I think that the finance sector is jammed right now, leading to all kind of problems with letter of credits and so on. I also think that the foundation for their problems is that the finance companies has cross-lended and guaranteed each others lending so that no one can know what companies are solvent. This needs to be fixed and it needs to be fixed fast.
Approaches that might work include (a) regulating certain exotic instruments out of existence, (b) forcing insolvent credit institutions into the sort of bankrupcy where the healthy parts of the company continue in existance, (c) creating new and strongly regulated credit institutions (and thus letting the old ones fall without dragging fown the rest of the economy).
The bailout I suspect not to fix anything in the finance sector, but actually dragging out the process of clearing the market, thus causing more damage on the rest of the economy. And of course using up money that could be used for investments. A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
Ultimately what the old model has done is to outsource risk in such confusing ways, that no one knows who is exposed by how much, and the resulting loss of confidence and functionality leaves the taxpayer as the risk bearer of last resort.
If the banks stop fulfilling their role of guaranteeing loans to the productive economy, they lose their utility and the state is forced to step in instead.
It is said that war is too important to be left to the generals. What is clear from this crisis is that the global system of finance, guarantees and settlement processes is too important to be left to private banks who game the system and profit by off loading opaque risk to others.
Increasingly businesses will have to rely less on debt finance and keep larger reserves of cash on their own balance sheets. Banks will have to be bypassed more and more by the real economy.
This may result in some "BALANCE SHEET INEFFICIENCIES" but resilience, too, is an important characteristic of a successful business. notes from no w here
