IMF warns against bailout.

[billyoc]

Great. :eyes:

It's an 80 page report, but here's a gem from page 6:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

PDF file of the IMF report: http://www.imf.org/external/pubs/ft/wp/2008/wp08224.pdf

Here's some more analysis from Merril Lynch via the New York Times:

http://dealbook.blogs.nytimes.com/2008/09/26/lessons-from-previous-banking-blow-ups/

[sandnsea]

1. lol, so we're listening to the free marketers

and the IMF now?

You know half of the economists oppose a bail-out because it'll prove the free market doesn't work.

[Two Americas]

3. not quite

Yes, conservatives are opposed to any government intervention or interference of any kind, but that does not mean that therefore we all need to automatically take the opposite position and support anything the government does.

This bail out is so bad that even the free market ideologues recognize it as the catastrophe it is. This transcends the partisanship feuding, and is a threat to all of us on an unimaginable scale. No one wants to be a slave to a government-corporate fusion - otherwise known as fascism. Conservatives with half a brain in their head can see that there is such a thing as going too far, as too much of a good thing.

The moral principles involved in this battle and the stakes - I think it is the last stand for the working people and the last stand for freedom - are bigger than worrying about which team we are loyal to or identify with.

This about the haves versus the have-nots, and anyone siding with the haves had better be pretty damned sure that their own financial position is among the upper 5% or less of they expect to profit from this or even survive it. Our representatives are all nicely positioned. Even true believer capitalists and free market advocates know that if the US is turned into an authoritarian banana republic and all of us become peasants, that capitalism dies along with freedom.

[kurt_cagle]

2. Um ???

The IMF has contributed to more disastrous financial policies than any single institution I can think of.

[Beregond2]

4. And someone else just posted an article here

that argues just as persuasively for the rescue.

Let's face it, when even economists are in violent disagreement, we have no chance in hell of knowing what the right position is. Personally, I am just trusting in people like Obama, Frank and Reid, who have earned my trust, and hoping for the best.

[NuttyFluffers]

5. hmm, that the IMF hates the idea is a strong argument for it.

they are habitually wrong, so now I am torn. maybe the bailout is a 100% sure thing...

[malaise]

6. Not true - this is all IMF

http://www.imf.org/external/np/speeches/2008/092408.htm
<snip>

Direct intervention is the third line of defense. It has become obvious that direct fiscal intervention is going to be needed in the United States and elsewhere in order to attain the goals of removing distressed assets from financial institutions' balance sheets, and in recapitalizing the financial system where appropriate.

In this context, we welcomed the decisive actions taken by the U.S. authorities to shore up the GSEs, providing crucial support for the U.S. housing market, the banking system, and the broader economy. Over the longer term, a deep restructuring of the GSEs remains essential to restore market discipline, minimize fiscal costs, and limit systemic risks for the future. Ultimately the conflict of private ownership and public policy objectives within the GSEs' former business model needs to be resolved.

The challenge of removing distressed assets from financial institutions' balance sheets currently is front and center, with the US authorities' TARP proposal currently being examined by Congress. The discussions of the TARP have underscored the myriad difficult judgments that have to be made in order to make such a program a success. It is possible that similar challenges will be faced by other advanced economy authorities in the coming months. Earlier this year, the IMF proposed a solution based on long-term swaps of mortgage securities for government bonds. The advantage of such an approach is that it provides near-term relief for bank balance sheets, while ultimately leaving the underlying credit risk with the banks, rather than the taxpayers. In any case, the current discussions also have underscored the importance that moral hazard issues play in direct fiscal intervention in resolving financial sector crises.

More broadly, efforts aimed at alleviating systemic risks, including notably the provision of support to key financial institutions, will require sound judgment. For example, the current market strains to some degree reflect solvency risks. underscoring the need for a systematic and comprehensive approach to deal with distressed assets of failed institutions and in the financial sector more broadly.

[Zynx]

7. There has never been a stronger endorsement of this bill than the IMF being opposed to it.

[malaise]

8. The IMF not only approved this

They imposed it. Read the snip at #6

http://www.imf.org/external/np/speeches/2008/092408.htm

The IMF wants even more deregulation (read the right wing Rethug proposals) but they'll take those incrementally (as they always do).

This should have been rejected immediately.

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