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Bailout Deal or No Deal?

Deal or no deal?

As a game show, it’s a winner. The sight of contestants guessing which briefcase (or box) has the six-figure sum has grabbed audiences on both sides of the pond. As a way of saving the US financial system, it’s proving just as compelling to watch George Bush and Henry Paulson line up the boxes and see if they can find the one with $700 billion underneath.

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So far, so bad.

Last night’s failure to settle on a box, coupled with another big bank failure (Washington Mutual), sent stock markets here in Europe and in Asia reeling again Friday as investors fretted about Mr. Bush’s prospects for getting a deal.

“If a deal hasn't been signed and sealed over the weekend, expect massive market turmoil. Monday will be a bloodbath,” said Martin Slaney, head of derivatives at GFT Global Markets in a note widely borrowed by mainstream media.

The Times (of London) said the White House talks had descended into “a verbal brawl.” Its website exhorts: Watch our video! But alas, there’s no footage of Henry Paulson sinking down on one knee to persuade Democrats not to take their boxes away.

Now that would be worth paying a few bucks to see.

Joining the game of Beat the Banker today in Washington is our very own Prime Minister Gordon Brown. He’ll need to tread carefully when he meets Bush. Britain’s financial system is squealing (more emergency cash was squirted at the money markets by the Bank of England this morning) and could use a swift US bailout for reassurance.

But Mr. Brown also knows this form of state intervention is controversial. Vermont Sen. Bernie Sanders (a left-leaning independent) summed it up in an op-ed piece for the Guardian’s “Comment is Free” site when he said:

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“This proposal as presented is an unacceptable attempt to force the middle-income families of the United States to pick up the cost of fixing the horrendous economic mess that is the product of the Bush administration's deregulatory fever and Wall Street's insatiable greed.”

But is this fair? Aren’t these the same families who splurged on credit during the good times?

David Maund, an insolvency expert at Alvarez & Marsal, a consulting firm, knows a thing or two about what happens when the numbers don’t add up any more. He summed up the countervailing view – that it’s not just the bankers to blame and that ordinary folks have got to take the hit, too.

“Ordinary people gorged themselves on debt in recent years, over-extending themselves to fund lifestyles that weren’t sustainable,” he told me.

“It’s hardly surprising that it’s all come crashing down around their ears. If people had invested [sensibly] in property or shares over the last 5 years, instead of buying a load of consumable rubbish they didn’t need, then they probably would have done very nicely, and would be hurting a lot less now.”

Deal or no deal?

Or may be we should ask: Can Bush assemble a coalition of the shilling?