My blog has moved! Redirecting...

You should be automatically redirected. If not, visit and update your bookmarks.

Friday, February 26, 2010

Saving States & Countries vs. Investment Banks

Discretionary vs. Non-Discretionary Bailouts

Watching the latest round of debt problems emerge -- this time involving sovereign states like Greece -- reminds me of my not-so-happy experience as a "newbie" landlord a few years ago (turned off by the experience, I quickly sold the property).

Immediately after taking title, my (long-term, holdover) renter started presenting me with a long list of not-so-dire problems: a squeaky shower door one week, worn (but still decent) carpeting the next, etc.

Interested in keeping her happy, I erred on the side of being accommodating. Too accommodating.

No sooner were the "discretionary" items addressed, than the real, non-discretionary items showed up: a major plumbing issue that was brewing, an expensive HVAC problem that the former owner had thoughtfully deferred, etc.

It could just have been my imagination, but I quickly discerned a strategy: my renter "led" with the discretionary items, because she knew my patience (and money) would be depleted by the "big ticket" items if those were addressed first.

Cue Greece

What's all that got to do with Greece, and broke U.S. states (like California and New York)?

In the big scheme of things, "recapitalizing" (translation: showering with money) then-teetering banks like Goldman Sachs and J.P. Morgan Chase was akin to fixing a squeaky shower door: a nice thing to do -- for them -- but certainly not required for the long-term health of the world financial system.

As numerous financial experts have opined, there were many, less expensive alternatives to shoring up the financial system, starting with actually focusing on saving the system, rather than individual entities. A system which, trillions later, arguably still needs fixing.

Of course, now that trillions have been committed (borrowed, really) toward making Wall Street whole -- surprise, surprise! -- the truly systemic threats to the global financial system have come into plain(er) view.

Those include the plight of sovereigns like Greece, and over-a-barrel states like California and New York -- entities whose duress, incredibly, have been exacerbated by shady credit instruments created by guess who?

Maybe we tell the latest busted entities -- truthfully -- that Wall Street already got their bailout money.

Call it the "I gave at the office" excuse.

No comments: