I am sorry if this is stupid questions. I don't know much about these matters.
That said, the history of the Savings and Loans issue and the saga of LTCM indicate that some kind of bailout is rather likely.
(And not necassarily a bad thing that we have enough folk memory of the depression to feel that the banking system can't be left to collapse.)
But, of course, the two worries are:
That way we would actually get banking for the public interest. Those whom the Gods wish to destroy They first make mad. — Euripides
Sorry for the slip, Comrade Migeru.
This hasn't got the Jerome seal of approval AFAIK. Those whom the Gods wish to destroy They first make mad. — Euripides
It is interesting to read about it now thought. I was young when this was going on, so didn't really understand what was going on. From what I gather thought, 23 of the Norwegian banking sector was verging on bankrupcy because of a set of factors eerily similar to some advanced economies I know: First of all, the private banks increased their loan portfolio threefold in half a decade, after the government liberalised the banking regulations. Then, the economy started slowing in the late eighties, especially in IT and oil, two areas of big importance for Norway. Soon after, the norwegian housing boom, fed on by the increased aviability of cheap loans, collapsed. (About 20 percent of the bad loans were to private customers) The housing prices would take almost a decade to recover. (And that in a steadily growing economy)
Sources: (unfortunately in Norwegian) http://www.nrk.no/underholdning/store_norske/4704274.html http://www.ssb.no/00/aar2000/art-1999-11-10-01.html
By how much did house prices crash in Norway?
So the same interests might have bought them back, but they would have to pay real money for them. When I read about it, i discovered that the norwegian parliament actually passed a bank savings bill which mandated that the Norwegian government kept a "strategic interest" in the biggest business banks. First at 51 percent, then from 97 and on to 2000 at 33,33 percent. The Norwegian government still owns a sizeable part of the shares in the biggest bank consortium in Norway, DnB-NOR (34 percent).
Another one of them was sold off to foreign (Finnish or Swedish) interests however, in contradiction with the set goals of the banking reform law. This after the norwegian Labour got back into power and started playing Blairite disciples.
LTCM held beaucoup bonds so their collapse could shake credit markets, currencies etc which are the real foundations of international trade.
these guys just held spreads on nat gas futures (long front to back if the journalists got it right). the gas is still there and will flow regardless. All that has happened is $5 billion has transferred from one hedge fund to many others + the Wall Streeters like Morgan Stanley and Goldman.
If the exchange failed over it, the other side of the trades just wouldn't get paid. Perhaps that could feed through to the real world, but $5 billion spread around isn't enough to break Wall Street.
Of course Governments would step in and bail out key parts of the financial system. They always have: although this is one of the key issues when those self-same infrastructure assets go into private hands.
I believe that the problem with an energy market meltdown could be that, unlike in the LTCM saga, the Fed cannot print oil, so that there is no limit to where the price could go.
so there is no need to "print oil". price setting could and would go back to voice brokers or oilco traders could actually talk to clients instead of staring at screens trying to make sense of ticks.
I sold millions of bbls of fuel oil without a futures or forwards market. No EFPs, no nothing.
Wouldn't there be a strong incentive for governments to somehow bail out banks, etc. if there was a collapse in the derivatives market?
There would a strong incentive and various goverments would bail out the banks and other financial institutions.
Remember, Neo-Liberal economic theory states goverments should not interfere in the market.
Neo-Lib practice shows as long as companies or economic entities owned by the plutocrats are making money but immediately, or as soon as possible, support companies or economic entities owned by the plutocrats whenever there is a danger of those companies & etc going broke. This always seems to be in "The National Interest" for some strange reason.
A doo run-run-run, a doo run-run
they need to be regulated like crazy to protect us from their mistakes.
