Saturday, Mar 14, 2009
The financial sector is holding the economy hostage
MarketWatch: Banks want G20 to set up pricey bad bank
The world's largest financial institutions urged the G20 financial leaders on Friday to endorse the "bad bank" approach to dealing with the credit crisis, an expensive model one expert likened to another ransom note.
The request came in a letter to U.K. Prime Minister Gordon Brown from the Institute of International Finance, a trade group of the world's largest global banks. The IIF wants Brown and his G20 colleagues to push the Obama administration in the direction of setting up a bad bank.
Under this approach, governments would buy toxic assets from banks at a price higher than the prevailing market rates. For the time being, private investors simply won't buy the assets at the prices that the banks want. As a result, banks have huge holes in their balance sheets.
5 Comments
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1. paul said...
Why doesn't the G20 do something smart and set up a 'good bank' instead?
Remove all of the good assets from the troubled banks and leave them to go bankrupt? Well that would mean that the bank executives would lose their jobs, pensions and their lucrative share options and wouldn't cost the taxpayers a penny!
Couldn't have that now, could we?
2. Andy said...
This global septic bank must be one of the implementation details of Gordon's global new deal.
@paul your 'good bank' would not happen because it involves wholesale liquidisation of the banking sector - this was blamed as one of the causes of the great depression - look up bank asset liquidisation and the propagation of the great depression.
Of course, what economic historians fail to mention whether the great depression would have been avoided or the duration shortened or lengthened without that bank asset liquidisation.
3. mander said...
American people message is very clear the more bailouts the more they will not pay their mortgage. Bailout is not right message because none of this money gets to the people. They still have same salaries but need to cope with properties 2-3 times more expensive. Obviously they are not happy now for being fooled into this property business.
Bad bank is a way of protecting incompetence and non risk assuming practice. Wait a minute no one wants to go back to real thing when the bank has to take the risk for lending which in the end is their own act. The risk cannot be sold. Come down to Earth.
4. crunchy said...
paul, would that not lead to a monopoly?
Perhaps not as it may not even amount to one bank. No I am afraid that we are the bad blood bank that will cure all of there ills whilst we die of a slow painful cancerous death. The parasite will kill the host if that has not happened already.
5. braindeed said...
3. crunchy said...The parasite will kill the host if that has not happened already.
sadly true - and it was a ransom note, as stated in thepeice.
It's looking worse by the day.