Geithners Bank Plan: Winners and Losers

Table of Contents

Summary
Opinion
Economic principles
Source

Summary

Joshua Zumbrun in his article Geithners Bank Plan: Winners and Losers in the Forbes offers his own plan to the situation about the financial crisis, the banks and the ways of its solutions. The article offers banks to sell their bad assets the loans and securities they cannot unload in the market. The next step is rather obvious: banks, with an absolutely clean balance sheet, rebuild their capital, restore the ability of people and businesses to get loans at attractive, for them, terms.

The private investors are eager to buy the assets as they will be valuable in the future, no matter how long time it may take. The article offers lots of scenarios about the development of events: it is if the investors buy assets in high or low prices, what price will the bank establish, how will the economy behave itself in this or that situation, if the price is too high for investors. The hoped-for scenario is rather pessimistic, to our mind, as if the price is high and in future, these assets can bring some profit why they are not in demand now. So, there are some other ways of developing the scenario. One way is good for banks and bad for investors, the others are good for investors and not so optimistic for banks. And there is one more, the worst way of developing these events, is when both, banks and investors, are at a loss. But still, it is better to have some risk and losses now than to be uncertain in the further development of the situation later.

Opinion

The affair is rather risky and it should be made lots of calculations before accepting the decision. The offered plan has lots of aspects that must be considered before accepting the idea.

The present economical crisis leads to huge problems in the economy of the whole world. Countries are trying to search for ways out of it. But what they need in this situation is time, and we cannot allow ourselves to spare much time on looking for some decisions we must act. And as quicker we may find the way out, the quicker our world economy will be able to function in a proper way. The offered solution may be rather effective and it can be used to balance the world economy. The best hoped-for scenario is that the assets can be bought for high prices and sometime later these assets come out to be valuable. The scenario is rather difficult to do as people cannot predict global financial activities for a long time.

Economic principles

The economic principles which were discussed in the article are: discounting of investment returns, which means that every decision costs some amount of money which may return or not depending on the circumstances on the market; the equimarginal principle which includes the fundamental principle of microeconomics and gives the idea of when this or that affair may bring some outcomes, under which circumstances; the externality principle which explains the negative circumstances which may prevent the realization of some financial operation.