I don’t think the latest Geithner plan to create a private/public partnership to buy up to 1 trillion of toxic assets from the Banks represents the zombie solution as described by many leading economists.
I think whether or not you nationalize some Banks makes less difference than is contended, since in my opinion it all boils down to how they are regulated and managed- albeit very poorly in the past. The latest Geithner plan proposes an auction purchase system of the the toxic assets held by banks by investors with up to 97% in non recourse funding whose risk and funding can be as low as 3%. In other words a Hedge Fund bidding 70 cents in the dollar for $100 million of debt securities held by Citicorp would purchase the $70 million dollars of securities but only be on risk for $ 2.1million or 3% of the $70 million dollar security parcel purchased.
These established Funds would be available to investors and 401K superfunds and so on.
The arrangement as I understand can be described as follows:
1. The FDIC (Federal Deposit Insurance Corporation) guarantees 85% of the value of the loans without recourse.
2. The Treasury provides further capital for 80% of the balance(balance is 15% after 85% guarantee by the FDIC )to cover 12% from TARP Funds leaving a balance of only 3%.
3. The balance of 3% represents the capital used from Private Investors (Hedge Funds) who risk losing all their capital (assuming they are unable to hedge their investments by buying credit default swaps) and who bid at auction for parcels of the securities to establish a market.
4. Banks holding the Toxic Assets will sell them to the highest investor Bidders (Hedge Funds)which will then enable eventually a resumption of normal lending.
5. The taxpayer effectively takes on 97% of the risk by virtue of the non recourse loans.
The concerns over taxpayers costs hinges on the economic outlook over the next 3- 4 years and the extent or otherwise of recovery in house prices and the general economy. In the event of a recovery, losses may be minimal, if any, with possible gains but should the reverse occur the consequences will be disastrous to the extent the whole economy collapses. The banking system may be equally badly off with no less in future challenges, but that would also signal even more deep seated economic woes at that time.
However a more pertinent argument is about whether or not you allow the banks to fail or as the case may be to recover of their own volition. Due to the very low funds cost now available (with Fed easing) margins have improved considerably, hence, putting aside additional write downs from prior toxic assets sales and bad debts and assuming economic recovery I would estimate all the write offs could be absorbed within a four year time span. But in the meantime the credit squeeze and all of its misery would continue with the risk of further contraction which clearly politically has become an untenable option.
Hence, if you are in favour politically of a bailout, you cannot avoid risk by nationalization as it involves simply transferring risk from the private sector under government regulation to the government under government regulation.If you are not in favour of bailouts you would argue it is better to do nothing and not risk further taxpayer money, but you cannot have it both ways and assume government nationalization would somehow provide an immediate superior solution.
Furthermore Bank nationalization is both complex and costly and for it to work would entail the need for a broad guarantee of the entire USA banking system obligations which would make people even more unhappy.
I don’t particularly like Geithner's plan but its worth trying. In the meantime it is sensible to enact new legislation to allow a single government regulatory agency( like the FDIC ) to vest with sufficient power, when necessary, to safely dismantle all big financial institutions so as to minimize damage to the financial system and overall economy.
Tuesday, March 24
Friday, March 20
Age of Excess
Cart has an interesting and comprehensive post on Excesses which got me thinking that excesses and unhappiness go together.
Professor Bagaric contends it’s better to "overdose” with family or friends than to engage in mad shopping sprees to feel happy. Don’t buy the latest new big car or flat screen TV to increase your level of happiness but disconnect from the mobile phone to be more involved with your local community or invest in a hobby or buy a dog to go walking regularly, as these activities lead one to be happier than investing in material acquisitions.
The myth of the Great Depression (with its 25% unemployment) according to Bagaric was that everyone was depressed and unhappy. This was not the case since even those eeking out existence in shanty towns or residing in caves around Sydney did not see themselves so badly off as their pervious homes also did not have electricity or running water. Being dirt poor does not necessarily lead one to being very unhappy, so long as you have enough to eat. During the Great Depression many more people survived by growing their own vegetables which became an ennobling experience.
When everyone‘s driving old bomb cars and few have any real wealth than the communities are under less stress in a material sense as the high societal expectations dissipate as people become more concerned about looking after one another than in keeping up appearances by acquiring material acquisitions.
