April 17 (Bloomberg) -- The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”
The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.
“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.
The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”
Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.
Oh, and the last bit of underlined text is the concept I refer to as pre-privatization. Very short term nationalization of the basic functions of the zombie banks (i.e. making sure deposits are honored etc.) while you cram down the bondholders into equity which will recapitalize the banks at the expense of the investors of those institutions (rather than the taxpayer) who will apparently see the lion's share of any upside regardless of our solution.
I've never met a retarded person who wasn't smiling.
While I don't have a nobel prize, my studies of Economics lend me to agree with you and Mr. Stiglitz.
“The Knave abideth.” I dare speak not for thee, but this maketh me to be of good comfort; I deem it well that he be out there, the Knave, being of good ease for we sinners.
I wonder what will happen if or when the public realizes the enormity of the theft that has taken place right out in plain view, before their very eyes. Don’t know? Don’t care? Sheeple? I simply don’t get the complacency . . .
The other issue according to Stiglitz is also something we’ve touched upon: “America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street. Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”
