Geithner Plan I

[naym2011]

let the banks fail

either they pay for the bad assets or the tax payers

banks literally are a a scam, fractional reserve banking, making money from the fed

no benefit to the main economy, just making massive bets which risk the entire economy

[paulceltics]

thanks

[teargardens]

The 3 dislikes are from government trolls, in a vain attempt at suppressing the truth, which is "our whole economic system is an illusion perpetuated by mass ignorance as to the true nature of the fiat-slave-debt money system"There are two usa's now, The main one is a corporation which controls all the aspects of the second one, which everyone is familiar with. The so called 'united states of america', founded and run by wealthy elite bankers with no country or allegiance to anyone.

[Nautilus1972]

They're trying to service a debt which cannot be paid back since every dollar printed to pay back the debt is borrowed at interest. Welcome to the Federal Reserve scam. Take back control of your currency Americas. petition your congressman.

[kparso]

The graphics remind me of Atari's Missle Command video game but the analysis is worthy

[666SlayerThrash]

"bad asset" I heard "badass ed"

[vickiormindyb]

I know someone who REALLY doesn't like Paulson.

He's an economist, but he used to be a banker. IDK if that makes sense, b/c I don't understand much about Economics no matter HOW hard I try, I just know the guy said he's not like Paulson.

I thought he was b/c he was a banker. But I changed my mind after he snapped at me.

BTW isn't the gov't using OUR TAX MONEY to make the payments?

Where else does the gov't get money?

[akai1sora]

@vickiormindyb they print it. I guess you could look at it as stealing or taxing the dollars you have, in a stealthy way.

[alonelychild]

Wouldn´t be much easier to the FED to nationalize the main troubled banks, take those toxic assets into its balance sheet, and then privatize them again? After all in the end the taxpayer will carry out the burden

[sunnysang]

Diamonds are 4EVER

[2514west]

I don't understand why the Govt. doesn't just pay the debts of the bank...EX: pay the 60 dollars the bank owes to whoever. Then the bank will have equity and assets based on realty. Also, Sal you are the man. I have begun to love math from your videos, and I have decided to teach myself calculus 1/2 over the summer using your videos and a textbook I bought. THANKS!

[nikanj]

Those guys aren't smart are they? They're irrational and terrified. :P

Great video by the way. I'm amazed by the scope of topics you've covered in such great depth. You are a true jack of all trades (a least when it comes to the analytical and quantitative stuff).

[albartsch]

Could you put dates on these videos?

[hifhif123]

Sal, you are quite possibly the most intelligent person on earth right now. You have quite a wealth of knowledge on too many subjects... Thanks for all you do. If I win the lottery, I'm definitely funding the Khan Academy with it...

[sysopkc]

Hahaha yeah the conclusion is...It wont work. And it will eventually bankrupt the Govt. due to a number of unforseen effects.

[aw3212]

The Fed doesn't care about lending this money because it doesn't really exsist anyway!  It is lent into exsistence - if they "lose it" they lose nothing. Our system simply can't keep going like this. The dollar needs to collapse and the new Ponzischeme needs to be created - whatever it is.

[StealthyBurrito]

This is Libertarian nonsense. The money printed by the Fed is backed by the rating of the US government. If the dollar is devalued to nothing, the credit rating of the dollar would tank to the point where the US government would very likely lose all legitimacy, both domestically and abroad. The Fed has a huge incentive to insure that the money it prints is backed by a solid rating, lest the Fed cause the collapse of the entire US government.

[Noisycowonline]

Yippee. The criminals at the Fed are getting even MORE power now. Never overestimate the intelligence of Americans.

Geithner sucks - Banker's boy - doesn't give a shit about you.

[modelmark]

the private investers are suddenly willing to pay more because the risc is on the FED. But because the fed just prints the money, the risc is really on all people holding dollars.

The holders of dollars are forced to take on that risk, because the fed is an enforced monopoly.

[jeffwitkowski555]

every one look up title 28 subtitle vi chapter 176 subchapter A section 3002

look for the part that states what the United states means. by this it states that the united states means a federal CORPERATION!!!!!

we the people need to press for a law stating that no corperation has the right to tax. if we get this passed then the U.S. cannot tax anymore. 

i found this to be interesting but dought id it will work.....

