March 2, 2009

Baker: We Must Kill the U.S. Zombie Banks

Posted: 11:27 AM ET

By James Baker, chief of staff and Treasury secretary for President Ronald Reagan and secretary of state for President George H.W. Bush

Beginning in 1990, Japan suffered a collapse in real estate and stock market prices that pushed major banks into insolvency.

Rather than follow America’s tough recommendation – and close or recapitalise these banks – Japan took an easier approach. It kept banks marginally functional through explicit or implicit guarantees and piecemeal government bail-outs. The resulting “zombie banks” – neither alive nor dead – could not support economic growth.

A period of feeble economic performance called Japan’s “lost decade” resulted.

Unfortunately, the US may be repeating Japan’s mistake by viewing our current banking crisis as one of liquidity and not solvency. Most proposals advanced thus far assume that, once confidence in financial markets is restored, banks will recover.

But if their assumption is wrong, we risk perpetuating US zombie banks and suffering a lost American decade.

READ MORE of Sec. Baker's commentary HERE

Filed under: Economy

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Pietro Sirianni   March 2nd, 2009 5:14 pm ET

Dear Mr. Baker,

Thank you for that false analogy. Any fifth-grader could tell you that the internal workings of the U.S economy are dissimilar to that of the Japanese economy.

I implore you and your fellow republicants to give up this crusade against the common man and the American dream. It is terribly unpatriotic to try to fill the masses with unfounded fear. Your sorry excuse for a party has seen its day, now please go away quietly.

The saying holds true; "Cowards die a thousand deaths." And though it may seem barbaric, I enjoy watching the republicant party die again every new day.

Peter Boettcher   March 2nd, 2009 6:16 pm ET

Hello Mr. Baker,
here is a brief description of what happened and what we need to do.
Our financial system is fundamentally broke.
Scrupulous speculation on Wall Street, tax cuts and an illegal War in Iraq has caused it.
I say no money what so ever for the bank bailout.
They have gotten themselves into this mess and they have to pay for it.
The Government should stay out of it.
Important to know is that the real balance sheet of those banks shows more than 15 trillion in debt.
So that is why the Government cannot take an owner ship in those banks, we cannot be held liable for those speculations.
Also we ought to start putting the people responsible for those frivolous activities into jail.
Kill the Hedge Funds and Derivatives all together.
We can no longer continue with business as usual.
We have to put an end on how Wall Street works.
Until we fix the system we shouldn't put 1 cent into those broken banks.
We need to fire all those Executives who put us into this mess
Geithner needs to either to step up to the plate NOW!!! Or go!
President Obama must act now!!!!!!!!!!!!!!!!!!!!!!!!
The President can forget about everything he has said over the last 2 weeks if he doesn’t fix the banking system, this is the most important issue right now and nothing else!

A word about Wall Street!
Who cares about Wall Street
Wall Street is over.
Whenever I see a headline about Wall Street I know instantly that there is nothing but b.s coming.
Wall Street will play a much smaller role in the future.

atsegga   March 2nd, 2009 6:21 pm ET

The Borgen Project has some good info on the cost of addressing global poverty.

$30 billion: Annual shortfall to end world hunger.
$550 billion: U.S. Defense budget

JIM CARROLL INTERNET FREE PRESS   March 2nd, 2009 6:26 pm ET

If your Congresswoman isn’t bringing home some pork, get rid of him or her and elect someone who can. What do these idiots think we elect them to do? Pork produces jobs.
Someone ought to get an earmark and study the bridge to nowhere to see how many jobs it created, how many pairs of shoes were sold, how many cars were bought, how many homes were sold, and how many tables was bread put on.

Mari   March 2nd, 2009 7:47 pm ET

@ Pietro Siriani.......... well said, sir! I agree. We are in the middle of a national crisis, and the GOP offers nothing but obstruction.

The president has been in office a mere 40 days! It took Bush eight years to destroy our nation! When Bush took office in January of 2001, we had a thriving economy; Clinton had left Bush a balanced budget, and ....... a budget surplus! In fact, the Nation debt that Clinton inherited from Bush I, Clinton had been paying off!

Eight years later, we are in two wars; Bush left Obama a budget deficit of over trillion, and a national debt that Bush ........doubled.....!

What I keep asking and no one on the far-right answers is:

Where were these so-called-fiscal-conservatives when Bush was doubling the national debt?

When Bush was hiding the ........true.... cost of the war with Iraq?

Its time for the GOP to realize that they can talk all they want about "love of country" but to NOT work with President Obama sends a very clear message to America: the GOP cares only about itself.

Barbara   March 2nd, 2009 8:56 pm ET

Personally I have never supported the bank bailout plan. The reason is if the bank is a business, it must succeed or fail on its own. Just as the small entrepreneur has to succeed or fail on its own so must bigger corporations. These CEO's ran these companies into the ground and now want taxpayer bailouts. It needs to stop and let the chips fall where they may. Some say it is necessary but I do not.

