In addition to losses in mortgages, there will be losses in other types of loans, due to the weak economy in the coming months, consumer loans (credit cards, etc), l 'commercial real estate, junk bond business, and other types of loans (eg credit default swaps). Estimates of losses in these other types of loans of up to one trillion dollars. Therefore, the total losses for the financial sector as a whole could reach $ 2 trillion.
It is further estimated that the banks will suffer nearly half of the total losses in the financial sector. Other losses are borne by non-bank financial institutions (hedge funds, pension funds, etc.) (www.thenation.com). Therefore, by dividing the total losses for the financial sector as a whole in the two losses for the banking sector could be as high as 1 trillion dollars. Since the total capital of the bank in the United States is approximately $ 1.5 billion, the losses of this magnitude would remove two-thirds of total capital in U.S. banks. This would certainly be a blow not only to banks but also United States economy as a whole (www.nytimes.com).
Bank losses
The coup for the rest of the economy would happen the rest of the economy relies on banks for loans, investment loans to businesses and households for consumer and mortgage loans. Bank losses as a result of a reduction of capital in banks, which requires a reduction in bank loans (credit) to maintain acceptable ratios of debt capital. Assuming a ratio of capital lending 10:1 (this assumption has been made in a recent study by Goldman Sachs), each $ 100 billion loss and reduction of bank capital, usually resulted in a reduction of $ 1 billion in bank loans and reductions in business investment and consumer spending. Under this rule, even the low estimate of bank losses of $ 1 billion, would lead to a reduction in bank loans of 10 billion dollars! It would be a blow to the economy and cause a serious recession (Kathryn and Jeffrey, pp 121-190).
Bank losses could be offset to some extent by "recapitalization", i.e., new capital invested in banks and other sources. If banks capital can be restored, at least partially, the reduction in bank loans should not be so important and traumatic. So far, banks have lost about $ 500 million and has raised approximately $ 400 million of new capital, most of which come from "sovereign funds" financed by the governments of Asia and the Middle East. Thus, paradoxically, the U.S. banks can be "saved" (in part) by the increase in foreign ownership. U.S. bankers are featured on their knees before these foreign investors, with prices and discounts to help them. It is also an important indication of the decline in economic hegemony of the United States as a result of this crisis. However, it is increasingly difficult for banks to raise new capital from foreign investors, because their investments have already suffered significant losses. In addition to the credit crisis, consumer spending will be lower in coming months due to the following factors: declining household wealth, so that the withdrawal of capital from mortgages (which are very important in recent boom), and reduction of jobs and income. Together, they form into a serious recession (Kenneth, pp 145-189).
Government policies
The federal government has acted with great force to try to avoid a more serious crisis, and success has been modest in the short term, but it remains to be seen what the long-term success.
Federal Reserve
The Federal Reserve has approved initially very expansionary policies (lower short term interest rates and the increase in commercial bank loans) in the hope that banks increase their lending to businesses and households. However, these traditional policies have not been effective, because banks were reluctant to increase their loans, either because they are not based on the creditworthiness of borrowers, or also because the capital loss they have suffered (and continue to suffer) require reducing their lending to maintain capital ratios acceptable loan (www.thenation.com).
Because of this failure of traditional policies, the Fed began to improvise unprecedented new policies. It extended the right to secure its loans, treasury bonds, just before they were entitled, but now all types of riskier securities are eligible, including those based on mortgage backed securities. More importantly, the Fed increased lending to investment banks for the first time in its history. Investment banks are not regulated by the Federal Reserve, which has always believed that the Fed does not have the responsibility to act as "lender of last resort" for investment banks when they are struggling. However, when the investment bank Bear Stearns was on the verge of bankruptcy at the end of March, the Fed decided it had to act as lender of last resort for Bear Stearns and JPMorgan Chase, which took over Bear Stearns. Since Bear Stearns was heavily indebted to so many different financial institutions, bankruptcy would have caused loss and could lead to a complete merger of the United States financial system to lend money to anyone any that anything, and a disaster for the economy. Who was at the head of the Federal Reserve Ben Bernanke, the nightmare, and that the Fed acted quickly and decisively as lender of last resort to these investment banks. The Fed justified its course beyond its traditional boundaries by saying that "the U.S. financial system is in danger." The statement by the Fed and its actions are clear evidence of the fragility and instability in the United States financial system is today (Steven, pp 34-189).
Then, in September 2008 when the bankruptcy of Lehman Brothers (then the fourth largest investment bank in the United States) resulted in a worsening of the crisis, the Fed took even more extraordinary and unprecedented rescue an insurance company, AIG, the largest insurance company in the world. AIG has dominated the market for credit default swaps, which are a form of insurance against the violation of obligations, including mortgages based on high-risk securities, as well as a form of speculation that the bonds and other defaults. But AIG is in financial difficulty as the Fed fears that the company in May not pay all the insurance policies sold. And the failure of AIG would pay for losses for banks (and others) who have acquired the insurance and the loss of more added to the already staggering losses suffered by banks. So, again, the Fed decided it had to rescue AIG in order to "save the financial system (www.nytimes.com)."
