Name That Bailout
Jason Kuznicki on Oct 1st 2008
Guess which government this paragraph is about:
Following a pattern it had set in earlier bailouts of smaller banks, the government set up a holding company, which it financed together with the central bank. This company acquired all the corporate shares held in the portfolios of the banks at the higher historical, not current prices. Thus, the government not only provided liquidity to the banking system, but it also absorbed part of its losses. It also became the largest shareholder in a number of firms. Many of the industrial firms thus acquired were themselves on the verge of failing and benefited not just from the rescue of their banks but also from the direct infusion of public money… The cost of the entire bailout was a staggering 10 percent of GDP — the comparable amount in the United States today would be about $1 trillion.
The quote is from Saving Capitalism from the Capitalists, by Raghuram G. Rajan and Luigi Zingales, p 213. The bold bailout was by Benito Mussolini. The results were as corrupt and as anti-competitive as you could probably imagine.
Filed in The Boardroom
I knew our govt was going Fascist, I just didn’t know how far…
Oh man, you reminded me that I need to add that book to my reading list– which is already long enough as it is.
Well Fascism traditionally used corporatist economic systems, and the bailout is a very corporatist thing to do.
Great, I’ll really be sleeping well now.
I’m not sure what all the serious hand-wringing is about. The average author and commenter on this blog is probably a young, well educated professional. If this country goes south most (all?) of us can find employment in another modern, Western nation.
I think I’ll start looking at house prices in New Zealand . . .
[...] Now, I promised I’d get to how scary this bill is. The HatTip for the following information goes to blogger Jason Kuznicki at PositiveLiberty.com. Kuznicki writes, “Guess which government this paragraph is about: [...]
I am very offended by those in the media and government who keep saying that anyone who opposes the bailout simply doesn’t understand the consequences.
The final disaster to the economy will be caused by the bailout. The dollar itself is in grave danger of becoming worthless. Other forms of legal tender are needed, and will evolve quickly as the dollar plunges.
If every bank closed its doors, business could continue as it did for centuries. Each would have to use their own credit accounts, borrowing and lending to their suppliers and customers.
New banks could make loans, such as mortgages, but would not be able to sell them to other investors. Only the strongest borrowers with the most valuable assets would qualify. Only the most careful bankers would survive and prosper.
The free market will work, but only when in government become much less selfassured of their own genius.
Robert –
I’m not sure I agree here. I think that business would be severely harmed in the scenario you describe, and that it would be a tremendous setback for the economy overall. Finance is very important for the modern economy.
Fortunately, I also think that what you describe is unlikely. New banks will replace failed ones, and, after a period of difficult adjustment, I expect that life will return to something like what it was before.
OK let’s not do nothing and see what happens. I see many corporations going under, more unemployment, less spending, but I have a government job so I am not at risk.
[...] Jason Kuznicki over at Positive Liberty… Guess which government this paragraph is about: Following a pattern it had set in earlier [...]
[...] Answer here. [...]
” . . . The moral of this is not that Germany is an inevitable menace, but that there are forces in our own country which can make Germany a menace. And, more importantly, they could create a menace of their own here at home, not through a deliberate plot to bring about a political catastrophe but as a calm judgment of ‘business necessity.’ The men who would do this are not Nazis, but businessmen; not criminals, but honorable men.”
-James Stewart Martin was Chief of the Decartelization Branch for Military Government in Germany after World War II. His book All Honorable Men was published by Little Brown in 1950.
AMW: House prices are pretty fierce over here as we haven’t had our housing bubble pop yet, but Spring’s just starting to get under way, so there are compensations.
Plus the franchise is based on residency so you can vote in our elections after 3 years without naturalising.
Of course if the US financial industry actually does melt down we’re all screwed anyway. Have a nice day :)