Aid to Israel

"The military rabbinate [religious wing of the Israeli Army, like chaplains] brought many magazines and articles with a very clear message: 'We are the Jewish people, a miracle brought us to the land of Israel, God returned us to the land, and now we have to struggle so as to get rid of the gentiles who disturb us from conquering the holy land.' All the feeling throughout all this operation of many of the soldiers was of a war of religions," he said. "As a commander, I tried to explain that the war is not a war of Kiddush Hashem [the sanctification of God's name, including through martyrdom] but over the stopping of the launching of the Qassam rockets."
- Israeli soldier identified as "Rahm" on the recent Gaza war, interviewed by the Washington Post

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/20/AR2009032003463.html?wprss=rss_world

I know that every war has its ingrained religious dogma and nationalist propaganda, but give me a break. Since this controversy broke, some military rabbis have been reprimanded or given leaves of absence. And that's not all; Human Rights Watch and the IDF are conducting separate investigations into the use of white phosphorous munitions (used to illuminate battle areas at night, but can also rain down on people and burn their flesh) during the Gaza conflict. Using such materials in an urban zone is a war crime, and HRW has concluded that Israel is guilty. Peace activist and former IDF soldier Yehuda Shaul interviewed 20 soldiers who participated in Operation Cast Lead. "Some soldiers from some units who led this operation in the front, basically when they received the briefing, it was - guys, we're entering in, everything that moves, everything that is a threat, everything you are afraid of, you shoot," said Shaul. Needless to say, shooting indiscriminately is also a violation of the Geneva Conventions, though unfortunately it takes place in all wars. The Israeli government has dismissed Shaul's work as unconfirmed anecdotes.
The [Israeli] army says it's investigating, even as some Israeli soldiers are coming forward with their own accounts of what they describe as needless civilian deaths and highly permissive rules of engagement. Shaul says some of the soldiers he's interviewed also say they destroyed civilian property and homes, actions that seemed to have little or no tactical purpose or necessity. Some soldiers, he says, called it gratuitous and stupid. -NPR
http://www.npr.org/templates/transcript/transcript.php?storyId=102371101

Personally, I don't want my tax dollars financing such brutality and RELIGIOUS EXTREMISM. My own country engages in enough of that - we don't need to indulge others overseas. Ironically, the War on Terror is built on the premise that radical Islam is the most significant international security threat, yet we overtly or implicitly condone Zionist extremism? Obama seeks to increase foreign aid from $20B currently to $50B by 2012, but that may run into trouble in Congress due to the economy. Already they are looking to trim $4B in aid to try to pass the 2008 budget, but not sure how that affects aid to Israel (probably negligibly).

How is it that Israel receives 1/7 of all US foreign aid ($2.5-3B annually)? Israel's population is 7M; that is 0.12% of the wold's population. In comparison, Bangladesh and its 151M people get $50M. Unlike Israel, Bangladesh is one of the poorest nations on Earth, often hit by natural disasters, and has been peaceful with its neighbors since the 1970's. The per-capita difference there is 1,286-fold in Israel's favor. Speaking of per-capita, Israel's GDP PPP is $28K (#31 worldwide according to the CIA Factbook, ahead of Czechs and Saudis) and Bangladesh's is only $1.5K. Only 20 nations are pooer. I am not so naive to think that we give our foreign aid based on need, but some disparities are too ludicrous to ignore. But then again, I am sure that pro-Israel lobbyists in Washington vastly outnumber their Bangladeshi counterparts.

As part of with an initiative by then-Prime Minister Benjamin Netanyahu, the civilian aid has been steadily decreased over the course of the past 10 years, going from USD 1.2 million to being completely cancelled this year. At the same time military aid to Israel has increased from USD 1.8 billion to USD 2.4 billion.
-Yitzhak Benhorin, ynetnews.com, 2007

Since the founding of the Jewish State, they have received over $80B in US assistance (over half of that for their military, and the proportion is growing), which is over $10K for every Israeli alive today. And our federal government spends all that effort cracking down on "welfare moms" and Earned Income Tax Credit abusers? Plus it's not like they would be out in the cold without us. Since the Luxembourg agreement of 1952 and subsequent decrees, Germany has been giving substantial aid to Israel (like unofficial reparations for Nazi crimes). As of 1995, Germany has given over $26B directly to the state and people, as well as $94M in annual low-interest loans. They have a legal and moral responsibility to do so, but what is our reason?

There are poor people in Israel and some Arabs have had their homes demolished by the government. I have no problem helping them, but I'll be damned if some of my labor contributes to the sniping and shelling of innocents in Gaza for their "holy war". The lifeblood of war is money. I wonder how international conflicts would be affected if the US universally cut military aid to Israel, as well as other big recipients like Colombia, Egypt, Turkey, Saudi. And imagine how many Americans could be put to work or how many Africans could be fed/immunized with those billions.

http://www.vaughns-1-pagers.com/politics/us-foreign-aid.htm
http://www.hotpolitics.com/tax4israel.htm
http://www.ameu.org/page.asp?iid=97&aid=134&pg=1
http://philanthropy.com/news/government/7609/congress-may-cut-some-foreign-aid-money-from-proposed-budget

All this is not anti-Semitic; it's just fact.

Obama considering McCain health care reform

I am not qualified to evaluate the utility of taxing employer-provided health benefits, but what I do know is that it sucks to slam your campaign opponent for advocating a certain idea, then after you've won, find yourself compelled by circumstance to consider adopting that very proposal. But I guess when Congress is unreceptive to curbing tax deductions for the rich to pay for expanded health care, you have to consider even a revenue generation plan that is "so radical, so out of touch with what you're facing, and so out of line with our basic values" (BO, speech in Virginia, 10/08).

http://www.nytimes.com/2009/03/15/us/politics/15health.html?_r=2&hp
Administration Is Open to Taxing Health Benefits
By JACKIE CALMES and ROBERT PEAR
Published: March 14, 2009

WASHINGTON — The Obama administration is signaling to Congress that the president could support taxing some employee health benefits, as several influential lawmakers and many economists favor, to help pay for overhauling the health care system.

The proposal is politically problematic for President Obama, however, since it is similar to one he denounced in the presidential campaign as “the largest middle-class tax increase in history.” Most Americans with insurance get it from their employers, and taxing workers for the benefit is opposed by union leaders and some businesses.

In television advertisements last fall, Mr. Obama criticized his Republican rival for the presidency, Senator John McCain of Arizona, for proposing to tax all employer-provided health benefits. The benefits have long been tax-free, regardless of how generous they are or how much an employee earns. The advertisements did not point out that Mr. McCain, in exchange, wanted to give all families a tax credit to subsidize the purchase of coverage.

