At a hearing of the House Financial Services Committee yesterday, Barney Frank nicely summarized where we are with regard to re-regulation of our largest financial institutions: some of them are definitely “too big to fail”, with the potential to present the authorities with what Larry Summers calls the “collapse or bailout” choice, but what exactly should be done about it?
On a five-person panel, I had the middle seat (as usual) and found myself agreeing with points made both to my left and to my right. Alice Rivlin is correct that we need to control leverage as well as increase capital requirements, and the Fed’s tools vis-à-vis leverage need modernization – your grandparents’ margin requirements would not suffice. Peter Wallison, a member of the new financial crisis investigation commission, stresses that capital requirements should be higher for larger banks. Paul Mahoney wants to change the bankruptcy code, to make it easier for courts to handle large financial firms in quick time; recent CIT Group events suggest this is a good idea.
And Mark Zandi was persuasive on the point that households had no idea what they were signing up to with option ARMs – even he has trouble with those spreadsheets. Effective consumer protection – including a new consumer safety commission – would definitely contribute to financial system stability.
What will Barney Frank and his committee do? There will be no “Tier 1 Holding Company” category of firms, if Frank has anything to do with it; this is too much like creating an implicit government guarantee. Frank is clearly drawn towards higher capital requirements or more insurance payments from firms that pose more system risk. I suggested total assets of 1% of GDP as a threshold, but we agree this should be essentially a progressive drag on profits – creating the strong market-based incentive for the biggest firms to downsize.
Other than that, watch this space.
My written testimony submitted to the committee is below.
1) The U.S. economic system has evolved relatively effective ways of handling the insolvency of nonfinancial firms (through bankruptcy) and small or medium-sized financial institutions with retail deposits (through a FDIC-run intervention process). These kinds of corporate failures inflict limited costs on the real economy, and even a string of problems in such firms does not generally jeopardize the entire financial system.
2) We do not yet have a similarly effective way to deal with the insolvency of large financial institutions (e.g., any bank with assets over $500bn, which is roughly 3 percent of GDP). When one of these firms gets into trouble, the authorities face an unpalatable choice of “bailout or collapse.” If the problems spread to more than one firm, the balance of responsible official thinking shifts towards: “bailout, at any cost”.
3) The collapse of a single large bank, insurance company, or other financial intermediary can have serious negative consequences for the U.S. economy. Even worse, it can trigger further bank failures both within the United States and in other countries – and failures elsewhere in the world can quickly create further problems that impact our financial system and those of our major trading partners.
4) As a result, we currently face a high degree of systemic risk, both within the United States and across the global financial system. This risk is high in historical terms for the US, higher than experienced in most countries previously, and probably unprecedented in its global dimensions.
5) Short-term measures taken by the US government since fall 2008 (and particularly under the Obama administration) have helped stabilized financial markets – primarily by providing unprecedented levels of direct and indirect support to large banks. But these same measures have not removed the longer-run causes of systemic instability. In fact, as a result of supporting leading institutions on terms that are generous to top bank executives (few have been fired or faced other adverse consequences), systemic risk has likely been exacerbated.
6) Some of our largest financial firms have actually become bigger relative to the system and stronger politically as a result of the crisis. Executives of the surviving large firms have every reason to believe they are “too big to fail.” They have no incentive to help bring system risk down to acceptable levels.
7) Specifically, the surviving large U.S. financial firms and their foreign competitors have a strong incentive to resume “pay-for-performance” incentive systems – they compete by attracting “talent,” and if any one firm brings its compensation under control, it will lose skilled employees. But these firms – and their regulators – have also demonstrated they cannot prevent such incentives from becoming “pay-for-disguised-risk-taking” on a massive scale.
8) The potential for unacceptable systemic risk remains deeply engrained in the culture and organizational structure of Big Finance. Over the past 30 years, this sector has benefited from a process of “cultural capture,” through which regulators, politicians, and independent analysts became convinced this sector had great and stabilizing technical expertise. This belief system is increasingly disputed, but still remains substantially in place – big banks are, amazingly, still presumed by officials to have the expertise necessary to manage their own risks, to prevent system failure, and to guide public policy.
9) There are four potential ways to reduce system risk going forward
- Change our regulations so as to reduce ex ante risk-taking, e.g., by more effectively controlling the extent of leverage in the financial system or by more tightly regulating derivatives transactions.
