Good analysis. He' basically saying that the "too big to fail" argument is bogus, as long as the government is equipped and prepared to take over such big corporations in receivership. It's a sort of perverse irony that, in allowing corporations to become really big, we have to prepare government to take them into receivership in case they fail. An economist friend of mine in LA has been saying that from the get go- let the banks fail and see where the chips fall. But that only works if the government can handle the potential chaos that will ensue.
When I think of regulation, then, I see an organization in the government that has the ability to take management control of even very large institutions if it becomes necessary. Under normal conditions, these people will spend a lot of time on game theory and contingency planning and exercises. During emergencies, they will spring into action like firefighters and prevent chaos among the public, which we must admit becomes a real threat when companies that touch tens of millions of people's lives fail. The government handles this kind of task for small companies everyday. But would it be prepared to handle the overnight bankruptcy of 4-5 top banks? Probably not right now. On Fri, Mar 13, 2009 at 10:48 PM, Gruss wrote: > > The course of defending the bondholders of insolvent institutions is > not sustainable. Do the math. The collateral behind private market > debt is being marked down by easily 20-30%. That debt represents about > 3.5 times GDP. That implies collateral losses on the order of 70-100% > of GDP, which itself is $14 trillion.... > > Unless Congress is actually willing to commit that amount of public > funds to defend the bondholders of mismanaged financials so they can > avoid any loss, this crisis simply cannot be addressed through > bailouts. Bondholders have to take losses. Debt has to be restructured > (and can be restructured in ways that largely preserve the present > value of the obligations). > > There is no other option [than nationalization] but the markets are > going to suffer interminably until our leaders figure that > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Adobe® ColdFusion® 8 software 8 is the most important and dramatic release to date Get the Free Trial http://ad.doubleclick.net/clk;207172674;29440083;f Archive: http://www.houseoffusion.com/groups/cf-community/message.cfm/messageid:291743 Subscription: http://www.houseoffusion.com/groups/cf-community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=89.70.5
