Is US Treasury Secretary Timothy Geithner’s plan to heal the ailing US economy by rescuing US banks this century’s New Deal or, as his critics attests, a road to hell?
By: Ringo Bones
It is now official, US Treasury Secretary Timothy Geithner’s plan to heal the ailing US economy by detoxifying American banks of their toxic assets is already underway. The plan primarily involves a public and private sector team-up investment program to buy toxic assets / financial products, the primary cause of the subprime mortgage crisis. The scheme will initially funded by the US Government with 500 billion dollars worth of funds to buy the toxic assets with the potential to expand to 1 trillion dollars - if needed - over time. While the US Federal Reserve and the FDIC will assist investors in buying assets, the private sector will share the risk with the US taxpayers. Though the creation of the “equitable” market price of these assets needs really diligent oversight, which could be a problem.
Now the downside, the overall risk exposure of the American taxpayer is still not well established by the “Geithner Plan”. Which is not exactly easy because most American banks are still vilified for their risky behavior that instigated the subprime mortgage crisis. Plus, there is that issue whether capital restrictions govern the pricing of the assets. In short, the “equitable” value of the toxic assets still needs evaluation. Worse still, the scheme can easily privatize the corporate gains while the losses are socialized – i.e. the American-taxpayer-as-investor can easily be left holding the bag if the scheme turns sour.
In spite of the plan’s caveats, world markets reacted positively to the Geithner Plan. The day after the plan’s inception, stock markets rallied. Not just in Wall Street but also in other parts of the world as well, especially in Asia. Although the Czech Prime Minister Mirek Topolanek – who is also currently the EU president under it’s rotating 6-month term - criticized the “Geithner Plan” as the “road to hell” for the global financial system. Maybe quantitative easing is too complex to be policed properly from PM Topolanek’s point of view?
The good thing about the “Geithner Plan” is that it renewed the sense of urgency to regulate financial companies who provide complex and exotic financial services and instruments. Like hedge funds and credit default swaps just to name a few. Plus, the renewed assessment of financial companies’ practice of keeping adequate credit reserves to back up their inherent operational risks (a localized Basel Accord?). The question now is whether governments around the world will become too obsessed with quantitative easing that they’ll forget there are other things to take care of during times of economic crisis like maintaining employment opportunities, the environment and other social concerns.
Showing posts with label US Economic Crisis. Show all posts
Showing posts with label US Economic Crisis. Show all posts
Monday, March 30, 2009
Friday, December 19, 2008
The US Economic Downturn: A Boon for Indian Law Firms?
Rumored to have the world’s largest population of underutilized professionals, will the current US economic downturn be a good thing for Indian law firms?
By: Ringo Bones
Ever since globalization created the outsourcing market, low cost services – no matter how far away – has always been too tempting for the richest countries to ignore despite of quasi-protectionism legislation. And while the world markets waited with baited breath whether the US economic downturn will get much worse, the American economic hardship had inadvertently become a good thing to a service sector half a world away – namely Indian law firms.
Basing on the increased visibility of Indian law firms advertising on the Internet like the Singhania & Co. LLP Advocates and Solicitors for example, offering arbitration and all types of business assistance. And given that as a business model, outsourcing has proven to be very economically viable, it is inevitable that Indian law firms will soon be benefiting from the misfortunes of corporate America’s woes.
Outsourcing has since outgrown from the fledgling phoning in of DVD player queries. The evaluation of legal documents via legal outsourcing has recently reduced the cost overheads of US financial lawsuits and other corporate legalese and rigmarole. Given that corporate legal procedures are seldom cheap – especially when it involves filing for bankruptcy – every method of cost reduction, like legal outsourcing, had recently been in vogue. Looks like corporate America’s loss will be every Indian law firm’s gain. Looks like the US economic crisis might wind up helping others before it disappears.
By: Ringo Bones
Ever since globalization created the outsourcing market, low cost services – no matter how far away – has always been too tempting for the richest countries to ignore despite of quasi-protectionism legislation. And while the world markets waited with baited breath whether the US economic downturn will get much worse, the American economic hardship had inadvertently become a good thing to a service sector half a world away – namely Indian law firms.