Not that I would attempt to glamorize the misery of the Great Depression (and the unhappiness of many)but rather to concede the important point our happiness is a relative measure and is influenced more by our expectations than by the measure of material items. So long as you have enough to eat the simple pleasures in life can always be enjoyed. With the world’s economy sunk in a continuing mire of despair in what we might call the Great Recession (a mere shadow of the Great Depression)it might be wise to seek out more simple blessings and to pass them on for serious consideration.
In early May I am off to Malawi which only has a per capita income of $250. It will be interesting to hear the many stories of ordinary people and experience the warm heart of Africa- to gauge also the general level of happiness.
Professor Bagaric contends it’s better to "overdose” with family or friends than to engage in mad shopping sprees to feel happy. Don’t buy the latest new big car or flat screen TV to increase your level of happiness but disconnect from the mobile phone to be more involved with your local community or invest in a hobby or buy a dog to go walking regularly, as these activities lead one to be happier than investing in material acquisitions.
The myth of the Great Depression (with its 25% unemployment) according to Bagaric was that everyone was depressed and unhappy. This was not the case since even those eeking out existence in shanty towns or residing in caves around Sydney did not see themselves so badly off as their pervious homes also did not have electricity or running water. Being dirt poor does not necessarily lead one to being very unhappy, so long as you have enough to eat. During the Great Depression many more people survived by growing their own vegetables which became an ennobling experience.
When everyone‘s driving old bomb cars and few have any real wealth than the communities are under less stress in a material sense as the high societal expectations dissipate as people become more concerned about looking after one another than in keeping up appearances by acquiring material acquisitions.
Not that I would attempt to glamorize the misery of the Great Depression (and the unhappiness of many)but rather to concede the important point our happiness is a relative measure and is influenced more by our expectations than by the measure of material items. So long as you have enough to eat the simple pleasures in life can always be enjoyed. With the world’s economy sunk in a continuing mire of despair in what we might call the Great Recession (a mere shadow of the Great Depression)it might be wise to seek out more simple blessings and to pass them on for serious consideration.
In early May I am off to Malawi which only has a per capita income of $250. It will be interesting to hear the many stories of ordinary people and experience the warm heart of Africa- to gauge also the general level of happiness.
Sunday, March 15
Ink Pen to paper is hard to erase
It was in 1956 in primary school I remember the pungent odor from recently filled small round ink wells embedded in the centre top of our desks. Its contents encouraged us to write down what was taught about our history carefully, so as to avoid splotching from dipping the pen too deeply; to think very carefully before committing ink to paper since untidy corrections were not acceptable.
Our history lessons centered on the discovery of Australia and its settlement when the first Australians, our Aborigines, were universally portrayed as nomadic hunter gatherers, representatives from a timeless primitive Stone Age society residing in temporary bark dwellings. Colonization had sought to impose another culture on to a much older landscape and its inhabitants to naively conclude unbridled universal enthusiasm; to jointly establish a new found utopian state.
But our first early farming practices of extensive tree felling and overgrazing raised water levels which gave way eventually to present day widespread salination. The first Australians were all viewed primitively; as if seen and filtered through the lenses of a early English camera, as inevitably their lands were stolen; as wars grew; they were viewed as savages. Scarcely as the ink dried on those first recorded misconceptions and inaccuracies they bercame permanently etched into our history.
But thanks to archeology and many new researchers the tide has finally turned.
One such voice is from acclaimed author Bruce Pascoe “It is on the public record that Aboriginal people were not feckless and innocent nomads but constructed complex housing; harvested grain, yams, eels, fish and other produce with sophisticated feats of engineering; and created the first and most enduring art, music and language in the world.
The social organisation looks amazingly like the first democracy, the first modern state where art and dance were devoted more time than the procurement of food.
We live in an incredible place but refuse to believe its history.
The eel aquaculture of the Western District of Victoria covers thousands of hectares and involves hundreds of kilometres of stone walls, weirs and tunnels burrowed through solid rock. The houses for these fishermen were set out in large villages and some of them could accommodate 20 or more people. They are like small town halls.
Grain was harvested in Queensland and from other grasslands: the fields of over 1,000 acres were carefully managed to maintain productivity. Settlers found this grain stored in stone silos and intricately sewn, vermin proof skin bags. Often the stored grain weighed over one tonne.
