November 30, 2011

Stocks Surge After Central Banks’ Action on Debt Crisis - NYTimes.com

Sounds like another big bank bailout to me! Let's see what all the talking heads have to say.

 "“They are trying to prevent them from seizing up global liquidity and capital flows and impacting banks and financial institutions throughout the world,” he said.
Burt White, the chief investment officer for LPL Financial, called the liquidity move “a Band-Aid.”
“It helps to prop up the banks for a while, which is going to buy time for Europe to fix the problem,” he said.
The jump in stocks was also an extension of the turmoil and volatility that have weighed on global markets for more than a year."

'via Blog this'

3 comments:

Steven said...

I am not sure about what I am about to say but here's a thought: people use the term bail out as a pergoritive because of the notion of moral hazard - the incentive to behave irresponsibly because the government provided parachute softens any consequences of crashing. But i doubt decision makers actually make poorer decisions than they would otherwise thinking they might get a liquidity boost or other government help if things go off the rails. But even leaving that aside - hasn't the notion of bailing been a part of our system since we banned debtor prisons? For example, American Airlines just declared bankruptcy but continues to fly. So what is bankruptcy really? AA now gets to re negotiate all of it's contracts, void those it does not like and start all over. Why isn't that a hugh moral hazard and why don't people complain about bankruptcy? As an aside did you hear about the spaniard, Italian and Greek guys who went into a bar? At the end of a night of drinking Germany paid the bill (bad joke, sorry).

David Usher said...

Hey Steven,
I agree with you that the 'bail out' language has been purposely created and used as a pejorative to stir people's emotions.

However, the mechanics of what happened to loosen up the European credit markets and provide some breathing room for a real fix (if there is one besides lots more haircuts)is probably too complicated for the talking head explanation.

I also agree with you the moral hazard argument is overused. People are wired to take risks if the reward appears great enough no matter what the backstop.

The bankruptcy of all major U.S. airlines is a good example of another backstop that the government (the law) allows but has no 'grab' for the talking heads and their listeners.

I like this joke better (no offense ;-)
In Heaven:

The cooks are French,
The policemen are English,
The mechanics are German,
The lovers are Italian,
The bankers are Swiss.


In Hell:

The cooks are English,
The policemen are German,
The mechanics are French,
The lovers are Swiss,
The bankers are Italian.

steven said...

America, at least since the 19th century, has been a "debtor friendly" country. In the 19th century, the main industry was farming. Farmers are always debtors, borrowing to buy seeds, repaying when the crops are in. Farmers speculated on land. Farmers liked inflation, as it allowed them to pay back debts more easily. After bankruptcy, when it happened, farmers went back to buying another farm. That's the American model, and it continued once we became an industrial country.

Europe has always been different. Bankruptcy in Europe means liquidation. There is nothing comparable to "Chapter 11" in most European countries that permits commercial debtors to stay in possession and get started again. When you run out of cash in Europe, you're gone.

That's why the Germans see it differently. They come from a different culture of money and "morality" of money.

PS - your joke is cute and funny.