The Great Debate UK
from The Great Debate:
How not to avoid the next panic
(James Saft is a Reuters columnist. The opinions expressed are his own)
A proposal to give banks, hedge funds and private equity firms "affordable" credit default swap-based insurance against market panics will be very effective: it will effectively encourage even more risk taking and turn the next crisis into one about government credit.
Global central bankers assembled at the Jackson Hole conference last week heard the proposal, by two Massachusetts Institute of Technology economists Ricardo Caballero and Pablo Kurlat. Their idea is that most of the damage in panics is due to a combination of investors overestimating the damage during a market seizure and policy-makers being too slow to pull the trigger on bailouts.
The solution, therefore, is to send the banks into the next panic ready armed with a Fed-backed get out of jail free card which the authorities can activate at a moment's notice.
This is akin to looking at a bunch of toddlers riding motorcycles and deciding that what will really improve the situation is putting them all in crash helmets.
from The Great Debate:
U.S. mouth writing checks its body won’t cash
-- James Saft is a Reuters columnist. The opinions expressed are his own --
A look at credit insurance prices for U.S. banks shows that market thinks the government's mouth is writing checks its body can't or won't cash.
Despite a blistering rally in bank shares and Herculean efforts by the U.S. to build confidence in its financial sector, the price of insuring some leading banks' debt against default has increased markedly in recent weeks.
