Sunday, December 21, 2008

Credit crisis and govt efforts

2 and half months and $350 Billion later,  the credit situation seems to be standing still. As if no action has ever taken. Now this week we heard Feds cutting borrowing rates to near ZERO levels. Hopes are that banks will be attracted to lend if lending cost is almost zero.  Here is this interesting article from NYT on Japan's similar experiments.  

If we believe the writer and Japanese way, the only thing that will encourage banks to lend is the confidence in the market and that will come from optimum regulations and policies. Just throwing money will not help. It somehow make sense. How much ever money I have, why would I lend it to someone who can go bankrupt any time. On the other hand if I lend money, may be the one can be saved from going under if he has a viable plan. So it becomes a vicious circle.

On the other hand this equation we see everyday on media about bailing out US auto industry. The 3 CEOs of Chrystler, GM and Ford are made virtually begging infront of congress to pass the loan and still it wasn't approved. They had to present viability plans and whatnot. Finally Mr. Bush announces $17 Billion 2 days back subject to a detailed plan presentation before March 31st. Frankly I liked those big fat CEOs being asked tough questions in front of camera. Their failure is public whole nation knows about it. 

However on the other hand we never saw any of the bank's CEOs on TV when $350 billions were distributed. I wish if same kind of grilling would have happened followed by tough oversite and strong strings being attacted; those $350 billion could have been in market by now.  Why Mr. Paulson's old pals are not under scruitny is something I don't understand. Perhaps my common sense is not enough and it need some special sense to understand. 

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