Submitted by Rolfe Winkler, publisher of OptionARMageddon
The Congressional Oversight Panel released its latest report yesterday. Luckily news outlets reporting on the release (see Bloomberg and Housing Wire) are skipping Warren’s YouTube and Executive summaries–awkward exercises in establishing consensus both of them. They focus instead on the report’s more provocative suggestion, that liquidating failed banks would be a better way of solving the economic crisis.
And we’d better get a move on. The report makes a very good point that unlike Japan and Sweden, we can’t rely on international consumer demand to rescue us:
…we may in fact be more economically vulnerable to a weakened financial system than either Sweden and Japan were because we cannot rely on some larger economy to generate consumer demand for our goods and services.
Unfortunately, the report is not able to conclude that liquidation is the way to go. Three panel members—John Sununu, Richard Neiman and Jeb Hensarling—remain convinced that we’re facing a short-term liquidity problem, not a long-term solvency problem. With that in mind, they think Treasury’s plan to subsidize banks is the least bad option. Keep them stumbling along until favorable lending conditions return them to profitability. But if the banks ARE insolvent, then subsidizing them is pouring public money down the drain. We know this from Japan’s experience. They kept banks on life support for a decade, which solved nothing. They ran up stupendous budget deficits in a failed attempt to stimulate an economy weighed down by broken banks. Hard as they tried, Japan couldn’t borrow its way out of its bank crisis. And neither can we.
This point of contention is easy to spot when reading the report’s executive summary next to the John Sununu/Richard Neiman “alternative view.”
From Warren’s exec summary:
One key assumption that underlies Treasury’s approach is its belief that the system-wide deleveraging resulting from the decline in asset values, leading to an accompanying drop in net wealth across the country, is in large part the product of temporary liquidity constraints resulting from nonfunctioning markets for troubled assets. The debate turns on whether current prices, particularly for mortgage-related assets, reflect fundamental values or whether prices are artificially depressed by a liquidity discount due to frozen markets – or some combination of the two.
Were internet stocks “artificially depressed” after the bubble burst in 2001? If you think so, then I’ve got eToys stock I’d like to sell you for $50 a share. With that in mind, it’s absurd to think real estate prices are now “artificially depressed.” They are returning to valuations that are fundamentally sound, i.e. supported by actual cash flows as opposed to easy credit. “Mortgage-related assets” are secured by real estate. If houses are declining in value, the loans made to purchase them at obscene valuations must also fall. Back to Warren…
If its assumptions are correct, Treasury’s current approach may prove a reasonable response to the current crisis….
On the other hand, it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth. The actions undertaken by Treasury, the Federal Reserve Board and the FDIC are unprecedented. But if the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability.
She is bending over backwards to give Sununu/Nieman a fair shake. Here’s their view:
We affirm that it is entirely reasonable to assume that a liquidity discount is impairing these assets, and thus that the Treasury has adopted a viable plan based on this valid assumption. Further, we believe that a viable plan should be given the opportunity to work. Speculation on alternatives runs the risk of distracting our energy from implementation of a viable plan and needlessly eroding market confidence. Market prices are being partially subjected to a downward self-reinforcing cycle that could be exacerbated by unwarranted consideration of more radical solutions such as nationalization.
How Sununu and Neiman can justify this opinion is beyond me. Banks have but a fraction of tangible common equity relative to their assets, which means there’s no cushion to absorb losses. To argue that this is a liquidity problem, one needs to prove that asset values are temporarily depressed, that the values they reached during the bubble were in fact “correct.” But of course they weren’t. So why give equal weight to bullshit arguments that assets tied to real estate are “depressed?”
Winning this argument is crucial to getting through this crisis with our national balance sheet intact.
Fannie and Freddie are insolvent to the tune of hundreds of billions (so far Obama has committed $200 billion to each of them). You no longer hear arguments that these institutions are just temporarily illiquid. The banking sector has been the recipient of far larger subsidies in total yet opponents of seizing them still delude themselves that banks are still fundamentally sound.
How interesting that a Republican like Sununu is helping to lead the charge here. No doubt he justifies his opposition to “nationalization” on some sort of bastardized free market grounds. The last thing he probably wants is government control of banks. But he’s missing the forest for the trees. The socialist solution to the problem isn’t taking control of the banks, it’s having taxpayers absorb bank losses. Capitalism is about failure. Bad businesses fail and good ones rise in their place. This leads to employment volatility in the short-term but more growth and innovation in the long term.
