Tags: Stiglitz Another Bank Bailout Is Probably Needed

Stiglitz: Another Bank Bailout Is Probably Needed

Wednesday, 04 Aug 2010 11:44 AM

The Obama administration has significantly oversold its achievements, says economist and Nobel laureate Joseph Stiglitz, so much so that another bank bailout may well be necessary.

President Barack Obama’s assertion that banks are no longer “too big to fail” is simply not true, Stiglitz said during an interview with the Australian Broadcasting Company.

“That statement was, to me, the biggest disappointment: his overselling what had been accomplished,” Stiglitz said. “What we did in the bill is to say, ‘The Government has more powers.’”

“But the issue isn't powers. If you're too big to fail, government will bail you out and it will bail out the shareholders and the bondholders.”

Stiglitz says the outlook is dismal for getting a second round of stimulus that he and a handful of other economists urged Obama to offer in April of last year.

“We had already, at that juncture, poured money — huge amounts of money — into the banks,” Stiglitz observed.

“Most of us were of the view that, if you needed another round of a bailout — hopefully that wouldn't be the case — you had to do it a lot better than they had," he said, "because the banks have resumed their bonuses, profits from speculation ... and yet the supply of credit isn't there.”

Stiglitz lauded the principles set out in the recently passed financial reform bill but said that “on almost every one of the principles, the banks came in with their political power and gutted or at least eviscerated the provision.”

For example, Stiglitz points out, the bailout of AIG, which cost $180 billion, triggered demands for closer regulation of the derivatives that caused the insurance giant to collapse.

“So, everybody said we better regulate derivatives better,” Stiglitz said. “They agreed on the principle, but 30 percent of the market was exempt.”

Bloomberg reports that the Federal Reserve raised by 3 percent its combined estimated value of investment portfolios acquired in the rescues of AIG and Bear Stearns.

The Fed said the net holdings of three corporations set up by the Fed for the mortgages and securities it took on in bailing out AIG and Bear Stearns in 2008 rose by $2 billion to $69.1 billion. The Bear Stearns investments increased to $29.4 billion, while the two AIG portfolios rose to $39.7 billion.

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The Obama administration has significantly oversold its achievements, says economist and Nobel laureate Joseph Stiglitz, so much so that another bank bailout may well be necessary. President Barack Obama s assertion that banks are no longer too big to fail is simply not...
Stiglitz Another Bank Bailout Is Probably Needed
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2010-44-04
Wednesday, 04 Aug 2010 11:44 AM
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