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Arnold Kling  
PERMANENT LINK | AUGUST 28, 2011

Kipper- Und Wipperzeit Update, August 28

Arnold Kling
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Guitar Felons... A Questionable Video...

Nick Rowe writes,


The Tea Party makes life difficult for the Lender of Last Resort, because the Tea Party wants some sort of guarantee it will get its money back. And that guarantee can never be made cast-iron. If it could, you probably wouldn't need a Lender of Last Resort in the first place.

He is referring to the European version of the Tea Party.

The elites say, "We need to bail out the Greeks, who retire early, don't like to pay taxes, and have an ineffective and bloated government."

The European Tea Party says, "*(&^#%!"

The elites say, "But if we let the Greeks default, then the banks that lent them money will fail.

The European Tea Party says, "*(&^#%!"

Rowe also points to Mish Shedlock, who concludes,


One way or another Greece will default. The sooner the better, actually.

That's what I kept saying about mortgage foreclosures over here. The sooner the better. Delaying a financial reckoning is rarely the best approach.


Comments and Sharing


CATEGORIES: International Macroeconomics: Exchange Rates, International Debt, etc.


   

COMMENTS (4 to date)
Patrick writes:

A Lender of Last Resort should only buy assets they believe undervalued.

Likewise, creditors can provide additional lending secured by future cash flows from island trade/tourism vis-a-vis Spain and the Mines of Almaden.

Think a political solution can be made out of taking a haircut now while earning more on the future trade/tourism tax revenues?

Posted August 28, 2011 10:31 PM
N. writes:

Rarely the best approach for whom?

Posted August 29, 2011 10:15 AM
Silas Barta writes:

I have to agree with the European Tea Party: why should they lend to prop up unsustainable systems that could never completely pay them back?

Why should Americans have lent money to their own distressed banks, who were apparently relying on very brittle business models, even if those banks could pay back the money (and in so doing crowd out new competitors)?

Posted August 29, 2011 10:45 AM
Charles R. Williams writes:

The role of lender of last resort is to manage liquidity problems and not solvency problems. It presumes a temporary failure in the financial markets. This is not the case in Europe. Europe's banks are insolvent because they are under-capitalized and because they hold nearly worthless sovereign debt.

Posted August 30, 2011 9:38 AM
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