- Change the allocation of regulatory authority within the financial system, so that the relative powers of the Federal Reserve, Treasury, FDIC and various other regulators are adjusted.
- Make it easier for the authorities to close down failing large financial companies using a revised “resolution authority.”
- Change the size structure of the financial system, so that there are no financial institutions that are “too big to fail”.
10) All of these approaches have some appeal and it makes sense to proceed on a broad front – because it is hard to know what will gain more traction in practice.
11) The growing complexity of global financial markets means that even sophisticated financial sector executives do not necessarily understand the full nature of the risks they are taking on.
12) There is no ideal – or even proven – regulatory structure that will work inside the U.S. political system. Relative to the alternatives, strengthening the FDIC makes sense. For certain levels of potential bailout (e.g., as with CIT Group recently), the FDIC has an effective veto power over providing some forms of government support. This has proved a helpful check on the discretion of the Federal Reserve and the Treasury recently, but it would be a mistake to assume this will be the case indefinitely.
13) While an extended “resolution authority” could be helpful, it is not a panacea. As markets evolve, new forms of interconnections evolve – and we have learned that not even managers of the best run banks understand how that affects the transmission of shocks. Furthermore, as banks become more global, an effective resolution authority would need to span all major countries in comprehensive detail. We are many years away from such an arrangement.
14) The stakes are very high – the country’s fiscal position has been significantly worsened by the current crisis, and our debt/GDP ratio is on track to roughly double.
15) As a result, it makes sense also to consider measures that will reduce the size of the largest financial institutions. The recent experience of CIT Group suggests that a total asset size under $100bn may provide a rough threshold, at least on an interim basis, below which the government can allow bankruptcy and/or renegotiation with private creditors to proceed.
16) Market-based pressure for size reduction can come through a variety of measures, including higher payments to the FDIC (or equivalent government insurance agency) from institutions that pose greater system risk, higher capital requirements for bigger firms, and differential caps on compensation based on the cost of implied government assistance in the event of a failure – think of this as pre-payment for failure.
17) Breaking up our largest banks is entirely plausible in economic terms. This action would affect less than a dozen entities, could be spread out over a number of years, and would likely increase (rather than reduce) the availability of low-cost financial intermediation services.
18) The political battle to set in place such anti-size measures would be epic. But as in previous financial reform episodes in the United States (e.g., under Teddy Roosevelt at the start of the 20th century or under FDR during the 1930s), over a 3-5 year period even the most powerful financial interests can be brought under control.
19) If we are able to make our largest financial firms smaller, there will still be potential concerns about connected failures or domino effects. Much tougher implementation of “safety and soundness” regulation is the only way to deal with this. In that context, stronger consumer protection – through a new agency focused on the safety of financial products – would definitely help (as well as being a good thing for its own sake).
The remainder of this testimony (see this pdf) provides further background regarding how systemic risk developed to its current high levels in the U.S., and suggests why we need new limits on financial institutions whose management regards them as “too big to fail”.
36 thoughts on “What Are You (Or Barney Frank) Going To Do About It?”
A Tale of the New Buccaneers
There has been a lot of recent discussion on what may have gone wrong with economic theory, as well as whether financial innovation has over the past thirty years or so, on balance, been good or bad. Maybe it would be better to ask: what are the parameters and good or bad for whom?
One tale might go like this: the world is embroiled in a conflict. It´s called globalization. Countries are scrambling to position themselves. The former Soviet Union has exploded and the US has an opportunity to occupy the vacuum, but treasure is needed. Part of the projection of the US´ power abroad occurs through the use of the dollar as the international reserve currency and control over the same is vital to US interests.
Banking is global in nature and its raw material is a commodity. This basically means that you put your foot to the floor and do what it takes (hopefully with proper risk mitigation of course) or you´re left behind. Just ask all of those U.S. institutions and brokers that have been merged or disappeared in recent decades because the business changed and their model became outdated.
The US has, at least in theory, generally attempted to maintain a level economic playing field over time. However, at the supra-national level, which has spiraled in importance over time, that is just not how things always work. At the global level, banks and governments in many nations around the world are often quite comfortable with their coziness, often resulting in unfair competitive advantages or favoritism at the very least. One does not have to go very far.
