Saturday, 13 August 2011

bank recapitalisation, i.e. bailout #?

The book is worth reading, same for Simon Johnson's blog The Baseline Scenario. Yet, as for many economists if not for all the "turning in circles" is becoming a regular form of commenting as, really, this current crisis is now boiling down to the classical Catch-22 situation. I commented on Simon's blog post Should we expect another round of bailouts where he supports not another bail-out but "a full-scale recapitalisation program" for the banks...

“A full-scale bank recapitalization program is required, along with management changes at almost all major European financial institutions.”


I disagree; this “full-scale bank recapitalisation” you suggest will be nothing else but another bailout!

Why would any private third party recapitalise any bank, if the bad debts (and any trailing Bad Bank) wouldn’t be taken over by who else but the tax-payer and how would you recapitalise and sort out e.g. the ECB, the Worst Bank next to the FED, I guess, sitting and whining on stacks or call it bombs of worthless PIIGS bonds?

And, what you call “management changes” – I suggest you replace the “almost” by the term “all” and add a “complete” – is what James K. Galbreith put into simple words in March 2009 , already – nobody listened, the Banksters got bigger and even more successful, since:

…as long as the old management is in place, there are no incentives to cooperate in the evaluation you need to make.

There was clearly a systematic failure. But that does not mean there was no criminal energy around.

When a bank is insolvent, the incentives for normal banking practice disappear. They become perverse.

“Perverse” might sound inappropriate, but it hits the nail on the head of a trade that lost its function, purpose and dignity – long ago.

One more point: even bailing out the banks again would not take us anywhere if at the same time this EURO problem wouldn’t be solved. It is a Catch 22 situation; call it a Gordian knot which according to the myth needs one hard swing of a sword to cut it, only; but then there is the Dollar, the YEN, China, peak everything and anything.

All in all it is going to be one long da.. hard touch down!

There is not much I could add at this point other than there will be no easy or simple solution for what Mr. Kohl and friends created when they played gods of all currencies and installed a completely immature EURO and at the same time there is no easy way forward for our world that is peak-almost-everything including coming up to 8 thousand million people living beyond its, our habitat's means on a finite and insolvent planet.

Carpe diem.


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