Tuesday, October 4, 2011

Dead Wealth

This is the cover photo this week over at the Economist.  I can't dog these guys too much, if at all.  I have been a subscriber since 1989 and read the thing cover to cover every week.

But I think that they are beginning to hyperventilate a little bit lately.  Probably rightfully so.  things are getting pretty close-run at the present.  But when you go and read their article, it seems to me that what this clarion call consists of is a drama-tinged cry for more taxpayer money to bail out the banks that have overlent and got us into this problem in the first place.

Look, what is at play here is the ill gotten gains that the banks have booked.  They loan out too much money to dicey borrowers, the borrowers go south, the banks are screwed.   Like it or not, the banks are screwed because of their own bad decisions and panting greed.  They tried to force growth so that they could reap big profits and when the growth proved to be ephemeral, they took losses.  I think the best analogy is when a farmer puts down fertilizer (bullshit) that hasn't been properly composted.  It kills the crop.

It is not the duty of a country to backstop banks.  When people put their coin into a bank, they are doing a business transaction.  When banks go south through simple bad luck, or malfeasance, they are doing a business transaction.  Simply put, failure is part and parcel of any business transaction.

The too-big-to-fail banks really aren't.  There is enough current backstop to cover the depositors in the country (Which I think is a mistake, but it is there), so really all we are looking at is the banks not being able to pile more too-hot fertilizer on a dying plant.

We have to go through a withdrawal here.  My lord it is going to be painful.  But in the end about ten years out and a bunch of withdrawal later, we might be able to get moving again at an appropriate pace.  What we have now is nothing more than the end of our adolescence.

I think that you all ought to watch this next clip.  I saw it years ago when Ken Burns first debuted it on PBS, and Dave Cohen over at Decline of the Empire reminded me of it last week (thank you).  But it is a astonishingly faithful metaphor for the world in the last twenty years.

1 comment:

russell1200 said...

The editorial inside associated with the cover picture spent most of its time talking about how the Europeans had not done enough to firewall the bad debt.

They also mentioned that the bank bailout was a good idea but were realistic enough to note that with s financial collapse od such magnitude results were going to be bad for some time.

Although they did not single out President O., they stated that the biggest sin of the politicians was to overstate the progress toward recovery and build up false expectations. I would add to that that the stimulas that was done, was enimic, poorly advertised, and started too late.

IMO they should have put the banks into receivorship. At the very least they should have looked much more closely at the good bank-bad bank split that Sweden used in its debt crises. Much of this falls on Bush rather than Obahama.