Some Administration might then reach the conclusion: better our guys then theirs. So let´s imagine that a few players are given licenses to privateer so they can compete and dominate in international waters. Maybe about five charters are issued. Remember, this is a strategic interest of the nation issuing the reserve currency and its no holds barred and stakes are global in nature.
A pact that can never be revealed has been made and its puts each one of us on the hook. I have absolutely no idea whether this could be true, or even if it is, whether a conscious decision was ever made somewhere in the bowels of the US government.
The point is, however, economists may theorize and model, but the “political” in “political economy” should not be ignored. Simply viewing the current situation through the prism of economics or finance just might not be enough if we truly wish to understand what has happened and how things will move forward. Maybe we can´t see the forest for the trees.
How might something like this affect our thinking and analyses. What are possible implications? One might call this macro-macroeconomics. Could it be that our government has been gaming (still is) and we are just the casualties of war?
Sorry, Simon – but this is just nauseating. The financial “phantom” economy needs to come to an end, and we need to refocus on creating a whole NEW structure to support the real economy – the economy where things and services are created that actually contribute to wellbeing.
Old within-the-box thinking is the only way someone can say any bank is “too big to fail,” etc.
The financial economy evolved into a sickness, effectively a gambling addiction. It is surprising and disappointing you are still stuck engaged in these banksters shinanigans. It reminds me of the person who claims he/she can’t leave his/her abusive alcoholic breadwinner spouse. Perhaps the Gold-men have slipped you a slice of their gamblin’ game winnings? If not, why the allegiance?
As I see it:
* It’s certainly time to end the Federal Reserve.
* It’s definitely time to end publically traded corportations.
* It may be time to end corporate entities (the legal construction) all together.
* We, in the US, have (at least on paper), separation of Church and State. We also need separation of Wealth (it’s influence) and State.
Good news is hard to find these days so I’ll take what I can get – the fact that Simon has the middle seat at hearings such as these will have to do! Good luck Simon.
I find it hard to imagine how altered capital requirements will have a beneficial effect without radical reform of derivatives regulation. I’ll be interested to know who can come up with a model that will calculate capital rqeuirements for complex derivatives that truly reflect underlying risk.
If its not possible to create such a model, and if we cant push through painfully radical reform of derivatives, then altering capital requirements will be worryingly irrelevant.
(There are those pesky Rockefellers again)
Wallison is the “Arthur F. Burns Fellow in Financial Policy at the American Enterprise Institute.” Burns was Chairman of the Fed and Pres. of NBER. For 25 cents, what was his original name?
And what is Wallison’s special contribution to the relations between Germany and the United States?
The Burns Fellowships (and many other goodies) are given out by the “International Center for Journalists.” Quite an interesting organization. Henry Kissinger is a trustee, for example.
Ford Foundation, Marshall Fund, etc., Goldman Sachs, Goldman Sachs…I repeat, Goldman Sachs.
…and remember, consumer protection is elitist:
These observations and prescriptions would maybe be adequate for temporary reform withing the existing system, until some years down the line they were eviscerated as the previous reforms were.
But it’s the system itself which is funadmentally rotten and needs to be simply wiped clean.
A healthy economy, based on real production by a vast number of sole proprietors serving local and regional markets, would have no need for this purely parasitic, manipulative, rent-seeking finance pseudo-industry at all.
It’s only the globalization onslaught, which benefits only finance pirates and a handful of corporate feudalists, which necessitates global finance, and global finance is necessary only to smooth this looting process.
Meanwhile, in spite of the decades of lies, globalization and financialization have not created good jobs but massacred them; it hasn’t raised living standards on a broad basis but trounced them; it hasn’t spread peace, prosperity, security, and freedom, but fear, hate, enslavement, war, and death.
And now it has brought all these horrors, so long familiar to the global South and Eastern Europe, home to the West.
Now we know that the entire system means us nothing but harm.
So it’s not a matter of downsizing the likes of Goldman and JPMorgan, of circumscribing their depredations and limiting the damage they can do when they destroy themselves and lay waste around them; no, we simply must rid ourselves of them completely.
They play no role in this world other than for destruction and evil.
Fun with Wallison:
From what I understand (and this is the history of the crisis from the POV of a “main street” resident, so bear with me please), we’ve peeled back the regulatory framework on the financial community so that there is absolutely no skin covering it at all – thus today we see it bleed out money like a severed artery.
