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Strategies & Market Trends : John Pitera's Market Laboratory
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To: Chip McVickar who wrote (4492)8/29/2001 9:38:35 PM
From: John Pitera  Read Replies (1) of 33421
 
Chip, you're not trying to tell us it's business as usual
in the Arena of InterNational Banking and Finance are you
-vbg-

but seriously, this sounds interesting


Allan Meltzer, professor of economics at Carnegie Mellon University and president of the university's Gailliot Center for Public Policy, and Adam Lerrick, the Center's director, have a proposal. They think there's an alternative to total bailout or total market chaos: default without disruption.

Setting a Floor

Here's how it would work. The IMF ``would stand ready to buy any and all debt of a crisis government to the private sector at a support price significantly below its expected restructured value,'' Lerrick and Meltzer wrote in a May report.

The floor would prevent a panic and collapse in the market, the authors claim. The element of uncertainty -- over whether the country would default -- would be removed. The financial system would be insulated from any contagion effects. The country's debt burden would be reduced to sustainable levels. Private lenders would bear the loss, which would have ``predictable limits.''

With the IMF backstop in place, the borrower ceases all debt payments. The debt is restructured within a short time frame (three to six months in the Meltzer/Lerrick plan).

In short, ``the official sector would step back from its current role of guarantor of speculative capital to emerging economies and become a true lender of last resort that responds to market failure yet preserves market discipline,'' Lerrick and Meltzer wrote.

Intersting suggestion........ I think the real key point
that was mentioned in the article is that the Players
involved don't want to take a chance of unwieldy
situations getting out of control and threatening the
Confidence in the System

John
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