On Sat, 14 Mar 2008, Shane Taylor wrote:
> There are two dimensions in responding to this cluster fuck: financial
> stabilization and socialized losses. The former will always be invoked
> as cover for the latter, because they can get away with it. Dean fixes
> a Klieg light on socialized losses.
In general, I agree with your first two sentences and your general attitude. But in this particular case of the Bear Stearns bailout that Dean is talking about, I don't see any socialized losses. The Fed doesn't live off taxes. It makes its own money, and it makes it precisely so it can spend it at times like this. Unless the Fed comes to need a capital injection in the future, I don't see where taxpayers have to spend a dime. It may well lose money on those securities, but if past practice is any guide (which it might not be) it will cover those losses out of its operating profits.
Also, although I sympathize with Dean Baker's desire that slimebag moneymen ought to be fired, I find it hard to accept that the Northern Rock alternative was a better idea than this one. Northern Rock was a traumatic catastrophe that everyone in the UK down to the cleaning lady experienced on the telly -- exactly what you don't want when you fear a crisis of confidence. Bear Stearns by contrast is so far just a fart on the financial pages. More importantly, the nationalized bank the UK government now owns is requiring billions of dollars of capital injection to prop up -- money that will come out of tax revenues. There are a lot of people in the UK who say both taxpayers and government (and certainly Merwyn King would have been better off it the Treasury had just let Lloyds TSB buy it at a fire sale like they offered several times early on. In fact that sort of seems like the lesson the Fed has drawn, although they were probably already disposed in that direction. (And FWIW, when BS does get taken over, many of their bankers probably will get summarily dismissed.)
In short, Northern Rock seems like an exercise in financial lemon socialism -- not a template for emulation.
But maybe I'm missing something.
Michael