Simon wrote at 2008-10-07 07:31:

Debt owed to a company is something you can sell, so if IBM went bankrupt you can be sure the leasing debt would be sold on and collected.

The same applies to mortgage books of banks.

Indeed the receivers would be duty bound to sell these "assets" for the best price they can fetch.

Back to finance 101 for you.

Andreas Metzler wrote at 2008-10-07 04:49:

Your dichotomy customer vs. investors is a *very* muddy one.

You start with: "A private person, lending a bank money (=deposits)" --> customer. "Shareholders of the bank, directly participating in the enterpices success though dividend payouts and stock price." -->investor.

This ignores that for most banks a huge part of the money they work with falls in neither of these categories, since it is money borrowed from other companies. (Banks, funds, etc.) These take same risk as private entity depositors but if you put them in the "customer" bag your calculation does not work. e.g. the UK government cannot guarantee Barclays liabilities in any usefull way. UK's GDP is less than Barclay's balance sheet.

Raz wrote at 2008-10-15 17:28:

Without tackling your entire argument, you miss certain consequences of government bailouts, particularly at the gob-smacking scale that is being undertaken:

- A trillion dollars is a lot of money, even if you're the US government (or indeed the Chinese government, which is providing much of it); forcibly diverting this amount of money out of taxpayers' hands over the next few decades is going to profoundly affect (harm) the whole of society. (Similar reasoning for every other economy in which similar measures are being taken/contemplated and, indeed, for much of the world regardless, I suspect.)

- Government intervention at this scale crowds out private innovation, both because it's scorched earth ("GP in private practice" is almost an oxymoron in the UK; outside of London anyway) and because it demonstrates a willingness to interfere further which materially increases the risk for, and decreases risk-taking by, private enterprise. The result is a decrease in productive output for the entire economy.

Perhaps even more serious however is the elephant in the corner:

- If governments establish a "shareholders lose, customers win" standard, then market abusers need simply switch to being customers in order to continue to enjoy their risk-free casino visit. The fixes for this sort of problem (e.g. the blanket ban on shorting, including covered intra-day shorting, in Oz) are worse than the diseases.

Finally:

- There is no guarantee that government intervention will succeed in preventing catastrophe and, indeed, it may actually cause it. Consider the well-intentioned liquidity interdiction in 1929-33 (which precipitated the Great Depression), or indeed the shorting ban in Oz (and its' taking _20_PERCENT_ off the value of the AUD against any of USD, EUR or GBP, over the last two weeks; the world's going to hell, Oz is going there 10%/week faster).

A conundrum.