The Bogus Swedish Analogy:When you are finished rolling on the floor gg this is worth reading , imHo:) This assists in my crusade to establish that the talking head EXPERTS that are saying buying toxic debts and making a Bad Bank WILL work because it has been proven , as it worked in Sweden, like so cool , it WILL work for us too, is either said in ignorance and in intentional putting forth of MISINFORMATION, as Sweden was NOT akin to us.
But if we don't do our own DD, we are easily suckered.
So here is some DD.
Marc Faber in a newsletter posted Roubini report of an IMF study that reveals much data to reveal the BS machine is again in HIGH GEAR telling lies.
This are the facts as presented by Nouriel Roubini
<<www.gloomboomdoom.com Page 5 of 14 10/1/2008
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Professor Roubini
Nouriel Roubini then discusses a recent IMF study:
“A recent IMF study of 42 systemic banking crises across the world
provides evidence on how different crises were resolved. First of all only
in 32 of the 42 cases there was government financial intervention of any
sort; in 10 cases systemic banking crises were resolved without any
government financial intervention. Of the 32 cases where the government
recapitalized the banking system only seven included a program of
purchase of bad assets/loans (like the one proposed by the US Treasury).
In 25 other cases there was no government purchase of such toxic assets.
In 6 cases the government purchased preferred shares; in 4 cases the
government purchased common shares; in 11 cases the government
purchased subordinated debt; in 12 cases the government injected cash in
the banks; in 2 cases credit was extended to the banks; and in 3 cases the
government assumed bank liabilities. Even in cases where bad assets
were purchased – as in Chile – dividends were suspended and all profits
and recoveries had to be used to repurchase the bad assets. Of course in
most cases multiple forms of government recapitalization of banks were
used.
But government purchase of bad assets was the exception rather than the
rule. It was used only in Mexico, Japan, Bolivia, Czech Republic,
Jamaica, Malaysia, and Paraguay. Even in six of these seven cases where
the recapitalization of banks occurred via the government purchase of bad
assets such recapitalization was a combination of purchase of bad assets
together with other forms of recapitalization (such as government
purchase of preferred shares or subordinated debt).
!!In the Scandinavian banking crises (Sweden, Norway, Finland) that are a
model of how a banking crisis should be resolved there was NOT
government purchase of bad assets; most of the recapitalization occurred
through various injections of public capital in the banking system.!!
Purchase of toxic assets instead – in most cases in which it was used –
made the fiscal cost of the crisis much higher and expensive (as in Japan
and Mexico).
Thus the claim by the Fed and Treasury that spending $700 billion of
public money is the best way to recapitalize banks has absolutely no
factual basis or justification. This way of recapitalizing financial
institutions is a total rip-off that will mostly benefit – at a huge expense
for the US taxpayer - the common and preferred shareholders and even
unsecured creditors of the banks. Even the late addition of some warrants
that the government will get in exchange of this massive injection of
public money is only a cosmetic fig leaf of dubious value as the form and
size of such warrants is totally vague and fuzzy.
So this rescue plan is a huge and massive bailout of the shareholders and
the unsecured creditors of the financial firms (not just banks but also
other non bank financial institutions); with $700 billion of taxpayer
money the pockets of reckless bankers and investors have been made
fatter under the fake argument that bailing out Wall Street was necessary
to rescue Main Street from a severe recession. Instead, the restoration of
the financial health of distressed financial firms could have been achieved
with a cheaper and better use of public money.
Indeed, the plan also does not address the need to recapitalize those
financial institutions that are badly undercapitalized: this could have been
achieved by using some of the $700 billion to inject public funds in ways
other and more effective than a purchase of toxic assets: via public
injections of preferred shares into these firms; via required matching
injections of Tier 1 capital by current shareholders to make sure that such
shareholders take first tier loss in the presence of public recapitalization;
via suspension of dividends payments; via a conversion of some of the
unsecured debt into equity (a debt for equity swap). All these actions
would have implied a much lower fiscal costs for the government as they
would have forced the shareholders and creditors of the banks to
contribute to the recapitalization of the banks. So less than $700 billion of
public money could have been spent if the private shareholders and
creditors had been forced to contribute to the recapitalization; and
whatever the size of the public contribution were to be its distribution
between purchases of bad assets and more efficient and fair forms of
recapitalization (preferred shares, common shares, sub debt) should have
been different.”>> |
