Wednesday, 1 October 2008
Return of the US Cavalry
So a new bill goes before the senate today in the US to try and get a deal on a banking bail out. IS is inconceivable that it will not pass this time? Who knows after last time, I am not so confident Congress will change its tune tomorrow with an election so close now.
However, markets around the world are cautiously up; at least if it all goes wrong this time there should not be the 8% falls we saw on Tuesday.
However, the US plan is wrong, as is the UK approach at the moment. The plan is to keep pumping in liquidity, but it has achieved nothing to date. So the add-on is to buy toxic assets at more than they are worth. Great, this almost guarantees US taxpayer losses; no wonder so many people are against this plan.
But what is needed is for banks to have enough capital to be able to write-down the bad loans now and not go insolvent. To that end, a better plan is tore-capitalise banks and the Government to take a charge on the money, maybe even in the form of shares. My hunch is that share prices would soar and the Governments could actually profit from this approach in the long-term.
Throw in a UK interest rate cut to help our poorly manufacturers and hey presto, a real recovery plan.