Buying the Bezzle
John Kenneth Galbraith wrote that embezzlement is “the most interesting of crimes” for an economist. Embezzlement is almost always eventually discovered, but for a time results in “a net increase in psychic wealth,” when the embezzler “has his gain” and the victim doesn’t miss it. Galbraith called the undiscovered and therefore unfelt loss “the bezzle.”
According to Krugman, the stock in banks that are solvent only by virtue of an “optimistic” valuation of their assets “isn’t totally worthless,” but the stock’s value is “entirely based on the hope that shareholders will be rescued by a government bailout.” The “huge gift to banks shareholders at taxpayer expense,” Krugman said, was likely to be “disguised as ‘fair value’ purchases of toxic assets.”
So maybe insolvent banks are stalling for time, hoping that the economy turns around, that home prices will go back up, or that sick borrowers will get well and unemployed borrowers will find jobs. Maybe they want to enjoy the “psychic wealth” of paper solvency for as long as possible.
And maybe they’re hoping we’ll buy their bezzle.