STOCK MARKET WATCH -- Tuesday, 12 June 2012

[Demeter]

44. How Not to Solve a Crisis By JOE NOCERA MUST READ

http://www.nytimes.com/2012/06/12/opinion/nocera-how-not-to-solve-a-crisis.html

There is a delicious moment in the HBO film “Too Big to Fail” when Christine Lagarde, then France’s minister of finance, calls Hank Paulson, the U.S. Treasury secretary. It’s September 2008, and Lehman Brothers has just imploded after the government refused to bail it out. Panic is in the air.

“Hank,” she scolds him. “How could you let Lehman fail? What on earth were you thinking?” She pleads with him to save A.I.G., which appears to be the next domino poised to fall. “This is not just an American problem,” she concludes. (Note: I served as a consultant on the movie.)

Oh, the irony! Here we are, more than three-and-a-half years later, during which time the euro zone has repeatedly flirted with financial catastrophe. Lagarde now leads the International Monetary Fund, which exists, in large part, to help countries survive such catastrophes. Yet neither she nor anyone else in Europe has been willing or able to do more than use Band-Aids to stanch the bleeding.

A euro-zone meltdown, if it comes to that, would be devastating to the already battered economies of Europe, leading to widespread credit contraction, mass unemployment and depressed economies across the Continent. But it would undoubtedly take a toll on our economy as well — and it would be a huge blow to President Obama’s re-election prospects. To paraphrase Lagarde, this is not just a European problem.

The American and European responses to their respective financial crises are studies in contrast. The Bush administration and the Federal Reserve took an “all-hands-on-deck” approach: not just saving A.I.G. and recapitalizing the banks, but buying billions of dollars worth of subprime mortgages that were poisoning the banking system, and guaranteeing virtually all bank debt. Say what you will about the moral hazard that comes with bailing out too-big-to-fail banks, the strategy worked. By announcing to the world that it would serve as the lender of last resort, the federal government prevented a banking collapse, and, quite possibly, a depression...

WELL, THAT'S ONE EXPLANATION...PERSONALLY, I THINK THE PROBLEM WAS JUST KICKED DOWN THE ROAD A PIECE, AND UNFORTUNATELY, NOT QUITE FAR ENOUGH FOR ROBAMA'S RE-ELECTION...(ASSUMING HE ISN'T THE ONE CALLED OROMNEY...I NEVER DID FIGURE OUT WHICH WAS WHICH).

WHY ANYONE WOULD WANT TO GET RE-ELECTED TO PRESIDE OVER THE GREATER DEPRESSION ELUDES ME...BUT THE MALE EGO HAS ALWAYS BEEN SOMETHING OF A MYSTERY....