At the time, even some Obama supporters said privately that he might come to regret his position if he won the election; in effect, they said, he was potentially giving up an important option to help finance his ambitious health care agenda to reduce medical costs and to expand coverage to the 46 million uninsured Americans. Now that Mr. Obama has begun the health debate, several advisers say that while he will not propose changing the tax-free status of employee health benefits, neither will he oppose it if Congress does so.

At a recent Congressional hearing, Senator Ron Wyden, an Oregon Democrat whose own health plan would make benefits taxable, asked Peter R. Orszag, the president’s budget director, about the issue. Mr. Orszag replied that it “most firmly should remain on the table.”

Mr. Orszag, an economist who has served as director of the Congressional Budget Office, has written favorably of taxing some employer-provided health benefits and using the revenue savings for other health-related incentives. So has another Obama adviser, Jason Furman, the deputy director of the White House National Economic Council.

They, like other proponents, cite evidence that tax-free benefits encourage what Mr. McCain called “gold-plated” policies, resulting in inefficient and costly demands for health care and pressure on employers to hold down workers’ pay as insurance expenses rise. And, they say, the policy discriminates against those — many of whom are low-income workers — who do not have employer-provided coverage.

When Senator Max Baucus, Democrat of Montana, advocated taxing benefits at a recent hearing of the Finance Committee, which he leads, Treasury Secretary Timothy F. Geithner assured him that the administration was open to all ideas from Congress. Mr. Geithner did, however, allude to the position that Mr. Obama had taken as a candidate.

The administration’s receptivity to the idea is owed partly to the advocacy of Mr. Baucus, whose committee has jurisdiction over tax policy and health programs, and to support from Republicans. There is less enthusiasm among Democrats in the House, though the health debate is at an early stage and no comprehensive plans are on the table.

Also, Mr. Obama’s own idea for raising revenues for health care — limiting the income tax deductions that the most affluent taxpayers claim — has run into opposition not only from Mr. Baucus but also from his counterpart in the House, Representative Charles B. Rangel, Democrat of New York, who is chairman of the Ways and Means Committee.

Mr. Obama’s proposed limit on deductions would raise an estimated $318 billion over 10 years, or half of his proposed “health care reserve fund.” That is a fraction of the revenues that could be raised from taxing employer-provided health benefits.

In the campaign, Mr. McCain estimated that taxing all health benefits would raise $3.6 trillion over a decade — “a multitrillion-dollar tax hike,” one Obama advertisement said.

The Congressional Budget Office says that including health benefits in taxable income could mean $246 billion in additional revenue for a single year. Stopping short of full taxation, as Mr. Baucus and others suggest, would mean less new revenue.

The latest government figures, for 2007, show that 70 percent of the 253 million people with health insurance received at least some of their coverage through employers. Employment-based insurance covers three-fifths of the population under 65.

Those who want to tax benefits in whole or in part make two main arguments. They say the tax exclusion is a generous subsidy that insulates employees from the true costs of health care, leading them to demand more of it and driving up overall costs. Critics also say the policy is unfair because it favors higher-income people. “It’s too regressive,” Mr. Baucus said. “It just skews the system.”

But in a blueprint for health legislation that he issued last November, Mr. Baucus said taking the exclusion on health benefits out of the tax code would go “too far” and “cause widespread disruption in employer-based health benefits.” Mr. Obama has also said he wants to preserve employer-provided coverage. Mr. Baucus, in his paper, cited other options, like taxing benefits above some value, taxing only wealthy employees or both.

However the proposal is devised, advocates will not have an easy time selling it.

Republicans, like Mr. McCain and former President George W. Bush before him, tend to favor taxing the benefits to finance other incentives for people to buy their own insurance. But given Mr. Obama’s use of the issue in his campaign, Republicans are unlikely to support a change unless the president himself proposes it, a senior adviser to Senate Republicans said.

Many Democrats, especially House liberals, are opposed. “It’s a dumb idea,” said Representative Pete Stark of California, chairman of the Ways and Means Subcommittee on Health. “We have to maintain as much as we can of the employer payments.”

Administration officials often say they will not repeat the mistakes of former President Bill Clinton, whose plan for universal health insurance collapsed in 1994. But Frank B. McArdle, a health policy expert at Hewitt Associates, a benefits consulting firm, said, “If President Obama agrees to cut back the tax break for employee health benefits, he will risk repeating one of Mr. Clinton’s errors by disrupting health insurance for people who have it and like it.”

Some big businesses consider nontaxable employment benefits a tool for recruiting and retaining workers. The United States Chamber of Commerce opposes eliminating the exclusion on health benefits, but James P. Gelfand, senior manager of health policy, said the group had not taken a position on limiting it.

Organized labor, a pillar of the Democratic Party base, considers the benefits among the union movement’s historic achievements for the middle class. But a split could be developing between the manufacturing unions, which have negotiated rich benefit packages, and the growing service employees unions, which include many low-wage workers without generous benefits.

Alan V. Reuther, legislative director of the United Automobile Workers, said: “These proposals would represent a tax increase on working families. They would undermine good health care coverage.”

But at the Service Employees International Union, which was an early supporter of Mr. Obama, Dennis Rivera, the coordinator of the union’s health care campaign, said that while his organization was “predisposed not to agree to the taxing of health benefits,” he would wait to pass judgment. The union, Mr. Rivera said, wants to see how any tax changes fit into the overall effort to revamp the health care system. “We need to see the total picture,” he said.

Dodd/AIG finger pointing

This Dodd/AIG business is becoming as convoluted and unhelpful as the Alberto Gonzalez attorney firings. More and more it appears that Dodd, although the beneficiary of big bank money for decades, was actually the "good guy" who pushed from the start for strict pay limits on execs from institutions who take bailout money (both future and retroactive). But it was Obama's Clinton-carryover economics advisor Summers and controversial Treasury pick Geithner, both with deep ties to Wall Street, whose offices pressured Dodd to include AIG exceptions in the bill.


http://www.salon.com/opinion/greenwald/

Regardless of who initiated what, the Obama White House's Bush-like rationale for toning down Dodd's pay limits was that they feared (a) it would discourage banks from participating in the bailout, and (b) a legal firestorm if they were to modify pre-existing private labor contracts. But the following experts on NYT suggest that excuse b ("the sanctity of labor contracts") is rubbish. Labor agreements get modified all the time without much outcry, especially involving labor unions.

http://roomfordebate.blogs.nytimes.com/2009/03/17/when-bonus-contracts-can-be-broken/

But now that the poop has hit the fan, the White House is pinning the blame on Dodd, and Obama "didn't know anything". So either the president needs to rein in his people, or he needs to level with the country.

