Officials worldwide are scrambling to avoid a run on the banks, such is the fear sweeping markets. Rarely do you hear the need for statements by government finance honchos like Paulson (US) and Tanner (Aus) that the banking system is safe (as houses). This must mean a run on the banks is on the cards.
During such tumultuous times, we continue to ask the hard questions. Are rising property prices good for society? Is anyone really up for another land boom-bust?
Fred Harrison over at the Renegade Economist comments on how new British legislation will give the taxpayer greater say on which assets it securitises loans against. He reminds us:
With Lehman Brothers now added to the list of bankrupts – another victim of reckless speculation in real estate – the terms on which they may be rescued from their own folly is of no little consequence to taxpayers who are being forced to clean up the mess.
The latest US reform is to tighten rules on short-selling, for which some blame the downward plunge of sharemarkets.
In Abroad, Bailout Is Seen as a Free Market Detour we see international concern at the double standards of the US:
When the I.M.F. pledged $20 billion to help South Korea survive the Asian financial crisis of the late 1990s, one of the conditions it imposed was that the Korean government allow ailing banks and other companies to collapse rather than bail them out, recalled Yung Chul Park, a professor of economics at Korea University in Seoul, who was deeply involved in the negotiations with the I.M.F.
While Mr. Park says the current crisis is different — it is global rather than limited to one region — “Washington is following a different script this time.”
Will any international bank take the US to court for market interference under WTO rules?
Are such desperate bailout maneuvers only mandated when the reality of US debt and the Chinese bond holders funding this land fueled credit binge come home to roost?
Interesting times indeed! And to think the chiefs of Merril Lynch will take home $252 million in payouts. The double sided nature to bailouts and handouts must be breeding a few stretched faces. No wonder gold jumped $40 in 5 minutes yesterday as the next round of Treasury Bills hit the printing press.
Let’s hope the government appointed officials to oversee these essentially nationalised companies (Fannie, Freddie and Bear) aren’t as wet behind the ears as the Bush-ite Michael Brown, FEMA CEO during the New Orleans flood times. Would Milton Friedman be rolling in his grave?
A reminder – The Great Crash of 2008 explains the root cause to such drama.