Tuesday, 3 February 2009

Who would lose if we let the banks fall?

It now seems a matter of economic orthodoxy that letting Lehman fall was a mistake. But was it? Nobel prize winning economist Joseph Stiglitz, writing in the Telegraph, reckons that's exactly what we should be doing. Why burden a generation of taxpayers with propping up the chimera of a failed international derivatives market?

In the comments to Stiglitz's piece is this:

"To grasp how impossible it is for governments to re-float banks, consider this:

US annual GDP is about $15 tr
UK annual GDP is about $2.8 tr
World's GDPs for all nations is approx $50 tr
Total value of the world's property is estimated at about $75 tr
Total value of world's stock and bond markets is more than $100 tr
BIS valuation of world's derivatives back in 2002 was about $100 tr
BIS 2007 valuation of the world's derivatives is a whopping $516 trillion"

Letting all the exposed banks go bust and starting over again on the face of it has certain attractions. Who would lose?


Nick Drew said...

rather depends on how much of the nation's pension funds are invested in them, I'd say

Blue Eyes said...

Savers would lose, borrowers would win. Slight element of "moral hazard" there?

The alternative is the Weimar option - create a new currency with 1 trillionth of the value.

No thanks.

Anonymous said...

Bank shareholders would lose. Also Bank executives. Which is at it should be.

Depositors need not lose if retail deposits are guaranteed by the State.

Some bank employees would lose, many would find themselves working for new banks.

Gotta be better than endless bailouts which result in business as normal for those whose carelessness and/or greed caused the problems.

Now, how do we go about making the Government go bust and starting over with a new one?

J said...

"Bank shareholders would lose. Also bank executives." Agree totally.

"Depositors need not lose..." exactly and schemes are in place for that very purpose.

"... bank employes would lose ..." right and right again.

"Gotta be better than endless bailouts..." Yeap, however much has been thrown at the market thus far still pales into insignificance against the size of the problem.

Final comment simply perfect.