Is this a race to the top or a race to the bottom?
“The Europeans not only provided a blueprint, but forced our hand,” said Kenneth S. Rogoff, a professor of economics at Harvard and an adviser to John McCain, the Republican presidential nominee. “We’re trying to prevent wholesale carnage in the financial system.”
Here is much more on today’s events. In the current version of globalization the equilibrium seems to be that non-guaranteed banking systems are swiftly penalized and turned into zombies. This suggests, by the way, that undoing current bank guarantees, when recovery comes, won’t be as easy as we might have thought.
Addendum: Here are the opinions of many economists.
It will be impossible to undo them.
A Hail Mary pass into an empty endzone.
There’s a good reason why governments didn’t attempt this before: because they knew it was beyond their capability. What happens in a few months when the whole world has its “Iceland moment”, near-simultaneously?
Revolutionary steps toward a much better world.
I keep reading that smaller banks that didn’t plunge headfirst into the MBS market are doing fine.
Why don’t we capitalize them first?
Also, I would prefer if the government would directly capitalize loans over a certain threshold, cutting out the heretofore irresponsible middle men.
Re capitalizing loans directly, that doesn’t sound practical. There’s a reason the middlemen are there, and the government would probably be fairly bad at taking over that role. It would be interesting to see more money go into the Small Business Administration, however.
Handouts are always difficult to take back. However, it does happen. You either have to do it when times are so good no one cares anyway, or when times are so bad that everyone’s panicked and willing to make an exception to the usual log-rolling. Too bad Congress didn’t try harder to roll back farm subsidies in the face of rising food costs. Sigh.
“Why can’t [the small banks] gang up on, kill and scavenge the weakened big
banks?”
It seems to me that the problem for the small banks resembles the problems
of the big banks. How do you know that the bank you are about to kill and
scavenge isn’t poisoned? Chewing on the wrong bones could make you very ill…
When did “we” think it would be easy?
If you believe the Bible is the written word of God and you are an idiot with no reading comprehension ability, then you also know there will eventually be 10 controlling nations.
There, fixed it for you.
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