The Dirty Secret of the Financial Crisis: Our Banking System's Broken | AlterNet

"Here is the ugly, unofficial truth that neither Wall Street nor the government will acknowledge: the pinnacle of the US financial system is broke -- with perhaps $2 trillion in rotten financial assets on the books. Nobody knows, exactly. The bankers won't say, and regulators won't ask, or at least don't dare tell the public. Official silence naturally feeds the conviction that banking's problems are far worse than we've been told. The Levy Economics Institute of Bard College puts it plainly: 'It is probable that many and perhaps most financial institutions are insolvent today -- with a black hole of negative net worth that would swallow Paulson's entire $700 billion in one gulp.'"

It's not only the bad news, it's the bad news still to come:

"Paulson was trapped by these circumstances (and his own mendacity). Each time he tried to change the script, market insiders became even more alarmed. Congress is trapped too. So is President-elect Obama. From the outset of the crisis, the essential fallacy shared by governing influentials has been a wishful assumption that quick interventions with tons of public money would somehow restore the system to "normal" without disturbing free-market principles. Replenished banks would start lending again and lead us to recovery. "Normal" is not going to happen. If the new president does not break free of the denial and act decisively, his administration will be dangerously compromised from the start."

Common sense ain't, as the saying goes, and the way out of this financial debacle is loaded with--what else?--common sense:

"A genuine solution means closing down the hopeless institutions and creating a more democratic system based on small to medium-sized banks, financial intermediaries that are less imperious and closer to the real economy of producers and consumers. The Levy institute suggests that some banks are "too big to save." If the president-elect seeks an opinion quite different from his circle of orthodox advisers, he could start with the institute's tartly incisive analysis "Time to Bail Out: Alternatives to the Bush-Paulson Plan," by Dimitri Papadimitriou and Randall Wray. Their perspective is Keynesian, not market worship. They argue (as The Nation and others have) that the bailout is proceeding backward. Instead of saving Wall Street first, government should devote its heavy firepower to reviving jobs, incomes and business enterprises. The banks will not get well or begin normal lending until there is overall economic recovery." 

And then this:

"President-elect Obama, of course, cannot act directly on any of these matters before January 20. But the Democratic Congress can, since the Treasury cannot spend any of the next $350 billion in the bailout fund without Congressional approval. Congress's first task is to cut off Paulson's water. Representative Dennis Kucinich, as usual, is out front demanding that Congress reject Paulson's request in advance. You can see why Wall Street hates these propositions. No more free money from Washington. No more "masters of the universe." You can also see why the people might be delighted." (Emphasis Mine in all cases.)