Sherry, N. Calif.   March 2nd, 2009 9:15 pm ET

I believe that the Banks and Wall St. have lost lots,lots & lots of our money! Bottom line. No one knows how much and we still ave not hit the bottom. AIG will be back,Trust me. Not even Mr. Baker knows what to do with this global crisis that the world has never faced. I see the U.S. still has the ME syndrome. Get real people-The President and our Government are trying what they can to save U.S. Save food, not money!

Wanda   March 2nd, 2009 9:27 pm ET

I have tried to save our school system money. I emailed the system and told them about the constant leak of water in the classrooms at many of the schools. All day everyday water is leaking. Wouldn't it save money to correct this problem?

Henry   March 2nd, 2009 9:29 pm ET

Question: What did the sellers do with all that money they got from now defaulting institutions? Since we are dealing with a substantial amount, we may assume that this money was reinvested somewhere (trillions of it). Where?

Karl Pozmann   March 2nd, 2009 9:36 pm ET

We won't have zombie banks if we follow Ben Stein's recommendation to basic make derivatives illegal. It is a very simple, elegant, solution. I voted for Obama and it's scary that he's surrounded himself with the same people that first allowed derivatives under Clinton. The democrat pundit seemed to just not understand what Mr. Stein was talking about.

Make derivatives illegal or tax them at 90%.

Gary Chandler in Canada   March 2nd, 2009 9:36 pm ET

Didn't America throw off a Monarchy to become a Republic? Now, the Republicans are the Biggest apologists for the the New Royal Families of USA! If the Lamebows and Jindals were around back then, those Kings of England would STILL be in power.
Obama walked into a $53,000,000,000,000 and has turned it into a $55,000,000,000,000 HOLE. Eventually, the sooner the better, the WB and IMF HAS to step in!
The GOP has the best plan, but they would would hand it over to incompetent, corrupt Nabobs, in the false name of freedom and patriotism to pad THEIR wallets! They can TALK pretty good about what is right, but are slavering to hand it back to their BOSSES who caused the MESS.
[An American worker is a Capitalist who has no money.]

Laurie from Michigan   March 2nd, 2009 9:41 pm ET

STop giving money to AIG........... This is troubling 150 billion plus 30 or 40 billion. NO more.... Tell them to sell what they can.

Greg D.   March 2nd, 2009 9:42 pm ET

Tonight you're discussing the AIG situation. Again and again we here from many experts how AIG is too big to fail, it would cripple the world economy.. 2 questions, why did we allow them or any company to get so big as to potentially ruin an entire economy? 2nd, why aren't any other countries governments providing such enormous amounts of their tax payers money, why is the U.S. paying so much and other countries giving nothing?

Gary Chandler in Canada   March 2nd, 2009 9:43 pm ET

Taking all the traffic signals off the roadways, would be WILDNESS, not FREEDOM.
The American and World economy needs GOVERNMENT for the PEOPLE, not the Aristac*nts!
America should LEAD a World wide Fair Trade Movement. FAIR WORLD>
STOP usury!!! NO credit card rate above 6%!
WAGE and PRICE controls.
OR let the World Bank come in with their briefcases.
WHY they are NOT is the big question. They should have come in after ENRON!

Joe Duran   March 2nd, 2009 9:45 pm ET

Larry the key question is why did the justice department anti-trust group allow a company like AIG to become so big. It appears the republicans not only looked the other way on deregulation but they didn't allow the Justice department to do their job. We wouldn't have an AIG if the Bush administration would have ensured we spread the insurance risk amongst several firms. I think their should be an investigation of who made money allowing a firm like AIG to become so big.

Shirley Thomason   March 2nd, 2009 9:45 pm ET

If the whole world is invested in AIG, why don't they pitch in and help on this apparently global mess. America always has to come to the rescue.

Sherry, N. Calif.   March 2nd, 2009 9:52 pm ET

Mr. Stein is right and so is Mr. Schultz. We need more regulation in banking. The little guy needs help too. Pres.Obama knows this. The bottom has not come yet. We will have more bailouts. Any money made on investments from what was sold of bad assets to other countries has gone into CEO's pockets-long ago. 2007 four of Goldman Sachs CEO's took 70 million each home in their fat fat pockets. You want names? I have all of the ones from B of A , AIG, ETC. Now they need to give them the money! So who gets stuck? WE DO! WE THE PEOPLE OF THE U.S. GOvernement. We are the government-we the people-We elected these people so kick back and let them fix it. We are the little people, " to little to care about but they are to big to fail."

dave   March 2nd, 2009 9:58 pm ET

were tax payers loosing our jobs getting unemployment yet our money is bailing out banks who coned people into credit card debt but when we cant pay our bills instead of working with us they turn
us over to a collection agency then were haressed to death why cant they help us when were low on money and give us a break it will never happen done tried it