So far, the Fed unprecedented politics, were less successful, but not a total success. At least once every financial collapse has been averted (for now). And investor confidence appears to have been recently restored by the commitment shown by the Fed to do its utmost to avert a financial disaster. However, commercial banks and investment banks have not increased their loans. And policies of the Fed can not solve and not solve the fundamental problems of too much household debt, declining house prices and rising foreclosure rates (mrzine.monthlyreview.org).
Congress
In February 2008, Congress quickly passed a "stimulus" bill $ 168 billion of tax cuts that includes, for households and tax cuts for businesses. These tax cuts have a positive effect on the economy last summer, but its effect was slight and temporary. At best, the tax cuts for ever to stimulate consumer spending, since such reductions could be spent once (www.thenation.com).
The future Obama administration and Democrats in Congress are working on a second, much larger stimulus of about $ 850 million, consisting of two thirds, the increase in spending (with the emphasis on assistance to States, education , unemployment benefits, public works and infrastructure projects and one third of the tax cuts (primarily payroll taxes). This second pulse will be somewhat more efficient first, mainly because there are much larger, and also because more than the sum total of the spending increase rather than reduce taxes. Therefore, the momentum of the recession a little less serious than would otherwise be, but I do not think it will generate an economic upturn in the second half of 2009, as most economists think. I believe that the reduction of forces in the economy are so strong now that reductions are additional reductions that are mutually reinforcing in a downward spiral, the economy will continue to decline until least 2009 and probably 2010 (Kenneth, pp 145-189).
The positive effects of this second pulse will be short lived, as the first. If the economy is still contracting in 2010, will probably need a third stimulus plan. But it will be possible? And in the long term, are the possible negative effects of this expansionary fiscal policy savagely. When finally the recovery will be slower than usual, because the interest rates should be higher and the rates should be higher to pay today to encourage spending and tax cuts. In addition, an expansionary fiscal policy does not solve the fundamental problem in the economy, the heavy debt burden of households and businesses that threaten to bankrupt and to control spending. An important part of this debt must be paid, if this problem is to be solved(Kathryn and Jeffrey , pp 121-190).
In July 2008, Congress passed an anti-exclusion, which allows for the refinancing of mortgages that are in default of a mortgage with the new value would be about 85 percent of the market value of homes, and would be guaranteed by Federal Housing Administration. However, lenders should open the refinancing and, so far, very few donors have agreed to open these new mortgages with reductions in the principle owed.
In early September 2008, Fannie Mae and Freddie Mac, the giant home mortgage companies that own or guarantee nearly half of all mortgages in the United States, are in danger of bankruptcy by the continued deterioration mortgage. The Treasury has responded by taking over Fannie and Freddie into a conservatorship and ensure to pay all its debts in full. This rescue will probably cost the taxpayers hundreds of billions of dollars. William Poole (ex-President of the Federal Reserve Bank of St. Louis) has estimated the total cost to taxpayers could be in the neighborhood of $ 300 billion.
The reason for the rescue of Fannie and Freddie was similar to that of Bear Stearns, who were in danger of bankruptcy, and if that happens, then the U.S. mortgage and housing industry would probably have collapsed almost completely, which would have dealt a serious blow to the U.S. economy as a whole(Rudiger and Jeffrey , pp 67-89).
Then in late September, the crisis worsened, Treasury Secretary Paulson and Congress approved the application (the threat of a rapid fall in the bag) $ 700 million for the purchase of high-risk mortgage-based securities ( "Waste toxic) U.S. banks. $ 700 million is a lot of money, which is $ 2,300 for every man, woman and child in the United States. Shortly after the adoption of this law, Paulson changed his mind and decided to use the $ 700 million to "inject capital into banks (instead of buying their toxic securities), hoping it would be a better way to encourage banks to increase their loans. So far, the first half of the $ 700 million has been spent as a rescue of giant banks and their obligations, but banks are still not willing to increase their loans. The picture is similar for the second half of the money from the bank bailout(John, pp 34-289).
The rationale for this rescue, as above, is that if the government does not break the bank and its obligations, then the entire financial system collapse in the United States (in the memorable words of the worst president in 'American History: "This is the sucker "). Even the dreaded "d-word" is more like a gun to his head. It is economic in nature "Sophie's Choice," the bail bond with the taxpayers' money or suffer a deep recession or depression (www.thenation.com).
