Monday, September 22, 2008
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