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Old 10-13-2008, 05:42 PM   #1
Steve_A
Project Avalon Moderator
 
Join Date: Sep 2008
Location: Northeastern Brazil
Posts: 1,259
Default Learn from the Caixa Econômica Federal!

Hi Everybody,

So it looks like the European governments have been busy over the weekend, dedicating taxpayers money to buy bank shares to prop up the banking system, making those banks who will sell their shares to the government state owned banks.

Okay, we can all discuss the why alls and end alls of the real reason for the 'bailout', but just for the moment let's accept this on face value. The banks have no money, so an 'investor' (the governments) comes along and buys them out. Simple. The banks get the money and in simple theory everything returns back to normal. Or would it?

We need to understand that once you nationalize an industry, the 'top dogs' of that industry are not always (or hardly ever) apt to take on that role. This is due to Cronyism, or in simpler terms, friends and allies of politicians.

We just need to look at the situation in the US to see that the problem was a political one in the first place, congress insisting that loans be made to clients that were from the outset unable to pay for them.

Cronyism is rife in the US even in private companies dealing with the public sector because of the mega bucks that can be made as we can see in the Haliburtons or Fannie Mays of this world.

So what does all this have to do with the Caixa Econômica Federal?

Here in Brazil there are several state owned banks, the aforementioned Caixa and the Banco do Brasil, there are also banks like Banco do Nordeste or BNDES that are basically under the thumb by the politicians, but I would just like to concentrate on the Caixa.

The Caixa Econômica Federal passed five years without balancing their books and when eventually it did present its' balance to congress, deeply in the red, congress approved. That is the danger.

The danger is that the governments could quite easily make a market free enterprise become part of the public machine. That surely could bring down the banks.

There was a scandal of BANESPA a public bank of São Paulo that failed due to corruption and incompetence along with others recently.

I'm not saying tat this will be the case of the European and American banks but it at least is something that needs to be taken into consideration.

Best regards,

Steve
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