Because economic activity is particularly sensitive to the fates of the financial sector, we have a particular way of dealing with bank bankruptcies. Receivership or liquidation as directed by FDIC. That’s the only “solution” to the bank crisis.
But it’s not fair to single out Republicans for permitting this travesty to continue. Yes, the bailout policy originated with the Bush administration, but clearly Obama has taken ownership of it. This is a shame. Having heard him speak about the superiority of the Swedish solution to the Japanese one, I think he knows that a proper bank recapitalization needs to happen. Yet he clearly doesn’t have the cojones to deliver the goods. He can’t even stand up to his own economic team; Geithner and Summers will move mountains to protect banks and their creditors. This will continue until Barack puts a stop to it.
Hopefully by firing both of them and putting Paul Volcker in charge.
(You can read this guest author’s blog here)
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It’s not a question of whether the banks’ assets are ‘really’ worth less or not. It’s a question of whether important people want to tell the truth or not.
What’s horrible about the report, and the entire situation, is that it is entirely reasonable to conclude that 1) the assets are in fact worth less, 2) injecting liquidity will not change this fact, 3) doing so will subject the US to a Japanese-style semi-permanent economic anemia…and 4) that it is still the best policy response we realistically have.
I believe that is in fact what is happening here. Why none of the members of this commission understands and/or cares to be honest about it is beyond me.
Bond writedowns will wipe out insurance, and not just life insurance but also health insurance. This will not be allowed to happen, period. In fact it makes no difference what the true condition of the underlying assets are. I thought we’ve all been through this logic already on this blog.
So, no nationalization (public bank failure) and no bankruptcy (private bank failure). Totally Japanese policy despite the much worse macroeconomic backdrop.
We now have to ask, and keep asking, why the Administration is choosing to blow so much smoke about it. I surmise that they think the American public cannot handle the truth, particularly the bits about threats to our life insurance policies, health care system, and any thought of positive real returns on investment for the next 10-30 years.
I think they are dead wrong about the American public. Furthermore they have no right to cover up the real policy anyway.
Tell us the truth! This report does nothing for us. Sweden is off the table. Japan’s for supper for the rest of many of our lives. Deal with it.
Elizabeth Warren would make an excellent replacement for Timothy Geithner.
“Did Copernicus negotiate with the geocentrics in order to come up with a mutually agreeable view of the solar system?”
No. However, Tycho Brahe did try to do something like that. His theory was that the Sun went around the Earth, but the other planets went around the Sun. Curiously, Galileo’s observations of the phases of Venus were not inconsistent with that.
Copernicus dithered for years over the publication of his theory (as did Darwin, later). Even science has to struggle against the entrenched ideas of the powers that be (and still does. See: Texas, Florida).
Excellent synopsis of the current situation …
The big question is: Are we witnessing mistakes being made or crimes being committed ?
A vote for crimes being committed!!
I think both the “nationalizers” (i.e Krugman) and the “liquidity crisis” worriers (i.e. Bernanke, Geithner, Paulson, Sununu, etc.) are both missing the point.
Each side believes that to some degree the banks (the major ones at least — nobody is complaining about 7000+ smaller/regional banks because they are largely solvent) should continue as ongoing concerns, that in some bizarro-world they have a future.
The nationalizers want to have the government run the banks (for the medium-term, at least) via an FDIC take-over, fire the upper-management, liquidate the shareholders’ position, and impose regulatory controls on bank lending/investments. Then, at some indefinite future point the banks would be re-privatized, largely though not entirely, with the bondholders’ position secure.
The liquidity crisis worriers want to continue to pump taxpayer money, or Fed funny-money, into the banks to take “bad assets” off the banks’ books and to otherwise encourage the banks to lend again.
I think it’s time both sides realize that these firms have no future at all — meaning that the position of every stakeholder (shareholders, bondholders, pension funds, sovereign wealth funds, and depositors having over $250K)in these “zombie” banks are going to have to be liquidated entirely.
These stakeholders took risks associating with these firms and it is they, not taxpayers and not the economy in general, that should have to take the losses. To do so would be taking the wealth of competent actors in the economy and transferring them to the incompetent ones, i.e. from those who chose not to associate with these banking firms to those unwise enough to do so.
