Thursday, September 22, 2011

When will bailouts end? When Europe implements the FDR Framework based roadmap!

In his Telegraph column, Andrew Lilico asks the question of when will the bailouts end.  He summarizes the bailouts that have occurred since the start of the solvency crisis in 2007 as follows:

Setting aside the bailouts of late 2007 and early 2008 and just starting when it got serious, we have the bailouts of Fannie Mae and Freddie Mac in early September 2008, which triggered the collapse of just about everything (most notoriously Lehman Brothers), and the bailouts of Autumn 2008. Then we had the bailouts of Spring 2009. The US version of quantitative easing involved the Fed buying up loads of the loss-making collateralised mortgage obligations that triggered the bust, so the bailouts continued through 2009. Then from early 2010 we started re-branding our banking sector bailouts as "sovereign debt bailouts", as if changing the name would make it any less so that these were bailouts of banks. So we had the "Greek" bailouts of the European and US banking sectors of Spring 2010. Then the "Irish" bailout of the European, US, and UK banking sectors of Autumn 2010. Then the "Portuguese" bailout Spring 2011. Then the "Greece II" bailout of Summer 2011. All banking sector bailouts. All good money thrown after bad.
As predicted under the FDR Framework, all of these bailouts were predestined to fail because they were not accompanied by the necessary disclosure so that market participants could assess if the bailout returned the recipient to solvency.

The answer to his question is the bailouts will end with the adoption of the FDR Framework based roadmap.   The roadmap involves four basic steps:  disclosure of each bank's current asset and liability-level data; analysis of this data by both market participants and regulators; review of alternative solutions by market participants and regulators; and execution of selected solution to solvency crisis.

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