Financial Crisis - the Canadian Solution
C.M. Burns @ Sun Sep 28, 2008 10:46 am
Rodrigue Tremblay is professor emeritus of economics at the University of Montreal
Tragedy in the Making in Washington and on Wall Street: The Canadian Solution
$1:
The Washington gridlock about finding a solution to the subprime financial crisis in the United States is turning into a tragedy, seemingly because of a fundamental lack of understanding and communication about the causes of this financial crisis and the most efficient way to solve it. The nature of the crisis, the economic consequences if it is not solved, and how it could be solved without costing the government and U.S. taxpayers a single penny has not been properly explained to Congress and to the U.S. population.
Indeed, in this election period, there is a clear danger that the financial crisis is not going to be solved properly by the U.S. government and by Congress, and that there will be dire economic consequences in the months and years ahead, not only for the United States but also for the world economy. A similar subprime crisis has been solved in Canada, without costing the government and Canadian taxpayers a single cent. Although such a solution, i.e. transforming most of the subprime mortgage-back securities into medium term debentures, would have to be adapted to the peculiar American situation, this can be done.
Indeed, in this election period, there is a clear danger that the financial crisis is not going to be solved properly by the U.S. government and by Congress, and that there will be dire economic consequences in the months and years ahead, not only for the United States but also for the world economy. A similar subprime crisis has been solved in Canada, without costing the government and Canadian taxpayers a single cent. Although such a solution, i.e. transforming most of the subprime mortgage-back securities into medium term debentures, would have to be adapted to the peculiar American situation, this can be done.
Continues here: http://www.thenewamericanempire.com/blog
Dr Caleb @ Sun Sep 28, 2008 8:26 pm
Don't be silly Monty. If they restructured it as we have, not enough financial execs can cook the books well enough before it's time to ride the golden parachute.
If they print another $700 billion, then there are a couple more quarters to defer expenses and make companies look good before anyone finds out.
TheFoundersIntent @ Tue Dec 09, 2008 7:12 pm
Your economy couldn't afford to pay their salaries, that's why they live here.
Toro @ Tue Dec 09, 2008 8:06 pm
The ABCP is a poor and impractical example as applied to the real-time collapse of the financial markets. I was watching when the ABCP collapsed. I immediately liquidated all my parent's retirement money markets and stuck them in a bank account. It took months for it to get resolved. For just one structure. This solution, as nice as it is in theory, was considered impractical for the vast US mortgage market when it was first proposed.
There have been several possible solutions to the financial mess in America. Swapping the debt for the notes was one consideration. But the question was, what price do you swap the notes at? 90 cents on the dollar? 75 cents on the dollar? 50 cents on the dollar? Nobody knew because the structures were opaque. PIMCO proposed that all structures be settled at 75 cents on the dollar. However, many of those AAA structures were trading at 25 cents. In fact, the original idea of the TARP was to buy the structures and make the financial system liquid. Sitting around negotiating trillions of dollars of liabilities would take years. Between now and then, the world could collapse.
A comparable example to the ABCP is the collapse of Lehman, which arguably triggered the 40% decline in stocks over the past three months. Debtors and creditors are now locked in negotiation in bankruptcy court over the compensation of liabilities. It will take years to sort out that mess.
The economist's solution is simply not practical.