ASIA TIMES: Mr Paulson, tear down that Wall (Street)

[El Pinko]

http://www.atimes.com/atimes/Global_Economy/JB16Dj02.html


Mr Paulson, tear down that Wall (Street)
By Chan Akya

Treasury Secretary Hank Paulson has the toughest job in the world now. Taking over as the US dollar"s cheerleader proved problematic enough for much of this decade, but to do it in the last few months of an unpopular and lame duck Presidency was perhaps adding too many variables in itself. Billed as the China Expert who would get Beijing to float his currency, Paulson soon found himself less welcome in the Great Hall as Treasury Secretary than in his previous job as head of a Wall Street brokerage.

Then along came the financial market crisis, and with all his old friends from Wall Street hankering for bailouts, the poor chap must be getting very little sleep these days. The instinct to preserve people from one's own past is almost impossible to avoid, seeing as the process only validates one's own credentials. Thus, jobs for the boys have remained the hallowed tradition in both government and business for centuries.

....

Just this week, Berlin has upped the bailout package for one of its moribund entities, IKB, while the financial regulator in Japan announced that Japanese banks had gorged themselves with over 1.5 trillion yen (US$14 billion) of collateralized debt obligation (CDO) structures which will probably cause losses of around 1 trillion yen eventually. Let that sink in for a moment - Japanese banks, after decades of state-guided control and serial rescues of the last decade, would likely manage to lose more than the top Wall Street firms combined.

Similarly, the big French banks that are products of serial shotgun mergers (even after the $7 billion trading debacle at Societe Generale debacle, see Rogue and the pogue, Asia Times Online, January 26, 2008, the first instinct of the French government was to find a suitable French buyer for the bank) have proved to be lousy at risk management. In large part, this is due to the overly complicated and horrendously difficult business models that come into being when organizations are merged; but the government doesn't allow anyone to be fired nor any business to be discarded.
That kind of thing only happens because of the dead hand of the State that stifles innovation and perpetuates bad habits. It is understandable that Paulson and his partner in crime (Ben Bernanke, chairman of the Fed) would see the panic differently to armchair strategists such as myself. Yet, as I argued in the above article, the worst thing to do now is "something". The better choice would be to let Wall Street drown in its own morass of mis-labeled deals and mismanaged risk. Let the ones who failed to follow the Anglo-Saxon model of capitalism perish, and let the winners pick up the pieces and move on.

[arendt]

1. Singapore may be "disneyland with the death penalty", but A Times' economics reporting...

is first rate stuff.

Conservative in the (largely forgotten) good sense of the word.

arendt