Political Haste Makes Fiscal Waste

By Eleanor Haas

“Without government help” is how Wells Fargo snatched
Wachovia from under Citigroup’s nose just four days after an oral agreement of
government subsidy  to enable Citigroup’s
acquisition.  How many options were
examined before Treasury’s decision to underwrite the Citigroup deal?  If Wells Fargo was in a financial position to
do a deal, how many other healthy banks are out there, ready to ride to the
rescue of troubled institutions without government help?

The core issue everyone agrees is liquidity.  Banks won’t lend..  And that’s the primary reason given for the heavily hyped
bailout bill.  Banks are required to
maintain a 12:1 cash reserve in order to lend, and mark-to-market accounting
rules mean that toxic assets have driven the value of these reserves below the
legal requirement for lending,.  What has
been considered to address this issue directly? 
Is there no rifle-shot approach short of what is now an $810 billion bailout bill
with all its add-ons?

Freddie Mac and Fannie Mae have been in trouble for a long,
long time, but suddenly they’re nationalized. 
But what about the underlying causes for the collapse?  What difference will government ownership
make if the old business policies and practices continue?

What if the bailout bill does pass today but consumer confidence
continues to plummet?  Then what?

One Response to “Political Haste Makes Fiscal Waste”

  1. JLSimons

    Great post, Eleanor. What do you think about the growing discussion about changing or modifying mark to market?

    Reply

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