obama financial crisis options cartoon

obama financial crisis options cartoon

Mugabe mentors Obama on Financial Crisis Options

While there is no doubt that government intervention is required to rescue the USA and Europe from a prolonged recession, how governments intervene in terms of structuring bailout packages will have a significant impact on taxpayers, shareholders and future investment decisions.

Economist Paul Krugman recently wrote an excellent article on the bailout structure in the NY Times describing the choices the US government in particular has when structuring the bailout package. The dilemma is essentially the following: if the government simply gifts the taxpayer money to the basically already bankrupt banks, the shareholders receive a bonus which they really shouldn’t receive. This is likely to encourage both banks and shareholders to engage in similar risky activities in the future.

If however, the government first nationalises the dodgy banks, the bank shareholders lose out but much less taxpayer money is used for the rescue effort. Ironically, despite the use of the word nationalisation, this is as capitalistic a behaviour as you can get. After all, shareholders should entirely be bearing the risk of the increased rewards offered by bank equity and surely the man in the street should not be made to bear any undue burden by risks taken by greedy pigs.

Whether or not President Obama will follow the mentor advice of Mr Mugabe remains to be seen. Nationalising anything is not a phrase Americans like to hear, regardless of whether it’s the right thing to do or not.

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If the financial crisis is getting you down and you feel the prospects of recovery are as grim as the odds on the best online slots casino, or even grimmer like those when you play the UK lottery online, then perhaps it’s time for you to hire Robert Mugabe as your financial strategist.

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Comments

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