What’s the Problem?


WHAT’S THE PROBLEM?….In response to a Paul Krugman post about the Treasury wasting time implementing a capital infusion program for distressed banks, a commenter wrote:

They still don’t know why banks don’t trust enough to lend commercial paper.

If it’s balance sheet issues then unloading toxic debit will work.

If it’s a need to de-leverage then a capital infusion is required.

But if it’s trust then we need regulation of and a change in management at the banks.

And if it’s fear of credit default swaps, or other essentially incalculable obligations, then they need to be unwound and banned, at least the incalculable or morally hazardous ones, going forward.

My guess is that all four of these are issues, but it’s the last one that keeps me up at night (metaphorically speaking, anyway). If CDS losses turn out to be the biggest problem — and potentially, at least, they seem to be responsible for far bigger losses than the underlying subprime losses themselves — then even a big capital infusion might not make much of dent in the credit crisis. But how do we find out?

And here’s another thing to be curious about. When Gordon Brown announced his capital infusion plan, Britain’s four biggest banks apparently took him up on his offer almost immediately. But what about America’s biggest banks? Have they been putting out feelers? Burning up the phone lines begging Paulson to get off his ass and offer them a deal? Or what? And which American banks are in weak enough shape to want fresh capital at (presumably) punitive prices? All of them? A few big ones? Lots of little ones? Wait and see, I guess.

UPDATE: That should have been “Nobel prize winning economist Paul Krugman’s post.” Apologies for the error.

DOES IT FEEL LIKE POLITICS IS AT A BREAKING POINT?

Headshot of Editor in Chief of Mother Jones, Clara Jeffery

It sure feels that way to me, and here at Mother Jones, we’ve been thinking a lot about what journalism needs to do differently, and how we can have the biggest impact.

We kept coming back to one word: corruption. Democracy and the rule of law being undermined by those with wealth and power for their own gain. So we're launching an ambitious Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption, and asking the MoJo community to help crowdfund it.

We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We want to dig into the forces and decisions that have allowed massive conflicts of interest, influence peddling, and win-at-all-costs politics to flourish.

It's unlike anything we've done, and we have seed funding to get started, but we're looking to raise $500,000 from readers by July when we'll be making key budgeting decisions—and the more resources we have by then, the deeper we can dig. If our plan sounds good to you, please help kickstart it with a tax-deductible donation today.

Thanks for reading—whether or not you can pitch in today, or ever, I'm glad you're with us.

Signed by Clara Jeffery

Clara Jeffery, Editor-in-Chief

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

Share your feedback: We’re planning to launch a new version of the comments section. Help us test it.