The exact means of liquidating the banks is not really relevant — bankruptcy, very short-term FDIC receivership, etc. The point is that every care should be taken to not protect the position of any stakeholder in these firms.
Yes I have to agree with the last two comments. Does Obama really want to be a great president, or wall street’s puppet? If he keeps listening to Geithner it seems he may get a bump then a crash again come 2012 when the upswing from wallstreet hits the solvency issue again. Obama can’t believe the unemployment figures, the mortgage default rates and the national debt can withstand these giveaways, can he? I mean can he?
“To prove that he’s serious about properly solving this problem, Barack can start by firing those two and putting Paul Volcker in charge.”
I second that. We need men of steel who can do whatever it takes to cleanse the system, so that we can move on. Instead we seem to have the three musketeers (geithner, Bair and Bernanke) who seem to be doing whatever they can do to prop up the asset value based on their ill-conceived ideas and thesis, instead of allowing the free market to do the work (pain and all)
How can you solve the problem of neck-deep debt by taking on more debt is beyond one’s comprehension.
So till then we can wait and watch!
“Yet he clearly doesn’t have the cojones to stand up to Geithner and Summers, who have shown at every turn that their priority is to protect banks, their managers and their investors.”
Please specifically mention greenspan’s buddies, the bond holders.
To prove that he’s serious about properly solving this problem, Barack can start by firing those two and putting Paul Volcker in charge.”
This probably won’t be popular, but in my opinion, Volcker helped create this situation with his interest rate increases. That led people to believe that policies needed to be put in place so interest rates that high don’t happen again. The policy was to use a globally oversupplied labor market to drive down wages. Volcker is still rambling on about price inflation. Get rid of him too!!!
Jim…yours is an interesting thought. Can the Japanese solution work perpetually? Can we live the collective delusion that the economy is solvent from here to eternity even though with each passing year (and each incremental trillion of public debt raised to fund failed banks) our condition is growing worse?
What happens when the bond market says no mas? When we’re no longer able to borrow to fund the Japanese solution? Then we hit the ‘sudden stop’ scenario that Buiter has talked about and liquidation is forced upon us.
A liquidation is going to be messy no matter what, but it will be far worse if we’re forced to do it reactively.
“we may in fact be more economically vulnerable to a weakened financial system than either Sweden and Japan were because we cannot rely on some larger economy to generate consumer demand for our goods and services.”
It seems to me that the only solutions central banks can come up with to an economic crisis are create more debt or become (or force an economy to become) a net exporter.
What happens when there is too much debt worldwide and no one wants to be a willing net importer?
Did the same thing happen during or right before the Great Depression?
Rolfe, it was unfortunate that Warren concluded her COP team had mixed reviews on TARP to date. I would have liked to have seen consensus. I thought, ok, who in the COP team has a bias. Well of course they all do, and that is the problem. Warren, for all her intelligence, failed to delineate through the mustard.
If John Sununu, Richard Neiman and Jeb Hensarling think this is a liquidity problem, they are part of the regulatory capture, and possibly “financial capture” problem highlighted by Willem Buiter yd.
From what I saw of the you tube flick, Warren acted as a messenger from the COP. And the message was uncertainty, and a willingness to let the Treasury err on the side of the banksters, not that the COP thinks the “Treasury’s plan to subsidize banks is the least bad option.”
Just by creating a consensus of uncertainty and willingness to agree to disagree creates the desired outcome “to do nothing” but make it look like you are doing something. My takeaway from this is that the COP under Warren, bright as she is, is ineffectual.
And I agree “She is bending over backwards to give Sununu/Nieman a fair shake.”
But I will disagree that because Sununu believes an assumption to be “reasonable” that it is therefore “valid.” Reasonable does not make something valid, be it assumptions or otherwise, this is fallacy.
As Yves pointed out yd, isn’t it funny how the powers that be did not complain when assets were over-inflated that the valuations were out of whack, but now that they are taking a hit, they complain to kingdom come about how wrong these mark to market valuations suddenly have become.
You are right to ask: “why are we continuing to give equal weight to bullshit arguments about the “depressed” value of bank assets?”
My solution, tongue and cheek, is to have Yves head up the COP. I have no doubt Sununu’s proposals would be properly disposed of, under her leadership. :-)
And with that, good night all
If you believe that we are having a liquidity problem, then to be intellectually honest, you must also believe that the U.K is having a liquidity problem, and Ireland, and Spain… and Iceland too!
