Column : Bail, but Wall Street not out of jail

Font Size

Print

Feedback

Email

Discuss

: conditions: full disclosure on the part of banks on exactly how many non-performing loans they were holding; and a purchase of equity by the government in banks opting for government money to purge bad debt. By 2006, most banks were back in profit and free of bad debt. Taxpayers made a neat profit when the government sold its shares in banks at a higher price than they were bought.

Critics will, of course, point to an imminent recession in Japan and the exposure of Japan’s financial institutions to US subprime debt. These will be a challenge, but the rescue effort should not be discounted. After all, some Japanese banks are now cash rich enough to consider buying out their sickly American counterparts—Mitsubishi UFJ has bought a 20% stake in Morgan Stanley and Nomura is buying out Lehman’s Asia, Europe and Middle East divisions. Earlier this year, Mizuho and Sumitomo invested $1 billion in Merrill Lynch and Barclays respectively.

Apart from extreme fringes on the Left (who don’t want taxpayers money to bailout Wall Street fat cats) and the Right (who don’t want extensive government involvement in the economy, whatever the cost), most other opinion agrees on the necessity of the bailout. For all the criticism of the US political system, it has done a remarkable job of coming up with a bailout plan which is likely to be backed by significant bi-partisan consensus. The division of government between executive and legislature, of course, meant lengthy and painful wrangling over a number of sticking points—amongst other things this led to Hank Paulson’s original three page rescue plan being converted into a 110 page booklet.