The Bankwatch

Tracking the consumer evolution of financial services

Fareed Zakaria interviews Martin Wolf

Fareed interviews Martin Wolf, Senior Economics editor at the Financial Times. Here are some notes from that interview.

Martin speaks of the 40 trillion dollars that have been lost in equity value in business and asset values.  He is critical of the US governments efforts to date while being directed at the right areas, as inadequate to address the depth of problem facing world economies.

On banks, they are seriously undercapitalised or insolvent in some cases.  The underlying danger is that they won’t or can’t lend.  particulalry to business, thus commerce will contract.  He refers to zombie banks who can’t write off the losses they know they have, because they have insufficient capital to absorb those losses.

There are two choices:

  1. Restructure under bankruptcy procedures.  Must be quick and ruthless, and this may be the result following the Geithner stress test.  However this is not the preferred approach and government is unwilling to go this route.
  2. Dripping in capital, a bit at a time.  At some point Wolf says when enough has been injected, it “seems unreasonable to call it a private business”.

Either way you end up with the probability of the aforementioned zombie banks.  In any event, the losses must come from somewhere:  either government and taxpayers, or equity holders.  In addition Wolf emphasises the people who got us here, the banking leaders must all be replaced.

Written by Colin Henderson

March 2, 2009 at 11:06

Posted in Uncategorized

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  1. […] the worry is the banks.  As Baker says above, and Wolf said yesterday on the Fareed interview on CNN banks are frozen in a state of inaction by virtue of potential asset value losses that exceed their […]

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