The End of the European Dream | 276 comments (274 topical, 2 editorial, 0 hidden)

Re: I'm enormously dubious of this report (none / 1)

It would have been a real scandal if the president of NYFRB took it upon himself to decide to plunge Europe into the crisis that they seem to have only delayed until now.

While I don't dispute the rest of your analysis, I feel the need to reiterate that keeping insolvent private banks alive is not helping. Insolvent private banks should be separated from their clearing functions posthaste, and then have the carcass put through ordinary bankruptcy proceedings.

Now, it may well be that it would have been irresponsible to pull the plug on a large number of insolvent European banks in the context of a European federal financial regulator and market maker that is studiously refusing to actually perform either of these jobs. In which case the blame is shared by the witless gold bugs at the ECB.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:16:49 PM EST
[ Parent ]

Re: I'm enormously dubious of this report (none / 1)

I'd go further.

Keeping insolvent private banks alive is actively contributing to the crisis as well as actively ensuring the crisis persists. The choices are:

Kill the banks and deal and have a major mess to clean-up
Kill the Real Economy in a vain attempt to save the banks which will kill the banks leaving catastrophe on our hands - which may not be solvable, I'd like to note.

The banks are dead, one way or the other. The longer the SeriousPeople© try to keep 'em going the worse the final situation when they fall over.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon May 9th, 2011 at 02:30:22 PM EST
[ Parent ]

Re: I'm enormously dubious of this report (none / 1)

But there is a major difference between a foreign regulator killing your insolvent banks and your own regulator killing your insolvent banks.

Given the quality of decision-making coming out of the Bundesbank et al, I am not convinced that the European policymakers would have been able to salvage a major banking blowup that happened on someone else's time table. Hell, they may not even be able to handle a blowup that happens on their own time table, but at least then they'd have a sporting chance.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:54:39 PM EST
[ Parent ]

Re: I'm enormously dubious of this report (none / 1)

Whether the local (national) zombie banks are killed by local (national) regulators or by EU regulators is de minimus from an economic POV.

I grant there is a emotional side of equal (?) weight going counter to the pure economic analysis.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon May 9th, 2011 at 05:01:33 PM EST
[ Parent ]

Re: I'm enormously dubious of this report (4.00 / 3)

Well, yes, but there's a difference between having them killed by European regulators versus having their balance sheets blown wide open by the Americans while everyone in Europe is still sitting on their hands.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 09:24:12 AM EST
[ Parent ]

Re: I'm enormously dubious of this report (none / 1)

I'm not defending the policy in general, I'm simply pointing out that in the context of the time, the decision made by FRBNY was not that strange. In fact, I might have made it myself and not through any love of GS or SG for that matter. They did not have "orderly wind down of any AIG creditors, whoever they may be" as an option.

by rootless2 on Mon May 9th, 2011 at 04:31:17 PM EST
[ Parent ]

The End of the European Dream | 276 comments (274 topical, 2 editorial, 0 hidden)

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