To position Obama as somehow intellectually distanced and, perhaps, frustrated by the Summers/Geithner line is nonsense. That is precisely the impression that little eel, Mr. Have-It-Both-Ways wishes to create. Remember how it was that he opposed war, and wire-tapping, and NAFTA and torture and … When your kid comes back from Afghanistan/Pakistan with one foot, will you believe that Obama never really approved of David Petraus?
Thankyou Jim in MN. Reading the news nowadays I get more and more angry and can actually be heard muttering to myself “What? Do they think we’re that stupid?” Why must our government so insult our intelligence? There is far too much kicking the can down the road, too many lies, cover-up, smoke and mirrors in play to attain long term recovery. Yes, truth is a viable antidote. Kudos to Elizabeth Warren for calling Bullpucky. I nominate her to chair a new Pecora Commission to expose this web of fraud and see that those responsible are prosecuted to full extent of the law.
For those who believe we have a liquidity problem not a solvency problem, then they should be willing to pay 2006 prices for a house today.
Oh, no takers?
Can the Japanese solution work perpetually?
It seems to be able to. As long as the U.S. maintins its military superiority, it should be O.K.
Well, it really doesn’t surprize me. Avoding pain is a common human trait – easy to dispense good advice to the Japanese, hard to practice it. I don’t like having lost 1/3 my house value, and near 50% of my retirement fund, but I would rather we accept our losses than have 1% growth for decades. A sharp knife cuts the quickest and hurts the least.
I just skimmed through the full report and there are some very forthright statements in there and the letters at the end from Tim, Ben and Elizabeth are a revelation. There clearly was a split in the panel and a certain amount of tension between the panel and both the Treasury and FED.
There are some real classic comments about asset values like the following.
Mr. Summers expressed his expectation that “further support for capital markets, transparency with respect to the condition of banks, and infusion of capital into the banking cycle, will create virtuous cycles in which stronger markets beget stronger financial institutions, which beget stronger markets.” Statements like these provide additional evidence of the assumptions underlying Treasury’s actions, to wit, that senior officials believe that current prices for impaired assets are at or near their lowest levels and will rebound if Treasury can revive markets for these assets.
The panel have quite clearly laid out some of the assumptions of the treasury and FED for all to see with some rather stinging assessments. A quick round of these include the following in the panels own words
1 Treasury’s strategy envisions a larger economic recovery pulling the banks back to health.
2 Treasury and the Federal Reserve Board clearly believe that we cannot revive the U.S. economy without healthy asset securitization markets.
3 Even if the tests are adequate, regulators may lack the will to act on what they learn. In either case, the stress tests would not produce the desired results.
4 Treasury has not explained its assumption that the proper values for these assets are their book values.
5 Without non-subsidized buyers, market functioning is an illusion.
6 Most informed observers believe that Japan’s greatest mistake was its excessive regulatory forbearance. The Japanese system began to recover only after reporting requirements, stricter valuation methods, and other conditions accompanied capital injections.
What I really took note of was some of the comments in the following letters. The following where extracts from Tim’s letter and they tend to show the black and white view of the economy that the treasury has.
1 Our financial system regulated through a structure that is unnecessarily complex and fragmented.
2 Credit is now not available to many creditworthy borrowers.
3 Frozen secondary markets have constrained the ability of creditworthy small businesses and families to get loans.
4 In order to help jumpstart the market for the private real-estate related assets that are at the core of our financial crisis we introduced the PPIP.
5 The excessive discounts in the prices of these assets has strained capital for banks, limiting their ability to lend.
I particularly took note of the jumpstart comment and just wanted to bang my head on the wall.
From Ben we have the following which caught my eye
1 The wall street journal provided an inaccurate portrayal of our position with respect to the reported proposals of certain dealers.
2 The provision of non-recourse loans through the TALF program was therefore designed to attract broad investor interest.
3 Credit rating agencies continue to play a critical role in ABS markets and are essential to their effective functioning and recovery.
A comment likely to turn the wall street journal away from its cheerleading to more in depth analysis, possibly into FED activities.
You can almost sense Elizabeth’s frustration in her letters.
