It was with some trepidation that we clicked on the latest installment of The Bubble Economy author Christopher Wood’s weekly newsletter, “Greed & Fear,” datelined Las Vegas. As you may know, we have something of a problem with pessimism porn and, having interviewed Wood before, we know that the mere mention of the term “Western financials” just about gives him an aneurysm. (We also know that when he was the Economist’s man in Tokyo, the locals called him “Beethoven” because of his unruly hair.) An analyst for Hong Kong–based brokerage advisory CLSA, Wood believes U.S. banks, acting in concert with their European cohorts, have more or less obliterated their own economies, if not the world’s. And he has an even less sanguine outlook on Timothy Geithner’s bank-rescue plan, which he calls, in withering British-ese, a “damp squib.”
“Nationalization of the bust banks and separation of good assets from bad assets is the only honest way forward, politically, for dealing with the current escalating mess in the American financial system … Ordinary Americans want to be told the truth and are fed up with gimmicky solutions involving adding debt on debt. It is also the case that the Obama administration risks a populist backlash on any policy based on bailing out banks. That is why it is even more amazing that Obama does not understand the political appeal of the nationalization option. Maybe the so-called liberal Democrats are worried about adopting such a seemingly socialistic solution … but despite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.”
Read that last phrase again carefully. Now. Imagine a plan that takes your deposits and turns them into equity in the crap bank that currently holds them. We say: Hopefully? No, thanks.
Greed & Fear [Subscription only]