'....it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture. But if it is so simple, why has no expert mentioned it?I don't like the idea of the 'captains of the universe' and the greedy investors claiming huge profits and then seeking to socialise the disasterous losses they impose on themselves and society. But my anger directed at this lot, strong as it is, is tempered by the view that a lot of innocent people get hit in any major financial collapse. I'll let the financial experts work this one out but I am always surprised at how destructive errant financial markets can be when they run amok.
The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition'.
On this last point Gary Becker, while pointing to the costly implications of the bailout for future financial market moral hazard (future financing will be biased toward bonds rather than equity) and the unfortunate US taxpayer, broadly would agree with my caution. He writes:
'Despite my deep concerns about having so much greater government control over financial transactions, I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy into a major depression'.
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There is a suggestion that Wall St players are shitting themselves lest Dubai and/or the rest of Emirates area, which is awash with cash, will come in and help themselves to the major Wall St houses for pennies. This is the reason why there is this push to bail them out - to keep out the sheiky bargain hunters.
Furthermore: I am curious Harry, who turned off the US liquidity and why? China? The Arabs, China and Japan hold a lot of US bonds. A lot. Maybe China turned off the tap for US's own good. Like a parent cutting off a naughty child's allowance.
I think the war party in iraq and Afghanistan made the US lose a sense of proportion.
Recall that due to the financial pressures created by the Vietnam War, the US went off the gold standard and onto full fiat, which has arguably now made the excesses of the system more precarious. I am not necessarily advocating son of Bretton Woods but am merely pointing out that fighting wars is extremely expensive - now, and in the past. It has always been thus. Read Shakespeare.
WWI cost Britain her empire, WWII cost it some more. Afghanistan intervention bled the Soviet Union dry and contributed to its economic collapse, or at least, made its support of unviable clients (like Cuba, and the Warpac) unsustainable thus ending its empire.
Iraq is, I am afraid, H, USA's Waterloo. It is time for the Seppos to cut and run.
Sir Henry, quite so. The trillions that the US has pissed up against the well in Iraq would have been quite handy in fighting the current crisis.
The US is rich, but not that rich. Not even they can afford two blunders simultaneously that each cost trillions.
The twin blunders both have resulted from US Republican Party hubris. They thought they are the masters and can do whatever they like.
Well, they aren't and they can't.
The only remaining question is whether they will be punished sufficiently for their crimes.
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