The British bank bailout: Coming soon to U.S.A.?
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Good morning. News item: ‘The British government waded into the sub-prime quagmire Sunday with the announcement that it would move to nationalize Northern Rock, the nation’s fifth-largest mortgage lender.’
Why didn’t the British government stand aside and let another bank rescue Northern Rock? ‘The government has extended about $104.5 billion in loans and other guarantees to prop up the Newcastle-based bank and was reluctant to agree to any private sector bailout that didn’t guarantee taxpayers an early repayment with interest.’
Is there any chance this would happen in the the United States? I doubt it, but I still suspect we are heading toward some sort of federal bailout, similar to the savings and loan bailout of a generation ago.
Nobody makes the bailout case more consistently than mortgage broker/Fed watcher Lou Barnes, who again is pushing for ‘inventive government intervention’ to deal with what he calls ‘the largest bubble of foolish lending since the 1920s.’
Barnes:‘Fellas... look: What are you going to do with the $4 trillion in bad paper? The ‘plan’ seems to be to leave most of it in the banking system, financed by central bank credit. ... Meanwhile ... the financial system cannot provide new credit because of the rotting mess in its belly.’
More Barnes: ‘I would very much like to be proven wrong, but the word is ‘bailout’: extract the rot from the system and put it into a nouveau RTC. Then markets can function.’
This a frustrating story because the people most involved (Treasury Secretary Henry M. Paulson Jr., bank CEOs, etc.) are least likely to shed any light on it, and generally dismiss any discussion of the topic as ‘premature’ and ‘irresponsible.’ It’s as if 300 million Americans are sitting at the kids’ table, quietly paying our taxes, while the adults sit at the big table whispering about what to do and what to tell us. So watch what Washington and Wall Street do to refinance the bond insurers as a sneak preview of what’s coming for bigger financial institutions.
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
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