Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Wednesday, September 24, 2008

Banking Panic - The Plan (11)

Banking Panic - The Plan (Prelude)
Banking Panic - The Plan (1)
Banking Panic - The Plan (2)
Banking Panic - The Plan (3)
Banking Panic - The Plan (4)
Banking Panic - The Plan (5)
Banking Panic - The Plan (6)
Banking Panic - The Plan (7)
Banking Panic - The Plan (8)
Banking Panic - The Plan (9)
Banking Panic - The Plan (10)
Banking Panic - The Plan (Nearly There)
Banking Panic - The Plan (Arrival)
Banking Panic - The Plan (The Next Phase)
Banking Panic - The Plan (12)
Banking Panic - The Plan (13)
Banking Panic - The Plan (Exit)
Banking Panic - The Plan (1st Encore)
Banking Panic - The Plan (2nd Encore)
Banking Panic - The Plan (3rd Encore)
Banking Panic - The Circus

George Bush is a Republican John McCain is a Republican. However, backgrounds are very, very different.
  • George Bush is the 'oilman' on watch during the financial meltdown who does too little, too late: the 8 years in office come to a close in November 2008. Blaming the Democrats: "To reduce pressure on prices, we need to increase the supply of oil, especially oil produced here at home".
  • Massive withdrawals from money market funds are normally treated by investors as the equivalent of cash:

    • "A lot of people use these money market funds as bank accounts, they pay their bills with them. If they suddenly had to stop people taking out their money, you'd freeze the payments system and there would be panic in the streets."
Kevin Logan, senior economist at Dresdner Kleinwort.

  • Legislation is possible to allow further government intervention in the markets and to allow the Treasury to buy up the toxic mortgage investments that fuel this crisis.
  • Hank Paulson instructed congressional leaders to an emergency meeting on Capitol Hill (Thursday: 18.09.08) and take quick and decisive action in an attempt to stop investors pulling money out of even the safest financial institutions. If government failed to act, Great Depression-style queues are envisaged outside banks.

    • "The underlying weakness in our financial system is illiquid mortgage assets that have lost value as the housing correction has proceeded. The federal government must implement a program of to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. The ultimate taxpayer protection will be the stability this troubled asset relief programme provides to our financial system, even as it will involve a significant investment of taxpayer dollars. I am convinced that this bold approach will cost American families far less than the alternative: a continuing series of financial failures and frozen credit markets unable to fund economic expansion.
    • I will spend the weekend working with members of Congress of both parties to examine approaches to alleviate the pressure of these bad loans in our system so credit can flow again to American consumers and companies. Our economic health requires that we work together for prompt, bipartisan action. I look forward to working with Congress to pass necessary legislation to remove these troubled assets from our system. When we get through this difficult period - which we will - our next task must be to improve the financial regulatory structure so that these past excesses do not recur. This crisis demonstrates in vivid terms that our financial regulatory structure is suboptimal, duplicative and outdated. I have put forward my ideas for a modernised financial oversight structure that matches our modern economy and more closely links the regulatory structure to the reasons why we regulate."

   The $trillion bailout will be sponsored and underwritten by the taxpayer and it's more sensible to lose just one leg rather than both. The gun to the head ensures the correct 'choice' is made when an alternative is 'provided'. Typically, after years of the sewer festering, when everything goes belly up the attempt is made to cover the mess. When the genie's out of the bottle it is rather too late. The really worrying aspect is that people like Paulson remain to oversee the 'correction' that is assumed will be a competent reaction. Buying a bank's worthless securities has always been one option and plans to lend against these assets were temporary solutions, like the Bank of England's Special Liquidity Scheme and other "injections of liquidity".

Good money after bad

The American authorities have protected the system from further destabilisation and, short selling or not, the taxpayer's (nationalisation) burden could only get greater. Among the (updated) growing list of 'casualties or victims' in the international sale:




   The upshot of the rhetoric is that the system is "suboptimal" and "outdated" and it has taken the collapse of a global system to realise this. The global financial structure is outdated and greed and gluttony prevail. Nothing new here, actually.
   The system has shown up the obvious: when money and profit and growth, growth, growth are the only words that are understood. Greed and gluttony will be very close by. On a global stage, it's all hands to the pumps as everyone (the global taxpayer) bails out the incompetent and failed banks.
   The overwhelming hypocrisy is that when the banks mess up, this taxpayer subsidy is always there to bailout disasters. It abuse of the tax system and tantamount to theft to shore up a rotten structure, but the financial system must be saved at all costs.
   Literally.
   In the 1930s Franklin Roosevelt used $1.2trillion (present-day equivalent) of federal funds in the Reconstruction Finance Corporation device to fix the banking system and get the economy moving. The savings and loans rescue in America at the end of the 1980s cost $125bn, but this time it's different. The shift in income, wealth and power has moved from America and Europe eastwards to China.
   This redistribution of the wealth was massaged by the price of oil. It would seem that effectively, the Chinese lent the money to buy overpriced houses fuelling a problem, so building up huge trade surpluses with the US and Europe ($trillions). All those cheap DVD players and toys.

China Gateway

   Interest rates and inflation going down as cheap electronic goods flooded the market. The Gulf states and Russians hold dollar assets. For now. The US could face a liquidity crisis and a run on the dollar... Black Tuesday: 29th October 1929

Devil's Advocate

Banking Panic - The Plan (Prelude)
Banking Panic - The Plan (1)
Banking Panic - The Plan (2)
Banking Panic - The Plan (3)
Banking Panic - The Plan (4)
Banking Panic - The Plan (5)
Banking Panic - The Plan (6)
Banking Panic - The Plan (7)
Banking Panic - The Plan (8)
Banking Panic - The Plan (9)
Banking Panic - The Plan (10)
Banking Panic - The Plan (Nearly There)
Banking Panic - The Plan (Arrival)
Banking Panic - The Plan (The Next Phase)
Banking Panic - The Plan (12)
Banking Panic - The Plan (13)
Banking Panic - The Plan (Exit)
Banking Panic - The Plan (1st Encore)
Banking Panic - The Plan (2nd Encore)
Banking Panic - The Plan (3rd Encore)
Banking Panic - The Circus

posted by Louis Brothnias @ 11:21 am