--------
UPDATE III: I'm receiving email regarding the remarks Dodd made today on CNN in which he stated that, at the White House's insistence and over his objections, he agreed to include the pre-February, 2009 carve-out in the stimulus bill. Some of these emailers have suggested that Dodd's comments are at odds with what I wrote. They quite plainly are not.

The narrative I wrote here (and which Hamsher wrote in her post) both included exactly that sequence:

That was the exact provision that Geithner and Summers demanded and that Dodd opposed. And even after Dodd finally gave in to Treasury's demands, he continued to support an amendment from Ron Wyden and Olympia Snowe to impose fines on bailout-receiving companies which paid executive bonuses."

I explicitly wrote that it was Dodd who, after arguing vehemently against this provision, ultimately agreed to its inclusion. And the statement from Dodd's office that I quoted above included the same series of events ("Because of negotiations with the Treasury Department and the bill Conferees, several modifications were made, including adding the exemption"). That's exactly what Dodd said today on CNN.

The point was -- and is -- that Dodd was pressured to put that carve-out in at the insistence of Treasury officials (whose opposition meant that Dodd's two choices were the limited compensation restriction favored by Geithner/Summers or no compensation limits at all), and Dodd did so only after arguing in public against it. To blame Dodd for provisions that the White House demanded is dishonest in the extreme, and what Dodd said today on CNN about the White House's advocacy of this provision confirms, not contradicts, what I wrote.

UPDATE IV: From the CNN article on the Dodd interview:

Dodd acknowledged his role in the change after a Treasury Department official told CNN the administration pushed for the language.

Both Dodd and the official, who asked not to be named, said it was because administration officials were afraid the government would face numerous lawsuits without the new language. . . .

I agreed reluctantly," Dodd said. "I was changing the amendment because others were insistent."

It was the Treasury Department -- at least according to a Treasury official granted anonymity for the extremely compelling reason that he "asked not to be named" -- that pushed for the carve-out, and did so over Dodd's objections. That was the point from the beginning. That's precisely what made it so outrageous that the administration was trying to blame Dodd for a provision which Obama's own Treasury officials advocated, pushed for and engineered.

Anyone who doubts Dodd's opposition should just go read the above-excerpted articles which reported contemporaneously about the dispute Dodd was having with the White House over the scope of the compensation limits. For obvious reasons, those real-time accounts are far more instructive about what really happened than what the parties are saying now that everyone is trying desperately to avoid blame for the politically toxic AIG bonus payments.

-- Glenn Greenwald

And some hilarious "flip flopping" from the GOP over pay limits and AIG bonuses, courtesy of Lis and Salon. But this is somewhat typical and expected of a wounded, opportunistic party out of power, and desperate for a comeback.

Sen. James Inhofe (R-OK) in Feb:
“I thought, is this still America? Do we really tell people how to run [a business], and who to pay and how much to pay?”
[Huffington Post, 2/6/09]

Sen. James Inhofe (R-OK) in Mar:
“The AIG situation is clear evidence of what happens when you shovel money out the door with no strings attached and no transparency.”
[KTUL, 3/17/09]
======================
Sen. Kit Bond (R-MO) in Feb:
“The worst thing we can do is tell businesses how to run themselves. Congress has a pretty bad track record. If you you look at our collective judgment, all 535 of us in our wisdom can’t run government very well. (We) sure can’t run business.”
[STL Today, 2/2/09]

Sen. Kit Bond (R-MO) in Mar:
“It’s unacceptable to pay bonuses after the American taxpayer was forced to bail out an institution without reforming it.”
[KRCG, 3/18/09]
=======================
Rep. Peter King (R-NY) in Feb:
“No, I will say, I agree there should have been some caps. (But) I think this (Dodd’s provision on limiting executive compensation)
went too far, and I think it can be counterproductive.”
[ABC News, 2/15/09]

Rep. Peter King (R-NY) in Mar:
Q: “Should Congress, should the White House be getting a way for these contracts to be broken?”
KING: “Congress should find a way to do it or the administration should lean on them in a way to get – to have it done.”
[MSNBC, 3/17/09]

http://www.salon.com/opinion/greenwald/

AIG bonuses and Washington

So the White House, Congress, and Co. probably knew about the bonuses all along, agreed to them, yet now act all outraged and demand that the execs pay them back? Seriously, if I was one of the execs who got money, I would tell Washington to shove it and tell them to take a pay cut first. But of course it's hypocritical for the GOP in Congress to criticize the Dems, when many of them endorsed, or at least condoned, a similar action on AIG by Bush last year. Maybe Obama "didn't know" personally until the rest of us did, but what does that say about a president who claims to be on top of things and working incessantly on the economy? And the ignorance excuse didn't work for Iran Contra and Iraq WMDs either. Trust was lost. Maybe this is why some holdout Congressmen are actually doing America a favor (instead of trying to score petty political points, as Obama alleged of the obstructionist Republicans). Stalling, complaining, and second-guessing can be counter-productive, but would they rather cave to the pressure and sign off on hastily-crafted, problem-riddled, huge spending legislation?

http://www.sfexaminer.com/local/41404462.html

Critiques from the 2008 AIG handout: http://www.economist.com/finance/displaystory.cfm?story_id=12607251

Senate Banking Committee CHAIRMAN Chris Dodd admits to inserting an earmark loophole for AIG bonuses in the recent stimulus bill:

"[Senator] Dodd had previously said that he played no role in writing the controversial language, and was not a part of the conference committee that inserted the language in the bill. As late as today, Dodd’s spokeswoman denied the senator’s involvement... Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision."

http://news.yahoo.com/s/politico/20090318/pl_politico/30833

And that guy was running for president 10 months ago. Well, for the record these bonuses were not for merit/performance (of which there was none), but for retention. You have to throw the talent some treats if you don't want them to jump ship during crisis time, but of course do it tastefully and humbly. Give some bonuses if you want to, but don't try to hide it or lie about it. Though the other expenditures for office redecorating, junkets, repaying foreign clients, and buying other troubled banks are just unacceptable.

