Obama's Dangerous Bank Bailout

[nodular]

"Obama's Dangerous Bank Bailout," the Wall Street Journal, February 4, 2009

Restoring Citi and BofA to greatness shouldn't be the goal.

http://online.wsj.com/article/SB123371119661046143.html

"The main uncertainty lately has been whether the safety net includes bank shareholders as well as depositors and creditors. That uncertainty is why we have crazy gyrations in bank share prices, and yet don't have bank runs. Citigroup's shareholders only account these days for a measly $20 billion, in a bank with liabilities of $2 trillion -- yet market speculation over their fate has seemed to be driving government actions.

"Here we see the downside of explicitness. By committing specific sums to given banks, policy makers only ended up inviting new speculation about what happens when those cushions are exhausted by fresh accounting writedowns. And now Team Obama seems about to recapitulate this folly with another round of explicit guarantees.


"By current leakage, their plan will consist of explicit government insurance for certain bad assets and explicit purchases of other bad assets to be held by a so-called bad bank. For the months or years, then, that it takes to put the plan into effect, the market will have to speculate anew about how each bank's assets will be valued for bailout purposes.


"They aren't the engines of the economy -- we have a vast and diversified financial sector. Today's real problem is a shortage of reliable borrowers, especially given the uncertainty about house prices. Washington's misguided goal, if you listen closely, seems to be turning these giant banks into public utilities to "jumpstart lending" under political duress. That is, shoveling money at an overleveraged private sector in hopes of stopping the economy from shrinking and markets from clearing."



for more on related stuff and etc., see my blog potpourri, http://random-potpourri.blogspot.com/

[WillYourVoteBCounted]

1. any who want Bailout funds should provide a written sworn plan of accountability

its done all of the time in business.

They state what they will do with the darn money,
down to the penney.

Then they have to show they did what they said.