This is all on the public record in the first hand reports of Europeans. So why do we maintain the myth of a crude civilisation meandering hopelessly across the continent? Because we have to? Because to admit anything else defies our perception of ownership and legitimacy, our own perception of how we took the land?
We need to understand that there was a war in this country and the Indigenes lost it but not before conducting battles which forced the Europeans back on many fronts in the campaign. Aboriginal people did not just go away, disappear, die out from exotic diseases - they were defeated in war. That war is on the public record. The word “war” was used by our first governors and magistrates: it is there for any Australian to read.
Our history lessons centered on the discovery of Australia and its settlement when the first Australians, our Aborigines, were universally portrayed as nomadic hunter gatherers, representatives from a timeless primitive Stone Age society residing in temporary bark dwellings. Colonization had sought to impose another culture on to a much older landscape and its inhabitants to naively conclude unbridled universal enthusiasm; to jointly establish a new found utopian state.
But our first early farming practices of extensive tree felling and overgrazing raised water levels which gave way eventually to present day widespread salination. The first Australians were all viewed primitively; as if seen and filtered through the lenses of a early English camera, as inevitably their lands were stolen; as wars grew; they were viewed as savages. Scarcely as the ink dried on those first recorded misconceptions and inaccuracies they bercame permanently etched into our history.
But thanks to archeology and many new researchers the tide has finally turned.
One such voice is from acclaimed author Bruce Pascoe “It is on the public record that Aboriginal people were not feckless and innocent nomads but constructed complex housing; harvested grain, yams, eels, fish and other produce with sophisticated feats of engineering; and created the first and most enduring art, music and language in the world.
The social organisation looks amazingly like the first democracy, the first modern state where art and dance were devoted more time than the procurement of food.
We live in an incredible place but refuse to believe its history.
The eel aquaculture of the Western District of Victoria covers thousands of hectares and involves hundreds of kilometres of stone walls, weirs and tunnels burrowed through solid rock. The houses for these fishermen were set out in large villages and some of them could accommodate 20 or more people. They are like small town halls.
Grain was harvested in Queensland and from other grasslands: the fields of over 1,000 acres were carefully managed to maintain productivity. Settlers found this grain stored in stone silos and intricately sewn, vermin proof skin bags. Often the stored grain weighed over one tonne.
This is all on the public record in the first hand reports of Europeans. So why do we maintain the myth of a crude civilisation meandering hopelessly across the continent? Because we have to? Because to admit anything else defies our perception of ownership and legitimacy, our own perception of how we took the land?
We need to understand that there was a war in this country and the Indigenes lost it but not before conducting battles which forced the Europeans back on many fronts in the campaign. Aboriginal people did not just go away, disappear, die out from exotic diseases - they were defeated in war. That war is on the public record. The word “war” was used by our first governors and magistrates: it is there for any Australian to read.
Monday, March 2
Gundagai -Poet’s Recall & Niagara Café
We stopped off overnight at a motel named ‘the Poets Recall’ at historic Gundagai on our recent trip to Sydney.
Gundagai is a small historic town of only 2,400 located midway between Sydney and Melbourne and was first settled in 1850 alongside the Murrumbidgee River. The 13 streets of the new township were all named after famous poets- Shakespeare Terrace, Milton St, Pope St, Johnson St, Maturin St, Landan St, Hemans St, Sheridan St, Otway St, Byron St, Homer St, Virgil St and Ovid St.
But in 1852 tragedy struck when the Murrumbidgee flooded and completely wiped out the fledgling settlement with nearly half of the township (nearly 100 people) perishing. The rebuilt township with new roads on much higher ground abandoned the earlier literary intention so Gundagai’ streets could no longer lay claim to be graced by that literary theme until the present owners decided to honor this memory.
In the bar, exquisitely painted onto local slate tablets (mined from the area), were portraits of the 13 poets and 13 units had a slate tablet with verse inscribed from one of the poets above each entrance.
On the way back from our most enjoyable stay in Sydney we again stopped off at Gundagi but this time for a cup of tea at the Niagara café. The large homely Cafe was deserted on that smoke filled hazy day from the bush fires around Victoria which hung over the township and severely reduced visibility.