1 This failure to connect specific programs to a clear strategy aimed at the root causes of the crisis has produced uncertainty and drained your work of public support. Financial institutions, businesses, and consumers will not return to healthy investment in the economy if they fear that the federal government is careening from one crisis to another without an intelligible road map.
2 More specifically, the Panel is concerned that the TALF appears to involve substantial downside risk and high costs for the American taxpayer. Equally important, the TALF appears potentially to subsidize the continuation of financial instruments and arrangements whose failure was a primary cause of the current economic crisis.
3 The congressional oversight panel is concerned about these issues. It is particularly concerned that the opaque nature of the relationship among AIG, its counterparties, the treasury, the board and the federal reserve banks, particularly the Federal Reserve Bank of New York, have substantially hampered oversight of the Troubled Assets Relief Program by Congress and, equally important, have impaired the understanding of that Program by the American people.
I just don’t know where to start and can see many of the themes already highlighted on this blog raising their heads again.
There is a scenario under which e-toys is still worth
$50 a share (that is the case when a sheet of paper costs $50) And there is a case when a share of IBM is
worth 50 cents (that is the case when we return to an
international gold standard). Historically, the first
example doesn’t last too long, and creates a reaction
in the direction of the second. We are currently adrift
somewhere in the vast middle, wondering in which
direction we may be headed.
Moopheus said…
“Even science has to struggle against the entrenched ideas of the powers that be (and still does. See: Texas, Florida).”
It is important to keep in mind that both the defenders of creationism and the defenders of the Darwinian concept of human nature as “red in tooth and claw” both hail from the same political party. On one side are those who appeal to religious authority to legitimize their beliefs. On the other side are those who appeal to scientific (Darwinian) authority to legitimize their beliefs.
But the real story is not the creationism vs. evolution circus. The real story is what is going on within the scientific community. What you say about “science has to struggle against the entrenched ideas of the powers that be” is certainly true, but your take tells only half the story. For while there are powerful religous interests that wish to perpetuate creationism, there are also powerful economic interests that wish to perpetuate the Darwinian concept of humans as being totally self-interested, driven by a primordal instinct to plant their genes in the next generation.
But that Darwinian concept is coming under increased fire within the scientific community. Behavioral scientists cite examples of people self-sacrificing for some higher moral calling: the soldier throwing himself on the live grenade in order to save fellow soldiers. Neurologists have shown that many feelings that lead to benevolent behaviors–empathy, compassion, etc.–are hard-wired in most, but certainly not all, individuals. But perhaps the most unequivocal new evidence is being uncovered by biologists and geneticists, as outlined in this recent article in New Scientist:
In fact, by some reckonings, 40 to 50 per cent of the human genome consists of DNA imported horizontally by viruses, some of which has taken on vital biological functions (New Scientist, 27 August 2008, p 38).
This new evidence represents a huge challenge to Darwin’s theory of sexual selection. If that theory becomes discredited, it doesn’t bear much on the evolution vs. creationism debate. However, the implications for economic, social, politcal and moral theory cannot be overstated.
Excellent post! This is the kind of clarity we need if our cultural discourse is to ever move forward. Thank you.
In my opinion, as soon as someone uses the phrase ‘artificially distressed prices’ one knows that they are deeply involved in the ongoing con of the american public. These people talk out of both sides of their mouth. It is beyond meaningless to speak of a ‘market based system’ on the one hand and ‘artificially distressed prices’ on the other. The whole point of ‘market economics’ is the belief that price reflects value. It is precisely this belief that those who do not believe in the free market uber ales are opposed to. To say that it is ‘intellectually bankrupt’ for free market adherents to prattle on about ‘artificial prices’ is to be extremely generous to them. It has been the belief of this writer that most of the public advocates of ‘free markets’ were duplicitous all along. The present moment is the test, and very few are passing. These people will say and do anything in order to achieve their true objective — a stranglehold on wealth and power.
It is an astonishing fact that ‘free market advocates’ and the right wing generally managed to convince an important majority in the 1990’s of two mutually contradictory ideas: 1) we were living in an economic miracle brought to us by ‘free markets’, and 2) ‘the system’ was hopelessly inefficient, and government intolerably intrusive of markets so much so that the only hope for salvation was a massive radical change not just in financial regulation but in the power of washington altogether.
Not only are these two beliefs mutually contradictory, but together they point clearly to the true goal of the moneyed powers: supreme power and wealth unrivaled by any ‘government’. And hence supreme freedom of action, and maximum profit.