[poweredbyvlad]

that would be bad? are you dumb

[imnos482]

OK for all you people that say the "fed" is part of the government. What is their balance sheet? When was it audited? by who? Is this debt part of the national debt? If not, why not?

Also, if the Fed buys the assets (with money printed out of nothing). In the end, who owns the assets? The FED. So, why doesn't the FED just buy ALL the assets? And own the whole country. Also, who will they owe the money to for buying all the assets? NOBODY, it is brilliant. (that may be in the next vid)

[modelmark]

It does not matter if the FED is part of the government or not, bad consequences start to occur when a group of people's function is a monopoly enforced by the initiation of force by government. This is true for all central banks in the world. Governments force their subjects to use their crappy money. As soon as a gun is on your head and you have to use something, you can be sure it is crappy and it is going to be crappieer.

[Stargazer5781]

Amen dude. Go FDR!

[StealthyBurrito]

The Fed is not an enforced monopoly. There is a free market of currencies. You are free to exchange your wages for the Euro, or any of hundreds of other currencies. If you are in the US, simply exchange currencies prior to every transaction such that your short term hold on the dollar makes the fluctuations in its value negligible. The stupidity of the counter-argument becomes readily apparent in this case, as having a central currency is infinitely more practical than the alternative.

[modelmark]

try to tell that to the guys of the liberty dollar. Try to start a central bank and see what happens, then we talk again. Saying you can exchange back and forth to avoid using it, is like saying a slave is free, because he can decide when to go to the toilet. Legal tender laws are an opinion with a gun behind it. The gun is there for your exploitation.

[StealthyBurrito]

Cry government exploitation all you'd like, at the end of the day you still offer no alternative. What should we do, return to barter and trade? Good luck trying to trade whatever you do from 9 to 5 to a supermarket in exchange for meat and potatoes. The supermarket isn't holding a gun to your head to use a dollar -- it simply just doesn't want what you have to offer in exchange.

[modelmark]

Trade we already do know. Barter? Why could people not voluntarily come up with money? Why would it need to be coerced by a group of extortioners?

Explain me how this system with gvt can possibly work? Trillion dollar deficits as far as the eye can see? Wars on all fronts, Czars running everything on decree, with their eternal wisdom? Come up with an alternative that does work and still is run by a coercive monopoly.

[StealthyBurrito]

The current system does work. I exchange my daily wage for food on the table and a roof over my head. That's all I, and 99% of Americans, care about. And once again you evade my question.

This is about as blunt as I can put it: you can print your own money, but NOBODY WANTS IT. This isn't about government extortion, it's simple economics 101, supply and demand.

[modelmark]

current system almost bankrupt, if you think you can print money forever and import everything and bailout everyone, you are going for the pits. It's based on violence and violence will always spread.

Sure any money provider like any bread provider, must make his product attractive for it's users. People want different money, otherwise coercion was not required to make them use the current theft by inflation money. The coercion proves the shittieness

[modelmark]

In this YT video

zF58InCvAAA

a pdf is presented in the link of the description box. You tell me how statism can be saved. Where do cost have to be cut ? healthcare, education, war making ?

You tell me and stop evading.

[StealthyBurrito]

Government spending has nothing to do with the Fed being what you call an "enforced monopoly." I am not talking about how the US allocates its federal budget -- I am talking about monetary policy and national currencies. It's clear once your Libertarian understanding has run out of rhetoric and logic you need to resort to fear tactics.

[StealthyBurrito]

Definition of bankruptcy: any insolvent debtor; a person unable to satisfy any just claims made upon him or her.

As of today, the US government maintains a AAA credit rating, the HIGHEST possible rating.

Insolvency means that you are unable to pay off your debts. The US has the best credit rating in the world. It can continue to borrow trillions into its deficit if it so chooses -- it's nowhere near bankruptcy because it has backed its credit rating with assets and production capability.

[modelmark]

right, dream on. Productive capacity like GM no doubt. It has become a planned economy, and empire and these always face economic collapse. It's like the USSR.

[leejae]

@StealthyBurrito Yes they do have the highest possible rating because the debt is guaranteed by the government. And where can the government get their money from? Hmm...

[StealthyBurrito]

@leejae Currency is printed in presses and mints. The federal budget comes from taxpayers. Not sure what you are implying.

