On Mon, Sep 29, 2008 at 9:58 AM, Michael Nuwer <[EMAIL PROTECTED]> wrote: > Doug Henwood wrote: >> >> On Sep 29, 2008, at 9:51 AM, Michael Nuwer wrote: >> >>> Is the Paulson plan an "injection of funds" or is it merely a >>> substitution of toxic waste now on balance sheets with treasury securities? >> >> Since when would that not be an injection of funds? > > I'm not sure, hence the question. > > But, if the plan is a substitution of securities, that sounds like a focus > on liquidity problems. If I'm understanding how these thing work (and > perhaps I'm not), the plan does not increase the banks' capital (or is not > an injection of capital).
It does increase capital, but you are right that it tends to do so in a way that is less effective in addressing the crisis. If you buy a toxic asset for more than it is worth you have indeed increased the capital available to those you buy the toxic waste from . But the idea behind the way it is structured is that a lot of the purchases are from institutions who are theoretically not in trouble. A lot this increased capital is in the hands of institutions that could survive without it. An explicit nationalization of institutions acknowledged to be in trouble could be much more effective, since it assures the continued existence of such institutions, albeit as public property. The reason it is done the first way rather than the second is that The Masters Of The Universe(TM) don't want to acknowledge that a lot of these assets are toxic. They want to pretend that the loss in value is ONLY a liquidity problem, like an irrational run a fundamentally sound bank. A Swedish style bailout acknowledges the reality that money was lent on assets worth a lot less than the value of the loan, then pyramided like a con artist kiting checks. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
