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This page contains all of the posts and discussion on MemeStreams referencing the following web page: FT.com / Columnists / Martin Wolf - Why Obama’s new Tarp will fail to rescue the banks. You can find discussions on MemeStreams as you surf the web, even if you aren't a MemeStreams member, using the Threads Bookmarklet.

FT.com / Columnists / Martin Wolf - Why Obama’s new Tarp will fail to rescue the banks
by Lost at 6:09 am EST, Feb 12, 2009

All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.

Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell. The solution, many suggest, is for governments to make a market, buy assets or insure banks against losses. This was the rationale for the original Tarp and the “super-SIV (special investment vehicle)” proposed by Henry (Hank) Paulson, the previous Treasury secretary, in 2007.

Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects.

...

The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.

By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.


Obama's New TARP Will Fail
by possibly noteworthy at 8:16 am EST, Feb 12, 2009

Martin Wolf, the world's preeminent financial journalist, asks:

Has Barack Obama’s presidency already failed?

Hoping for the best is foolish. Yet hoping for the best is what one sees in the stimulus program.

All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.

Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell.

Under the second view, a sizable proportion of financial institutions are insolvent. Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so.

The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once.

Be advised:

We should probably tell you that the full title of this game is Zombies! Apocalypse - Massive Multiplayer Online Zombies Massacre, even though that's basically given away the point of it all.

Rattle once said:

I think Decius and I should start to practice claiming that MemeStreams is worth four billion while keeping a straight face.

A final thought from Jack Handey:

It takes a big man to cry, but it takes a bigger man to laugh at that man.


 
 
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