Unfortunately, the use of a family as cute and supposedly accessible analogy to communicate the banking bailout succeeds in obscuring a key point, viz., the bailout of the banks versus the bailout of the bankers and unsecured creditors. I suspect that most Americans believe that the vast sums of money were needed to keep the banks functioning (that is, making loans) and that the oligarchs and unsecured creditors are forseeable but unintended beneficiaries. But as Willem Buiter (LSE and Financial Times) has pointed out, a special resolution regime could have been established (as with the S&Ls). The good assets would have been transferred to new, good banks and the toxic assets left in the old banks. The new banks could then get on with the business of making loans (their social value), while the old banks would be left to dispose of the toxic assets as best they could--then disappear. The fact that the federal government is still handing out money to the too-well-connected banks at near zero percent and that credit is contracting proves what the money was intended for. Of course, we know who will pay. Isn't it wonderful to live in the world's greatest democracy?
Oct 25 2009 - 4:08pm