Change, my ass. The Dem Congress and Obama White House have been just as friendly to Wall Street, if not more, than the GOP. Maybe it's true that AIG and others are too important to fail (though spare us the alarm; AIG's vital insurance services are much more safeguarded and regulated than it's gambling wing). But don't cut them lifelines in secret and then act all outraged about it when the news leaks. Politicians just want it all: whip up the populist outrage, claim to be crusaders cleaning up Washington, yet also still take care of their 35% tax bracket campaign contributors in private.

And maybe this bonuses fiasco is just a silly distraction - is it helping to restore lending and untangle the troubled assets? As grotesque as it may be, $165M in bonuses is a drop in the bucket of what taxpayer loot AIG received (hundreds of billions). They are supposed to use that money to pay the claims of people who got burned by Lehman and others.

--------

Seriously though, in your "house on fire" analogy, that is pretty clever if an i-banker can do that, and leave the firemen (us) to clean up the mess - from an amoral point of view at least. Yeah the i-bankers are obvious targets of outrage with their Swiss bank accounts and 20 cars. But what about the politicians and their appointed regulators who took campaign contributions from them and do nothing to police their shenanigans? Correlation doesn't imply causation, but Dodd, Graham, Frank, Obama (and many others) have accepted many thousands from employees of AIG, Citi, Merrill, and other "dens of i-banker serpents", as recently as 2008. Now contrite Dodd claims he's going to return AIG's contributions haha.

What do you expect? Their industry incentivizes risk taking for short term gains and shortcuts to profits. And they are well compensated for doing so. Their kind are taught practically from birth to worship greed. Rockefeller wasn't the first one. You can't blame a tiger for wanting to eat meat. But the zookeeper (government) is at least supposed to put a cage around the tiger so he doesn't hurt bystanders. And the zoo patrons (citizens) should boycott the zoo if it doesn't look safe. We are all guilty, so then no one is guilty, and we conveniently blame the i-bankers for everything, neglecting the other players. I would never defend an i-banker, but like in a previous email, now we are so wedded to investing and capitalization that we "need" these tigers to support our way of life. We can't really chastise them for doing what we kind of wanted them to do in the first place (but of course they went too far). And we never blame them in a bull market - in fact we commend them!

It doesn't help us get out of this mess by railing against natural human greed, just as it doesn't help whipping up socialism phobia. What may help is trying to come up with more greed-resistant laws that prevent the tigers from burning the house down (to merge two analogies). Forget about the red herring of compensation limits - instead limit their bag of tricks, so they don't leverage their house 35-to-1 as Bear Stearns did.

Bank nationalization

i heard it described quite succinctly the other day: you're walking down the street and you see a vampire sucking the blood of a man. you give the vampire a blood transfusion in the hopes that the blood will fill up the vampire and will eventually flow the other way, from the vampire back into the man. what we need to do is yank the vampire off the man and stick a wooden steak in his heart turning him into dust so he can never harm anyone again.

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Yeah, it boils down to triage. There is a point where the constant billion-dollar infusions add up to be costlier than just cutting them loose or taking them over. I guess what Stiglitz said about Lehman is important though - Washington was wrong to let that entire institution fail, which did have serious ripple effects. There was the good, necessary side of Lehman (commercial paper trading as an important payment mechanism in the global money market - whatever that means!), and the irresponsible, gambling side. Preserve the good, rename it, or sell it to someone trustworthy, then ditch the cancerous part. Easier said than done I'm sure, but I don't see any other way.

Unfortunately the financial sector has become very skilled at vampirism and parasitism. We may be able to kill the vamp, but he's biting down hard on our jugular, so to remove him means injuring ourselves greatly (or mortally). They're a top campaign contributor to Washington, they employ thousands of people, and are custodians of trillions of our wealth. They "oil the gears of the economy". We can't just cast them out to the wilderness. Even if we try to purge the bad aspects while retaining the good, they will sound the alarm that the sky is falling, and then no one will have the balls to carry on. All they have to do is threaten us that our money will be in jeopardy, then instant paralysis and compliance. It's blackmail in its purest form. That's why the Reagan-Bush-Clinton de-regulations were so costly - they let the financiers run amok and take over. Now we can't put the genie back into the bottle without a lot of pain. I guess we've passed the point of no return. It's not like we can return to the 1960's with conservative S&Ls, double-digit interest rates deterring overborrowing, and less-globalized, less-volatile markets.

-----

Yeah, he makes some interesting points, and he's obviously a smart guy. I think it's good that he's pointing out how cheated the government was in the initial TARP stuff. The warren testimony from the congressional oversight committee suggested that for the $254B the government spent, we got assets worth $176B, so a $78B shortfall. That's kind of a lot.

There are a couple of complexities which I think he gives short shrift to, which help explain a bit more of the government's challenge here.

First, the government cannot announce that they're thinking about nationalization because it becomes a self-fulfilling prophesy. As soon as you announce that you're considering a plan to nationalize and wipe out existing shareholders, all of the existing shareholders run for the exits. That makes the bank's capitalization rate collapse, and suddenly the bank *requires* nationalization. So even if Obama and Co are thinking about it as a potential plan, I'd hope that they're smart enough not to talk about it until they're ready to go. A lot of this is confidence management, because everyone is still spooked.

Second, this crisis is dramatically complicated by all of the SIV and CDO-style financial products. In earlier bank bailouts, to which everyone keeps referring, when the government nationalized a bank they got real assets, or something one step removed from real assets: a title to a steel factory in Pitt, a mortgage on a specific home in Dallas, etc. Pricing and selling those assets back into the market is reasonably well-understood - you can service the mortgage, foreclose on it, etc, because you own the mortgage. With this bailout, if the government takes over a bank they get ... SIVs? The connection to the real assets is diluted through these complicated debt tranches, such that ownership is diluted among potentially the whole economy. And the bank or company actually servicing the mortgage is distinct. In previous bailouts you could take over the bank, and become essentially the owner-operator of the mortgage, where one legal entity makes decisions about how to act and bears the effect of those decisions. You've now got a company that operates (services) the mortgage and makes decisions about it according to an elaborate contract, but bearing the effect of those decisions is diffused among this huge number of people who own portions of individual tranches into which the mortgages were collateralised. The tempting answer is to say, "well, take over all the banks so you own all the pieces, and unwind them yourself" ... but it's not just banks who own these things, they're spread throughout the financial system. It's pretty tough to buy up all the remaining pieces because nobody really knows what they're worth ... I mean, they had some pricing model before the crash, but the legal contract binding these things up hasn't really been tested in a doomsday scenario like we're seeing now, so no one knows what it's worth when it falls apart.

