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The international financial system was rescued by the issue of Brady bonds – “good” new bonds for old “bad” ones. The capital value of these bonds was still far below the original debt, but they had the virtue of setting realistic levels by bringing the debt balance more in line with the actual ability of debtor countries to earn the dollars or other hard currencies needed to service bonds denominated in foreign currencies, mainly the US dollar.
The current crisis requires a similar write-down and recognition that fictitious price levels must give way to reality at some point. In fact, we have reached the end of an illusion – the illusion that bond (and stock) prices could be sustained indefinitely simply by financial engineering, without an economic base capable of producing enough surplus revenue to justify existing bond and stock prices.
So attractive were the former unrealistic bond and stock levels that the markets are still in the “denial phase” hoping that the Coronavirus bailout may be used as an opportunity for yet further infusion of money into the financial markets. But that merely postpones the inevitable adjustment to bring financial asset prices back in line with real economic capabilities.
The US airline companies have bankrupted themselves by buying back their stock in an enrichment scheme for CEOs and board members ( www.lewrockwell.com/2020/03/david-stockm...st-thieves-are-back/ ). With the impact of the virus on their revenues, Congress is handing them a $50 billion bailout. Instead of being bailed out they should be nationalized.
In the health and economic crisis in which we find ourselves, the government is going to need all the public trust it can get. Bailouts of those who caused their problems and ours won’t meet the fairness test.
As I previously wrote, nationalization is a four-letter word for many, but it actually offers a chance to correct for the decades of deregulation and concentration and thereby restore competition to the economy. Nationalized banks too-big-to-fail, for example, can later be broken up and the pieces sold back into private hands. Commercial banks can again be separated from investment banks, and concentrated financial power can be broken.
Now that we know that markets are not self-regulating, we can restore sensible financial regulation and require banks to lend for productive purposes, not for financializing and leveraging existing assets. The US financial system has not served the productive side of the US economy for a long time.
While ordinary heavily indebted Americans are losing their jobs right and left as businesses close, shopping center lobbyists are asking for a $1 trillion guarantee. The hotel industry wants $150 billion. The restaurant industry wants $145 billion. The National Association of Manufacturers wants $1.4 trillion. ( www.cnbc.com/2020/03/21/coronavirus-1-tr...-for-businesses.html ) Food service distributors are in trouble. Boeing wants $60 billion funded in part by loan guarantees. Local and state governments need support. The US conference of mayors wants $250 billion. The list is endles
ketchim wrote: Nationalized ? Forbes Burnham re-incarnated via Paul Roberts ?
what I meant was the last time I heard that concept was Burnham
mapoui wrote: Congress is handing them a $50 billion bailout.
Instead of being bailed out they should be nationalized .
I don't think that is the definition of Nationalise
mapoui wrote: Hudson/Roberts are saying simply is... if the people put in 50 billion to bail them out
they actually are buying the god dam company so why not actually assume control.