Thursday, October 28, 2010

"Heckuva Job, Larry"

Any time I see an article written by William K. Black, as I click on the link to go read it I know that I am about to be exposed to some actual sanity regarding the economy, and that it will be written in clear and concise terms that I can actually understand. His piece today at The Huffington Post (yes, I know, I was referred to the article) was not a disappointment.

Picture it. Financial institutions are failing, with trillions of bad debt. Obama brings them back from a major depression with the injection of some money, restores them to health, and gets almost all of the money back. Obama is claiming to have done just that, and Mr. Black is calling him on it. When something sounds too good to be true it’s usually because it's not true.

The “toxic assets” which were threatening to destroy the financial sector were based on collapsing home values and high mortgages on those homes. The mortgages have not gone down and the home values have not gone up, so what happened to all of that bad debt? First we thought that the taxpayer had absorbed it, but Obama has now told us that the taxpayers have gotten virtually all of our money back, that the restoration of the economy cost us essentially nothing. So the question reemerges, where did all that bad debt go?

Bill Black tells us the answer, “The administration made the losses disappear the old-fashioned way -- with fictional accounting.” He goes on to tell us how worthwhile that is. “Creating fictional numbers and hiding losses at the Fed doesn't reduce losses. Unfortunately, it increases real losses.”

In the S&L crisis of the 1980’s we took over the failed institutions and restructured them. The people who created the problem were fired and, in some cased, prosecuted for fraud. The bad debt was written off. The investors who had accumulated illegal wealth had that wealth written off. Depositors were made whole. Real assets were sold for whatever recovery could be made, and we started with a clean slate.

New regulations were written to prevent a recurrence of such a failure, and these regulations were not followed. Some of them were repealed, but others remain on the books and are simply being ignored. Now we are passing yet more regulations, but what assures us that they will be enforced? The old ones were not, and the ones we still have are not. New regulations are a pacifier to the electorate; we are not even enforcing the ones we have.

Read Bill Black and Google “Prompt Corrective Action.”

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