[leejae]

Physical currency makes up less than 2% of all monies. All debt in the United States of America is guaranteed by the government and the government has unlimited taxing power over its citizens. So in other words, the AAA credit rating is not only based on the United States' productivity or commodities, it is also based on its ability to tax one's own labour through income taxes or inflation.

[StealthyBurrito]

Physical currency is a little bit higher than 2% in the US, but otherwise I agree with what you've said. However, I still don't understand what you are implying.

[leejae]

Just implying that Moody's AAA ratings have been wrong before (MBS). During the past weeks the US government has issued over $800B worth of debt. Eighty percent of which was bought by the Federal Reserve. The main point I was trying to emphasize on was that the government can only sustain such a deficit through taxes or inflation.

[StealthyBurrito]

Yes, although you have different groups rating asset-backed securities than government-issues debt at Moody's. If you'd like to take a different metric, look at historical charts of FDI inflow. I don't see demand dropping off. I also agree this is not an infinitely sustaining strategy, but I wouldn't put a dime into economic forecasts from a Libertarian.

[gothicreader]

Correct me if I'm wrong, but isn't the Federal Reserve a private bank? If so, why would we give them tax payers money? Would they already have money to fund this?

[billyimpcvau]

It's not a private bank like Citibank or Bank of America. It's actually a central bank that controls the money supply in the US. Also all appointees are made by the Gov't. It is private in the way that the banks put their money to form the central bank. But it is for public interest.

[dragonsjaws]

It occurs to me that it is in the public interest to have a stable currency, not constant creation of money out of thin air, which is what the Federal Reserve does. That's why virtually everything costs more today than it did 30 years ago. It also robs savers by creating an excess supply of money, which lowers interest rates on savings. I would say the Fed is in the bankers' interest, since banks can borrow from the Fed at lo interest and loan out at much higher interest. I say abolish the fed!

[billyimpcvau]

Ultimately the Fed wants to lower inflation. Also the banks rarely borrow from the Fed because it signals the market that they are in bad condition. And if it is true that the Fed ONLY works for the banks and not for the ppl than it is even more so that they will lower inflation so to protect the "real interest rates" that bank can make on loans.

[hoosiergambler]

while at the same time the fed acknowledges the necessary evil of some inflation so as to counter-act the bigger evil of deflation... tricky balancing act that i would have no interest in being a part of

[billyimpcvau]

They're not acknowledging the "necessary EVIL of inflation" Inflation is a statistic it is meaningless.

Also this video is on Geithner's plan which is Fiscal Policy. The Fed is concerned with Monetary policy which means they are like the respiratory system control how blood and oxygen flow.

What people think of "inflationary policy" is just the Fed trying to increase the money supply so it can possibly run more smoothly which may benefit the economy. But sometimes the fed do make mistakes.

[imnos482]

google: g edward griffin creature from Jeckyl island. You can also read the Federal Reserve Act of 1913. The Fed IS a private corp. Owned by the banks (with ties to the government). If you have not done at least this much research, please do not argue with me. If you have, I am all ears.

[billyimpcvau]

I know that the Fed is not a Public Bank. I know it is a private bank. But it is not a traditional bank. My argument if you have read carefully is that the Fed isn't all in the interest of Private Banks. But I don't disregard that they may have incentives to be in interest of private banks. I'm neither against or for in the discussion.

Also the Governors of the Fed are appointed by the president. It is a private bank but for public interest. As least they claim to be in public interest.

[imnos482]

I just read the Federal Reserve act of 1913. It is owned by the 'private banks'. That was part of the act itself.

In essence, citigroup is bailing out citigroup (as G Edward Griffin said would happen years ago).

The bottom part I agree with you on.

[billyimpcvau]

I took US history so I know the act. But I don't want to assume just because they are private they work for private interest. That's all.

Consider charities they are "private companies" but they work for public interest.

Of course I agree that the Fed can be inefficient. But that doesn't mean their always helping banks. The Fed is just in charge of the money supply and their role should really just stick back on transferring money between banks.

[imnos482]

"I took US history so I know the act." - Sorry, but this sentence does not make much sense to me (or most people, I am sure). I bet far less than 1% of people read the act in US History (if that). Probably even less cared about it even if they did.

