Perhaps when the election is over we’ll start getting good reporting on the economic crisis. Or perhaps not. Apparently the situation is so complex that even a supposed expert like Paulson doesn’t know what to do. First it was taking over failing banks (except for some). Then the great idea was buying up bad debt (except for experts across the spectrum who thought it was idiotic). Finally recapitalization was the answer. Taxpayers will pour hundreds of billions into giant banks to give them enough cash so they can start moving commercial paper again.
Except that banks had plenty of cash; they weren’t making loans because they were afraid of the risks of everyone else defaulting. So what are they doing with their first installment of 250 billion? Buying other banks.
Now I’m by no means an expert on these things, but doesn’t this make the situation worse? Not only are banks still not lending, but buying up failing banks exposes the stronger banks to whatever toxic strain of highly leveraged obligations that got those banks in trouble in the first place. It also means there will be fewer giant banks and those that remain will be even bigger, exacerbating the “too big to fail” problem.
I don’t want my banks too big to fail. I want them small, specialized, highly regulated, and federally insured. Really solving this crisis might require some old-fashioned trust busting.
- jack*
Amen!
Posted by: Ma'at's Feather | November 03, 2008 at 10:13 AM