of late.

It’s no wonder 90% of all US money has Bolivian marching powder on it, with this being so popular in banking. ...

AP actually does some reporting; turns out it's not really banksters who own Timmy; it's just a few banksters, among them our favorite, Goldman Sachs:

The calendars, obtained by the AP under the Freedom of Information Act, offer a behind-the-scenes glimpse at the continued influence of three companies -- Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. -- whose executives can reach the nation's most powerful economic official on the phone, sometimes several times a day.

What the calendars show, however, is that only a select few can call the treasury secretary.

Via KnoxViews ("Ideas so crazy they might work"):

So there's this guy in Florida running for the Democratic nomination for governor. He has a plan to eliminate property taxes, create a million new jobs, provide free health insurance and free college for all residents, and lots more.
His plan hinges around a proposal to create the Bank of the State of Florida, which will pay 6% for CDs and make mortgage loans at 2% and other loans including small business loans at 3% and make billions for the state. How is this possible, you ask? Using "fractional reserve banking" just like every other bank, except using the profits for the public good.

Grayson's from Florida, right? Somebody should ask him what he thinks about this.