The Long Crisis

Posts Tagged ‘Joseph Stiglitz’

So called expert Professor Joseph Stiglitz and Spanish Ambassador to the UK Carles Casajuana argue with hedge fund manager Hugh Hendry of Electica Asset Management about what needs to be done about the Euro and the Greek debt crisis.

Talk about a one-sided argument. Hedge fund manager Hugh Hendry makes Joseph Stiglitz and Charles Casajuana appear to be idiots not at all familiar with the real world as they discuss the Greek debt crisis and the role that the Euro zone countries will have to play in alleviating the crisis.

In my opinion, Mr. Hendry makes the entirely valid argument that an accelerating crisis caused by excessive debt can not be solved by the issuance of additional debt. While their discussion centers on Greece the same principle applies to the remainder of the euro zone countries as well as to Japan and the United States. Many countries in the developed world have created a mountain of debt that can no longer be supported by the economic growth that can be generated by their economies or by the level of economic growth that can be reasonally expected in the future.

Prof. Joseph Stiglitz appears especially flustered and foolish as he talks about how the Greek debt problem is easily managed by Euro zone members making additional loans available to Greece. The difference in viewpoints between the hedge fund manager and the Prof. and Amb. is the difference between the real world and the make-believe world of politicians and academics.

When Hugh Hendry states that it is just a matter of time before Greece and other sovereign countries default on their debt obligations, Prof. Stiglitz and Amb. Casajuana go berserk. The video is well worth watching just to see their reactions.

Unfortunately, the video reminds me of the disconnect between Obama and his team and the reality of what is taking place in the US economy. Clearly, the level of debt that is being created by the federal government is unsustainable and at some point in the future cannot be properly serviced. The United States will be forced to monetize vast amounts of debt, thereby guaranteeing hyperinflation, or default on its obligations. When Sec. of the Treasury Timothy Giether recently stated in a Bloomberg interview that United States would never default I took that as a confirmation that the financial future of the United States is terribly grim.

The unraveling of Greece and the euro zone is very likely a preview of our own future. When sovereign debts becomes so large that they cannot be serviced bad things are bound to occur. We are most likely at the beginning of a worldwide financial crisis that will dwarf anything that any human being has ever taken part in. Ever.

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Columbia professor Joseph Stiglitz is the latest to dismiss the idea that Geithner’s banking fix is a “win-win-win.” Instead, he describes it as a “win-win-lose”: Banks win. Investors win. Taxpayers lose.

As I’ve previously discussed under the Geithner plan as under the earlier Paulson plan the real sticking point is the evaluation of the crappy bank assets that Geithner and I’m sure the bankers want to get off the bank’s books. The objective is to find a way to pass the largely worthless assets along to taxpayers without the taxpayers realizing that they have been once again been raped.

Geithner’s plan would accomplish this magical act by setting up an auction system whereby private investors would partner with the government and bid on the banks toxic probably nearly worthless assets. Investors would have to put up very little of their own capital, about 7.5%, and the government would provide the balance as well as provide guarantees that would protect the investors from substantial losses.

What is really going on here is that the Geithner plan would create an artificially high price for the crap assets as the investors would have very little of their own funds at risk and might take a flyer on the possibility that some day in some way the crap assets take on a shine and can be sold for more than they paid for them.

So who is the loser here? Why the American taxpayer, silly, yes again. As with the AIG funding disaster the “save the worthless insolvent banks” crowd, led by Tim Geithner, is saying that one day the taxpayer will make a profit on these deals. That will be the same day that elephants take over the skies.

As stated in the BusinessInsider “The Obama administration still claims to care about ideas, however–to weigh counter-arguments carefully every time it develops a policy decision. So now that not one but two Nobel prize-winning economists have come out in the pages of a liberal publication to condemn the administration’s plan as a gargantuan, disguised theft, will the administration finally at least explain why it thinks Messrs. Stiglitz and Paul Krugman are wrong?”

Joseph Stiglitz and Paul Krugman both say that the Geithner plan is just plain robbery. Once again under the guise of a bailout plan a back door operation will be put into operation that will transfer billions of taxpayer dollars to Wall Street and the favored big banks. Tim Geithner and President Obama should be careful.

At some point the public is going to catch on to all of this robbery and not wait for elections to make their displeasure known. The prospect of violence and civil disorder in America is growing with every bailout plan.

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