Faux capitalists look for the free lunch

Bailout Nation gets reviewed in India!


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The Hindu : Faux capitalists look for the free lunch

The US President Barack Obama, despite being articulate, is allowing his team to sound like philosophers and researchers when they explain what is going on in the marketplace and what the business plan is to fix it, rues Barry Ritholtz in ‘Bailout Nation’ (www.wiley.com). “This is the first time we’ve had to handle this situation, and it’s incredibly complex and difficult. While it takes great minds to devise a solution, when it’s time to explain it to the typical family, it needs to be kept reasonably simple and clear.”

The author gives an analogy from the field of sports, thus: “If a football coach has a brilliant game plan on the blackboard but cannot simplify it so it is crystal clear to the players, that plan will not get executed properly. The probability for failure increases.”

Perhaps, Obama’s speech last week, in the Federal Hall on Wall Street, was to make amends for the absence of clear communication. He had then chastised the industry for still engaging in “reckless behaviour,” “quick kills,” “bloated bonuses,” and taking “exorbitant risks that were unsustainable for the system,” as www.bloomberg.com reported on September 15.

The book has a chapter titled ‘Casino capitalism,’ which suggests that a simple solution to banks’ problems is to identify the banks that are insolvent and temporarily nationalise them. “Appoint new management, and give them six months to spin out 10 per cent of each of the separate viable pieces, with the taxpayer retaining the rest as passive investors. Bank of America can spin out five major pieces: BoA, Merrill, Countrywide, a toxic holding company, and the rest of its holdings,” Ritholtz recommends.

The call for nationalisation, he reasons, is not a move toward socialism, but an attempt to prevent casino capitalism from bankrupting the country. “Real capitalists nationalise; faux capitalists look for the free lunch.”

An example of the latter is the backdoor bailout of major financial institutions with AIG serving as the middleman; for, it is actually a bailout of private speculators, the author fumes. “Not only are US taxpayers subsidising the bad decisions made by executives in the US, but we are also bailing out the poor judgment of the rest of the world.”

Worth a read.


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