January 22, 2009
Is the UK Bankrupt? Lessons
Just as the problems in the UK foreshadowed ours in the late 20s, do the problems in the UK now foreshadow ours? There is a serious debate about whether the UK, as a country, is bankrupt. It has poured money into the Royal Bank of Scotland. The bank is still unsound, full of bad assets that have yet to be accurately priced, and the country owns 70 percent of the stock of the bank. We have poured money into financial institutions that are still unsound and seem willing to put more in. One of the authors of the bailouts, Geithner is the new Secretary of the Treasury, who admits to some past mistakes (not his apparently) and, promises to do it better in future bailout packages (and in his future tax returns). We now learn that Barney Frank, and others (Ohio, NC, and Ala.), have directed bailout money to banks in their constituency base -- no based on their health but based on their location. Of course politicians will do this -- their incentives to do this are overwhelming. At issue ought to be whether bailouts are futile and inherently misdirected given political incentives.
January 22, 2009 | Permalink
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