Monday, September 22, 2008

G7 supports the U.S. bailout of asset-backed securities…duh!

Today the G7 released a statement regarding recent actions on the part of the U.S. government to stabilize the financial system (please see this post on my opinion of the disaster that we call a move toward stabilization).
“We strongly welcome the extraordinary actions taken by the United States to enhance the stability of financial markets and address credit concerns, especially through its plan to implement a program to remove illiquid assets that are destabilizing financial institutions.”
The fact that the G7 (U.S., Canada, Italy, France, Japan, Germany, and the United Kingdom) felt the need to make a formal statement makes me chuckle a bit. Of course the G7 support the plan; they are neck-deep in U.S. mortgage backed securities themselves! The Treasury plan, which is far from ready for a vote (see Dodd’s plan here at Politico), is essentially a plan to stabilize the financial system by creating “confidence” in a market that has none.

Europe is right up there with the U.S. (Americas) with losses totaling 235.3 $US as of 9/22/08 and counting. Of course they support a bill aimed at stabilizing this market (a.k.a., superficially creating a price above zero for the assets), it’s like a get-out-of-jail-free card. Even if the European banks derive no access from the U.S. bill directly, there are social gains that foreign banks would accrue as the U.S.-based ABS (asset backed securities) market stabilizes. Cost to U.S.: $1,000,000,000,000; explicit cost to G7 (as of now): $0. That's a no-brainer.

Please leave comments. Rebecca Wilder

1 comment:

  1. Finally, as I write this, people in DC and others are finally saying this is not the way or we need to see the details or whatever. Maybe they will hem and haw long enough to not do anything. Then congress can go home until after the elections. The best times of the year for "the People" are when Congress is in recess!!