Wednesday, April 29, 2009
Let Creditors Pay
"This pattern has been evident for months, with the government aiding creditors and counterparties every step of the way. Yet this has not been explained to the American public. In truth, it's not the shareholders of American International Group who have benefited most from the bailout; they were mostly wiped out. The great beneficiaries have been the creditors and counterparties at the other end of AIGs derivatives deals--firms like Goldman Sachs, Merrill Lynch, Deutsche Bank, Societe General, Barclays and UBS. ... The bailout, and the regulatory regime outlined by Timothy F. Geithner, the Treasury Secretary, would give firms like these every incentive to make similar deals down the road. ... What the banking system needs is creditors who monitor risk and cut their exposure when that risk is too high. Unlike regulators, creditors and counterparties know the details of a deal and have their own money on the line. ... The more closely a financial institution is regulated, the more it will be assumed that its creditors enjoy federal protection. We may be creating a class of institutions whose borrowing is, in effect, guaranteed by the government", my emphasis, Tyler Cowen (TC), 5 April 2009 at the NYT, link: http://www.nytimes.com/2009/04/05/business/economy/05view.html.
I have said this for years. Look at Fannie and Freddie for example. Now we have Goldman, run by a bunch of multimillionaires on the federal dole. TC suggests "prepackaged" bankruptcies be built into credit agreements. I oppose this. I want to see blood spilled in open court. Let the CNC guillotine work.