The seedy world of journalism is much like toilet paper. Readily available in most retail outlets, cheap, unreliable at times, and uplifting at others but, impossible to live without. One thing you can count on when it comes to journalists is, that you can never rely upon them to bail you out when the chips are down. They are there to sell newspapers, and that's it. The only thing you can do is make sure you your house is in order and there are no skeletons in the closet. There are many examples in the world of celebrity who can attest to this.
If you are going to solve a problem like the banking crisis, first of all there are two basic directions you can go down - public, or private. Do you maintain a bank's public equity listing so that access to global capital markets and potential funding in the future is preserved? Or, do you pull the bank off the stock market, nationalise it, and take it under the protective wing of the country's sovereign credit rating..?
If you privatise (nationalise) a bank, you remove it from the hyperbolic gaze of press hacks and so, the whims of the stock market forces. The cheap tabloid tattle that sells newspapers is fundamentally speculative in its nature but, feeds off smoke that can be portrayed as indicative of a real fire. Therefore your choice is to either make it absolutely clear that there is no fire or make sure no one even sees the smoke. A nationalised bank has no publicly quoted equity price and so, is not compelled to provide the level of public disclosure that endeavours to make the stock market as transparent as possible. As we all know, a little bit of knowledge is a dangerous thing and so, without this forced disclosure, it is also spared the blind panic that accompanies a volatile stock. Is the financial strength of a bank determined by its stock price or, is the stock price determined by its financial strength..? Far too often lately, in the global equity markets, the tail has been wagging the dog.
That said, a nationalised bank completely undermines the reasons for having a banking system in the first place. A banking system is designed to enable a free market economy and promote private enterprise. Government control and stewardship of such a system removes the Darwinian premise that ensures survival of the fittest. So, if you can't hide the smoke, you gotta put out the fire.
The current strategy of recapitalising bank balance sheets without dealing with the underlying problems, caused by the toxic structured assets on their books, is a muddled approach and lacks any clear understanding of what the government bailout plans are trying to achieve. As long as doubt remains as to the true value of the toxic assets on every bank's balance sheet, there will be smoke for the tabloid journalists to feed the panic on the stock market trading floors. This means that until these problem assets are removed or their true recovery value is determined, they will continue to weigh on the banks' stock prices and so, undermine their capitalisation ratios. Seeing as the crystal ball has not been invented yet, they must be extricated from the bank balance sheets. Until that is done, any public money used to purchase bank equity is a complete waste.
Greed is a fundamental human trait and not even a depression can completely eliminate it. If banks are cleansed of these cancerous tumours, they can then be 'encouraged' to turn the credit tap on again for viable private enterprise. It is fundamentally impossible for a state to directly finance entrepreneurial activity in its economy. A strong banking system is vital, and a national asset purchase program to fix bank balance sheets is the only solution.
As long as there are people living and breathing on this planet, there are opportunities for making money. Its now our job, collectively, to make sure we can identify the product or services that will be needed in this cycle. The ability to adapt and retrain so that we can take advantage of the next wave, is the real challenge that lies ahead. However, if there is no ability for the entrepreneurial minds within our economy to act on their foresight, someone else in another part of the world will - and their economy will reap the benefits that follow. Identify the demand, provide the supply, and everything else will follow. Simple!
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