Monday, October 13, 2008

Trillions of Capital Freed UP

India reduced its capital reserve ratio from 9% to 7.5%. With the stroke of a pen, India did, in percentage terms, far more than the Paulson Circus bail out. India did not allow a central administrator to pick and chose winners. All banks, the healthiest and the weakest, got capital relief. The healthy now have room to maneuver while the weak have room to survive.

Ironically, the danger involved her is in "teaching" banks that they can take excessive risk and still survive. But, it was government policies that were the root cause of this crisis and thus it required the action of government to "solve" the crisis.

The "sophisticated" governments of Europe have, like the US, found more dramatic ways to inject capital to the banks. Again, India used the method that helped all banks at once.

The markets are off and running. There will be many more bumps in the road but capital is flowing again.