The Broken Political Economy of the Bail-Out

(9 am. – promoted by ek hornbeck)

Burning the Midnight Oil for a Brawny Recovery

Joseph Stiglitz on the Political Economy of the Bail-Out: Who’s At the Table?

Or as your humble correspondent wrote at Obama’s Emergency Banking Act of 2009 (European Tribune) … (below the fold)

One thing that becomes clear from the …

… Geithner proposal is who the “them” is … if the banks turn out to be unable to service their debt and senior preferred shares, then the recourse is to convert senior preferred shares to common shares to dilute the equity of the shareholders.

The solution to not having enough money to pull toxic assets out of the system to get enough of the toxic assets out of the hands of all of the big money center banks to ensure that they can continue to act as big money center banks … rather than the alternate view of the task at hand, in the terms of ensuring a sufficient subsystem of non-zombie banks to be able to provide the finance sector services required by Main Street if there is a recovery in 2010 or 2011 … is to subsidize the acquisition of toxic assets by speculators.

The “them” he is not giving up is the senior management and overpaid specialists for the big money center banks. And, seemingly, he continues to view a main function of the banking system to act as a middleman between financial individuals and financial markets, with hundreds of billions of dollars under his direct control to be aimed at socializing losses so that the process can continue.

IOW, the people that have to be the main target of any hidden nationalization of the banking system aimed at ensuring that what was once its primary function (but which it “outgrew” over the past thirty years in the “market centric” Anglo disease countries) is not sacrificed to acting as a middleman between wealthy individuals and financial markets.

However, bank shareholders … many of them, indirectly, small individuals and small business via the pension funds, insurance companies and other institutional investors providing “Main Street” financial services … well, if it goes pear shaped, they can take a haircut. You gotta have your priorities, after all.


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    • BruceMcF on February 14, 2009 at 8:04 pm

    … layout … in this case, however, its priority. Listen to what Stiglitz says, all the way through.

  1. to listen all the way through.  Just turned up the fan in hopes of making the room so cold I can watch the whole thing w/o making my computer crash.

    Love Stiglitz.  He and Krugman and Roubini have been correct about everything in their assessments of this financial meltdown.  I would be more enthused about Obama if I thought he had any clue at all…especially about his economic advisers & their complicity in the market meltdown.

    Choosing Robert Rubin over Robert Reich was just stupid.  The only one he has on his team who has made a lick of sense over the past 20 years is Paul Volcker.

    • robodd on February 15, 2009 at 9:11 pm

    why is no one listening to our Nobel Prize winners?  Why aren’t they at the table?

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