Treasury Secretary Henry Paulson's $700 billion plan to buy devalued assets from financial companies is ``a joke'' because it doesn't go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc. Ohmae, nicknamed ``Mr. Strategy'' during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ``international facility'' to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said. ``This is a liquidity crisis,'' Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. ``The liquidity has to be so big that people won't get panicky.''
Ohmae, nicknamed ``Mr. Strategy'' during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ``international facility'' to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.
``This is a liquidity crisis,'' Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. ``The liquidity has to be so big that people won't get panicky.''
Ely: I am highly skeptical of the workability of the Paulson plan, largely because I worry that the hooks and conditions Congress will plug into it, such as limits on executive compensation and equity participations in the institutions which participate in the program, will discourage many institutions from participating in it. It will be too expensive to play, particularly if Treasury tries to low-ball its pricing for the assets it is willing to buy. Merely offering low prices also will have serious mark-to-market impacts on all balance sheets, which could be a major negative of this program. ... Ely: That is of course the trillion dollar question. I have run the numbers looking at the capacity of the industry to pay the tab. Assuming that bank insolvency losses don't get way out of line, which I don't think they will, then the industry can handle it. It's not going to be cheap, but the banks can handle it and clean up their own mess. The losses will feed back through the industry to depositors and borrowers in the form of lower rates on deposits and higher cost of loans. ... Ely: Yes, it is not necessary, even now. There is absolutely no need for the Treasury to have the authority, as you suggested, to "inject capital into solvent banks that are temporarily unable to raise new capital." If a bank truly is solvent, it can raise additional capital or sell itself, if its present owners are realistic about what their bank is worth. The reason solvent banks have a problem raising capital, or selling themselves to a stronger bank, is that they set their price too high, as did AIG. As an aside, I am glad to see AIG's shareholders getting whacked by the warrants associated with the Fed's taxpayer's loan to AIG. There is absolutely no need for the taxpayer to subsidize banks so they can stay independent, provided no barriers are erected to prevent new entrants into bank or specific banking markets.
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Ely: That is of course the trillion dollar question. I have run the numbers looking at the capacity of the industry to pay the tab. Assuming that bank insolvency losses don't get way out of line, which I don't think they will, then the industry can handle it. It's not going to be cheap, but the banks can handle it and clean up their own mess. The losses will feed back through the industry to depositors and borrowers in the form of lower rates on deposits and higher cost of loans.
Ely: Yes, it is not necessary, even now. There is absolutely no need for the Treasury to have the authority, as you suggested, to "inject capital into solvent banks that are temporarily unable to raise new capital." If a bank truly is solvent, it can raise additional capital or sell itself, if its present owners are realistic about what their bank is worth. The reason solvent banks have a problem raising capital, or selling themselves to a stronger bank, is that they set their price too high, as did AIG. As an aside, I am glad to see AIG's shareholders getting whacked by the warrants associated with the Fed's taxpayer's loan to AIG. There is absolutely no need for the taxpayer to subsidize banks so they can stay independent, provided no barriers are erected to prevent new entrants into bank or specific banking markets.
limits on executive compensation
Wow naked greed in all its glory. it's almost like they think we owe them money. Any idiot can face a crisis - it's day to day living that wears you out.
The symbiosis of Wall Street and the US Treasury has been hidden in plain sight, and now the veil is being pierced. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
The symbiosis of Wall Street and the US Treasury has been hidden in plain sight, and now the veil is being pierced.
It's been a wake-up call for a lot of people whose life styles were crumbling - and they weren't sure why, because they were following the officially approved work ethic rules.
I think there's a lot more anger to come as people realise how badly they've allowed themselves to be screwed over.
The bailout debate is the overture, not the main performance.
CEO pay matters for several reasons: such high pay generates incentives for others to earn as much, and skews motivations towards management-income maximization rather than company income maximization; more deviously, by making such figures, and their incomes, into representatives of success, it pushes forward the narrative of success = money and poverty = failure, which is the single most important driver of conservative policies (you're on your own, etc...); by letting a small, but influential class earn huge amounts, it bring about massive lobbying power against taxes and in favor of deregulation, the exact consequences of which we see today; Ultra high incomes, and growing inequality are bad things for society, and they need to be tempered by high taxes oe strong regulation - but regulation is fatally weakened when rich people can buy access to politicians and pundits and co-opt them. So CEO pay is actually at the vey heart of the problem.
So CEO pay is actually at the vey heart of the problem.
This is like watching the French Revolution unfold. What was unthinkable two days ago is policy today and will be hopelessly outdated and superseded in another two days. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
This is a liquidity crisis
No it's NOT!
It's a solvency (or credit) crisis. Liquidity is being provided massively by the central banks - so much so that they are even taking credit risk on their balance sheets in increasing volumes, and it's still not enough.
Nope, banks don't need liquidity, they want to get rid of bad risk. In the long run, we're all dead. John Maynard Keynes
just like nationalization.. it really does not matter regarding the final finanatial consequences.. of course the bill is bigger if there is a solvency problem.. but both will help from t e top, the Dodd's plan is more flexible in some sense but moe complex , so easier to get nasty surprises.
But if you put the cost at two or three trillion dollars, you have that taxpayers will get roughly even if it is a iliquidity problem. If it is a solvency problem, taxpayers will nationalize most banks.
The Dodd program has the effect of creating uneven competition between rescued banks, non-rescued banks and partially rescued which is unfair. Nationalization of some banks will do the same but wthout the weird partiallyr escued. Natioanlization of the whole system will erased competition and fix one size fits all.
Precisely yesterday I made a long long comment trying to explain why it seems to be that there is no way to know with certainty which one will work better,or if they would work at all. There is no epistimelogichal way...
you just try one.. and in this case the palatable one (given the US media)
A pleasure I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude
