Julio writes:
Doug has a point. I think he pulls the stick a bit too much in the direction of the catastrophic risks to the point of believing that second guessing the bank rescuers is irresponsible. The risks are real, but let's not panic just yet. I just don't think that the average person in the U.S. is that bearish about the prospects of the country as to run and get their money out of the banks and stash it under their mattress or convert it into gold. If they see a few more big banks collapsing while the government sits on its pants, then all bets are off.
============================= I agree the economic risks are real, but that seems mostly attributible to the major banks holding consumers and small businesses hostage in order to pressure the government to take their next to worthless junk off their books under more favourable terms than they would get in the market. From that standpoint, it's an unnecessary bailout of the shareholders who should have had their dividends cut and their equity diluted at an earlier stage.
But Ken Lewis, Jamie Dimon, and Vikram Pandit are smart fellows who know the politicians will blink first because it's the latter who will incur the wrath of the voters if there is a consequent wave of corporate and personal bankruptcies, no matter how much of that anger is today being directed at the banks, when the threat has not yet materialized. The Democrats could force a more conventional recapitalization of the sector through equity stakes in weaker institutions, but aren't willing to take ownership of the crisis in the home stretch of the election. I don't see much danger of a run by depositors so long as there is deposit insurance. The only runs to date have been by large institutional investors who sunk the investment banks, or where such insurance didn't exist on bank deposits, as in Britain. As soon as the guarantee was extended to the money market funds, calm returned to that segment of the market. Interbank lending has frozen up, but that's because there is no reliable means of pricing these extraordinarily complex securities and no clearinghouses and other mechanisms to protect against counterparty risk, and because the central banks were quick to provide new alternative lending facilities to the banks. So we're being forced, as usual, to swallow this but there's no reason to justify it against its many lay and professional critics. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
