So stabilizing the banks won't solve the credit squeeze. It will just stabilize the financial system. Which is no mean feat, but still only a partial solution to part of the problem. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
Cleaning up banks will unclog several basic functions of the banking world which are very necessary and are still seriously constrained right now. In the long run, we're all dead. John Maynard Keynes
Or at least, to clean up the banking functions which they're supposed to perform - which may not be the same thing.
It is going to take a lot of time for this entity to get set up and find willing private partners and, together with them (or thanks to their superior market know-how), analyse the often very complex vehicles involved.
Meanwhile, an audit is going to estimate the banks' exposure to bad stuff. (How that is to be done convincingly without evaluating assets I don't see). There will then be an injection of a capital "buffer", and/or nationalisation (according to the Trojan Horse theory). This may well occur well before the PPIF has got far in its price-setting and allocation tasks. What use will it then be, what will be its role?
I think that if major American banks are nationalised, that will be because it becomes inevitable, not because this unclear, confused communication from Geithner masks a cunning plan to reach that goal without Wall Street seeing it coming.
But I'm not impressed by the very-cunning behind-the-scenes plan explanation. Once Obama's main project for dealing with an urgent financial crisis has failed, I don't quite see what extra leeway to introduce more radical policy he'll have gained.
We shall see.
What evidence is there that Obama works like that, or has ever worked like that?
Let the Chinese exchange (essentially) worthless pieces of paper (US IOUs) for the properties. The US declares that we put one over on them (Those stupid Chinese!) and the Chinese have a peaceful invasion of the US.
EVERYBODY WINS!!! (Throw confetti here) In the end, might makes right. Nothing has changed since the caveman.
