It's all about Amelioration

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Blind Faith

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I love Paul Krugman, Joseph Stiglitz, what do they have in common? Both are renown economists and Nobel laureates. Sometimes I wonder why these people are not in the FED or white house. They seem to have all the answers for our current economic woes.

Let’s see, almost a year into this credit mess, are we in a better position than we were 12 months ago? Not really if you asked me. Paulson talked, Bernanke talked, Obama talked, G20 talked, but I agree with Prof Krugman, dire actions are still needed.

Why do banks always get the upside and taxpayer’s bear the risks? First the govt agrees to guarantee the banks’ troubled assets and use $700bil of taxpayers money to stimulate them. Outcome? Banks 1 Taxpayer 0. Second, it now wants to encourage private investors to auction off or purchase the bank’s’ troubled assets to the extend that the govt would even lend money to the investors. If the assets go under the water, the investors can walk away, and the govt bears the brunt. Again, Banks 2 Taxpayer 0.

If the small banks can be shut down, why not the big ones? Some conspire that Wall Street and the govt/ FED have links that Main Street is oblivious about. After all, most of the financial wizardry that controls the economics of the US is concocted between the two. Of all the ideas and plans implemented, why is it that the US govt is not exploring the notion of NATIONALIZATION? Citibank and Bank of America are already zombie banks, the only reason why they are still alive are because of the constant capital injection by the govt.These zombie banks must be rescued. We cannot afford another Lehman Brothers collapse and the repercussions to the world financial system. The most efficient way would be to temporary nationalize it. It would be a blow to the brand equity, and management of the big banks, but it is needed. No more cover ups, no more goodwill. The blind faith that the banks will recover by itself with massive stimulus and “washing” its balance sheets will only hinder the recovery of the economy. And that is bad news for the world.

Case in point South Korea.They had a similar crisis in 1998 – 1999. A balance sheet crisis so to speak. What did the government do? Nationalize or close the insolvent banks, big or small. And allow profitable banks to rise. Kookmin bank was one of the small solvent ones. To date, it is the biggest bank in South Korea.

“Why should hardworking middle class Americans who fail to pay their mortgages lose their homes while Washington spends federal money to bail out irresponsible and greedy bankers? Why not allow the market system to discipline failed financial institutions and let shareholder’s suffer a loss?”

The only ray of light now I guess is the FED’s direction to convert most of its preference shares in to common ones to boost the banks’ equity and increase its stake in it. Subtle nationalization perhaps?


Written by Nabs

May 20, 2009 at 4:20 pm

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