Saturday, March 28, 2009

Simon Johnson

I have been under the impression that USA is past the phase of ‘bank nationalization’ chorus. Primarily, opinions of Wall Street Traders and upward movement of stock market kind of influenced to conclude like that.

But after reading Simon Johnson’s terrific article in The Atlantic, it is quite clear things are not that simple. Basically, Johnson argues exceedingly well how USA case is not much different than ‘basket cases’ which come to IMF as a last resort. Simon worked at IMF for two years. He goes further and argues that to a certain extent the case of USA is even further complex and precarious for itself and the world economy because it can print it’s currency as much as it wants to take it’s debt to an unparalleled levels.

With Geithner’s PPIP program clearly a sweetener for private parties, with Christina Romer foolishly talking as ‘hedge fund guys as good guys, savior of America’ as if we Americans are gullible first year students in her University of Berkley class to believe such a crap, with Larry Summers quite insistent upon sticking to contracts of Wall Street Bankers and our President more interested in schmoozing with banking CEOs; it is clear that powers be in USA are beholden to Wall Street Bankers. Lack of action from Obama Administration leads to confusion and as per Simon that is a classic sign of ‘elites taking rest of the society for a ride’. According to Simon, today elites in USA are bankers and unless their behavior is fundamentally changed America’s problems will not go away.

No wonder Market is happy for such pliant Administration. There was some anxiety with these traders that an administration not wedded to Reganomics would be more alert in dealing with Wall Street. But as Wall Street feels comfortable that it is no different than earlier Bush Administration; market indices are going up. What Simon’s article tells us is that from rising stock market indices to conclude ‘no nationalization’ will be still a leap of faith.

In the end ‘nationalization or no nationalization’ is a quite complex issue to have clear idea / judgment. For example, Joe Nocera, the credible journalist from NYT thinks that Geithner PPIP would work. So what is needed is openness on behalf of our leaders and willingness to engage arguments as forwarded by Simon. President Obama may very well decide not pursue anything what Simon is talking. But how can we avoid not to address the questions raised and questions asked there? Also what about the options like running PPIP for new banks and existing banks with no toxic assets so that the goal of advancing bank credit to improving American Economy is served? All these avenues need to be considered.

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