Nationalizing U.S. Banks; Globalizing Banks
October 8, 2008
global bailout fever
If there was ever a question about the nationalization of U.S. commercial banking, that question may be at an end. Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis. What does investing in banks mean?
The bailout legislation that Congress passed last week to rescue financial institutions gave Henry Paulson broad authority that he intends to use beyond buying mortgage-related assets on bank balance sheets. Paulsen intends on using the initial $700 billion for a far grander notion. He intends to boost the capital of firms with cash infusions with idea of making the nation’s financial system stronger.
The International Monetary Fund has published that banks worldwide are not raising enough capital to offset losses to the tune of a $150 billion deficit. Henry Paulson and the U.S. Federal Government have arrived on their white horse to save the day.
There has been some discussion within the ranks of international central bankers and the G-7 finance ministers of a global banking bailout using identical policies. Britain has questioned this idea. Still, the turmoil is a global phenomenon that central bankers see advantage in addressing to secure their control. Undoubtedly, this will involve an enhanced system of controls and tools to manage the global economy. The real question remains: Are banks globalizing under a single economic control structure?
In Paulson’s mind, regulators will take measures to limit the systemic risk from any single bank failure. The reality is that the systemic risk has already been introduced due to the same lack of regulation. Allowing the same watchdogs to monitor the system is a questionable move that is apparently unavoidable. ~ E. Manning
