An Unregulated Banking Fix

The current recession got the most serious when banking began to fail. We saw WaMu and Wachovia get auctioned off with help of the federal government. The bank that is attributed with the first major failure is IndyMac. If you haven’t heard of this bank, it is because they are mainly on the west coast. Obviously, the housing market was a boom there and they took large losses. The federal government has intervened to try and “fix” the problem with fire sales causing many people to not know what would have happened if the private sector was left to its own devices. Most assume bad since the government stepped in but according to The International Herald Tribune this is not the case for IndyMac:

“The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.

The proposed deal is unusual because it is one of the first transactions involving unregulated private equity firms acquiring a majority stake in a bank holding company. Until now, private equity and hedge fund firms have taken only minority positions in struggling banks, like the Texas Pacific Group’s $2 billion investment in Washington Mutual earlier this year.

As banks began to fail, private equity firms initially came to the rescue, but they backed off over fears they would be subject to increased regulation.”

Why is this so? Hedge-funds many times deal with the stock market but will be attracted to other investments to stabilize a portion large or small of their portfolio. This is good and a private way to solve this financial crisis. This would keep the taxpayers from footing the bill, the deficit low, and be the most efficient outcome for this situation.

There will always be a demand for banking and people will always invest in something that there is a demand for. The Federal Reserve and Treasury have done a little to pave way for more private acquisition of these debts and failed banks and they should continue to do more.

The rest is here.


Published in: on December 31, 2008 at 11:38 am  Comments (1)  
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  1. “The Federal Reserve and Treasury have done a little to pave way for more private acquisition of these debts and failed banks and they should continue to do more.”

    I would say that the federal reserve and treasury have completely destroyed any chances of private acquisitions of debts and failing banks by using taxpayer money in an all-out-war on the market itself, and the misery that is to come in 2009 for the US is mostly their fault and theirs alone. Anyone hoping for a future for the US should help abolish the Fed before it is too late.

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