UT Professor Critiques Bank Asset Bailout Plan

[haha]

Part II Geithner Obama Kowtowing to "Massively Corrupted" Banks Galbraith Says: Tech Ticker, Yahoo! Finance

[. . . Yrs to Go]

Funny how the proponents of "receivership", "nationalization", or "bankruptcy" never mention how letting multiple companies, each with liabilities the size of Italy's GDP, go under will impact the economy. Apparently "the market will sort it out" . . . kind of like it did when Lehman went under, only 100x as much I guess.

[samclem]

Funny how proponents of neverending government bailouts and cash infusions never explain how these will somehow indefinitely prevent the market from correctly pricing the underlying assets. There's a true value to all the leveraged paper and other promises, and it depends on the value of what is underneath. The market will set that value. Those arguing that the government should prop up that value (through easy credit, underwriting private investor risk, directly buying the stuff up at inflated values, etc) apparently favor a continuation of the same policies that got us to this point. "Hey, we're not ready to end the party! Bring out another keg of cheap money and let the good times roll! Send the bill to our kids."

As the saying goes-if you find yourself in a hole, the first thing you should do is stop digging.

[haha]

Quote:

Originally Posted by samclem Funny how proponents of neverending government bailouts and cash infusions never explain how these will somehow indefinitely prevent the market from correctly pricing the underlying assets. There's a true value to all the leveraged paper and other promises, and it depends on the value of what is underneath. The market will set that value. Those arguing that the government should prop up that value (through easy credit, underwriting private investor risk, directly buying the stuff up at inflated values, etc) apparently favor a continuation of the same policies that got us to this point. "Hey, we're not ready to end the party! Bring out another keg of cheap money and let the good times roll! Send the bill to our kids." As the saying goes-if you find yourself in a hole, the first thing you should do is stop digging.

Here is a thoughtful John Hussman article (aren't they all!) with a similar viewpoint.

Hussman Funds - Weekly Market Comment: Fed and Treasury - Putting off Hard Choices with Easy Money (and Probable Chaos) - March 23, 2009

Ha

[. . . Yrs to Go]

Quote:

Originally Posted by samclem Funny how proponents of neverending government bailouts and cash infusions never explain how these will somehow indefinitely prevent the market from correctly pricing the underlying assets.

That isn't the intent. The intent is to prevent uncontrollable cascading failures (narrowly averted last year).

Further elaborated here . . . http://www.early-retirement.org/foru...35&postcount=8

[samclem]

Quote:

Originally Posted by . . . Yrs to Go That isn't the intent. The intent is to prevent uncontrollable cascading failures (narrowly averted last year).

Phew! Boy, were we lucky. I hope we keep piling on the tax money trillions at a time, as no price is too high to keep narrowly avoiding these postulated cascading failures.
We have to ask ourselves: Is it really prudent to mortgage the future and guarantee a lower standard of living for future generations rather than take our medicine now? Some think it is, and politicians definitely are prone to push this unpleasantness beyond the next election.

[. . . Yrs to Go]

Quote:

Originally Posted by samclem Phew! Boy, were we lucky. I hope we keep piling on the tax money trillions at a time, as no price is too high to keep narrowly avoiding these postulated cascading failures. We have to ask ourselves: Is it really prudent to mortgage the future and guarantee a lower standard of living for future generations rather than take our medicine now? Some think it is, and politicians definitely are prone to push this unpleasantness beyond the next election.

The only thing we're all postulating is the impact of current policies on "future generations"

As far as the impact of letting a large financial institution fail, we already know the answer to that. We tried it with Lehman and it was a disaster. Everything I posted in the prior link happened. This isn't guess work, but historical fact. The CP market shut down, MMFs started to fail, the securities of nearly all financial institutions were in a death spiral, bank revolvers got cut, the debt of companies with large CP balances was getting heavily sold, etc. etc. The only thing that arrested the decline was unprecedented governmental action (ranging from MMF guarantees and government purchases of CP to the FDIC guarantee of newly issued bank bonds), all necessitated by the Lehman failure.

We tried it your way. It didn't work.

[mb]

Quote:

Originally Posted by . . . Yrs to Go Funny how the proponents of "receivership", "nationalization", or "bankruptcy" never mention how letting multiple companies, each with liabilities the size of Italy's GDP, go under will impact the economy. Apparently "the market will sort it out" . . . kind of like it did when Lehman went under, only 100x as much I guess.

James Galbraith is not a Friedman-type let-them-fail, the invisible-hand will work it out free-market economist.

He is a neo-Keynesian and the son of John Kenneth Galbraith.

I suspect that his solution is that the gov should take control of these institutions so that the gov can "properly regulate" them for the "greater good."

[Spanky]

Quote:

As the saying goes-if you find yourself in a hole, the first thing you should do is stop digging.

.. and start flying, climbing, crying, asking for help, praying ...

[tryan]

I don't understand this statement:

Quote:

Even Bear Stearns' bondholders can expect to get 100% of their money back, thanks to the generosity of Bernanke

The bonds have already been devalued. Losses have already occurred.

100% of current market value - OK. How is that bad?

[ziggy29]

Quote:

Originally Posted by haha Part II Geithner Obama Kowtowing to "Massively Corrupted" Banks Galbraith Says: Tech Ticker, Yahoo! Finance

For what it's worth, Dr. Doom seems to like it:

http://www.nydailynews.com/opinions/...s_new_tox.html