The modern bank robber calmly hands a note to the teller, asking for money and making a moderately specific scary threat. The robber, of course, expects the teller to hand over unmarked bills without a fuss.
This morning’s “research” note from a major international bank is entitled, “Falling Short: The government needs to buy toxic assets,” and the heart of their one page argument is, with the emphasis as in the original,
One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives. We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.
Tell me if you think I am overreacting – it has been a difficult week – but I interpret this as saying: “give us as much money as you can, or else.” And the “or else” appears to be unemployment up around 20% and debt/GDP in the red-for-danger zone.
Can bankers really trump the American government in this fashion? It’s painful to read, but probably helpful that the oligarchs put their cards (and notes) on the table so brazenly. This is, after all, a critical fight to save American democracy, and it’s good to know what we are up against.
Update: I talked, on the record, with the author of this note. To hear our conversation – also involving Adam Davidson of NPR – click for the post (it’s two above this post) and follow the link (the Podcast should be available from Friday afternoon.)