Friday, April 23, 2010
So the IMF wants all developed countries to contribute to this new bailout fund, eh?* I got so excited about the implications of this proposal that I practically spilled my Kool-Aid all over my brand new Brooks shirt. Imagine, a global fund that will bailout insolvent banks all over the world. This is the mother lode, and it really levels the playing field.
For decades, American bankers ate everybody else’s lunch, just because they were able to lever themselves and take on more risk. Bank funders everywhere else would not tolerate such cowboy acts. Neither would regulators and risk managers. The risks just outweighed the gains. Now no longer. This global fund is such a godsend!
In fact, now that everyone is going to be required to contribute to this fund, if you didn’t take on more risk, you’re being a chump. Everybody else will be growing faster with their heightened risktaking, and should their positions fail, the bailout fund will be there. This is simply the only way you can recoup some of the benefits from the costs you are contributing towards this global bailout fund. My bank funders and regulators will know and understand this. They are no longer on the hook for failure - everybody else will. There simply will be no more rationale for them to hold back and thwart my plans. And let me tell you, innovation is my middle name, baby.
And there simply is no more reason to shirk from a trading position simply because the risk amount is too great, and may bring down your entire institution. So if a hotshot wannabe hedge fund guy comes to you, asking if you could go long to his short? Bring it on! And if a bunch of dipshit scaredycat babe in the woods fund managers want you to insure their portfolio? May I have some more pls?
If my longhsot bets work out, I’ll make a fortune. But if the market suddenly turns Judas on my position….well, bailout city. But by the time my insolvent bank takes the fall, all insiders will have scuttled it of any value. That's the benefit of having insurance, you can get all the gains from destroying something, while somebody else is always left holding the liabilities. Just make sure you go get your bailout before the fund itself eventually runs out of money. That’s what happens when everybody expects to hit the jackpot right? Only a few get to cash their chips before the house closes the till.
Imposing a bank tax on all countries, regardless of their history of bailouts is akin to imposing on everyone the requirement to have healthcare insurance. This socialization lowers the penalty for those who are most likely to use it, and imposes a cost on those who would otherwise have maintained healthy lifestyles. And extending this healthcare analogy, preventive monitoring and health maintenance always trumps having a comprehensive insurance coverage, at least in as far as ensuring people are not being careless about their health, and for sure, the same is true with banks. Extensive risk monitoring will always beat having a bailout fund. But how much fun is it to always be living a healthy lifestyle, right?
This global bank tax is going to standardize bank behaviour at the lowest common denominator – Wild West here we come. Everybody start thinking like American bankers.
Posted by Rogue Economist at 10:49 PM