Banks ask for state aid - any state will do

After a week of turmoil in the financial markets, it appears that the received wisdom of the last twenty-five years is going the same way as many of the investment banks. Suddenly, state ownership is where it's at.

And it doesn't matter which state either. If you can't get your own government to bail you out, why not try a foreign one? Yesterday, the FT reported that beleaguered investment bank Morgan Stanley had approached the Chinese government to rescue it in return for half the firm's shares. 

The immediate danger of such a massive buyout by China may have passed. Morgan Stanley's shares rallied after the SEC and FSA banned short-selling and the US government announced yet another bail-out for the banks. State intervention in the US and UK has probably kept Morgan Stanley out of the clutches of the Chinese government. At least, for now.

But as the BBC's Robert Peston warned on his blog,  a new world order is being created in banking and finance.

It's a world in which the Chinese state, if it co-ordinated the investments of its cash-rich institutions, could end up owning more-or-less the entire financial system of the US and the UK.

In the name of free markets, the West has created a system which could deliver control of its economies to a centrally-planned state. Is that the faint sound of chuckling I hear coming from Highgate Cemetery?

Comments

[Nasty ol' Rasta]

testing....

[Rastaman]

Well, looky here. I've been de-censored after having my IP address blocked for, yea, these many months. About time, too. I've been sorely missed here by my many haters whose hands are now stained black from holding those wads of stinking mud they've been waiting to sling at me.

Rejoice! You may now sling away with glee.

Not to be OT, banking is the subject of the day over here, temporarily, no doubt, eclipsing the election campaigning. That our government is going to spend untold billions of my dollars to save our various financial institutions from collapse has its good points as well as its bad ones.

This will keep alive millions of home mortgages that would otherwise result in foreclosure and will enable the homeowners to make an agreement with their lenders to keep their homes. Foreclosed homes are untenanted, which invariably results in severe vandalism before the property is finally resold, at a much lower price than it formerly commanded. Often the homes are stripped so badly that they have to be demolished. This just exacerbates the housing shortage along with increasing the losses to the lender and to me, the taxpayer.

The other good bit is that most of the lenders are small stockholders, average people like me, who now won't have to see our stock become worthless or go for pennies on the dollar.
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The bad side is the vast increase in debt that's being piled on me, the taxpayer, that will be carried over for generations, no doubt, along with the inflationary effect of creating additional currency to finance the loans. A great part of our currency is never printed but is only created in ledgers, so to speak, as new debt.

Our Federal Reserve doesn't warehouse money, ie, create a reserve of it. Our Federal Reserve is not Federal. It's a group of private banks. They print our money and then loan it to our government. It costs them only the expense of the paper and printing itself. They create this currency on demand and the hundreds of billions of new dollars will inflate our currency.

This inflation is reflected in the increase of price of imported goods, since those selling us the goods compare our dollars to Euros and other currencies when establishing their pricing. This is why the price of oil keeps going up, for instance.

Our groceries are costing us more and more, along with everything else we buy, in numbers of dollars. However, our wages aren't keeping up with this inflationary trend and they keep falling further and further behind, creating more and more poverty.

All of the above will be the fallout from this latest government bailout of the results of its own misguided, greedy and sloppy policies and administration.

[Steve]

I'm not sure why your IP address was blocked Rasta. To my knowledge, I didn't block it and I didn't do anything to unblock it either.

Anyway, it's good to see you back.

I wasn't suggesting that the US and UK governments shouldn't bail out these banks. It's too late to do anything else now. But, as you say, they should never have let this situation arise in the fisrt place.