Gerry Canavan

the smartest kid on earth

Posts Tagged ‘the cake is a lie

Buying the Bezzle

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North Carolina’s Rep. Brad Miller (the Fightin’ 13th!) is trying to figure out what the banks are up to. More at MetaFilter.

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.

Written by gerrycanavan

February 6, 2009 at 12:05 am

Too Big to Fail

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Nobody is happy about the terms of the Citi group bailout, which appears to be a simple handover of cash with no strings attached at all. When we give a company $7 billion more than it’s actually worth because it’s “too big to fail,” that shouldn’t be giving anymore—that should be buying. Mark Thoma has your link roundup, with more commentary from Matt Yglesias, Paul Krugman, Kevin Drum, and Marginal Revolution. The word of the day, you’ll find, is “ugh.”

Written by gerrycanavan

November 24, 2008 at 2:39 pm

The Cake Is A Lie

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The cake bailout is a lie.

Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.

In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.

January 21 can’t come fast enough. Via TPM.

Written by gerrycanavan

October 25, 2008 at 4:18 pm

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