To an extent this can, and is happening. But there are probably not enough Warren Buffets, still-healthy-enough JPMChases or Lloyds TSBs or Bank of Americas, nor Abu Dhabi Investment Authorities or China Investment Corporations to step in and take over the business.
No, there really aren't. I agree with you there. I am, in fact, not against government intervention in principle and am instead focused on being highly skeptical of the current plan as it's been presented. Granted, the weekend (sorry I didn't respond earlier) has provided some improvements to the plan that make finding it acceptable a bit more within the realm of reality for me-- even if I may still disagree with it-- but moving in the right direction still doesn't fully provide me with comfort to my economic future.
That depends on what the market-driven workout of "toxic securities" would do to exacerbate the economic downturn doesn't it? Some recessions are worse than others. The one that the US had in 1991 was quite mild really. The one from 1929-39 was a different kettle of fish. Moreover the fiscal burden (the eventual drain on the taxpayer) is much worse if it is applied too late. The TARP package is a quite colossal 5.8% of US GDP (including AIG and Bear Stearns). But the fiscal cost to Japan for eventually turning around its failing banking sector and deflating economy in the 1990s was a truly whopping 24% of Japanese GDP (Source: The Economist). And not acting early, if the threat turns out to be serious, would do far more to exacerbate the instability on main street USA (and world). The truth is that more of (developed world economic) history is decorated with credit/financial crises that were dealt with too late and too feebly--with results that were more dreadful all round--than with events on which a large rescue was undertaken quickly and later did not seem to be needed, or in which the rescue intensified the agony by promoting bad behaviour.
This is really the crux of the matter, isn't it? If the bomb is going to likely cause maximum damage then acting early to isolate and minimize it would be prudent. If not, then too extreme a precipitous action could be misplaced effort where those resources could have been used to bolster other sectors. Either way, the action is equally likely to contribute to recession for the short run and spending is going to be down. Certainly is an ugly situation, on that I'd agree.
No you're broadly right about that. But I would have to say that the outcomes are so asymmetric that it would likely be futile to await things becoming "quite clear". A lot of this might depend on your opinion of Bernanke and Paulson since they are the ones claiming the authority. Personally I think that they both evince supreme competence and I would rather have Bernanke than Trichet running the ECB and rather have Paulson than Alistair Darling running the UK Treasury. Bear in mind also that companies are not going to disclose information that they are in dire straits until they absolutely need to hit the panic button. No CEO wants his/her share price in the drain so quickly that failure is a foregone conclusion.
You're correct that part of my problem is my opinion of Bernanke and (more importantly) Paulson. Bernanke has at least a small amount of confidence with me since I had the opportunity to read a few papers he published back in the 1980's about fighting inflation and preparedness for economic downturns. I have no such confidence in Paulson.
What you mention about companies is correct as well, and my only response to that is that they should think heavily on whether they want to be part of the problem or part of the solution. Since the entirety of the American voting (and tax-paying) public is being asked to be part of the solution, I think it's only fair at this point to require these companies to be so as well. Naturally, I don't think they should be disclosing financials to the public in order to help, but instead I think there should currently be a lot of transparency between a number of current companies and the Fed, the Treasury, and Congress at this point. If they want to protect themselves then I say require every member of government who gets any access to such information to have their investments or invested assets frozen as a precondition to access. I have absolutely zero problem with expecting our public servants to be isolated from possibilities of conflicting interest, and I also have no problem with very stiff penalties to anyone breaking such confidence. I mostly have that position as my own default, since I'm in a position in IT where I'm privy to sensitive information regularly and have been so for healthcare and financial institutions before, so I can understand and support strict requirements for disclosure and transparency. However, that disclosure and transparency would be
crucial to coming up with a sensible and informed plan for aiding the economic market right now, much more so than the shot-in-the-dark method currently proposed.
