Monday, February 2, 2009
Obama Says U.S. Banks Will Have to Write Down Assets
Feb. 2 (Bloomberg) -- President Barack Obama said the U.S. is suffering from a “massive hangover” from years of economic risk-taking and that some banks remain “very vulnerable.”
The extent to which no one understands the problem is astonishing. The president's comments are very frustrating in that he, and his economic team, fail to recognize that banks are hurting because of a weak economy and concomittant lack of demand.
The problem is not that the U.S. is suffering a "massive hangover." The problem is that fiscal drag in 2006 and 2007 triggered off an economic downturn that has been at the heart of the bank problems ever since. Fix the economy via sufficient gov't spending and/or tax cut stimulus and you fix the banks.
Writing down assets is destructive. Forcing the banks to write them down and then injecting capital and wiping out shareholders is outrageously destructive and makes no sense whatsoever.
Policy is utterly confused at this point in time, suggesting that pain will linger until automatic stabilizers support the economy at some level.