[quote]did it? Isn’t that what they did this for, is to have banks use it?
Guaranteeing interbank debt is what they saw as a solution to getting
the capital to flow from the gov’t’s subsidies/bailout/TARP to the
public. [/quote]
Uh no. guaranteeing debt has everything to do with capital flight fears, and is primarily driven by the fact that Europe has done something similar. It is also an exceptionally crude and poor way to do it.
A bare minimum better solution would be to declare only existing debt protected. That’d at least stabilize the system without introducing massive moral hazard and gaming of the system.
No, but 3-years is way too long. That’s plenty of time for lawyers to corrupt the system to hell and back. I’d have been very leery about extending this system more than 3-months. Better that all the banks and the market is constantly on their feet. Long enough to restore short term lending, but not long enough to risk massively gaming the system.
Yes it will. Corruption will be on a massive scale. The taxpayers will be robbed by at least 100+ billion dollars, more likely 500+ billion. This is way to easy to abuse, and that’s only at a glance. Massive corporations with years to get a feel for the system, and armies of lawyers to hunt down all the nooks and crannies will soon be robbing us blind.
This is extremely dangerous.
The net positive is that it massively reduces the risk of lending to another party. This will encourage banks to lend large sums of money, and may even shatter the frozen credit markets.
It also prevents capital flight.
Unfortunately, it’ll also tend to stop the healthy deleveraging of the system and encourage some entities to increase leverage to even more absurd levels than in the past. Can we do 600:1, Hell yeah! Provided, of course, they can scare up the funds.
[quote]You can whine later, the gov’t is too busy trying to save this
country… again, if anyone has suggestions, I’m sure they’d like to
hear it or perhaps help and try to get Chris on more speaking
engagements where maybe he’ll be heard but he better be ready to offer
solutions, not just criticism.[/quote]
Suggestions:
1) Establish in the FDIC a banking debt insurance system. Create a premium that can be paid so that any debt can be government guaranteed. Require the FDIC reviews the nature of the loans and limit this service to well known conservative lending practices. Make sure the contract stipulates that corporations that break these conservative requirements will have their insurance revoked and won’t get their premiums back.
2) Don’t guarantee any banking debt. Instead, just stand off to the side and remind everyone that the government still has $450 billion dollars of capital injections, and isn’t afraid to use it if a bank is going under. Given this, there should be zero concern about banks defaulting anyway. At least until the government runs out of cash.
This also has the added benefit of making total losses more visible, and more immediate. We won’t know the damage under the current system until years after it has been done.
Take note, all this that took me a couple of minutes. I can’t think of any reason that an army of government "experts" with a weekend to spare shouldn’t be able to come up with something far better.
Steve