Coakoa Keaton   March 2nd, 2009 10:08 pm ET

My thoughts on this whole situation is that no matter what unless BOTH PARTIES come together and work with the President, the economy will continue to fail. I am so tired of turning on the TV and seeing clips of Repubs saying negative things about President Obama. Fact: Obama won the election. Now what the politicians must do is work together to fix this "Mess" as the media calls it. Another thing, everytime I see one of those reublicans get on TV and bad mouth the President, it just reassures Americans that Washington is only out for themselves. When you hear words like, US, THEM, WIN, HIM, FAIL, What happened to WE the AMERICAN PEOPLE??? I am very dissapointed in this country right now and for the last 10 years. People get on TV and say things like we are leaving debt to our youth, well here is what I have to say about that, WORK TOGETHER AND COME TO AN AGREEMENT AND FIX THE DAMN PROBLEM!!!!!! I AM THAT YOUTH YOU ARE SPEAKING ABOUT!!!!!!!!!!!!!!!!!!!

marie   March 2nd, 2009 10:17 pm ET

If governors Palin and Jindal are the best that the GOP has to offer in 2009,( a rhetoric of negativity and tolerance of bigots such as Rush Limbaugh and Ann Coulter which seems to appeal to the lowest common denominator in their party, without offering any original ideas of their own, I guess the Democrats can probably relax a little bit. I didn't hear the governor from Louisiana for example offer any alternative strategies for solving some of our nation's greatest challenges. For example, President Obama has already proven himself to be the " True Maverick of the senate, (albeit the state senate of Illinois)" on the issue of education. While he was still a state senator, Obama endorsed Charter schools, a daring move for a democrat. The list goes on, but Republicans are really only interested in seeing him fail, even if they don't all have the guts to admit it.

Denise Chandler   March 3rd, 2009 12:26 am ET

Dear Larry, Today's shirt and tie look great. I like to say thanks, it's refreshing to hear you cover tough topic's and keep you cool.

Sincerely Yours
Lady Dee

KURT   March 3rd, 2009 12:28 am ET


Maryl-CA   March 3rd, 2009 12:30 am ET

Obama took on a tough assignment with this Economy. I believe that it would have been better if Obama would have reviewed the Stimulus package for pork that was expensive. I believe that Obama's financial people should make all banks accountable, until they can stop spending bailout money for the wrong reasons. Zombie Banks could help the economy, if again, they are made accountable. Banks do not necessarily need to be nationalized, they just need to begin giving loans and not "short-changing" the customer and do their job. Credit card divisions and companies definitely need to be regulated. They are "ripping off" credit card holders with high interest and hidden fees.
How many more bailouts is AIG going to receive?

Sallie Bruchac   March 3rd, 2009 1:06 am ET

Please tell people on your show, Larry, that Henry B. Steagall, who was the author, with Carter Glass, of the Glass-Steagall Banking Bill.... did not prounouce his name "STEEGLE", but, Ste-gall. .....He came from Wales, to America, in the early days of the revolutionary war, and it is prounounced "SteeGall". I am his grandaughter, and you can take my word for it.

Mike P   March 3rd, 2009 5:36 am ET

you know whats great, the decision making on capitol hill. lets give 30 billion to a company whos stock value is 40 cents. thats change i cant believe i'm hearing

ed,vancouver canada   March 3rd, 2009 6:16 am ET

AIG is 90% outside the united states.
Why is it so imperative to save it?
is it foreign investment like pakistan owning the bank of america in 1986?investors like saddam hussein?
is there a fear of mass terrorism if it fails?
someone is hiding something.It doesn't make sense how the government owns 80% of a 100 billion dollar company for 180 billion.
What else is tied in to AIG?
people need to know the truth.
I smell a rat.

ed,vancouver canada   March 3rd, 2009 6:24 am ET

Henry the trillions of dollars were paid out to rich terrorists under ponzi schemes.Get stock and don't pay for it and collect a dividend that is too good to be true.Dividends are paid with top money.
Foreign pension funds and domestic pension funds were putting in the top money and because they were long term,did not cash out.
the money cashed out went to terrorist countries like iraq iran syria lebanon pakistan for arms.
where do you think they get the money from?
once the money man got burned for a few billions,attacked wall street to get even.

Jerry Whitehead   March 3rd, 2009 9:56 am ET

Why delay the inevitable? Let it (Wall Street) crash so when can get to work on rebuilding. By the way, I love Canadians.

Michael C. McHugh   March 3rd, 2009 4:42 pm ET

Nationalize the failed banks, remove the failed management, and run them as public services, helping out the little guys with their heavy debt loads.

Just write off alll the toxic and fake assets. Their real value is zero in any case.

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