Treasury tried to head off such concerns by having David McCormick, the
undersecretary for international affairs, call foreign central banks and other
overseas buyers of the companies’ securities or debt to reassure them of the
instruments’ creditworthiness. Over the weekend, Treasury officials called
sovereign-wealth funds in Abu Dhabi and elsewhere in the Middle East, assuring
them that they were working on financial issues involving Fannie and Freddie,
says an individual apprised of the conversations.
Here is much more, interesting throughout. Read this too. But no, the buyers forced the hand of our government by essentially threatening, through inaction, to induce a massive run on the uninsured U.S. financial institutions. One response is to insure all of those institutions, as the dominoes continue to fall. Another response is to believe that runs on unprotected financial institutions are not very dangerous. The third, correct response is…?
Said so. As a massive debtor with a continuing need to borrow, the US Government had and has no dice to roll. Everything useful that could be done by devaluing the dollar is alreadt water under the bridge.
The road back to fiscal independance is rough; and starts with persuading sovreign wealth funds and others that this is the time and these are the terms on which they will profit from recapitalising US and European banks.
The third, correct respones, is to allow the firm to fail. It does not matter if it is the auto makers, investment banks, or anyone else, if the firm can no longer compete it fails.
How about not implicitly guaranteeing the debt of quasi private firms in the first place? Foreign creditors can’t be blamed for forcing the government’s hand, the US government created the situation and in a way forced the foreign creditors hand.
I’m as libertarian as they come in the financial realm (high on my list is the elimination of the Fed) but the government had to take over FNM/FRE. People not involved in the financial markets can not appreciate what would have happened if either of the two failed. It’s not just that the dollar would have collapsed, or that hundreds potentially thousands of banks would have failed, or that the mortgage market would grind to a halt, or that trillions of dollars in CDS contracts would have to be settled (this is happening anyway, but because the debt against which the CDS is written is guaranteed, it’s trading close to par so there little cash will actually change hands. this would not have been the case if the firms failed because the sub debt would have been wiped out and there would have been haircuts on the senior debt, meaning massive payouts on CDS contracts), it’s that the financial system would have ceased to function. Seriously.
I don’t believe that the failure of Bear Stearns would have had the same impact. I was completely against the Fed’s involvement in the JP Morgan takeover. But in this case, one really does have to put aside ideological purity for the sake of doing what needed to be done.
“Everything useful that could be done by devaluing the dollar is alreadt water under the bridge.”
I’m interested as to what this statement means. Surely the fact that the dollar is at a 12-month high means that it would have room to fall? Even aside from that, currencies can always fall further.
Another typo I alreadt missed!
The useful functions of the slide in the dollar before the current partial recovery were to transfer some more of the losses in the financial world to foreign holders of dollar assets (broadly the countries that have massive reserves in hand); and to improve the competititvity of US domestic production and exports. It does not look to me as though the foreign holders of US debt will be content to take much more of the loss through exchange devaluation; nor that competitivity gains will be much greater if the dollar goes even further below PPP. Hence that option appears to me water under the bridge.
Declaration of interest: I am a foreigner living in the euro area.
The third, correct response is…?
1. Declare that the USA is no longer a superpower.
2. Withdraw quickly from iraq and afghanistan, on the grounds that we cannot afford them. If somebody else in the world wants to bankroll us to stay in those places and maintain order, pay careful attention to their proposals and possibly accept.
3. Announce that we cannot continue our current support of NATO. Cut back our monetary and personnel contributions to something close to other members.
4. Eliminate funding for ABM systems. We can’t currently afford them. Offer to sell our data to some upright nation that might continue the research, provided we believe it’s good for the world for some nation to set up ABM systems.
5. Reduce funding for NASA. Continue to collect data from existing projects. Let NASA do contract work for whoever can pay, within the limits of security concerns.
6. Spend money on a new navy. Keep, say, five aircraft carriers fully operational and the rest on some sort of standby mode, and look at how to run effective fleets without carriers. Sometime soon our carriers will become liabilities, they will be too hard to defend. We will need cheaper ships, cheaper attacks and cheaper defenses. Smaller ships with nuclear power? Cheap effective drones and cruise missiles? It will cost, but the alternative is to have no effective navy when our carriers go.
7. Otherwise, scale back our military. Increase the Guard and Reserves, and look for effective ways to improve training. Logistics that works with less training, find ways to increase simulated combat training and make the hands-on lessons quick and fun, teach lots of civilians, people you don’t have the money to keep as full-time soldiers.
8. No subsidies for fossil fuels. Find ways to limit fossil fuel imports. Encourage high domestic fossil fuel prices, to promote alternative energy. Perhaps proceeds from taxes on imported fossil fuels could be used to subsidise exports?
9. No subsidy for gasohol unless it’s shown to actually save significantly more fossil fuels than it uses.
10. Perhaps, announce that china is waging economic warfare against us? That we are losing a sort of cold war, and we have to accept austerities to win? Find ways to encourage people to work, even retired people or perpetually unemployed or officially disabled. Maybe have a sort of welfare system that pays them even though they also have special jobs that don’t pay minimum wage. Assuming we find work that needs to be done that we can’t afford to do by normal methods….
11. As our currency depreciates our illegal immigrant population will melt away. We will have lots of jobs available that pay illegal-immigrant wages. What to do?
12. Where possible, replace TBTF organizations with networks of smaller organizations. Perhaps set an upper limit for corporation size. Start with half the size of WalMart. WalMart in the USA can then split into two competing corporations, or split along functional lines into two corporatinos that each do part of the job and do their part for each other plus for whatever other customers they get. Then continue to reduce the maximum size. Giant corporations could turn into networks of smaller corporations, each of which is replaceable. No one of them TBTF.
Well, there’s a start. On a wartime footing questions of housing and healthcare get deferred. Illegal immigrants go away until after we recover. The resources we stop using for military etc can be redirected to improve our economy — the highest immediate priority is cheap energy and/or energy conservation. Also we need a new transportation system of some sort. Lots of infrastructure that maybe we don’t need to refurbish if the new systems don’t use it….
Can we mobilise as if for war without actually starting a hot war? Can we revamp our economy without repudiating our debts and suffering whatever consequences that gives us?
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“Can we mobilise as if for war without actually starting a hot war? ”
Heck, we couldn’t even mobilize for a hot war. Bush cut taxes in the face of Afghanistan and Iraq.
Carter tried to mobilize the moral equivalent of war and failed spectacularly.
Newsflash dummies, tax revenues have soared under Bush.
Welcome to our company which sells all kinds of ro zeny.
Is it realistic?
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