Economy death watch

[Thue]

My understanding is that the depression/market crash will begin to pick up steam soon, actually about the time the markets open this monday... I have a bit of a morbid fascination with watching it.

So far Bear Stearns has been bailed out by the US fed.

I am currently waiting for the US market to open, to see the dollar fail against the euro...

[Lancer]

Economic death, that doesn't sound good.

[Dinner]

Bear Stearns wasn't bailed out. The Fed basically subsidized J.P. Morgan to buy Bear Stearns for virtually nothing just to make sure a large US bank didn't go bust. The thing was the collapse of Bear Stearns was entirely the fault of bad corporate management (putting to many chips in high risk/high return mortgages) so I don't see why they should be bailed out. They should be making an example out of them to show what happens to other overly greedy corporate hogs.

[C0ckney]

there were similar arguments over northern rock, a high risk/high reward business model, which couldn't cope when the credit crunch bit. the message that our governments seem to be sending, is that if you're big enough and important enough, no matter how bad your business plan, you won't be allowed to fail. i see the reasoning behind this thinking, but i do not agree with it.

[OneFootInTheGrave]

if there is consumer part of the business like with Rock, the gov should protect them.

but the shareholders on the other hand - their investment failed, and they should pay ie stay with nothing... as should the corporate creditors etc and not the taxpayer...

[Dinner]

Nothing like a recession to expose poor economic policies. Bush will have two of them on his record before the end.

[Wezil]

Good times.

[C0ckney]

Originally posted by OneFootInTheGrave
if there is consumer part of the business like with Rock, the gov should protect them.

i think they should partially, and there are already some fairly generous statutory protections for ordinary customer's money in banks. i don't believe that every penny should be protected though. consumers must accept some risk and be careful where they put their money.

but the shareholders on the other hand - their investment failed, and they should pay ie stay with nothing... as should the corporate creditors etc and not the taxpayer...

i agree.

[OneFootInTheGrave]

problem with consumers is that there is very little visibility on banks viability (to anyone, just look at NR, or Bear Sterns), so to expect them to know that their bank on the corner is conservative enough to sail through the tough times is just encouraging everyone to bank with the biggest boy on the street and that's it... effectively encouraging banking monopoly/oligopoly...

thus in such situations I'd expect the state & taxpayers (after all we are this way protecting ourselves, and a lot easier to execute than NHS - another taxpayer funded "all benefit" service) to honor the savings/money in the actual accounts... but all the rest, take it away and restructure...

eventually when the storm passes when restructured bank is viable again, perhaps the taxpayer can return most of the investment and a lot of personal pain and total market confidence destruction has been avoided by state intervention.

[Kidlicious]

Originally posted by Oerdin
Bear Stearns wasn't bailed out. The Fed basically subsidized J.P. Morgan to buy Bear Stearns for virtually nothing just to make sure a large US bank didn't go bust. The thing was the collapse of Bear Stearns was entirely the fault of bad corporate management (putting to many chips in high risk/high return mortgages) so I don't see why they should be bailed out. They should be making an example out of them to show what happens to other overly greedy corporate hogs.

Unfortunately the "make an example out of them" mentality" doesn't work. Remember the Great Depression? People at the Fed are well trained and know their history.

[C0ckney]

as i understood it the first £2,000 is completely protected and 90% of the next £33,000. in the wake of northern rock crisis it was extended to 100% of the first £35,000 and then subsequently to all deposited money. if you are keeping that sort of money with an organisation, then i don't think it is unreasonable to expect you to know a little about it, and the potential risks which go with keeping your money there. i don't believe that i should be protecting someone who has £10,000s in a bank account with a failed bank, anymore than someone who invests in a failed company.

[snoopy369]

The problem is that a failed bank damages the economy as a whole, and damages society. It's something of a catch-22 ... you don't want to bail them out to encourage more speculation, but you have to in order to prevent further failures and a lack of confidence in other banks.

Perhaps a solution would be nationalizing them, but that is not consistent with US economic policy ... but I can't think of anything else you could do that would still be a big enough penalty to discourage the ownership doing it (except sending them to jail )

[Kidlicious]

Originally posted by snoopy369
Perhaps a solution would be nationalizing them, but that is not consistent with US economic policy ... but I can't think of anything else you could do that would still be a big enough penalty to discourage the ownership doing it (except sending them to jail )

Well what you have is an industry which owns it's own regulatory industry and has control over the monetary system i.e. they can make all the money they need. The only reason to say they aren't nationalized is that they pull a profit.

[Aeson]

Just remember that in the stock market, the largest downswings... AND UPSWINGS... happen in a bear market. It never goes straight down...

[Barnabas]

Eventually the state will nationalize the debt of those banks I guess