The shadow banking sector simply must be dragged out of the shadows into a proper regulatory framework and the business of leveraging consumer loans must be regulated.
It is unbelievable that anyone today thinks that handing out mortgages to people who cannot afford them remains a good business model.
Thus, handing out mortgages to people who’ve never had hope of repaying them should be a criminal offense.
Ratings companies that rate bad investments as high quality should face significant penalties for doing so.
Investment banks who overleverage to the point of toppling their businesses should never pay their execs bonuses when their survival is solely thanks to massive federal interventions and federal bailout dollars.
Investment banks that profit from extreme government intervention should recognize the subsidies they’ve gotten on their balance sheet and these subsidies need to be reimbursed before a profit can be declared.
Profits at firms wallowing in toxic debt should be used to pay down toxic debt before handing out bonuses.
Whether or not we need to break up TBTF – that I can’t answer. I do see that TARP has firmly institutionalized TBTF into our economy. What we need to do is price the risk of size accordingly – with risk management fees or something like that.
It will destroy our nation if these banks are allowed to continue as they have been. We’re close to destroyed now. Something must be done.
You folks are seriously overcomplicating this.
Every financial crisis since the beginning of time has had two primary ingredients:
2. Maturity mismatch in the debt used in #1
Without leverage (i.e., debt-financing of capital investment) there would be no crisis. Unfortunately, as Minsky pointed out, there would also be no modern capitalism. The trick is to limit the amount of leverage employed.
“Thus over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money. That is, over-indebtedness may lend importance to over-investment or to over-speculation. The same is true as to over-confidence. I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt.”
–Irving Fisher, 1933
Likewise, maturity mismatch is the ingredient that turns what would have otherwise been a moderate downturn spread over a period of time into an acute crisis. There would be a period where many firms posted losses and some went into bankruptcy, but it’s the use of short term debt to finance long term investment and the resulting need to continuously roll over financing that results in the acute crisis phase, the Minsky Moment.
This was the beauty of Glass-Steagall – commercial banks are concentrated sources of both leverage and maturity mismatch. Allowing them to merge with other financial firms was like colocating a gasoline storage facility on the same spot as a smelter.
Any new regulation has to limit leverage and maturity mismatch, both at the source and throughout the (non-financial) economy or it will just become another easily skirted waste of time and effort.
Good for you, Simon! You are fighting the good fight!
I think RueTheDay is making a very good point.
Can you explain why we don’t want to see the return of Glass-Steagall? (Or at least there seems no real push to separate the banking industry from the over-leveraged speculators?)
Well, isn’t this insane, allowing the same bought- and-paid-for Congressional filth to structure future regulation that assisted in the present fleecing. No, because they presuppose the above, none of the suggestions mentioned here have any more merit that a week’s supply of dead flies. Deconstruct the whole affair, not simply its aspects, and start over again with a new constitution. To imagine that a system so riddled with corruption could ever do justice to the people it allegedly serves is the very essence of madness. Simon, you’re a nice fellow but you really need to find new people with whom to be chummy.
far better stated than my attempt
kudos to you
Please visit RiskCulture.com — the dialogue is ongoing.
As top financial institutions recognize Risk Management as an enterprise-wide discipline that can increase shareholder value, they are preparing to apply well-thought-out risk governance methodologies to lower Operational Risk and gain competitive advantage.
But reviewing and re-engineering the Risk Appetite and the Framework of systems, policies and processes is not enough. They must articulate and communicate enterprise Risk Culture so that employees understand their responsibilities and their roles in applying standards consistently. It’s about the people, from the Board on down.
What is needed is best-practices articulation and communication of enterprise Risk Culture that engages employees and helps them understand, retain and comply with these concepts.
I’m a HUGE Alice Rivlin fan, so it’s very nice to see her thoughts included in the discussion. She never got her just due for helping to balance the budget and lower interest rates during the Clinton years. I very wise woman.
I think Barney Frank has made many mistakes in the past, but recently I like his public rhetoric on the banking issue. How sincere he is I really couldn’t guess, but I do like his recent statements on the bank issues. And Frank showed some responsibility killing the F-22 (the F-22 can always be brought back later if needed), which for the time being is basically a useless waste of tax dollars.
Many of these Congressmen are still too cozy with the banks. We can hope for the best and remember their actions next time we vote.
