Mugsy, Ditto

Point taken.

Hi Maurine, Well, this will probably be more of an answer than you wanted, so feel free to skim. Greenspan - I agree that keeping rates so low for so long was a major contributor to this problem. I don’t agree that he was responsible for the regulatory side - a Fed chairman’s job is price stability and full employment. Solution - It’s a great economist’s solution, but the executive incentive would be almost impossible to implement and enforce, and the number of regulatory commissions he proposes would create a huge bureaucratic nightmare. Again, it’s a “top-down” approach that is theoretically fine, but hard to actually administer. I think Summers’ plan that includes infusing capital, removing unpricable assets from balance sheets and overhauling the current regulatory system with the specific goals of transparency, proactivity and public interest is a better solution from a practical standpoint. What do you think?

Hi Maurine, I’m going to answer you further down on the page, so we won’t be getting into that tiny column thing.

Hi John, In fairness, Robert Rubin, former Treasury Secretary and Chairman of Citigroup - a senior Obama advisor - encouraged the leveraged business model at Citigroup that has put many financial institutions at risk. Both parties economic plans increase the national debt significantly, though Obama’s plan does so less than McCain’s. My point is neither party has shown what I believe to be the necessary leadership to get us out of this mess.

Hi Barbara, If your bank, like mine, is Washington Mutual, here is a portion of a press release from S&P yesterday “Washington Mutual’s credit has been lowered to BB- by S&P, with the following accompanying statement, ‘Increasing market turmoil and the related impact from managing its concentrated mortgage franchise in this troubled housing and credit cycle led to the downgrade. It increasingly appears that market conditions could overtake credit fundamentals and leave the company with greatly diminished financial flexibility. Washington Mutual nevertheless has “adequate capital positions from a regulatory perspective, with a stable deposit base. Last week, the thrift said retail deposits as of August 31 were ‘essentially unchanged’ from $143.6 billion at the start of the year.’ That portion of the statement “It increasingly appears that market conditions could overtake credit fundamentals and leave the company with greatly diminished financial flexibility,” means that if panicky investors continue to dump the stock, the market may drive WaMu out of business regardless of its financial viability. That’s one of the reasons it just fries me when James and Frank continually post these “doomsday” predictions. As a Wall St. veteran, I’m used to taking flak from guys, but I never thought I’d run into it on a site for women over 40.

Hi Diana, I did read that. It’s a “top down” (create an agency to provide funds to work out the problem) approach to the problem, which I personally don’t think is as effective as Dr. Summers’ “bottom up” (stabilize employment through creation of a public investment program) approach that Phyllis and I were discussing on the next page.

Hi Phyllis, I do remember that we were alone in defending Summers. As I recall we both took some heat for that. C’est la vie. As I recall his policy was economic stimulation (via public investment), overhall of the regulatory system - both of which you mentioned - and systematic containment of deleveraging. You probably didn’t include the last one because it doesn’t sound like English, but I think it’s the most important thing he said. Basically, when there’s too much debt, the way to get out of debt is to sell assets. So, if almost everybody (corporate and individual) has too much debt, everybody will be selling their assets - in this case homes (and for corporations, mortgage backed securities) - at the same time. With more and more for sale, and few buyers who see prices dropping, the way to contain it is, in Summers’ view, to stabilize employment, thereby lessening the necessity to sell the homes. He’s the only one I’ve heard who has a “bottom-up” approach to this problem, and I think it makes a lot of sense. Do you?

Hi Maurine, I’m not familiar with his proposal, but would be happy to review it, if you could provide a link. I was impressed with Larry Summers on Charlie Rose’s show the other night. His proposal was: 1) economic stimulus via public investment at the state & local level and up, to include hiring unemployed to keep income steady and thereby stabilize asset prices; 2) systematic containment of deleveraging (which is a economist’s way of saying lowering debt levels in an orderly manner) by infusion of capital, removing unpricable assets from balance sheets, and providing capital for buyers of those assets; 3) overhaul of regulatory system with an emphasis on transparency and working in both the public and corporate interest. The latter was a complex strategy invoving increased communication with G-8 and a proactive stance in order to deal with developing problems. He’s not a popular guy, but I think he’s got it about right. If this sounds familiar, it’s because he’s an advisor to Obama, and a lot of these ideas are included in Obama’s economic policy. Will wait for your link.

Every time you - or Frank - make a baseless claim that may cause panic - which will exacerbate this situation - I will challenge you on it. What basis to you claim that we will fall into a depression?

What Candice said.

What is a sovereign investment bank?

Hi Jennifer, I don’t think that was a major consideration. When you look at the size of AIG’s balance sheet vs. the amount of exposure assumed for the oil industry, it’s a pretty small number - not that I blame you for questioning it. I think of more significant concern is AIG’s presence in China, and the fact that China owns $501 billion of our national debt. The international ramifications of allowing AIG’s bankruptcy would have been, in my view, more that $85b to the US taxpayer.

Hi Beverly, I did read your post previously, and hope others did as well. I think you have, not only first hand knowledge of the effects of some of the worst financial decisions made US policy makers, but also a very clear, understandable way of explaining the cause and effect. Your assessments are spot on, in my view, and if someone like you were mandated to stand next to Alan Greenspan during his tenure at the Fed to “translate” what the heck he was saying, people may have understood a lot more about what was going on. Thanks for sharing your experience. It’s valuable and well stated.

Indy Mac customers got their money in about 3 weeks. There haven’t been enough failures to calculate a meaningful average, but FDIC is pretty good about comparing claims to bank records and paying to properly identified depositors. Their are possible delays with accounts (like Living Trusts with deceased trustees, etc) that may take extra time because of their complexity.