[lbo-talk] Fwd: The Housing Bubble and the Financial Crisis -- What Congress Can Do

Doug Henwood dhenwood at panix.com
Tue Apr 1 19:01:24 PDT 2008


On Apr 1, 2008, at 9:10 PM, Joseph Catron quoted Deqn Baker:


> The model for such intervention should be the takeover of the Northern
> Rock bank by the British government.

No it shouldn't. The British authorities dithered for weeks about a rescue plan, and rejected a takeover offer from another bank (Lloyd's, if I'm remembering right). Northern Rock hived off its best assets into an offshore company, and the British government ended up with the remaining crap. They're on the hook for possibly tens of billions of pounds. The guy they hired to handle the task is a highly paid "non-dom" - a rich foreigner resident in London exempt from British taxes. There's no evidence that the British gov is any better insulated from risk than the Fed is from Bear Stearns' bad assets. BS's shareholders were close to wiped out, and senior management is out. The two are far more similar than Dean lets on.

A much better model is how the Nordic countries handled their banking crises in the early 1990s. Shareholders were often wiped out, but it took the expenditure of real public funds too. There's no way to "help the financial system," as Dean puts it, without spending some real cash.

I interviewed Dean about all this on last week's radio show. I haven't updated the web page with links to the show, but the sound files are in the archive. You can listen via the podcast links, below.

Doug Henwood Producer, Behind the News Thursdays, 5-6 PM, WBAI, New York 99.5 FM Saturdays, 10-11 AM, KPFA, Berkeley 94.1 FM "best music on a show about economics & politics" - Village Voice

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