The Fed is owned BY the banks. So your Charity argument does not make sense to me either. Please help explain that. Again, I cite the Act itself to make my point.

[imnos482]

Billy, you are missing the most important point. The FED is OWNED BY THE BANKS. Take a few mins and read the federal reserve act of 1913.

And anyone that thinks Geithner is stupid needs to do some more research (imo). He knows exactly what he is doing, and it is working perfectly.

[americansharpy]

Geithner had no plan, he basically came out and blamed bush for everything, not the kind of plan that went over well with people in Financials. He has no clue, other than follow Obama's College Economic Advisors. Hopeless

[billyimpcvau]

You seem to have contradicted yourself when you say he has no plan. Then you go on and said "Other than follow Obama's College Economic Advisors". Which suggest he does have a plan even though the plan might not be necessarily his.

[advicenurse]

Khan for president

[jomman17]

here here

[beancube2008]

Wall Street is a bad habit for our economic rating institutions. See through it, most vapor wares eventually fell back to those gambling trap again. Office bureau bubbling line-ups here and there are out dated. We're in modern age and electronic outreach must be implemented. Technologically both users and bureaus should be able to initiate (from general to real person) contacts. Banks need to wake up applying non-profit organizations assisting their handicap system. Reach out for human effort.

[ICRetards]

okay, to over-over simplify things, here is Geithner's plan:

ex. Citibank can buy its own toxic asset with funds from FDIC & Treasury (which is really tax payer money), file bankruptcy under the fund they bought the said toxic asset with, and keep the taxpayer's money...

brilliant...more money for the rich, funded by the poor...isnt america great ?

[Andersxman]

Hi, sorry - a basic question - but I would like to get this straight: around 1-3 mins in the video the following example is made: the bank has 40 in equtiy, 60 in debt as liabilities, and uses this to buy 100 worth of assets. It is then said that if they sell this for anything less than 60 => bankruptcy. QUESTION: If they sell for 55 in this case - wouldn't they just use the 55 thus obtained + 5 from equity base to pay off the loan - and remain with 35 in equity? (ie. remain solvent)??

[rodgersa1]

A good question Anders.

The problem is that the bank used the whole $100 dollars to buy the asset - ( the $60 it borrowed (and needs to repay) as well as $40 from its own coffers).

So if they sell it for $55 - the $40 from their own money is no longer there, it was used ti buy the toxic asset - hence they are in debt to the tune of $5 with no way to pay it - they file bankruptcy.

Hope this helps.

[rivi8840]

By Robert O'Harrow Jr. and Jeff Gerth

updated 2:02 a.m. CT, Fri., April. 3, 2009

As crisis loomed, Geithner pressed but fell short

Treasury chief, who once regulated banks, now cites failure of supervision

Everyone should read this if they care about the reckless behavior of Turbo Tax Timmy G, Dodd, Frank and Obama

[doubleestark]

helicopter ben, start printing the money and get us out of debt! Let me pay off my debts with hyperinflated dollars so I can start over again. Hooray.

[iseehawksinla]

Who is this guy? I wish he were president. Obama is clearly on the wrong side in rich vs. poor.

[LuciusBrutus]

If you desire to see what the plan actually entails do a search for.

Mish Geithner Plan Can Succeed

In google.

This will in no way revitalize the economy.

[aBerlin1945]

Good God, what a sham! This is the worst idea ever.

[BachGuitar3]

Why should it be problem if the FED is stuck with the toxic accents? The Fed creates the wealth so cant it just dissipate it?

[iamkrista1]

The FED does not create wealth!!!! The FED prints money. Money is not the same thing as wealth! Money is simply a claim on wealth. An IOU! The problem with this scenario of the Fed getting stuck with the toxic assets is that the people and shareholders who own the banks should not be getting money from taxpayers as a reward for screwing everything up!

[bvankuyk]

So is this where somehow the free market mechanism is failing us? The market theory says that if nobody wants to buy these toxic assets, there is no market for them and therefore the assets are worthless. So why does nobody want to buy these assets? Is there another problem that we somehow do not understand or are not being told about? Did the financial institutions overpay by such a huge margin for these assets that the damage is much greater than the 2.5% default problem?

