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Yes, I agree.  TARP worked in the US for what it was supposed to do -- avoid a bigger headache of rebuilding a system of credit from the ground up using people who've never worked in the field before (because you've fired the existing bankers). But given the low level of lending that society has by now adjusted itself to, another TARP would not be as necessary for that. The economy is already of such low performance that another "credit crisis" brought on by banks being taken over by the government (and thereby reducing their lending activities for a time while the new managers learn the ropes) cannot possibly affect things as much as they could in 2008.  People are already so risk averse that our consumption and investment behavior is largely immune to the effects of another bank meltdown.
by santiago on Thu Nov 3rd, 2011 at 09:44:25 AM EST
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our consumption and investment behavior is largely immune to the effects of another bank meltdown.

Ah.

As optimistic about the effects of Capitalism as ever.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 3rd, 2011 at 10:33:17 AM EST
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It's actually a pessimistic outlook, if that's not what you meant.  Things are so bad now because of the banking shenanigans that those of us who could  be helped by credit are pretty much denied it already, individuals as well as businesses, and we have gone to other non-bank sources of credit or adjusted our spending to accommodate less access.  So if the banks reduce lending now for whatever reason, its affect on us will be less because new lending is so low already.  There really has never been a more painless time to jettison the present banking system altogether if there were ever enough support for doing it.
by santiago on Thu Nov 3rd, 2011 at 11:39:02 AM EST
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There is nothing wrong with a collapse of private sector credit creation that would not be solved by a sufficiently large government investment outlay.

And given the present decrepit state of the infrastructure of nominally first-world countries, you would run out of unemployed before you ran out of useful government projects. Possibly quite a long time before, depending on how aggressively you repudiate private sector debts.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 11:53:53 AM EST
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Yes, that's essentially my point.  When times are good, doing so could cause a severe global recession because of the uncertainty about future institutions and conditions for doing business that such a takeover would create.  But if you're already in a severe recession, like we are now, there's not really much harm that could come of it.  Banking is functionally a form a governance as much as government is, and government is as much an arbitrator of credit (trust and commitments) as banking is, so one can largely do the work of the other with the difference being in terms of distributions of benefits and efficiency questions stemming from the principal agent-problem.
by santiago on Thu Nov 3rd, 2011 at 12:09:35 PM EST
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No, that's a general statement, not one specific to the current situation:

If you have a Treasury with a drawer full of shovel-ready, useful infrastructure projects, then the Treasury can shoot the private banking sector in the back of the head, dump the corpse in a shallow grave and nothing excessively bad will happen (except maybe a coup d'etat), irrespective of where you are in the business cycle.

Because with sufficiently activist fiscal policy, you get to abolish the business cycle.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:17:05 PM EST
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Not without replacing it in some form. Attempting to make all financing decisions to be made throughout a modern monetary production economy at the level of national fiscal policy quickly runs into information overload.

We need a banking system so that the fiscal authority can concentrate their attention on those tasks that a banking system cannot or should not be doing.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:52:52 PM EST
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Obviously you'll need to recreate it. My point was that you can paper over any temporary disruption for a potentially indefinite period with fiscal policy.

Not that you would want to do it unless your banks needed a lead pill delivered intercranially for other reasons.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 08:38:50 PM EST
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Then you aren't shooting the whole private banking sector in the back of the head and burying it out back.

Obviously we could shoot all the TBTF banks in the back of the head, and so long as we did it by taking them into receivership long enough for people to shift their accounts to small community banks and credit unions, there wouldn't be any massive calamity in the short term, and in the long term we'd be better off.

But shooting the entire private banking sector in the back of the head and having to recreate the entire sector from scratch ~ that seems likely to deepen the current depression.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:10:26 PM EST
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True, I'm not shooting the whole private banking sector. Only as much as is required. The point I was trying to make is that there is no magical upper limit to how large a share of the function of the private banking system the state can take over if it needs and wants to. How much you want to take over depends on how corrupt the different sorts of banking are in your country. And how corrupt the civil service is, obviously.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 5th, 2011 at 06:28:13 AM EST
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