Saturday, February 14, 2009

Modern Bank Robbery

I agree with Simon Johnson that this line of thinking is atrocious and unacceptable:
One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives. We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.
If the goal is to wrap up the crisis as quickly as possible, then let's stop talking about buying junk assets from banks and start talking nationalization. If the key to recovery is to avoid "prolonged deterioration", we can end the role of those junk assets in this mess just as quickly by estimating the lowest price we can pay for "the various toxic assets residing on financial institution balance sheets".

1 comment:

  1. . . . but Aaron, if we did that the bankers and the bank owners would stop paying bribes . . . I mean making contributions, and besides that, they might not have as good a "revolving door" job waiting for the Government officials in question as they will after we subsidize them rather than nationalizing them.

    Really Aaron, you act as if the economy and the tax payers were the only people this impacted. How selfish of you. I bet you haven't given any thought at all to all of the officials who depend on the bribes and their slush funds. How do you expect "change" to continue if we don't have some fat cats aruond to grease the wheels and shape it.


    PS - First, we kill all the bankers.