[cocacola443]

"nobody wants to buy these toxic assets, there is no market for them and therefore the assets are worthless"

The problem is that no one is willing to buy these toxic assets at the price they're being offered at. If the price goes low enough, which is what it SHOULD do without government or Fed intervention, they'll get bought.

The free market resets the value of assets to its REAL value, eventually. The government is trying to prop up already overinflated prices.

[bvankuyk]

see my earlier comments about income streams; these assets earn interest do they not? Thus there is an NPV which should be the "theoretical value of these assets

[bvankuyk]

If one separates out those Credit Default Swaps that represent wagers by unrelated parties, like some speculators and hedge funds and do not honor them (the most these holders should get back are perhaps the premiums that were paid for the policy)., one can hardly speak of toxic assets of catastrophic proportions!

[bvankuyk]

If only 5% of the home owners whose mortgages underlie these assets are bad, and the remaining assets after foreclosure, the property/houses, are worth at least 50% of their original value, that means we are only talking about a 2.5% problem! In addition the total value of housing in the world has declined by only 20% most (95%) of which has hit the homeowner NOT the banks! So what are we talking about here in terms of toxic assets?

[StillDesigns]

Mortgage back securities are just the tip of the iceberg. Banks hold other worthless assets such as CDSs/CDOs where the insurers have gone bankrupt; these are assets that are never going to be worth anything because no entities exist or will exist in the future to honor/repay them. If the bank shareholders are wiped out and the bank management fired, I have problem with a bailout; anything else is a direct or indirect tax payor subsidy and that is a moral hazard.

[ficote72]

Biggest theft in US history.

[bgrawhot]

The assests (mortgage securities) are only toxic because house prices has gone down. Allowing investors in on the deal is a political gesture. But, to my understanding, investors will be motivated by future house prices going up. The government has the power to create policies for house prices to go up. In this scenario the government/tax payer/investor wins.

[nextdimensions]

government propping up housing prices is = price controls and market manipulation, which will make a collapse even that much more spectacular, it has never worked and this time will be no different.. bye the way everything is toxic because the system's debt levels are too high now, the end result of any debt based currency system, the housing prices were just one of the things that tipped the scales over, it would have eventually all turned toxic anyway regardless of housing prices

[nextdimensions]

also, housing prices may go up in nominal value/levels but not real value.. .government can only increase nominal values they can't inject real value into anything, they don't have any real wealth to inject unless they steal it from another sector, which is a cop out of injecting wealth because now someone else had their personal property stolen by the government to do this

[StillDesigns]

No. A lot of the worthless houses have been turned over--that is, resold without "writing down" the original securitized debt. In normal accounting, you have balance the "books." In the "off the book" transactions, you can just about any fiction to justify the price of an asset--not accounting for losses. The banks are typically using sketchy models to justify nominal asset values that they will never be able to realize unless they arrange to buy the assets from themselves (see Pt2).

[erato99]

The Obama administration's answer to every problem is government expansion. I don't see the Bill of Rights surviving much longer. Is this guy trying to make Bush look good?

[emilydinca]

Americans Economic crisis is just a typical and predictable result of Capitalism gone wild. American government has been overly protecting and now babysitting big business organizations for many decades. Suggest people who in charge solving this economic crisis go back to take Economic 101 class. And go to some less developed Far East countries learn how to take control and regulate banks and big old business organizations.

[nextdimensions]

I disagree that this is the fault of Capitalism, because if Government is protecting and babysitting big business then you don't have real (free market) Capitalism, you have Socialism or some twisted form of Capitalism for the elite.

[mrcool011]

Corporate socialism, thats what it is. We don't have a true free market anymore. True Free Market Capitalism is the best way to give the average middle class a good life, corporate socialism or regular socialism aren't.

[erato99]

Absolutely right.

[buzwazfuz]

im having a class discussion on this tomrorrow, thanks for the help

[lmcdowall]

sal should be cheif of the fed

[0THANIEL]

treasury secretary too

[DevBlazed]

Nothing wrong with banks going bankrupt. Then they'll never pull this shit again.

Either way, what's the odds they'll be able to sufficiently contract the money supply??

[elwalvador]

So what would happen if we allowed the banks to fail? Supposedly, the average person's checkings and savings is insured by the FDIC, and for a little while we wouldn't be able to get loans untill new banks emmerged. What is the worst that would happen?