So somehow you have to figure out how to unwind or desecuritise or otherwise deal with these crazy-complicated CDOs. And you can't really talk about it publicly, because as soon as you say "Well, we're thinking about forcing desecuritisation of these things," everyone flees, the market value drops, more banks implode ... self-fulfilling prophesy. And you've got similar problems throughout the shadow banking system. I mean we're talking about some serious "rebuild the airplane while it's in flight" kind of shit here. I don't mean to suggest that bankers aren't a bunch of pocket-filling assholes (and shameless ones at that - the Merrill bonuses were just unbelievable), but rather that there really is a fair bit of complexity to what Obama has to do here.

-------

The other thing making a nationalization of a bank like Citi more complicated is that they don't simply just make investments based on their internal capital and then collect the income from the investments. Citi and its ilk have grown into these massive financial conglomerates that offer hundreds of tangentially related financial products. In these dealings, if the counterparties (i.e. other large financial institutions) start to get worried that they may be locked out of their money for a certain amount of time, they're going to head for the hills in a matter of days, leading to the collapse of the bank. It's basically an institutional run on the bank, across hundreds of different products.

Even the threat that nationalization could disrupt operations could send all these counterparties elsewhere, and once the downward cycle gets started, it's basically impossible to stop. That's what happened to Bear Stearns and Lehman. What could happen if nationalization is done incorrectly is that the government takes over a bank only to find the money-making aspect of the bank dried up and all that's left is all the obligations. A shitpile of enormous proportions.

Of course, it's entirely problematic that banks got so big and so complex that they can't fail in the first place, and I'd be fully in favor of regulations that don't allow banks to amass such shitpiles of capital and become so central to the economy that we have to baby them in bad times with tons of taxpayer money. So we can thank Phil Gramm and co. for those innovations, but at the moment, we are where we are, and there are not a lot of good options, from what I understand.

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I see what you guys mean. By no means do I think Obama's task is easy or clear - or someone would have done it already.

Yeah, I agree J about the panic over nationalization. Didn't Sen. Dodd mention that they were pondering it, and BofA/Citi shares dipped 20%? So of course Obama had to go public and reassure everyone that it is not the case. I know he may have no choice, but it just seems bizarre that our leader would have to knowingly deceive us, then spring it on us at the last minute, just because he knows human nature and needs to save us from ourselves. The gov't can impose trading freezes in some situations, in order to prevent market crashes or excessive speculation. Why can't they freeze shares in banks that are under consideration for conservatorship? Not just shares, but all the complex SIVs and whatnot too? Then there won't be a fire sale and they have time to sort stuff out without chaos. Head off the bank run. So instead of figuring out how to fix the aircraft mid flight, freeze it until you know what's wrong, then fix. I am sure that is against the law or something though.

Well, for now we must demand better accountability and paper trails for all these creative investments. In the drug business, the FDA mandates that you literally show quality/safety data every step of the way in a clinical trial. First everything has to be documented, approved, and you can't deviate from your pre-established plan without very good cause. The raw materials that go to the plant, the manufacturing process, the shipping/storage, the dosing in patients, and every unused cc is accounted for. We better have something similar for the financial sector, like mortgage bundle A is 60% owned by Citi via fund X, and 40% owned by Fannie. Or if the ownership is too complicated or dilute as you said, then the gov't can cancel all ownership claims until the asset is properly valued, then distribute it as fairly as possible to the parties based on what paper trail evidence they have? I mean, can't we apply the rules of bankruptcy court to any of this? Even if we nationalize banks that are hollow and full of obligations, why not cancel/postpone those obligations? So people don't get what they're owed - sucks but not the end of the world. It's no different than the FDIC. If an insured bank goes down, the gov't may not get around to compensating the victims for years, due to all the red tape (and their modest money pool). But we feel security from such a system nevertheless. We've had over 6 months to try to figure out what we bought with TARP, and there's so much still out there to untangle. Either we need to get more headcount on this, or force institutions to give out more information.

Like A said, it was too risky to create these one-stop-shopping financial behemoths. Sure in the good times they are more competitive and can leverage diverse assets to make more money in complex investments. Yeah the sad part is Gramm, Greenspan, Clinton, Weil, Bush, Cox, and all those free marketeers are not regretful at all of their actions. They always just chalk it up to greed and human errors - the system is fine. We broke up Ma Bell and Standard Oil - so maybe we can do it again. But actually it was the Fed. Gov't that encouraged BofA to buy Countrywide/Merrill, Chase to buy Bear, etc. Just imagine how those super banks will behave in the next boom? Even with better regulation proposed by Obama, they will always be ahead of the curve. Regulation is often retrograde.

I guess this convo. mirrors our previous threads: sure Uncle Sam wants to prevent bank runs, but what if they are propping up a zombie as A said? Better to let go now than when you're more committed. That's why DC needs to stop babying Wall Street and really get down to business to find out who owns what and how much its worth. Of course the problem is that no one knows, not even the owners. But we can't sit idly by as they stall and hold out on us, until Washington has no choice but to nationalize.

Stiglitz on bank bailouts

http://www.bbc.co.uk/worldservice/business/2009/03/090302_stiglitz_nationalise.shtml

http://www.democracynow.org/2009/2/25/stieglitz


AMY GOODMAN: Why is Obama saving these bankers?

JOSEPH STIGLITZ: Well, we could all guess about the politics.... The fact that there was so much campaign contributions from the financial sector at least raises the concern.

...

AMY GOODMAN: Your response [to Louisiana Governor Jindal's rebuttal of the Obama economy speech], Joe Stiglitz?

JOSEPH STIGLITZ: I wish [Jindal] had taken an economics course.
--------

More from the interview:

"What we got in terms of preferred shares [from the 2008 bank bailout], relative to what we gave them, a congressional oversight panel calculated, was only sixty-seven cents on the dollar. And the preferred shares that we got have diminished in value since then. So we got cheated, to put it bluntly...

But the basic thing is, you know, our bankers are—many of them, not all of them—are, you might say, ethically challenged. But even were they not ethically challenged, the fact is they had incentive structures that led them to behave in the way they did...

One of the important lessons is [bank conservatorship] can be done well, could be done badly. And the countries that have done badly have wound up paying to restructure the bank 20, 30, 40 percent, even 50 percent of GDP. We’re on our way to that kind of debacle. But that shows you how bad things can be, how costly it can be, if you don’t do it well...

The question is, why did we bail out AIG? What they said is, the reason we bailed it out is if we didn’t bail it out, there would be consequences somewhere else. They didn’t tell us where. It would make much more sense if we looked at where the consequences were and deal with the problems as they turn out. Just for instance, some of the, quote, “insurance policy derivatives” were not in the United States. The people that would have problems may be gamblers, may be other institutions abroad. Do American taxpayers want to be bailing out institutions abroad?