I think it’s a great idea Anne. But it’s not “politically feasible” as they say. President Obama has to ask Jamie Dimon first. If Jamie Dimon and other bank CEOs squirm in their seat a little at regulations we have to tell them “It was just a joke dear. Here….. have some milk and cookies.”
Ted – totally OT – but you provide me with inspiration for my most recent blog post. Check it out…
Hard to bring back the F22 once production ends–capacity liquidates. But, it was the right thing to do.
“Some Administration might then reach the conclusion: better our guys than theirs.”
That would be old fashion nationalism, and no doubt there ie some, often as a fig leaf.
The sentence above can easily be modified to generate a more comfortable statement: “Some might then reach the conclusion: better us than them.” There is no need for nationalism: it’s an hindrance. True oligarchies rest on excluding most people. To escape the law, the oligarchies just had to go international, and join at the hip.
The half brother of French president Sarkozy, for example, is co-head of the Carlyle group. How is that for another miracle? And how did Clinton become so rich already?
One thing I haven’t seen mentioned much in the discussions about constraining the size of firms is that most if not all of the systemic-risk firms grew to their size not by organic growth, but via mergers. This suggests that another avenue for curtailing systemic risk would be to include a systemic risk analysis in any kind of merger approval process, the same way antitrust regulations force a market power analysis on merger approvals.
Of course, this doesn’t address the issue of what to do with the current too-big-to-fail players, but preventing new too-big-to-fail players from arising is also a worthwhile endeavor.
“But as in previous financial reform episodes in the United States (e.g., under Teddy Roosevelt at the start of the 20th century or under FDR during the 1930s), over a 3-5 year period even the most powerful financial interests can be brought under control.”
We do not have a Roosevelt in our CEO position today. Not even close.
now here is the real financial advisor …
amazing there is nothing in the piece what Larry Summers or Timothy Geithner think of this
“When I asked Obama if he runs every decision past her, he answered without hesitation: “Yep. Absolutely.” Some of their Oval Office one-on-ones find Jarrett — whose acute familiarity with the business community is unique in the West Wing — playing the impersonal role of
TRUSTED FINANCIAL COUNSELOR,
the president told me. “Throughout, for example, the debates taking place on how to deal with the financial crisis, I would sit down and get her read in terms of how we strike the appropriate balance between intervention to stem panic and not being so heavy-handed that we were changing in fundamental ways the nature of our free-market economy,” he said. “And her experience as a businesswoman and contacts with C.E.O.’s around the country was very helpful.”
“Canonical research findings suggest that American entrepreneurs who establish popular online markets for customized education will catalyze the creation of many good jobs in America, and will end the reign of America’s kleptobankers. Some of the researchers: Clayton Christensen, Paul Romer and Paul Krugman.”
Nice post. I wonder why the resolution solution is not given more attention. Is it really that hard to accomplish, coupled with government guarantees on loans going forward? I just find it hard to believe that guarantees (or outright purchases) for the stock of loans already made are the only way to go.
If we try to limit leverage, would we put U.S. institutions at a competitive disadvantage that would allow foreign financiers to take over much of the U.S. market for financial services?
It’s good to see some talk about making changes to prevent a recurrence of the bad lending and the bubble. But is there real political will to back this up?
Do Barney Frank and others (on both sides of the aisle) actually want to prevent a repeat of the bubble? That bubble was very good for a lot of people, many of whom contributed generously to political causes. If the bubble truly deflates, the price of homes in Barney Frank’s district might drop by 50% or more. What about the price of Tim Geithner’s own home, or Larry Summers’s, or… Is there really enough incentive for people to ‘get it done’, or is everyone looking only for ‘solutions’ that keep a lot of air in the bubble?
I suspect that talk about deep change will be tolerated as long as it doesn’t get in the way of the easy money flow. Easy money now, painful pullbacks tomorrow, always tomorrow. The preponderance of incentives point in that direction.
I’d love to hear good reasons why I’m wrong.
Talk about not seeing the forest for the trees, all that talk and all we need is a law limiting the size of these businesses. If they’re too big to fail they represent a threat to our economic system. Break them up into smaller businesses that are not too big to fail, as we did with Standard Oil. All this chatter is just the oligarchy talking to itself.
Anne “It is unbelievable that anyone today thinks that handing out mortgages to people who cannot afford them remains a good business model”
That was never the business model. The business model was giving loans at very high rates and the selling them off at low rates after hustling up an AAA. Capture a 3 percent differential over 20-30 years and you will have pocketed incredible profits.
