raghu wrote: > One is simple fairness: what public interest > is being served in giving taxpayer money to > these entities? The second reason is that > these entities are not obliged to keep their > money in circulation by making new loans, so > the bailout money doesn't even have a > stimulating effect. Indeed many hedge funds > are returning money to their investors even > if they were profitable recently.
I'm not arguing that TARP is a more efficient or equitable approach to solving the financial mess than, say, nationalization. So I don't disagree with most of what you wrote. My point instead is that it's not at all clear that TARP represents a freebie to the bankers. Just because it doesn't have the right strings attached (say, those requiring the banks to use the money to get credit flowing) doesn't mean it doesn't have strings attached that constrain the bankers. Certainly, there are cases in the news that seem to validate the hypothesis. Today in the news is John Thain's resignation to Bank of America. I heard about this on the News Hour (PBS) and read a couple of accounts about it (MarketWatch and Bloomberg) and I'm still confused on whether his speeding up the payment of hefty bonuses to Merrill's executives predated or postdated B of A tapping into TARP. In any case, my point is that unless we can prove that, indeed, the bankers are feasting at the public expense as a result of TARP, then our argument against TARP (and for nationalization) should be instead that, if the goal is to expand credit, then TARP is not an efficient use of tax money. Nationalization is better. Now, as to your question, "what public interest is being served in giving taxpayer money to these entities [the shadow banks]? Well, precisely the point of Krugman (Roubini and others) is that these entities do, conventionally or not, what banks do: hold shorter-term liabilities and longer-term assets. They are highly leveraged, even if their leverage is not conventional, say, it's done by holding contingent claims that mask risk. In any case, aside from the wealth effect on the economy, the deleveraging of these banks is in effect a contraction in credit, money supply, etc. IIRC, Sabri here has made a similar argument. Are shadow banks banks in that sense or not? I think that to the extent they are (and they are to some extent), short of more effective and equitable measures, the public-interest argument for propping them up stands. Again, propping up banks doesn't mean to reward the bankers. As I said in my reply to Shane Mage, there's no disagreement on that. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
