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Pouring trillions of taxpayers money into insolvent institutions to make them solvent again is explicitly an anti-market activity.  It is no different from a "socialist" propping up of "inefficient" state enterprises which cannot survive in an open market. (Ignoring for the moment the fact that such enterprises may also be fulfilling social rather than commercial mandates).  The market led approach is to simply let them fail and be replaced by other better structured, managed and regulated institutions.  

I am explicitly suggesting that toxic assets be purchased at current market prices - i.e. near zero in some cases - which will do nothing to help insolvent institutions but which will put a floor under further deflation and cut taxpayers in on the actions when market pricers recover.  The focus of "my rescue plan" is to to help the good banks/businesses vital to the functioning of the real economy which might be killed by the downstream effects of those insolvencies to remain in business.

I think we may be getting into a semantic squabble here.  I am partly using a market framing to get around the USA phobia of state intervention/ownership and also to avoid the taxpayer being stuck with almost unlimited liabilities.  I am also buying into Chris' more general thesis that the financial system as is is unrescuable and the focus now must be on finding ways to support the real economy which move away from dependency on "too big to fail" banks and from excessive debt financing in general.

Whichever way you look at it the future must move away from debt to equity, bond, and revenue sharing agreements as a way of funding productive enterprise.  Debt at the levels we have been operating is uninsurable because it is simply too vast and to removed from real productive economic activity.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 23rd, 2009 at 09:37:37 AM EST
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