Wednesday, August 18, 2010

US Following a "Really Stupid" Bank Policy

Here is an excellent clip of William Black, a bank regulator who helped clean up the S&L disaster from the early 1990s, talking about how "really stupid" the current FDIC (and Obama Administration) policy is, a policy of hiding real losses because there is no cash to pay them and nobody wants to request that Congress provides the funds. As Black points out, this is the same strategy that Japan followed after its crash in 1989 and it has led to a "lost decade" that in fact has dragged on for 20 years and a total real loss of 85% of its stock market value. The US is following the very same script:

At the end of the clip is a very revealing statement: the two officials who helped create the mess are still on the "Obama team" (Timothy Geithner and Larry Summers) while two members of Obama's team whose hands are clean (Christina Romer and Peter Orszag) have left or are leaving. Black makes the accusation: "Geithner and Summers were selected and promoted, and the same is true of Bernanke, because they are willing to be wrong, and they have a consistent track record of being wrong, and that's useful to senior politicians, it is just disastrous for the country."

The elephant in the room: Obama is making these choices. He has failed to take sound economic advice and instead has set sail on the disastrous "lost decade" approach of hiding bank losses and letting the country and the economy pay with decades long sub-par growth, high unemployment, and banks that just don't lend because they are stuffed to the gills with bad debts that they can't and won't get off their books.

The above is from a Yahoo! Finance article.

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