Basing on the increased visibility of Indian law firms advertising on the Internet like the Singhania & Co. LLP Advocates and Solicitors for example, offering arbitration and all types of business assistance. And given that as a business model, outsourcing has proven to be very economically viable, it is inevitable that Indian law firms will soon be benefiting from the misfortunes of corporate America’s woes.
Outsourcing has since outgrown from the fledgling phoning in of DVD player queries. The evaluation of legal documents via legal outsourcing has recently reduced the cost overheads of US financial lawsuits and other corporate legalese and rigmarole. Given that corporate legal procedures are seldom cheap – especially when it involves filing for bankruptcy – every method of cost reduction, like legal outsourcing, had recently been in vogue. Looks like corporate America’s loss will be every Indian law firm’s gain. Looks like the US economic crisis might wind up helping others before it disappears.
Thursday, November 13, 2008
Should the US Government Bailout Heritage Companies?
As the US financial crisis grows inevitably deeper, should the US Government bail out “heritage companies” via the American taxpayer’s money?
By: Ringo Bones
America’s “big three” automakers, namely: GM, Chrysler, and Ford had been in the headlines lately but not for the good reasons. The US top three automakers had been hard hit by the ongoing economic crisis, which if left alone the three leading car manufacturers would go bankrupt. But the question now is, should the US Government do what it can to save heritage companies – which America’s three leading carmakers surely does qualify as such – even to the extent of using the taxpayer’s money?
Throughout the developed world, heritage companies had always been perceived as an integral part of the country that they originate. The German government even legislated laws that only allow overseas Sovereign Wealth Funds extremely limited investments in their own heritage companies despite howls of protectionism accusations.
Ever since the global financial crisis became too big to ignore, the US Government acted upon several schemes to save ailing companies, which are perceived as heritage companies by many. Like the two leading equity loan providers of America: Fannie Mae and Freddie Mac, which if allowed to go bankrupt could make millions of American families homeless. Thus qualifying them as the most indispensable of the American heritage companies.
Though cars can be considered a luxury when compared to a secure roof over your head, America’s “top three” automakers are thus nevertheless very important heritage companies. Due to their historical significance and they also employ thousands of workers across the country. America would never be the same without them. But should the US Government save them? After all President-elect Obama’s economic recovery plan has a heavy emphasis on fiscal discipline.
To me at least, a financial bailout by the US Government on ailing heritage companies do make fiscal sense. And since the breakdown of the preexisting American free market capitalism is due to too much laissez-faire when it comes to government regulation. The switch over to state capitalism would be smoother and could serve as one of the conditions of a government funded bailout package. Which would make the economic recovery process more efficient since the companies can now be tailored to be in sync with the government’s economic recovery process.
By: Ringo Bones
America’s “big three” automakers, namely: GM, Chrysler, and Ford had been in the headlines lately but not for the good reasons. The US top three automakers had been hard hit by the ongoing economic crisis, which if left alone the three leading car manufacturers would go bankrupt. But the question now is, should the US Government do what it can to save heritage companies – which America’s three leading carmakers surely does qualify as such – even to the extent of using the taxpayer’s money?
Throughout the developed world, heritage companies had always been perceived as an integral part of the country that they originate. The German government even legislated laws that only allow overseas Sovereign Wealth Funds extremely limited investments in their own heritage companies despite howls of protectionism accusations.
Ever since the global financial crisis became too big to ignore, the US Government acted upon several schemes to save ailing companies, which are perceived as heritage companies by many. Like the two leading equity loan providers of America: Fannie Mae and Freddie Mac, which if allowed to go bankrupt could make millions of American families homeless. Thus qualifying them as the most indispensable of the American heritage companies.
Though cars can be considered a luxury when compared to a secure roof over your head, America’s “top three” automakers are thus nevertheless very important heritage companies. Due to their historical significance and they also employ thousands of workers across the country. America would never be the same without them. But should the US Government save them? After all President-elect Obama’s economic recovery plan has a heavy emphasis on fiscal discipline.
To me at least, a financial bailout by the US Government on ailing heritage companies do make fiscal sense. And since the breakdown of the preexisting American free market capitalism is due to too much laissez-faire when it comes to government regulation. The switch over to state capitalism would be smoother and could serve as one of the conditions of a government funded bailout package. Which would make the economic recovery process more efficient since the companies can now be tailored to be in sync with the government’s economic recovery process.
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