{"id":2467,"date":"2010-05-10T08:16:00","date_gmt":"2010-05-10T16:16:00","guid":{"rendered":"http:\/\/hodakvalue.com\/blog\/?p=2467"},"modified":"2010-05-10T08:45:05","modified_gmt":"2010-05-10T16:45:05","slug":"the-big-bailout-where-have-we-seen-this-before","status":"publish","type":"post","link":"http:\/\/hodakvalue.com\/blog\/the-big-bailout-where-have-we-seen-this-before\/","title":{"rendered":"The Big Bailout: Where have we seen this before?"},"content":{"rendered":"

No, I’m not referring to TARP.\u00a0 The bailout of America’s banks was counteracting what could credibly be considered a liquidity crisis.\u00a0 The Europeans are providing the same medicine<\/a> for a very different ailment:<\/p>\n

The European Union agreed on an audacious \u20ac750 billion ($955 billion) bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide…<\/em><\/p>\n

Immediately after the announcement, the European Central Bank said it is ready to buy euro-zone government and private bonds “to ensure depth and liquidity” in markets. <\/em><\/p><\/blockquote>\n

A liquidity crisis is when private banks generally refuse to lend money to anyone regardless of credit because they’re afraid that they might get caught short on their own cash needs.\u00a0 When private banks refuse to give more money to a spendthrift borrower, that’s prudent lending practice.\u00a0 When a collection of sovereign nations backs the loans of a spendthrift nation (especially knowing that they are inviting other spendthrift nations to continue their indulgence), they are simply shifting risk from private banks onto taxpayers.\u00a0 In this context, the soaring stock market we’re seeing in response to this shift is entirely understandable.\u00a0 But it would be paralleled by a similar decline in the value of taxpaying households, if that were being tracked in any kind of transparent market, since that is where this value is unarguably coming from.<\/p>\n

That’s bad enough.\u00a0 The real problem is with how the EU is proposing to execute this massive value shift:<\/p>\n

The money would be available to rescue euro-zone economies that get into financial troubles. The plan would consist of \u20ac440 billion of loans from euro-zone governments, \u20ac60 billion from an EU emergency fund and \u20ac250 billion from the International Monetary Fund.<\/em><\/p><\/blockquote>\n

<\/em>Those \u20ac440 billion of loans would be borrowed through a debt facility guaranteed by the euro states<\/a> via a special purpose vehicle (SPV).\u00a0 That’s like a company borrowing enough money to bet the whole firm via an SPV backed by its own shares.\u00a0 Where have we seen this before?\u00a0 If you’ve taken my History of Scandal<\/a> course, would have guessed it<\/a>.\u00a0 It’s like having the house double-down on failure.<\/p>\n","protected":false},"excerpt":{"rendered":"

No, I’m not referring to TARP.\u00a0 The bailout of America’s banks was counteracting what could credibly be considered a liquidity crisis.\u00a0 The Europeans are providing the same medicine for a very different ailment: The European Union agreed on an audacious \u20ac750 billion ($955 billion) bailout plan in an effort to stanch a burgeoning sovereign debt […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,14],"tags":[],"class_list":["post-2467","post","type-post","status-publish","format-standard","hentry","category-governance","category-scandal"],"_links":{"self":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/2467","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/comments?post=2467"}],"version-history":[{"count":4,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/2467\/revisions"}],"predecessor-version":[{"id":2469,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/2467\/revisions\/2469"}],"wp:attachment":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/media?parent=2467"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/categories?post=2467"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/tags?post=2467"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}