...Earlier this year, high-flying hedge fund Paulson & Co. retained [former Federal Reserve chief Alan Greenspan] for its “advisory board.” The firm is a noted “short seller” of banks and financial stocks - meaning it makes money when these companies’ shares fall.
The thing is, Greenspan is making public comments that inevitably influence public policy and the markets - and some of those comments may well have led to his clients making a nice profit.
In a recent speech to the Economic Club of New York, Greenspan said the recession would likely “be the longest and deepest” since the Great Depression and that Congress might have to allocate more money to save the beleaguered banking system on top of the billions already gone for the Troubled Asset Recovery Program.
Then he told the Financial Times: “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring” of their troubled balance sheets.
Such a move would wipe out stockholders, sending shares of banks even lower - thus likely benefiting Paulson. It would also protect bondholders, helping another Greenspan client, the large bond-firm Pimco...
This is like stampeding the cattle over the cliff in order to get some good steak.
Chicago school economics and the benefits of the Free Market for the Faithful. The church of Milton Friedman once again establishes itself as an old fashioned death cult. Drinking kool-aid with the bears is bound to get you eaten.
Thank you for everything you've done, Alan Greenspan.
Krugman today gives some very good reasons why temporary nationalization of these banks is a good idea. Of course, in order for this to work, the government would also have to break the corporate entities that are too big to fail into lots of smaller entities. The government would also have to enact rules to make sure there were not other corporate jackals waiting to eat the little entities alive. The $ystem would have to be changed so that the banks no longer were driven by Wall Street, and so that both Wall Street and the financial industry no longer played by casino rules.
Somehow I think the restructuring will be cosmetic. What's the point in being an oligarch if you can't lord it over everyone?
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