grateful for what we have until we lose it,
Please refer to the last one.
How to Solve the Financial Crisis The financial crisis deepens. The bailouts are piecemeal and national, whereas the crisis is global. What’s worse, the policy responses are not based on a clear diagnosis of the underlying problem. Some politicians talk as if this crisis were merely about illiquidity: banks don’t have enough liquid assets to meet their current obligations. If this were so, the problem would already have been solved. The reason is that most countries have three institutions in place that generally prevent this sort of thing from happening: (1) central banks that are “lenders of last resort”, (2) depositors are insured (up to a specified maximum) and (3) banks are regulated and supervised. But the problem now is different. Once we understand it, we are close to finding a solution. It is not just a matter of potential illiquidity, but also of potential insolvency: the total assets of many financial institutions could fall short of their total liabilities. At the current fire-sale asset prices, they’re in danger of going broke. The central banks can’t help here, since they lend only for short periods against highly-rated collateral. The difficulty is that some of the troubled financial institutions are too large too fail (their demise would wipe out too much wealth, shut down too many businesses, throw too many people into unemployment) and are very contagious (their bankruptcy would lead to the bankruptcy of other large institutions). That is why we’ve seen lots of case-by-case bailouts (Bear Stearns, AIG, Fannie Mae und Freddi Mac, Fortis, Bradford and Bingley, Wachovia, Glitnir, etc.), climaxing in the largest, the Paulson plan.