[zoomer33]

Empty shelves at the local supermarket.

[Winboloer2]

Anything to maintain the status quo. They're going to find it's hard to reinflate a bubble once it has burst. This plan won't be putting people back to work... work upon which these 'toxic assets' are dependent upon: no work, no house payments... not to mention it's not going to be reflating housing prices...

[pedroavr10]

You just need to explain what is going to happen if it does not work. If the assets does not worth that 60 cents but 10 the FED will losse a lot of money. Consequently, later on time the US government will buy that losses. Therefore, taxpayers will pay the bill. The thing is, this messure can delay the main problem and hopefully turn it around.

[alanhowitzer]

die Geithner

[GunDream]

From the way Sal explains this, it sounds to me like risk is shared with tax payers but profit is privatized? Fed obviously doesn't care about losing money, they can just print more.

[bobshimits2003]

as long as they control inflation, yes they can.

[ivar197]

You cant eat the cake and still have it. In order for the money to have a positive effect on the institutions it needs to enter circulation. At which point inflation is inevitable anyway.. moral:

GET OUT OF DOLLAR, LAST CHANCE NOW

[peanutplays]

How do you get out of the dollar?

[ivar197]

Everything you own that can only be sold in dollars(us stocks, bonds, property etc) should be sold immediately.

the bond market is already tanking, nobody wants us bonds any more demand down 50%, the only thing fed can do now is print and print and prit

[collegeboy477]

hey Im only 20yrs old and I have been Just getting board with this mess for the last 6 months, and I was wondering where you can get real time demand for treasury bonds? my google searches turn up empty it seems

anyway. Awsome video. I am pretty up to speed on the macroscale of our economic problem but its these technical financial details Im obscure about.

[pizzafrenzyman]

ivar, then do what with all that cash? With pending inflation, cash has little future value.

On the other hand, keeping everything you own is a far better choice. After the pending depression ends, you'll still have most of your assets.

Besides, if you really believe what you're saying is true, are you in the process of selling everything you own?

not a well thought out comment on your part.

[ivar197]

yes as you said, put cash into assets not tied to dollar.

houses and property are tied to the dollar in that, when high inflation hits in america it will impoverish a lot of people and their market value will decrease, not a good investment, better to rent.

also a good idea would be shorting the dollar: take long term fixed interest loan in dollars, use it to buy non-dollar assets and enjoy as your debt is nulled by inflation

[pizzafrenzyman]

peanut, invest in tangible assests not tied to the dollar (i.e. Gold).

[charlybrown1000]

Sal, give me 20 seconds please! Would you answer answer a question for me to understand the whole picture: When the FED putd money in the market by doing Open market operations, that money is backed by anything? Is it just Notes outstanding in the liability side of the feds balancesheet? Or is backed by some US treasury debt?

[khanacademy]

I cover this in detail in the banking playlist, but to answer your question: It is issued by the fed but backed by the treasury. So the fed creates notes on the asset side of their balance sheet with an offseting "note outstanding" on the liability side. They then use that newly created note to buy treasuries in the open market. By backing the notes issued by the fed, the treasury is saying that it will always be there to recapitalize the fed if necessary.

[charlybrown1000]

I still dont get it! I watched all your videos more than once, but this point is really important and it is not really clear either in the US trasury web page neither in your videos: The fed can create money indefinitely and that money wont inflate US total debt? it is just money, not debt??

[serbenmar]

I have also watched your videos and I have the same problem to understand this relationship between the Fed and the treasury. Can you do a video clarifying this part? I think its crucial to understand the economy.

[joneselius]

NO, it's debt.

Whenever you print money (paper) you'll need more to buy anything with it, as there is more in circulation, but that doesn't mean there's more in your pocket.

This is why you end up paying like $30,000 for a loaf of bread, with $4... Get it?

[chevytheplayer]

Sir do you understand the history of the FED? Do you even know how it was formed? I am not beiing rude, just some people don't have the "Full picture" so they can put the puzzle together.

[jaz48011]

Man, I love you really I do. Sincerely thank you for your videos.

[seppukuhierarchy]

1ST COMMENT KEEP UP THE GOOD WORK