“Frank is clearly drawn towards higher capital requirements or more insurance payments from firms that pose more system risk.”
Great fighting of pro-cyclicality when we already have capital requirements going up tremendously as credit ratings go down you want to top it up with even more stringent requirements. Why can’t you wait till we get out of this before becoming so puritan?
That would be…smells like…Communism!
We can’t have that here.
The issue is how to make us safer without pushing more banking activity into the shadows. The answer is to create incentives to reduce leverage, make the capital structure of banks more robust with respect to converting bank debt into equity and develop a better process for handling banks that fail. This needs to be done with carrots rather than sticks. Not only will regulating with sticks drive banking into the shadows, but the financial sector will buy more and more political influence to survive.
Not sure. The regulators gave the banks carrots in the form of lower capital requirements if they ran what the regulators thought were lower risks, and so they all followed AAAs, and look were they ended up.
If I had the power, the way things would change is this:
Whoever grants the loan, carries all the risks coming from the default of it. Loans may not be resold in any way or form to any other institution. That way, no one could grant loans, give them fake ratings and resell them to someone who trusts the rigged system too much (or who wants to resell them once more, knowing they are crap from start).
“If the problems spread to more than one firm, the balance of responsible official thinking shifts towards: “bailout, at any cost”.”
This is so wrong in so many levels. Any cost? At the second the costs get higher than the costs of letting the firm fail, the choice should be obvious! Worst in this crisis is that no one has a clear picture of biggest banks assets or how much they need cash to not be insolvent.
To me, it is madness to create open check to banks and bail them out at “any cost”. If anyone in the system finds a way to milk out this “any cost”, I bet these costs will skyrocket and someone will make hefty sums of money in the way.
No bailing out should be done at all before banks come clean with their balance sheets and real costs of bailing out are visible. If the banks do not want to do this under these conditions, I can only assume that they know bailing them out will cost more than letting them fail. Without knowing the real costs, there is no way to even start comparing the costs of letting them fail.
Sheesh, way to encourage reckless behaviour, bailing out at “any cost”. How about selling the future and crushing the economy and dollar all together? Enough cost in there?
“No bailing out should be done at all before banks come clean with their balance sheets and real costs of bailing out are visible. ”
but that they do not know seems to be the real problem at least I have heard NYT’s Gretchen Morgenson say that for example Citi Bank didn’t know what was on their balance sheet
– now the idea that an accountant working for a bank doesn’t know what’s on his/her balance sheet is for me, having worked at that level all my life, so horrific that it seems to explain everything.
The top ones may excel in lofty language but when we at the cubicle level felt we no longer were capable of a sound grip on our data that’s when I got panicky
– in my last working years a scheme emerged how “they” would do that. At first computer data banks were compiled in a way that a pro could still relate them to the paper cards or files used before but then they started designing surfaces which allowed us only access to pre-designed data compilations i.e. we could no longer design queries ourselves to cross check the data the IT supplied
– this experience makes me think it could be worthwhile to look at how they fiddled with the professionalism of the cubicle level at the banks which presumably at the banks also was the level were “they” were most eager to cut costs assuming that they could replace the know how of those paralegals and accountants easily by their presumably so much smarter data banks
– by the way I have worked with really wonderful programs but they took years of fiddling with before they became paradise to work with and they never were designed to lobotomize the user.
Mark to market the government’s bail-out efforts
In order to bring some transparency to what the government is doing in bailouts it should sell in the market, at 100% of nominal value, a portion of the instruments they have received in return for their bailout funds; and compensate any differences in the market value of these instruments with a tax-credit. How would it work?
Let us say the government has received $100 in shares of GM. If these shares are worth that amount the government would get their money back immediately but, if not, buyers would ask to receive a tax credit. If the market only asks for a 10% tax credit, meaning $10 in tax credit to purchase the GM shares for $100 then the government is not doing so bad but, if the market asks for 90% in tax credits, then clearly the government is pouring money down the drain.
That would certainly pressure the government into doing better. Problem though is that most probably government would never dare to have their own actions marked to market that way.
Duski, I think you’ve confused a descriptive sentence with a prescriptive once. Simon’s not saying “bailout at any cost” is what should happen, but what currently does. And yes, it’s a bad thing for all the reasons outlined above.
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