Begin forwarded message:
From: dasg...@aol.com
Date: February 2, 2009 11:38:55 AM PST
To: ramille...@aol.com
Cc: ema...@aol.com, j...@aol.com, jim6...@cwnet.com,
l...@legitgov.org, christian.r...@gmail.com
Subject: Nobel Economist: Bail Out the People; Let "Suffering" Banks
and Brokerages DIE!
Let banks fail, says Nobel economist Joseph Stiglitz
Government should allow every distressed bank to go bankrupt and set
up a fresh banking system under temporary state control rather than
cripple the country by propping up a corrupt edifice,
according to Joseph Stiglitz, the Nobel Prize-winning economist
By Ambrose Evans-Pritchard in Davos
Last Updated: 8:29AM GMT 02 Feb 2009
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4424418/Let-banks-fail-says-Nobel-economist-Joseph-Stiglitz.html
Professor Stiglitz, the former chair of the White House Council of
Economic Advisers, told The Daily Telegraph that Britain should let
the banks default on their vast foreign operations and start afresh
with new set of healthy banks.
"The UK has been hit hard because the banks took on enormously large
liabilities in foreign currencies. Should the British taxpayers have
to lower their standard of living for 20 years to pay off mistakes
that benefited a small elite?" he said.
"There is an argument for letting the banks go bust. It may cause
turmoil but it will be a cheaper way to deal with this in the end. The
British Parliament never offered a blanket guarantee for all
liabilities and derivative positions of these banks," he said.
Mr Stiglitz said the Government should underwrite all deposits to
protect the UK's domestic credit system and safeguard money markets
that lubricate lending. It should use the skeletons of the old banks
to build a healthier structure.
"The new banks will be more credible once they no longer have these
liabilities on their back."
Mr Stiglitz said the City of London would survive the shock of such a
default because it would uphold the principle of free market
responsibility. "Counter-parties entered into voluntary agreements
with the banks and they must accept the consequences," he said.
Such a drastic course of action would be fraught with difficulties and
risks, however. It would leave healthy banks in an untenable position
since they would have to compete for funds in the markets with state-
run entities.
Mr Stiglitz's radical proposal is a "Chapter 11" scheme for households
to allow them to bring their debts under control without having to go
into bankruptcy.
"Families matter just as much as firms. The US government can borrow
at 1% so why can't it lend directly to poor people for mortgages at
4%?" he said.
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