Independent UK: The $1 trillion question: Will this gigantic bailout work?

[marmar]

The $1 trillion question: Will this gigantic bailout work?

Sean O’Grady, Economics Editor

Saturday, 20 September 2008




This is what we might call the $1trillion question. That's $1,000,000,000,000, by the way. It is a little like surgery. The US government has amputated the gangrenous leg of the banking system to save the patient. But it is now preparing to graft the infected limb on to the body politic of America. The US taxpayers will be lucky if they do not feel distinctly unwell as a result of this little experiment.

The truth is that simply buying the banks' worthless securities has been an option, if an unpalatable one, for the authorities since the credit crunch began a year ago. All the plans to lend against these assets, such as the Bank of England's Special Liquidity Scheme, and other "injections of liquidity", were temporary solutions, born out of a hope, if not an expectation, that the crisis would not be prolonged.

We know better now. What the American authorities have done is the only sure way to protect the banking system against further destabilisation. Short-selling or not, left to their own devices, the markets would sooner or later force more banks into the arms of the taxpayer anyhow. It is a sad day when hard-pressed citizens find themselves subsidising private banks for their stupid mistakes. But that is what's happening in the US, and it will surely be done here. The Bank of England hates the notion; but Gordon Brown may well feel that he has no choice.

So for the banks and their shareholders and staff, the US rescue plan is already working, and it will save the wider economy from yet more damage. It is less clear whether it will end the credit crisis or preserve America's fast disappearing economic hegemony. ......(more)

The complete piece is at: http://www.independent.co.uk/news/business/analysis-and-features/the-1-trillion-question-will-this-gigantic-bailout-work-936158.html

[Maven]

1. On the same topic, also see this NYT op-ed by Joe Nocera on why it probably WON'T work

http://www.nytimes.com/2008/09/20/business/20nocera.html?8dpc

This is just another gamble, meant to delay the inevitable...until after the election, perhaps?

[whistle]

2. $1 trillion bailouts to speculators and hedge fund cronies of Bush

...to cover all their stupid mistakes but not one dime to help distressed homeowners stay in their homes while hard earned dollars get taxed to pay off these bad bank gambling debts. It all sounds so like a hopelessly lost cause without productive jobs to me.

[sam sarrha]

3. only if CEO'S get paid no more than 10x lowest paid employee an no bonus. its tax money now no frill...

no selling off homes for less than 80%.. no 10 cents on the dollar to cronies..

dual auditors, 60% tax on all speculation profits, no hedge funds, double time in jail for all crimes committed with tax payer funds, and companies receiving subsidy's.

[doc03]

4. I heard tonight on Bill Moyers show on PBS the Government

has already put up $815 billion for this banking mess and they estimate another $500 billion additional. So we found $1.3 trillion to bail out banks but America can't have health-care for its people. America don't have any funds to rebuild its infrastructure. America can't pay for SS or Medicare.

[Wiley50]

5. "It is a sad day when hard-pressed citizens find themselves subsidising private banks for

their stupid mistakes"

NO SHIT!