Wall Street has done a very good job of fear mongering. They say, “If you don’t save us, the whole system will go down.” But, you know, when these banks that I talked about before, when they go down, there’s not even a ripple. The fact is, you change ownership. It happens on airlines all the time. An airline goes bankrupt, a new ownership, financial reorganization—not a big deal. What they’ve succeeded in doing is instilling a sense of fear, so that it’s a kind of paralysis that hangs over what we’re doing." - J Stiglitz

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Full text:
Nobel Prize-Winning Economist Joseph Stiglitz: Obama Has Confused Saving the Banks with Saving the Bankers
Stiglitz2

We get reaction to President Obama’s speech from Nobel economics laureate and former World Bank chief economist, Joseph Stiglitz. Stiglitz says the Obama administration has failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery. Stiglitz also talks about why he thinks Obama’s strategy on Afghanistan is wrong and that Obama’s plan to keep a “residual force” in Iraq will be “very expensive.” On health care, Stiglitz says a single-payer system is “the only alternative.” [includes rush transcript]

AMY GOODMAN: To talk more about President Obama’s speech, I’m joined in the firehouse studio by Nobel Prize-winning economist Joseph Stiglitz, professor at Columbia University, former chief economist at the World Bank, and co-author of The Three Trillion Dollar War: The True Cost of the Iraq Conflict.

Welcome to Democracy Now!

JOSEPH STIGLITZ: Nice to be here.

AMY GOODMAN: Your first assessment of the speech last night?

JOSEPH STIGLITZ: Oh, I thought it was a brilliant speech. I thought he did an excellent job of wending his way through the fine line of trying to say—give confidence about where we’re going, and yet the reality of our economy—country facing a very severe economic downturn. I thought he was good in also giving a vision and saying while we’re doing the short run, here are three very fundamental long-run problems that we have to deal.

The critical question that many Americans are obviously concerned about is the question of what do we do with the banks. And on that, he again was very clear that he recognized the anger that Americans have about the way the banks have taken our taxpayer money and misspent it, but he didn’t give a clear view of what he was going to do.

AMY GOODMAN: Let’s go to the clip last night. During his speech, President Obama acknowledged more bailouts of the nation’s banks would be needed, but didn’t directly say, as Joe Stiglitz was saying, whether the government would move to nationalize Citigroup and Bank of America.

PRESIDENT BARACK OBAMA: We will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible; force the necessary adjustments; provide the support to clean up their balance sheets; and assure the continuity of a strong, viable institution that can serve our people and our economy.

Now, I understand that on any given day Wall Street may be more comforted by an approach that gives bank bailouts with no strings attached and that holds nobody accountable for their reckless decisions. But such an approach won’t solve the problem. And our goal is to quicken the day when we restart lending to the American people and American business and end this crisis once and for all. And I intend to hold these banks fully accountable for the assistance they receive, and this time they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer.


AMY GOODMAN: President Obama on Tuesday night. Joe Stiglitz, is he holding the banks accountable?

JOSEPH STIGLITZ: Well, so far, it hasn’t happened. I think the more fundamental issues are the following. He says what we need is to get lending restarted. If he had taken the $700 billion that we gave, levered it ten-to-one, created some new institution guaranteed—provide partial guarantees going for, that would have generated $7 trillion of new lending. So, if he hadn’t looked at the past, tried to bail out the banks, bail out the shareholders, bail out the other—the bankers’ retirement fund, we would have easily been able to generate the lending that he says we need.

So the question isn’t just whether we hold them accountable; the question is: what do we get in return for the money that we’re giving them? At the end of his speech, he spent a lot of time talking about the deficit. And yet, if we don’t do things right—and we haven’t been doing them right—the deficit will be much larger. You know, whether you spend money well in the stimulus bill or whether you’re spending money well in the bank recapitalization, it’s important in everything that we do that we get the bang for the buck. And the fact is, the bank recovery bill, the way we’ve been spending the money on the bank recovery, has not been giving bang for the buck. We haven’t gotten anything out.

What we got in terms of preferred shares, relative to what we gave them, a congressional oversight panel calculated, was only sixty-seven cents on the dollar. And the preferred shares that we got have diminished in value since then. So we got cheated, to put it bluntly. What we don’t know is that—whether we will continue to get cheated. And that’s really at the core of much of what we’re talking about. Are we going to continue to get cheated?

Now, why that’s so important is, one way of thinking about this—end of the speech, he starts talking about a need of reforms in Social Security, put it—you know, there’s a deficit in Social Security. Well, a few years ago, when President Bush came to the American people and said there was a hole in Social Security, the size of the hole was $560 billion approximately. That meant that if we spent that amount of money, we would have guaranteed the—put on sound financial basis our Social Security system. We wouldn’t have to talk about all these issues. We would have provided security for retirement for hundreds of millions of Americans over the next seventy-five years. That’s less money than we spent in the bailouts of the banks, for which we have not been able to see any outcome. So it’s that kind of tradeoff that seems to me that we ought to begin to talk about.

AMY GOODMAN: So, you say Obama, too, has confused saving the banks with saving the bankers.

JOSEPH STIGLITZ: Exactly.

AMY GOODMAN: Should they all have been fired?

JOSEPH STIGLITZ: Well, I think one has to look at it on a bank-by-bank basis. Clearly, the banks that have not been managed very well, we need to not only fire them, we have to change their incentive structure. And it’s not just the level of pay; it’s the form of the pay. Their incentive structures encourage excessive risk taking, shortsighted behavior. And in a way, it’s a vindication of economic theory. They behaved in the irresponsible way that their incentive structures would have led them to behave.

AMY GOODMAN: Explain that.

JOSEPH STIGLITZ: Well, if you get an incentive structure where you say you get huge pay if things go well, but you don’t pay any consequences if things go badly, and you’re going to look at it only in terms of the profits that you make this year, not the losses that you make next year and the year after, then of course you’re going to try to get a gamble, because if you gamble and you win, you walk off with the money; if you lose, somebody else picks up the losses.

So what happened was, the banks gambled. They gambled very big. They had big profits for four years. But in the fifth year, the losses were greater than all the profits that they had in the first four years. But meanwhile, they walk off with the bonuses based on the four-year performance, and then, the fifth year, they don’t—I mean, it was quite remarkable, they didn’t even—they even got big bonuses for the record losses. Then that’s what, of course, has gotten Americans angry, so that the bonuses were described as incentive pay. But that was all a charade.

