Sunday, 28 September 2008

All hail the US Cavalry


Many good and sensible people in the US realise the US bailout is a terrible deal for US taxpayers. Nouriel Roubini, previously seen as a nut job and now recognised a very prescient, has a great post showing how there are many ways to tackle a systemic banking crisis.

What the US is doing is a very expensive way and one that saves shareholders over taxpayers ultimately. Our own problems with recognising what is and is not a systemic crisis (B&B, Northern Wreck) with our sporadic and random government interventions (see HBOS, see BOE massive money market operations).

However, for UK taxpayers, what a massive break! If only are stupid Government can keep itself quiet for a few minutes. The US will bail out RBS, Barclay's and HSBC - the last of our real worries (hedge funds and OE firms can go bust without too much effect on non-stock market participants).

With this maybe Robert Peston will be right and there will be no more banking failures in the UK. This is good news, as the recession we are entering and the housing market crash will be pain enough for the next few years as it is.

Sadly, my hunch is that Gordon Brown will want to 'do something' and UK taxpayers will get shafted like those in the US.

16 comments:

Anonymous said...

The bailout is a huge windfall to Wall Street; it is also subterfuge for the other parts of the bailout. The Federal Reserve Bank of New York posts the latest permanent open market operations. And, for the first time since spring 2007, they are cranking up the printing presses. the Fed is also engaged in all sorts of extra-legal loan programs and permissive regulatory exemptions for financial institutions.

In addition to banning short selling, the SEC is now suspending mark-to-market accounting regulations.

Transparency, like free markets, is now dead in the United States.

Elby the Beserk said...

It would be unlike Brown to miss another oppo to shaft the taxpayer. After all, it would seem to be his lifetime's mission.

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Mark Wadsworth said...

"Debt for equity swap" is my new mantra. Elby points out the flaw in this plan.

purplepangolin said...

Why will the US bail out RBS, Barclay's and HSBC? I thought they were restricting this to American banks?

Ed said...

I am really confused about B&B. Peston's usual good explanation seems to have deserted - I am baffled by his post.

Can you experts explain in simple words which even I can understand?

Anonymous said...

Blue eyes: he means-

Nous sommes trahis. Sauve qui peut.

Anonymous said...

The Great Depression was bad for taxpayers too. But that was exacerbated by a government too willing to turn off the taps at the bad banks too quickly.

You are considering this as if it was a minor storm in a teacup. It isn't. It's financial armageddon. Now ias not the time to point the finger of blame. That can come later.

CityUnslicker said...

Matt - seems that way. One thing with short selling; it seems that hedgies are now focusing on other companies and sectors, so more will be added to the list. This will just get messy.

Elby - too right.

Purple - no it is for any company with substantial US assets, our big banks qualify.

BE - Dearime has said it all.

Anon - There is a big difference between sorting out HBOS which would cause a systemic loss and letting B&B go down. Throwing what little money we have left around is the wrong answer. I am not against the Government 'doing stuff' at this time; but it is loving this opportunity to have a go at markets. Politically it suits their narrative of trying to claw back their position against the Tories too..

Anonymous said...

We have no money to squander CU, and that is the biggest problem; the US may be able to absorb huge debt in the short term, but Brown has already spent the inheritance and is borrowing against earnings in the next century

Will he borrow more? Definitely. How will he hide that borrowing? No idea.

CityUnslicker said...

Houdini - we have a bit of wiggle room, but not much I agree. Certainly the BOE thinks are in the thick stuff big time.

The main reason they are not cutting rates is to support all the gilts issues IMHO.

hatfield girl said...

'Brown has already spent the inheritance and is borrowing against earnings in the next century'

But it's only 2008! Gulp.

Anonymous said...

My father's step-father served in the 7th Cavalry, so there!

Anonymous said...

Historically we have always printed money to get out from under our debts, just as we did after WWII. I don't expect any different this time. It will be done slowly over a period of time (30 years or so) in the hope that creditors don't get in a strop.

This is the manner in which the West has kept itself top of the pile at the expense of poor miners in Africa, weavers in India and so on. We are involved in a continual process of defrauding the rest of the world with paper money.

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