Fear of a Bank Planet
I just wanted to use the title!
Let me add, from my layman’s perspective, the arguments against “nationalizing the banks†seem entirely plausible, as do the arguments against declining to nationalize the banks. The only reasonable conclusion is that we’re screwed no matter what. But at bottom, it does seem absurd that the world’s governments should devote unlimited money over unbounded time to keeping trillions of dollars of bad loans from giving up pretenses.
Comment by Seward —
March 10, 2009 @ 12:44 am
I didn’t read the link, but I would note that nationalization of banks is what generally happens when a national economy hits the skids. How successful those actions have been over the past twenty to thirty years I cannot say.
Comment by bbartlog —
March 10, 2009 @ 8:42 am
I’m irritated that the range of reasonable debate seems now to exclude the idea of letting them fail (and I don’t mean paying off their creditors). Gee, someone constructed a vast, interwoven financial edifice? It spans the globe, and now demands a trillion dollars or more from us and our descendants, or it will set the world ablaze? Sounds like blackmail, or a choice between serfdom and apocalypse.
Note that I’m not implying a deliberate human agency behind any of this. But complex systems often do a good job of *looking* like they’re behaving in some diabolical fashion; the ghost in the machine is strong.
Comment by Jonathan Goff —
March 10, 2009 @ 11:05 am
Jim,
The only reasonable conclusion is that we’re screwed no matter what.
Heh. Jim for all your modesty about economics, I think you have more of a clue than most. I think in all probability, if government does nothing we’re looking at a nasty several-years depression…unfortunately, that’s true even if government does something…
But at bottom, it does seem absurd that the world’s governments should devote unlimited money over unbounded time to keeping trillions of dollars of bad loans from giving up pretenses.
Exactly. People haven’t gotten it into their heads that trying to keep the fantasy going a little longer is neither realistic or more importantly desirable. If at real demand levels a house is only worth $100k, no matter how hard the government tries, they aren’t going to keep it at $200k without causing a *ton* of damage.
~Jon
Comment by absence of something —
March 10, 2009 @ 11:22 am
Maybe a small proportion of the trillions going to the banks, would be better spent providing every citizen with a spade and a packet of vegetable seeds. Of course the elderley and the feeble will struggle to grow their own, but perhaps the bankers will come round and do a little digging for them, no?
Comment by Barry —
March 10, 2009 @ 11:33 am
How about we put the bankers to work raising crops? There might be some trouble, but once they understand *real* incentive systems, they’ll be very productive.
Comment by Thoreau —
March 10, 2009 @ 12:24 pm
Are you suggesting that the bankers take a holiday in Cambodia?
I agree with everyone else: When massive portions of the financial system got themselves setup for the assumption that a bunch of homes are worth far more than they’re actually worth, it’s going to be nasty no matter what. Keeping them on life support is merely a costly way to delay the inevitable. Perhaps there are ways to soften the landing, but at some point this thing does have to land.
Comment by BigHank53 —
March 10, 2009 @ 4:07 pm
Joke I heard last October:
What’s the best thing about an investment banker?
Even a small one will keep your dog fed for over a month.
Comment by JC —
March 10, 2009 @ 10:57 pm
I get both sides of the arguments – but it really really is screwed, that these handful of people, using this newfangled thing called Credit Default Swaps, that is only a small litle locus of activity – can suddenly endanger the whole world economy. In a way, I just don’t get it. Can’t we just call the derivative market null and void, start putting together the underlying mortgages, and deal with THAT? Your percentage of failure would be much smaller than this false virtual universe of fake money, that threatens the world economy – or at least costs trillions to make good on. Why?
Comment by Barry —
March 11, 2009 @ 9:44 am
Comment by Thoreau —
“Are you suggesting that the bankers take a holiday in Cambodia?”
Tempting…….
But seriously, one of the biggest long-term impacts will depend on whether or not the ‘bankers’ suffer accordingly. Otherwise, the system of taking fat yearly ‘productivity’ bonuses for multi-year deals which are money-losers will continue. The lessons learned would be (a) take less of your compensation in company stock, because breaking the company is a much more plausible risk,
(b) that even if you break the financial system of the world, that’s merely a problem, which can be dealt with.
Comment by Nell —
March 11, 2009 @ 9:45 am
Why?
Because the people who owe and are owed the fake money are the biggest single source of the real money behind Barack Obama’s campaign.
The record number of individual donors didn’t make the bundlers disappear, they just gave a cheery populist front to the candidate. Goldman Sachs and friends run this administration and the relevant Congressional committees.
Comment by bbartlog —
March 11, 2009 @ 10:55 am
can suddenly endanger the whole world economy
Certainly, one part of this is that the real economy of the world, which involves things like growing wheat and mining coal, would survive regardless of what happened in the financial world. Not to say that these operations don’t also rely on the availability of credit, but any disruptions would be resolved within a few years, assuming we don’t destroy capitalism entirely.
Leave aside the fact that defaults would bankrupt various people and entities in the financial sector, which seems to me like either a minor problem or a benefit. The broader effect would be that the borrowers of the world would default on the savers. For all that I like to talk about how the federal deficit is this generation robbing the future, it would seem that what we are seeing now is the reverse. On net, the people that saved are old; the debts that are accumulated represent the promises of all the borrowers (mostly younger) to repay. If they go into default, it will represent a repudiation of those accumulated obligations.
Anyway, rather than talk about the destruction of the economy you really need to get into specifics. The economy will always exist in some form. If you want to say that a 70% reduction in international trade and a 10% reduction in world GDP is ‘destruction’, I’d say that’s an exaggeration. Might be where we’re headed though.