Good News, the plan has been executed and victory is within spitting distance. We are at the third yard line, and it’s first and goal.
Having heard him speak about the superiority of the Swedish solution to the Japanese one, I think he knows that a proper bank recapitalization needs to happen. Yet he clearly doesn’t have the cojones to deliver the goods. He can’t even stand up to his own economic team; Geithner and Summers will move mountains to protect banks and their creditors. This will continue until Barack puts a stop to it.
The federal government for the last 100 years has changed its role – it is now a bank and an insurance company, i.e. a financial institution. Therefore, its goal is to operate on an over-leveraged basis. In order to operate that way, it can’t be the only one around operating that way. Obama doesn’t have the cajones to deleverage the government – in fact he was elected to leverage it even more.
Hasn’t our story been one of perpetual conflict over resources, within and between our tribes and societies? Aren’t the efforts of the global aristocracy to attach chains of indebtedness to individuals in every nation only natural? Analyzing the twists and turns of the methodolgy will allow those who can understand to have an inner knowledge of how things became the way they did, in the future, when we are all relegated to service under our private or our public debt.
I think that everyone who is current on their mortgage, without having to prove employment, loan-to-value, or any other thing, just being current, should be able to refinance at 4%. Every American with a driver license should be provided a $5,000 voucher and a car loan at 2%.
I would like to see a coming together of those economists and bloggers who are not being listened to, since Obama is proving incapable of delivering the ballsy changes needed, to present a plan-of-action for those of us who would take action. For example: I currently have an account with BofA. I should close my account, based on my understanding of their zombie nature and move it to a local bank. It wouldn’t make much difference to BofA, but it might if there was an independent movement to remove all personal assets from all the too-big-to-fail banks. Maybe Lou Dobbs could help popularize the issue, but then we might have to watch out for the pitchforks, unless, however, if those with the enlightened understanding could outline, again, a plan-of-action. One that could rally individuals outside of governemt to take the kind of coordinated actions to retake control of our economic lives from the aristocracy.
Just a thought.
Two things that keep me up at night:
1) We have lost the edge in creativity to the Japanese and are thus forced to imitate them with this “Japanese Solution.”
2) He who has gold rules. In this case, not gold, but foreign reserves with the Chinese making the rules now, especially on driving. If we all have to drive with Chinese rules, most Americans will be deemed ‘dangerous drivers’ since being dangerous or safe has always been, how should I put it, relative – according the rest of the world rules, the Chinese are dangerous drivers, but according to Chinese rules, we are the dangerous ones.
VoiceFromTheWilderness said…
In my opinion, as soon as someone uses the phrase ‘artificially distressed prices’ one knows that they are deeply involved in the ongoing con of the American public.
……
‘artificially distressed prices’ ya got to love it, but I heard a little gem on Blomberg the other day, that the job numbers had archived “stabilized descent”.
Thats like saying that only 656,000 (job loss numbers) mortar rounds hit my GP every night for the last few months, after starting out 6 months or more ago with 300,000 per night, but hay its not increasing 100,000 per night.
Phew things are on the upside boys, now dig into those 25 dollar subcontracted cheeseburger’s and fry combos black-hawk delivered that replace your better weapons and additional troop numbers.
If we really want a true free market country lets privatize the entire military and the government too. That way we would have share holder rights, dam its all ready like that, right? Well we could have strong lemon laws for defective individuals, dam it again warranty department takes 4 years to service a claim and their real purpose in life is to reject claims.
Well as long as the company, I mean government is making a short term profit/market dominance globally per Q and we own bragging rights (smart enough to own stock) all is well. Bond holders an equity holders are again god like and from a lofty place and are not subject to the same rules or laws as us humble mortals.
skippy…incoming.
“The socialist solution to the problem isn’t taking control of the banks, it’s having taxpayers absorb bank losses. Capitalism is about failure. Bad businesses fail and good ones rise in their place.”
One sad side-effect of the crisis has been the way in which the word “socialism” has been thrown around with little understanding of its meaning. Of course, it has meant many things to many people, but never has it stood for bailing out the institutions of crony capitalism. Later in his post, Mr. Winkler praises the Swedish solution. He doesn’t realize, or has forgotten, that Sweden is a socialist country, and that may be exactly why its government had the courage to stand up to its bankers.