A better bail out

Interesting article by Barry Ritholz arguing the case to not repeat the mistakes made in the GFC.

www.bloomberg.com/opinion/articles/2020-03-23/coronavirus-u-s-needs-to-do-bailouts-the-right-way-this-time

“Today, we have a new crisis, one with roots in the last rescue plan. In fashioning our response to the 2020 Covid-19 pandemic, we should be careful to avoid the mistakes made in haste then. Consider three broad categories of the last crisis’ errors: 1) inadequate fiscal stimulus; 2) lack of support for the social safety net; and 3) overly generous bailouts terms for banks and other companies. All were unpardonable, but for now let’s focus on the third error.”

We are seeing clear evidence that fiscal support will be available and that government recognises the need to help individuals and small companies get through this crisis. What is up for grabs is the terms on which larger companies (Barry cites the airlines) are supported. His point that the government should make sure it retains a share of the upside seems fair to me. If a company can get a better deal somewhere else then it should take it.

Tony

Author: From the Outside

After working in the Australian banking system for close to four decades, I am taking some time out to write and reflect on what I have learned. My primary area of expertise is bank capital management but this blog aims to offer a bank insider's outside perspective on banking, capital, economics, finance and risk. View all posts by From the Outside