http://www.guardian.co.uk/...
How to fail to recover the economy
o Joseph Stiglitz
o guardian.co.uk, Sunday 8 March 2009 18.00 GMT
Some people thought that Barack Obama's election would turn everything around for America.
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• Socialising losses while privatising gains is more worrisome than the consequences of nationalising banks. American taxpayers are getting an increasingly bad deal. In the first round of cash infusions, they got about $0.67 in assets for every dollar they gave (though the assets were almost surely overvalued, and quickly fell in value). But in the recent cash infusions, it is estimated that Americans are getting $0.25, or less, for every dollar.
Maybe we could put an estate tax on the thieves who ran the banks. Of course so many of them are in the Obama administration, it wont happen soon.
great conclusion:
• Lack of transparency got the US financial system into this trouble. Lack of transparency will not get it out. The Obama administration is promising to pick up losses to persuade hedge funds and other private investors to buy out banks' bad assets. But this will not establish "market prices," as the administration claims. With the government bearing losses, these are distorted prices. Bank losses have already occurred, and their gains must now come at taxpayers' expense. Bringing in hedge funds as third parties will simply increase the cost.
• Better to be forward looking, focusing on reducing the risk of new loans and ensuring that funds create new lending capacity, than backward looking. Bygone are bygones. As a point of reference, $700bn provided to a new bank, leveraged 10 to 1, could have financed $7tn of new loans.
The era of believing that something can be created out of nothing should be over. Short-sighted responses by politicians – who hope to get by with a deal that is small enough to please taxpayers and large enough to please the banks – will only prolong the problem. An impasse is looming. More money will be needed, but Americans are in no mood to provide it – certainly not on the terms that have been seen so far. The well of money may be running dry, and so, too, may be America's legendary optimism and hope.
Why please the banks at all?