The Great Debate UK

from The Great Debate:

Let sleeping shadow banking systems lie

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Rather than vainly trying to refloat the shadow banking system, the U.S. would be better off grappling with the inevitable ultimate solution -- debt destruction and inflation.

The common denominator of policies like the Term Asset-Backed Loan Facility (TALF) that was detailed on Tuesday, is that they try to solve fundamental problems with indebtedness by attempting to float asset prices high enough that they are back in proportion with the debt.

Even more, they use the same structures that worked out so poorly -- highly levered hedge fund like vehicles and securitisation -- but this time substitute government funding and leaves the taxpayer as main bag-holder if the deals go bad.

With up to $1 trillion, the TALF is designed to re-start parts of the securitization market such as auto, business and student loans. This followed the plan to avoid foreclosures and further house price falls by cutting borrowers, many of whom made silly borrowing decisions, a break on their interest rates.

from The Great Debate:

Don’t bet on Asians imitating Americans

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Asia's calamity is that Americans are imitating frugal Asians a lot faster than Asians can become free-spending Americans.

The old economic model -- that Asia exports to the U.S., saves its earnings and lends the money back to Americans to buy more stuff -- is broken and no one can say what will arise in its place.

from The Great Debate:

Redefining the sacred in the banking rescue

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Another week, another set of protestations that U.S. banks will remain in private hands, apparently almost regardless of the consequences.

It is clear that nationalization violates a sacred value for U.S. policymakers, or perhaps they believe it to be a sacred value held by voters. As we know from behavioral economics, when people are confronted by a conflict between material advantage and their ideas of the sacred, they tend to opt surprisingly often for the sacred.

from The Great Debate:

A revenue and legalization lesson from FDR

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own. --

(Correcting name of academic to Peter Reuter on Feb 27)

Want to help fund the bank bailout, ease California's budget crisis and shore up strained U.S. finances? Legalize drugs, tax the trade and save on interdiction, domestic enforcement and the prison and court system.

I'm only partly joking.

It won't solve all of the U.S.'s problems and lord knows will cause some new ones, but the money is undeniably big enough to make a dent.

from The Great Debate:

Let housing find its clearing price

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

The U.S. government should just get out of the way and allow the crash in U.S. housing; the market is too big, has too far to fall and Americans' finances are too strained.

President Barack Obama's measures, unveiled on Wednesday, are part of a $275 billion plan to try and stabilize the housing market and prevent foreclosures. It aims to encourage lenders and their agents to cut repayments for homeowners in difficulties to lower, more affordable levels as well as other steps.

from The Great Debate:

Geithner’s hair of the dog plan for banks

jimsaftcolumn-- James Saft is a Reuters columnist. The opinions expressed are his own. --

U.S. plans for a public-private fund to buy up toxic assets are likely to amount to a fig leaf with which to hide subsidies to failing banks.

It is also, inevitably, an entirely new subsidy to outside investors, who by definition will only participate if they get better terms than now available in what we formerly thought of as the free market.

from The Great Debate:

Goodbye bonuses, hello hedge funds

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

The argument about bank bonus payments is as sterile as it is backward looking; compensation at government insured institutions is going nowhere but down.

The real action will be at those places like hedge funds, private equity houses and boutiques, which will try and trade less insurance for more autonomy and which will capture more market share, take on more risk and offer more reward. The question is how will they be regulated, how will they fund themselves and how will the rest of us be protected from the systemic risk they could easily represent.

from The Great Debate:

Saving the economy from our brains

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Our brains are wired for bubbles, it would appear, and regulation and tight external controls are the only way to save ourselves from ourselves.

Bankers, traders and investors effectively became addicted to the pleasure that comes from making money, while at the same time increasingly losing touch with just how much risk they were taking.

from The Great Debate:

Play by the rules, close failing banks

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Why not just play by the existing rules and rescue the economy, rather than the banks and their foolish shareholders and counterparties?

The choice for the Obama administration comes down to this: pay a subsidy to weak banks and reward failure and self-dealing or shut them down and start over again.

from The Great Debate:

The end of the Davos consensus

-- James Saft is a Reuters columnist. The opinions expressed are his own --

James Saft Great Debate It's not exactly a wake, but participants at this year's World Economic Forum have witnessed many of their most cherished beliefs being challenged, upended and sometimes ground in the mud.

Think of it as the "Davos Consensus," a loose alignment of principles that held sway in this Swiss mountain resort and in large parts of the world over the past decade.

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