Well, yes who is equipped? You may think that the answer is "the market" and that it will sort itself out without any unnecessary damage, but that brings us back to the (unproven but believable) hypothesis that the market left to its own devices may kill off economic activity indiscriminately and in doing to inflict huge avoidable costs on the public interest.[/quote]
I think "the market" would be too loose and unpredictable for handling things on its own. The thing is, I don't see how Bernanke, Paulson, the White House, or Congress are any better equipped or any less a loose cannon when it comes to providing a fix. I have a huge doubt about avoiding conflicting interests with this type of proposal, especially with regard to the White House and the Senate Banking Committee, not to mention the Treasury-- not specific individuals, but the positions involved that place an even larger burden of concentrated responsibility.
GreNME said:
I'm not claiming that I do, I'm questioning the fact that Paulson is claiming that he does. My entire point is that no one can be so sure, and to expect the kind of investment his bailout proposal requires pretty much hinges on how sure he claims he is. The fact that he's claiming certainty in an uncertain period is precisely why I'm so critical.
I understand your sceptical unease about that. No he is not certain. But if he thinks it is an actionable probability, that's when politcs takes over. He needs to scare congress and not appear to be a crackpot. But he needs to shoot from the hip, and exhibit leadership on the fly, which is an unenviable task. Nobody at the table has experienced a similar situation before.
I disagree that he needs to be scaring anyone and I don't like the tactics being used. The only other precedent for such tactics being used in recent history (run-up to Iraq) have cost the American public billions of dollars, whether it's argued as right or wrong. I think the public not only has a right to look at this sideways and to question the sense of urgency, but that it should be demanding that our government doesn't pull a repeat with unnecessary precipitous action. In this, I don't disagree that the danger has a basis in fact, but I do disagree that the reaction is what's best for the nation.
GreNME said:
Oh baloney. The US is not behaving like some knight in shining armor for the Euro banks. The reason the European governments aren't taking part in this is because they currently see no need to. You're assigning motivations-- continuing to call this "free-riding" on the part of the European governments-- where no proof of such a motivation exists.
I know there isn't proof, but you seem to rule it out and, to be honest, rather complacently conclude that European banks don't do the same irresponsible stuff as American ones and that that is the reason why they will not need this kind of help. I don't know where you get this idea, myself spending plenty of time in investment banks in both regions. Why do you think that the US package should bail out UBS and Deutsche Bank and not the Swiss and the Germans?
I think the impression you're getting from me regarding motivations toward the US or European governments on the issue is unfounded. I don't consider either as intrinsically more responsible or better equipped, I am instead questioning your assignment of motives. Claiming that time you've spent colors your perception on the issue says more about you than it does me, because again I'm not the one assigning motives here. I don't think the US package should bail out
any bank, to be honest, though I'm not necessarily against government intervention to assist banks who show signs of collapse. There
is a difference.
Do you mean why are they not volunteering? Your answer occurred to me too, but I tend to think my answer features more. If they just thought it was not necessary, I don't see why they would be "fully supporting" / "urging" the US government to agree its plan.
Thanks for catching that, and yes I meant "not volunteering." Also, it seems that question is moot now that Luxembourg and the UK have ponied up (to a degree) over the weekend.
Which post-Parmalat regulations impact what the investment banking arms of European Banks can do? This is a sincere question, but I am not aware of any.
You're question is a bit specific, but I'd have to go checking through some older information I have saved to give you details. I'll have to get back to you on that one, but I'm fairly certain the regulations have to do with fraud and/or faulty financial reporting.
No, and yours is a good post. But on several counts, the wisdom in your thoughts may be misplaced.
Thanks, and I disagree about my concerns being misplaced, but I do like your responses and they've been far better than I've gotten elsewhere. I appreciate that.
Oh, and I've been realizing how similar my stance may seem to some of the more woo (conspiracy) arguments out there, and I feel compelled to assure anyone who may think they're based on any such thing that they are not. I really am not against government intervention in principle or in general, and the fact that our government has the ability to step in and intervene in times like this shows one of the strengths of our current system as opposed to past systems the US has used. It's not when times are good that the benefits of an economic system are always presentable or relevant, it's when things can go bad. I think this is definitely one of those times (back in the late 80's/early 90's was another time).