But the basic thing is, you know, our bankers are—many of them, not all of them—are, you might say, ethically challenged. But even were not they ethically challenged, the fact is they had incentive structures that led them to behave in the way they did.

AMY GOODMAN: Should the banks be nationalized?

JOSEPH STIGLITZ: Many of the banks clearly should be put into, you might say, conservatorship. Americans don’t like to use the word “nationalization.” We do it all the time. We do it every week.

AMY GOODMAN: Explain.

JOSEPH STIGLITZ: Well, if banks don’t have enough capital so that they can meet the commitments they’ve made to the depositors, at the end of every week the FDIC looks at the balance sheet, and it says, “You don’t have enough capital. You’re not allowed to continue.” And then what they do is they either find some other bank to take it over and fill in the hole, or they take it into government control—it sounds terrible, to take it into government control—and then sell it.

And that’s what other countries have done when they faced this kind of problem—the countries that have done it well. One of the important lessons is this is the kind of thing can be done well, could be done badly. And the countries that have done badly have wound up paying to restructure the bank 20, 30, 40 percent, even 50 percent of GDP. We’re on our way to that kind of debacle. But that shows you how bad things can be, how costly it can be, if you don’t do it well.

AMY GOODMAN: We’re talking to Joe Stiglitz. He won the Nobel Prize in Economics in 2001, professor at Columbia University, former chief economist at the World Bank. We’ll be back with him in a minute.

[break]

AMY GOODMAN: Joe Stiglitz, our guest, he’s the Nobel Prize-winning economist from Columbia University and co-author of The Three Trillion Dollar War: The True Cost of the Iraq Conflict.

So, you’re saying small and big banks are being treated differently.

JOSEPH STIGLITZ: Very much so. The small banks were shut down. The big banks—Citibank, Bank of America—we’re giving huge bailouts.

Most interesting case is actually AIG, not even a bank, and we poured in $150 billion. Originally, they said they only needed $20 billion. And then, every few hours, every few days, the losses got bigger, [inaudible] another $60 billion. Now, that fact, the fact that we keep getting bad news and have to pour money in, should make us really worried. The question is, why did we bail out AIG? What they said is, the reason we bailed it out is if we didn’t bail it out, there would be consequences somewhere else. They didn’t tell us where.

It would make much more sense if we looked at where the consequences were and deal with the problems as they turn out. Just for instance, some of the, quote, “insurance policy derivatives” were not in the United States. The people that would have problems may be gamblers, may be other institutions abroad. Do American taxpayers want to be bailing out institutions abroad? That’s a question we ought to be debating. There may be pension funds that may be hurt. Well, some of the pension funds may be able to withstand it; other pension funds will need to have assistance. But let’s get the money going to where we think it ought to go, rather than this trickle-down approach that we’ve been using with AIG.

AMY GOODMAN: Very quickly, which countries do you think did things well, and which didn’t?

JOSEPH STIGLITZ: Well, Sweden and Norway did things very well back in the end of the ’80s, beginning of the ’90s.

The UK, I think, has been doing it much better than the United States. Its problems are bigger— we have to realize that—because its banking sector was a more important part of the economy, and one of the banks actually had liabilities greater than the GDP of the UK. So it’s going to be facing a very difficult time. But the fact of the matter is, the way Gordon Brown did it, replacing the heads of the banks—it was real sense of accountability there. Government got control and shares commensurate with the money that it was paying in—it wasn’t a giveaway—and now trying to make sure that they start lending, forward-looking. So it’s clearly—they have a much clearer concept of what is needed.

AMY GOODMAN: Why is Obama saving these bankers?

JOSEPH STIGLITZ: Well, we could all guess about the politics. We know one of the problems about American politics is the role of campaign contributions, and that’s plagued every one of our major problems. Under the Bush administration, we couldn’t deal with a large number problems, like the oil industry, like the pharmaceutical, the healthcare, because of the influence of campaign contributions. Now, my view is, one of the problems is that whether it’s because of that or not, it lends an aura of suspicion. The fact that there was so much campaign contributions from the financial sector at least raises the concern.

Now, there is one other legitimate concern, that Wall Street has done a very good job of fear mongering. They say, “If you don’t save us, the whole system will go down.” But, you know, when these banks that I talked about before, when they go down, there’s not even a ripple. The fact is, you change ownership. It happens on airlines all the time. An airline goes bankrupt, a new ownership, financial reorganization—not a big deal. What they’ve succeeded in doing is instilling a sense of fear, so that it’s a kind of paralysis that hangs over what we’re doing. And you could understand a politician. He’s been told if you do one thing, the whole system—the sky is falling, it’s going to fall. That induces political leaders to try to do the smallest incremental step, and that’s what got Japan in trouble.

AMY GOODMAN: And your thoughts on Geithner and Summers? Can they handle this? What do you think of them as the economics team?

JOSEPH STIGLITZ: Well, the question is, are they willing to take the bold measures that are necessary? Everybody keeps saying we need to take bold measures, inaction is not a possibility. That’s not the issue on the table. Action will be taken. The question is, which action? Is the action pouring more money into the banks without any effect on lending, increasing the deficit, which the President talked about, or the actions which could be taken, starting on new banks, looking forward rather than looking to the past, significant financial restructuring?

Are we going to bail out the shareholders, bail out the bankers, rather than focusing on saving the systemically important parts of these institutions? There are some important parts of these institutions that we’ll have to save. The question is, are you going to go do it like with a bludgeon, throw money at it, or are you going to try to do it more surgically and save the parts that need to be saved? And one of the things that went wrong is when we went—let Lehman Brothers go. It caused this enormous trauma. And that’s increased the fear about—but that’s an example of doing things wrong. We didn’t ask the question. There was a systemically important part of Lehman Brothers.

AMY GOODMAN: Which was?

JOSEPH STIGLITZ: Which were the commercial paper that was part of the money market funds that were—people were using like banks, like part of our basic payment mechanism. We could have saved that part and let the gambling part of Lehman Brothers, which is not part of the payment mechanism, go down. And because we took this blunt approach, we failed. And what the financial markets are doing are saying, “You have to save everything, if you’re going to save anything.” And that’s just wrong.

AMY GOODMAN: Tomorrow, President Obama is going to announce plans to cut the deficit in half. Do you think that’s the right way to go?

JOSEPH STIGLITZ: What we have to remember is we are in for almost like—most likely a long and extended downturn. Now, we will eventually recover. That’s not a question. But in 2011, 2012, will we be in a sharp recovery or in a more slow recovery?

