The banking broohaha

 

Let me explain this banking confusion if I may. Imagine you have only a stash of long-term bonds to live on.  But then you have creditors knocking at your door demanding to be paid for this or that.  Since you bought the bonds, the government has raised the interest rate rapidly and now your bonds discount, that is they are worth far less, because market expects more interest.  You will have to sell your bonds at a loss in order to pay all the people making a run on your funds.  That’s the dilemma that banks like SVB and Signature and New Republic are having as people make a run on their bank.  And because they have to sell everything at a loss, they are essentially bankrupt.  But another larger bank says, “No, we have money to pay the run.  We could take you over with a merger.  Thus we don’t have to sell your bonds—just keep them until they have matured and return their original principle.  The troubled bank has value.”  But federal government refused to allow these offers of merger.  They want to bail out bonds of the troubled bank, thus becoming the Hero.  Political stunt  But then, gov’t has to treat everybody alike and bail out every bank. This will add trillions to the national debt and spur more inflation.  And bail outs green-light banks to make even riskier investments.  Buy Junk Bonds! And it ‘nationalizes’ banking where everyone is dependent on the government.  Clearly, bail outs should be the last resort when all else has crashed.

            Obama did a similar thing in 2010. His first act was to bail out auto companies with gov’t loans. Chrysler and GM took them. Then 2 months later, the sly Prez called the loans which of course the auto guys couldn’t pay, so he forced them into gov’t-in-charge bankruptcy, nationalized under a car czar.  This was exactly Mussolini in 1922! Apparently the Car Czar discovered gov’t couldn’t run an auto plant, however, so they gifted a majority ownership to the UAW and sold Chrysler to Fiat, the nationalized auto company of Italy.