Bailing Out The World
Mike Allen at The Politico raises an issue that's been bothering me from the moment I first heard about the proposed bailout. The issue is this: the problem we're trying to solve is a global one. The worldwide flow of credit has ground to a halt because entities all over the world are holding huge amount these toxic, illiquid mortgage based securities. So the only real way for this bailout to work is if the United States government buys not only the bad assets held by U.S.-based entities, but also those held by foreign entities like Deutsche Bank, Credit Suisse, Royal Bank of Scotland, etc. In other words, this isn't just a Wall Street bailout. We're bailing out the world.
We could of course limit the bailout to U.S. entities, but doing so would leave the global financial system clogged with these bad assets. It wouldn't solve the problem.
So shouldn't other governments be a part of this plan? Shouldn't European and Asian taxpayers be asked to pay their share of this bailout? Why aren't more people talking about this aspect of the problem?
UPDATE: Okay, I've been reading up on this issue and watching the panel discussion on Fareed Zakaria, and I think I may have overstated the degree to which this is a global issue. Because of smarter regulatory policies in most other countries, this is an overwhelmingly U.S.-centric problem. There are, however, some foreign entities, mainly European ones, who have U.S.-based divisions and subsidiaries that are mixed up in this. So we will have to decide whether these entities will be entitled to the same taxpayer assistance, or whether they'll be treated differently. That may turn out to be a sticky political issue.
We could of course limit the bailout to U.S. entities, but doing so would leave the global financial system clogged with these bad assets. It wouldn't solve the problem.
So shouldn't other governments be a part of this plan? Shouldn't European and Asian taxpayers be asked to pay their share of this bailout? Why aren't more people talking about this aspect of the problem?
UPDATE: Okay, I've been reading up on this issue and watching the panel discussion on Fareed Zakaria, and I think I may have overstated the degree to which this is a global issue. Because of smarter regulatory policies in most other countries, this is an overwhelmingly U.S.-centric problem. There are, however, some foreign entities, mainly European ones, who have U.S.-based divisions and subsidiaries that are mixed up in this. So we will have to decide whether these entities will be entitled to the same taxpayer assistance, or whether they'll be treated differently. That may turn out to be a sticky political issue.
posted by A.L. at 11:13 AM
5 Comments:
People aren't really talking about that because it isn't true. This is overwhelmingly a US problem.
To the extent other countries are affected its mostly because they've been operating in the US under weak regulatory oversight. Some UK banks maybe. A couple that were originally EU, but have major operations in the US.
I haven't heard of any problems at all in Asia. They fixed up their loan structures 11 years ago (you might recall Washington dealt them a pretty heavy hand at the time).
Everyone else is already carrying the burden of a slowing economy. I don't think China's going to be too impressed if the US comes begging for pennies to pay for its own screw ups.
One such foreign bank with a US Subsidiary is UBS. UBS = Phil Gramm. Nice trick, eh?
"So shouldn't other governments be a part of this plan? Shouldn't European and Asian taxpayers be asked to pay their share of this bailout? Why aren't more people talking about this aspect of the problem?"
Actually, that was one of the 7 points that Barack Obama made in his speech today:
"A global response. As I said on Friday, this is a global financial crisis and it requires a global solution. The United States must lead, but we must also insist that other nations, who have a huge stake in the outcome, join us in helping to secure the financial markets."
You can read the whole post at The Jed Report:
http://www.jedreport.com/
It's about 1/3 of the way down.
Translation for us working saps of the bail-out: "catastrophe" = any crisis created by greed and fraud that needs tax money to maintain the greed and fraud. “once in a century crisis” = forget Enron and Worldcom which were only a few years ago. “free markets” = ensuring that the Big Money Boys can swallow a fire hose of money for as long as possible. “protecting the American people” =protecting Bush/Paulsen’s Wall Street buddies who might have to give up a few mansions. “a clean bill” = nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving. “transparency” = We’ll report to the elected class after it’s a done deal. "partisans" = any Congresspeople who insist that any bail out should include oversight and some feature that will benefit average Americans. “This will work” = Sure, cuz the plan includes taking another chunk of our money after the first chunk doesn’t work. “poison pill” = anything like making CEOs foot some of the bill for their own terrible decisions. "trust us." give another blank check to those who've proven themselves to be wrong and/or incompetent at every turn for the past eight years. “American people” = those who caused this crisis and who exploited this crisis. They will slurp up the trillion dollars of our hard-earned money that's gonna be served up on a silver platter faster than you can say "Americans are suckers if they vote Republican."
I live in the British Isles, and its seems the banks here have been much like the US banks.
Banks have been begging people to come in and take loans. 100% mortgages have been offered, and all sorts of inducements to mortgage, and re-mortgage (i.e. take out a new loan to cover your debts). Consumer electronics and car sales companies have been offering deals like interest-free loans for the first year after purchase.
There's a whole mass of bad debt out there; no one knows how much. Last year, Northern Rock, the 7th largest British bank, almost collapsed, and had to be saved by the Bank of England (=British Federal Reserve). Lloyds have swallowed Halifax Bank of Scotland to prevent its collapse due to bad debts. In Ireland, the Bank of Ireland (a commercial bank, not the Central Bank, the local equivalent of the Bank of England)is to take over a major mortgage lender, probably for the same reason. European governments have guaranteed deposits in their licensed banks.
These are all steps similar to what has happened in the US. Here in the British Isles, there is also a depressed housing market following a bubble, and the same is true in some continental countries (e.g. Spain and Eastern Europe).
There is not (yet) the massive bailout by the European Central bank that has had to be proposed by the US Treasury. Nor do I hear of the CEOs of some of these enterprises being asked to return some of the millions of euros they took as bonuses.
Probably, on top of the US bailout, there may have to be some sort of international one, possibly with the European Central bank involved, and maybe China?
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