One of the lessons from Japan was that in 1997, when they were in the beginning of their recovery, they increased taxes because they wanted to get rid of their deficit, and the economy sank down back into a downturn.

The way to look at it is the following. Right now, in 2009, 2010, we’re talking about, per year, something like a stimulus bill of $350 billion per year. To cut the deficit in half, with a deficit as we go into—without the stimulus is one-and-a-half trillion dollars, so we’re talking about pulling out $600, $700, $750 billion. That’s the reverse of an expenditure, taking out the stimulus and cutting back expenditures by another $600 billion—we’re talking about a turnaround of a trillion dollars. Do you really believe that by 2010, by 2011, 2012, our economic recovery will be so strong that it can withstand that kind of taking out of expenditure? I don’t think so. And so, if you went ahead and did that, we will go back into a downturn.

AMY GOODMAN: Joe Stiglitz, you co-wrote The Three Trillion Dollar War: The True Cost of the Iraq Conflict. Talk about the effect of war on the economic crisis. And now we’re not only talking about Iraq. But your thoughts on increasing the number of troops, intensifying the war in Afghanistan?

JOSEPH STIGLITZ: Well, first, let me say, one of—the President did have two things that I really welcome. And several of the suggestions that we made in our book, he has adopted. For instance, in the past, under the Bush administration, the war was totally funded by—or almost totally funded by emergency appropriations. It was as if every year was a surprise. And he said he’s going to put that on the books so that we can evaluate it, make sure their money is going in the best possible way.

A second thing in our book that was, you know, really—was really, I found, very moving was the way we treat our veterans is terrible. And he said, you know, they fought for us; we have to fully fund the Veterans Administration. So those were really important moves in the right direction.

But on the other side, the move into Afghanistan is going to be very expensive. Things are not going very well. Our European—those who—NATO partners are getting disillusioned with the war. I talked to a lot of the people in Europe, and they really feel this is a quagmire, we’re going into another quagmire. And one of the things that we do talk about in our book is that if you keep a residual force in Iraq, it’s going to be very expensive. That’s the experience that Britain has had. They’ve kept a relatively few troops, and the result of that is the savings that they had hoped weren’t materialized. So that goes back to the part that he talked about at the end of his speech: the deficit. If you’re going to be spending all this money in Afghanistan and in Iraq, that deficit is just going to be that much greater.

AMY GOODMAN: So you think Obama is wrong on Afghanistan?

JOSEPH STIGLITZ: I think so.

AMY GOODMAN: Have you told him? Have you been talking to him?

JOSEPH STIGLITZ: Not on that issue.

AMY GOODMAN: You’ve been talking to him, though?

JOSEPH STIGLITZ: During the primary and the period afterwards in some discussions about what to do with the banks. There were discussions. The—

AMY GOODMAN: Meaning you talked to him—

JOSEPH STIGLITZ: Yeah.

AMY GOODMAN: —on the telephone.

JOSEPH STIGLITZ: Yeah.

AMY GOODMAN: I wanted to get your response—after President Obama spoke, the Louisiana Governor Bobby Jindal gave the Republican Party’s official response. He blasted President Obama’s stimulus bill as an irresponsible piece of legislation.

GOV. BOBBY JINDAL: Democratic leaders in Washington, they place their hope in the federal government. We place our hope in you, the American people. In the end, it comes down to an honest and fundamental disagreement about the proper role of government. We oppose the national Democratic view that says the way to strengthen our country is to increase dependence on government. We believe the way to strengthen our country is to restrain spending in Washington, to empower individuals and small businesses to grow our economy and to create jobs.


AMY GOODMAN: Louisiana Governor Jindal. Your response, Joe Stiglitz?

JOSEPH STIGLITZ: I wish he had taken an economics course. The fact is that when the economy is weak, as it is, you need to stimulate aggregate demand. If you don’t do that, the economy gets weaker. And what’s good about most of Obama’s plan is that it’s creating assets. So, while the liabilities go up—we’re going to have to borrow—we also are creating assets. If we had spent a few billion dollars under the beginning of the Bush administration on the levees in New Orleans, we would not have had to spend so much money in the cleanup, in dealing with the devastation that it brought. That would have been money that would have had an enormous return. $5 billion would have saved $150 billion. And so, that’s an example where there are certain kinds of investments—investments in technology, investments in people—that the private sector can’t do and the government can do in ways that give us a very high return.

AMY GOODMAN: Joe Stiglitz, very briefly, the whole issue of globalization—we’re in the tenth anniversary of the mass protests in Seattle, the Battle of Seattle. What about the questions raised in corporate-led globalization?

JOSEPH STIGLITZ: Well, I think two very important issues. One of them is the model that was behind much of the impetus for that globalization was a model based on free unfettered markets. And we know that model, deregulation, has failed. That was the kind of thinking that led into the problems the United States is in today.

The second point is that while we talk about free and open markets, what the United States has been doing has destroyed a level playing field and will have profound implications for the evolution of globalization going forward.

AMY GOODMAN: And for developing countries?

JOSEPH STIGLITZ: And for developing countries, it’s having a devastating effect. I mean, just a couple days ago, the other American banks were complaining about the huge subsidies that were given to Citibank. They say, “How can we compete when the government is subsidizing Citibank to that extent?” Now, if you think these other American banks that have gotten massive subsidies are complaining, you can imagine the kind of feelings that people have in developing countries that say, “We can’t afford those mega-subsidies. How can we compete against Washington being able to write a check any time anything goes wrong?”

AMY GOODMAN: And healthcare? He’s called for universal healthcare, but he does not call for single-payer healthcare.

JOSEPH STIGLITZ: I think that there are some fundamental problems in the efficiency of our healthcare system. And what we’ve seen is that the private healthcare insurers do not know how to deliver an efficient way.

AMY GOODMAN: Do you support single-payer healthcare?

JOSEPH STIGLITZ: I think I’ve reluctantly come to the view that it’s the only alternative. You know, we’ve tried a lot of other things. And we’ve been—you know, I was in the Clinton administration, and we debated a lot of alternatives, and I’ve watched things as they’ve emerged and, you know, evolved over the last twelve, sixteen years, and I think there’s a growing consensus that the private market exclusion is not going to work.

AMY GOODMAN: Joe Stiglitz, I want to thank you for being with us, the Nobel Prize-winning economist, professor at Columbia University, co-author of The Three Trillion Dollar War: The True Cost of the Iraq Conflict.