Thursday, October 09, 2008

bail me out here

so bank B won't lend to bank A
because it things bank A is lending
to people C who constitute
too great a risk,
so bank A starts to lose business
(lending people money) to somewhere (not sure where if this is a global problem, but
somewhere - oh, ok, so they are not "expanding" so shareholders start to panic)

so the US and UK governments propose to
i) borrow money from somewhere (bank B) and
then ii) themselves lend it to bank A

now let me get this right: the government has a better credit ranking than bank A
so I can see why it might lend it more money. But, surely, once the government
starts doing risky things like lending to bank A, then bank B will downrate its credit
rating, and around we go again, except this time, there's nowhere left to run


oh, and say this is not purely about perception rather than reality, and bank A was always ok, but B was poor at judgement and believes correctly
that the government is magically better than bank A.

this might make sense if the government is going to pay bank B
a) a higher rate of interest
b) will successfully cause bank A to collect debts from people C
more successfully (or aggresively)


bail me out here.

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