Nov 28 2008
Following the Economic Crisis: Two quick updates from Baseline Senario
The Baseline Scenario
International Implications of the Citigroup Bailout
Written by Simon Johnson
November 27, 2008 at 5:20 pm
The Citigroup bailout was a good deal for Citi shareholders…and a great deal for Citigroup management. But it also has three global implications that perhaps have not yet been fully thought through.
1. The Citi deal shifts pressure from US financial institutions, at least for a while. But to the markets it raises the question: who or what is next?
2. …the clout of the US financial industry has, if anything, actually increased over the past eighteen months…There is no harm in proposing changes to deficient national regulatory systems and international, rather creaky, Bretton Woods structures. But strong forces just found out that these structures are completely compatible with rather juicy bailouts (and there may be more to come)…
3. If we are now at the next stage of bailouts and of figuring out who can afford to do the bailing, then existing resources - in and around the IMF - for helping emerging markets are really not enough…IMF available resources, even with the recent loan from Japan, are only around $200bn. You really cannot save many banks/countries with that amount of money these days - the IMF lent over $40bn this month alone
The Baseline Scenario
And a Volcker on Top
Written by James Kwak
November 27, 2008 at 5:25 pm
[The Obama nominated heads of the Council of Economic Advisors and the National Economic Council include] Christina Romer and Larry Summers, respectively, two of the most prominent and respected economists in the world.
…Obama has named Paul Volcker, now the most respected chairman of the Federal Reserve in recent memory, the hawk who choked off high inflation in the early 1980s, as head of the new Economic Recovery Advisory Board.
…Obama is clearly trying to project the impression that he is bringing overwhelming firepower to bear on the problem, in an effort to bolster confidence in the markets. He is also signaling that his administration will follow a centrist, or at most moderate Democratic line. (Volcker first joined Treasury under Nixon, and was appointed Chairman of the Fed by Carter and then re-appoitned by Reagan; Geithner is an independent.)
Remember those charges of socialism in the last weeks of the election? The few socialists out there are sure to be disappointed.
Not enough credit is being given to the high gas prices this past year and it’s serious damage on our economy and society. That one factor alone has caused serious stress in both individuals and businesses. A record number of homes and jobs have been lost as a direct result. And, while we are doing the happy dance around the lower prices at the pumps OPEC is announcing cuts to manipulate the prices upward again. We must get on with becoming energy independent.We can’t take another year like this past. There is a wonderful new book out about the energy crisis and what it would take for America to become energy independent. It covers every aspect of oil, what it’s uses are besides gasoline, our reserves, our depletion of it. Every type of alternative energy is covered and it’s potential to replace oil. He even has proposed legislative agenda’s that would be necessary to implement these changes along with time frames. This book is profoundly informative and our country needs to become more informed and move forward with becoming energy independent. Green technology would not only provide clean cheap energy it would create millions of badly needed new jobs. The Book is called The Manhattan Project of 2009 Energy Independence NOW. Our politicians all need to read this book. http://www.themanhattanprojectof2009.com
If large banks and large industry each faced the potetial for nationalization but with no specific criteria written into the Federal Code, could the the “too large to fail” become a self policing system to preclude the massi ve bailouts?
If the large instituions and corporations had only rough economic criteria that any current administration could apply to decide if the nationalization threshold had been triggered by them, it could perhaps invite bigger institutions and corporations to avoid getting too close to these vague triggering levels rather than going right up to the line if an explicit criteria were given. I can envision that as the market conditions change and the values increase due to increasing size or impact on the economy that these large untities my take the needed action to preserve their upside gains by staying far from any tempting intervention by the Federal govenment.
I look to the economic experts as to how criteria and thresholds might be best characterized and quantified.
Jim Tanner