Thursday, April 30, 2009

Jim Rogers: Government can't fix the crisis

The Jimster tells it like it is:

The idea that you can solve a problem of too much debt and too much consumption with more debt and more consumption is ludicrous on its face. What they should have done is just let everybody go bankrupt, let the bankruptcy courts reorganize everything. The Japanese tried this approach of propping up zombie banks and zombie companies; it did not work.

Jim Rogers
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Mark said...

Jack, I'd like to advertise my eBook on your blog; is that possible?



Jack Maturin said...

Not sure about stuff like that. I am no Guido Fawkes when it comes to web savviness.

If serious, send me a mail to discuss possibilities:

Jack UNDERSCORE Maturin AT Yahoo DOT Com

Roshan said...

No, they should have let the BANKS go bankrupt, but protected PEOPLE'S savings. The people could have then re-invested their money in other banks.

Jack Maturin said...

No, they shouldn't have 'protected' anybody. If you put £100,000 into a bank, if the bank goes bust, where does the government get the money from to bail you out?

It gets/steals it from me.

Bank account 'insurance' by government leads to moral hazard. It leads to people sticking their money into banks and not caring a monkey's cuss what the bank does with it, as they will be personally bailed out if the bank loses it all. Hence, most people stick their money in the bank offering the highest interest rates, which invariably is the bank taking the highest risk (e.g. in investing in Icelandic hedge funds).

If you knew you had no 'protection' when you put your money in a bank, you would be much more careful where you put it, and would insure it yourself, via a third party. And this third party would charge more for risky banks, therefore this would be another driver making you put your money with safer more conservative banks, rather than riskier ones.

Also, you would have to pick your bank account insurer carefully, because they could also go bust, which would add yet another layer of safety into the system.

We need absolutely no government protection in the banking system whatsoever. This is the only way to generate a safe banking system.

Yes, we would probably need interim measures.

A Maturin Towers government, on election, would announce on day one, two banking measures:

1. No more banks are to be bailed out, forthwith

2. All government bank account insurance will start tapering down to zero, starting in five years, and be non-existent in ten years.

This would give people plenty of warning to be much more careful with where they put their money, thus removing much of the current moral hazard and risk from the banking sector.

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