Having to choose between these options, it is a scathing indictment of our current financial system. The situation suggests that the capitalist financial system, left to itself, is inherently unstable and can not "avoid" being bailed out the crisis by the government to taxpayers. There are two positions: the capitalist financial system is inherently unstable and that the purchase is economically unjust (www.nytimes.com).
Nationalize the financing
Thus we can see that there is a cruel dilemma for the governments of capitalist economies and the public and to the left. When a financial crisis endangers, or is initiated, there seems to have only two choices: bail the financial capital, in any form or face a severe financial crisis, which in turn causes an even more serious crisis across the economy, causing misery and hardship (mrzine.monthlyreview.org).
The only way to avoid this dilemma is cruel to make the economy less dependent on financial capital. And the only way to achieve greater independence from the capitalists is that the government itself to become the leading provider of credit in the economy, especially for residential mortgages, and perhaps also for consumer loans, and perhaps for loans to enterprises. In other words, the funding should be nationalized and operated by the Government in the interest of public policy goals (www.thenation.com).
What this means in the United States today is, first, the quasi-nationalization of Fannie Mae and Freddie Mac that has already occurred should be permanent, government and agencies such mortgages should be used to achieve public policy objectives for housing decent and affordable for all, rather than maximizing profits. Secondly, the big banks ( "systematically important" that the banks are "too big to fail") who are at risk of bankruptcy should be nationalized and operated to achieve public policy goals. These nationalizations should also involve a significant deterioration of the current debt of Fannie and Freddie and the nationalization of banks (as is done in bankruptcy proceedings) to these financial institutions solvent again without cost taxpayers nothing.
We must do something. Otherwise, continue to face the cruel dilemma is to rescue the financial capital or face an economic crisis and even worse in the future and our children and their children. Within the institutional framework of capitalism, the only two options. In order to create other options (most favorable choices for workers), we must radically change the institutional framework of capitalism, we must turn to finance capitalist nationalized public finances(Rudiger and Jeffrey , pp 67-89).
The nationalization of banks does not solve the current economic crisis entirely, but to stabilize the banking system and could lead to increased lending to businesses and consumers money. A solution to the current crisis requires, above all, a significant depreciation of the huge mountain of debt accumulated over recent decades in home mortgage debt, consumer debt, corporate debt, bank debt, etc(Kathryn and Jeffrey , pp 121-190).
Conclusion
The nationalization of banks is not socialism, but could be an important step in the path of socialism. The use of banks by the government to pursue important public policy goals, rather than maximizing profits, is a model for the rest of the economy. More and more people will realize that the whole economy to function according to the goals of democratic politics, decided it would be better for the vast majority of Americans that today's economy, which is managed according to the maximization of profit produces great inequalities, and is very unstable and prone to crisis, as the current crisis, which caused great suffering and hardship. Of course, we can create a better economic system than that.
Work Cited
Bob Moser. "Mill Hill Populism." (On economic devastation in North Carolina.) The Nation, May 12. Retrieved on May 12, 2009, from: www.thenation.com/doc/20080512/moser.
Jerry Tucker. "Interview with Jerry Tucker, former UAW Official, on the US Auto Industry in Crisis." MrZine, November 23, 2008. Retrieved on May 12, 2009, from: http://mrzine.monthlyreview.org/tucker231108.html.
Joann Wypijewski, "Postcards from Ohio." The Nation, March 17, 2008. On-line at .
John Eatwell, "International Financial Liberalization: The Impact on World Development", United Nations Development Programme Office of Development Studies Discussion Paper Series, 1996, pp 34-289.
Kathryn M. Dominguez and Jeffrey A. Frankel, "Does Foreign Exchange Intervention Work?" Institute for International Economics, Washington D.C. September 1993, pp 121-190.
Kenneth Kasa, Federal Reserve Bank of SF, "Time for a Tobin Tax?" Federal Reserve Bank of San Francisco Economic Letter, No. 99-12, 1999, pp 145-189.
Louis Uchitelle. 2008. "The Wage That Meant Middle Class." New York Times, April 20. Retrieved on May 12, 2009, from: http://www.nytimes.com/2008/04/20/weekinreview/20uchitelle.html.
Michael Zweig. "The War and the Working Class." The Nation, March 31. 2008. Retrieved on May 12, 2009, from: .
Rudiger Dornbusch and Jeffrey Frankel, "The Flexible Exchange Rate System: Experience and Alternatives", National Bureau of Economic Research, Working Paper No. 2464, 1987, pp 67-89.
Shotwell, Gregg. "Bailout--An End Run Around Bankruptcy." MR Zine, December 1. Retrieved on May 12, 2009, from: http://mrzine.monthlyreview.org/shotwell011208.html.
Steven Greenhouse. The Big Squeeze: Tough Times for the American Worker. NY: Alfred A. 2008, pp 34-189.
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Appendix
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