Adorning the walls of the Café were pictures of famous people who had visited the Niagara to celebrate one event or another including 3 past Prime Minsters of Australia. One such story which may be of interest concerns probably Australia’s greatest Prime Minster namely John Curtin. The story relates to an incident in 1942, after midnight when the owner heard a loud banging on the locked front door. Annoyingly opening the door he was just about to tell the visitor ‘where to go “when he discovered it was Prime Minister John Curtin.
Curtin in his typical fashion tipped his hat and said that both he and his ‘mates’ (future Country Party leader, Artie Fadden, and future PM, Ben Chiefly) were both hungry and freezing and would appreciate very much such tucker! They had been out all day from very early morning on the hustings promoting “War Bonds”: – but soon they were able to relax at last whilst eating a hearty meal of steak and eggs convivially shared around the warmth of the kitchen stove.
Curtain ascertained the Cafes meager war time ration of 28 lbs of tea per month was totally inadequate and absorbed with the first few week of each month, so for the remainder of the war Niagara received 100lbs. The PM frequently dropped in for a cupper when he was passing through. This was the way it worked then – the return of favor not forgotten rather than the corruption of the present.
Along the Road to Gundagai
There's a track winding back
to an old-fashioned shack,
Along the road to Gundagai.
Where the gum trees are growin'
and theMurrinbidgees’s flowin
beneath the starry sky.
Oh my mother and daddy are waitin' for me
And the pals of my childhood once more I will see
And no more will I roam 'cos I'm headin' right for home
Along the road to Gundagai
Jack O ‘Hagan.
Gundagai is a small historic town of only 2,400 located midway between Sydney and Melbourne and was first settled in 1850 alongside the Murrumbidgee River. The 13 streets of the new township were all named after famous poets- Shakespeare Terrace, Milton St, Pope St, Johnson St, Maturin St, Landan St, Hemans St, Sheridan St, Otway St, Byron St, Homer St, Virgil St and Ovid St.
But in 1852 tragedy struck when the Murrumbidgee flooded and completely wiped out the fledgling settlement with nearly half of the township (nearly 100 people) perishing. The rebuilt township with new roads on much higher ground abandoned the earlier literary intention so Gundagai’ streets could no longer lay claim to be graced by that literary theme until the present owners decided to honor this memory.
In the bar, exquisitely painted onto local slate tablets (mined from the area), were portraits of the 13 poets and 13 units had a slate tablet with verse inscribed from one of the poets above each entrance.
On the way back from our most enjoyable stay in Sydney we again stopped off at Gundagi but this time for a cup of tea at the Niagara café. The large homely Cafe was deserted on that smoke filled hazy day from the bush fires around Victoria which hung over the township and severely reduced visibility.
Adorning the walls of the Café were pictures of famous people who had visited the Niagara to celebrate one event or another including 3 past Prime Minsters of Australia. One such story which may be of interest concerns probably Australia’s greatest Prime Minster namely John Curtin. The story relates to an incident in 1942, after midnight when the owner heard a loud banging on the locked front door. Annoyingly opening the door he was just about to tell the visitor ‘where to go “when he discovered it was Prime Minister John Curtin.
Curtin in his typical fashion tipped his hat and said that both he and his ‘mates’ (future Country Party leader, Artie Fadden, and future PM, Ben Chiefly) were both hungry and freezing and would appreciate very much such tucker! They had been out all day from very early morning on the hustings promoting “War Bonds”: – but soon they were able to relax at last whilst eating a hearty meal of steak and eggs convivially shared around the warmth of the kitchen stove.
Curtain ascertained the Cafes meager war time ration of 28 lbs of tea per month was totally inadequate and absorbed with the first few week of each month, so for the remainder of the war Niagara received 100lbs. The PM frequently dropped in for a cupper when he was passing through. This was the way it worked then – the return of favor not forgotten rather than the corruption of the present.
Along the Road to Gundagai
There's a track winding back
to an old-fashioned shack,
Along the road to Gundagai.
Where the gum trees are growin'
and theMurrinbidgees’s flowin
beneath the starry sky.
Oh my mother and daddy are waitin' for me
And the pals of my childhood once more I will see
And no more will I roam 'cos I'm headin' right for home
Along the road to Gundagai
Jack O ‘Hagan.
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