We will know it on May 4th, or somewhere around that time, whether Obama/Geithner/Summers have decided to stoop to their lowest level yet, when they announce how they want the banks to recapitalize. The latest news is that several major banks including BoA, Citi, and Wells Fargo may need to raise a lot of capital (not that we did not know it already).
There is only one way out of this if Obama and company have the interest of the country in mind: Make the bondholders take the hit, and use that debt to convert in to equity. It's not that difficult to understand (even I can understand it. Read this if you need more: Parts I and II).
Not that converting debt to equity will solve our economic problems, but the current Obama/Geithner/Summers approach is despicable. Obama was not in charge when this problem started, but he owns it now, and except for the stimulus package, there is very little that his administration can say that they have done to address this problem.
IF Obama decides that he wants to stick the taxpayers with the burden, and proceed with the zombie bank option, he will own the 11-12% unemployment rates that will follow. No amount of work on other fronts will save his presidency.
Another excellent discussion of these issues was on Charlie Rose show with Bill Ackman, Kate Kelly, Joseph Stiglitz, Andrew Ross Sorkin.
UPDATE (04/29): via Barry Ritholtz, this note from Paul Kasriel should make it clear to those who found Hussman's explanation a little long winded. It's really simple to undestand, but Geithner shows no signs of improvement.
I agree with you...
Posted by: gratis datingsite | June 22, 2010 at 03:33 AM
Technically true.
Posted by: insurance web design | April 21, 2011 at 01:58 AM