This crisis is way bigger than dead banks and wall street bailouts

Hat tip to Doran on VOY.


” Families that two years ago enjoyed wealth in stocks and in their homes now have neither. Their 401(k)s have fallen by half, their mortgages are a burden, and their homes are an albatross. For many the best strategy is to mail the keys to the bank. This practically assures that excess supply and collapsed prices in housing will continue for years. Apart from cash — protected by deposit insurance and now desperately being conserved — the American middle class finds today that its major source of wealth is the implicit value of Social Security and Medicare — illiquid and intangible but real and inalienable in a way that home and equity values are not. And so it will remain, as long as future benefits are not cut.”

“The other problem was price. The only price at which the assets could be disposed of, protecting the taxpayer, was of course the market price. In the collapse of the market for mortgage-backed securities and their associated credit default swaps, this price was too low to save the banks. But any higher price would have amounted to a gift of public funds, justifiable only if there was a good chance that the assets might recover value when “normal” conditions return.”

” Delay is not innocuous. When a bank’s insolvency is ignored, the incentives for normal prudent banking collapse. Management has nothing to lose. It may take big new risks, in volatile markets like commodities, in the hope of salvation before the regulators close in. Or it may loot the institution — nomenklatura privatization, as the Russians would say — through unjustified bonuses, dividends, and options. It will never fully disclose the extent of insolvency on its own.”

“And if banks are recapitalized without changing their management, why should we expect them to change the behavior that caused the insolvency in the first place?”

” The credit flow metaphor implies that people came flocking to the new-car showrooms last November and were turned away because there were no loans to be had. This is not true — what happened was that people stopped coming in. And they stopped coming in because, suddenly, they felt poor.”


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5 Responses to “This crisis is way bigger than dead banks and wall street bailouts”

  1. thetotalcollapse Says:

    Yes I know exactly what you are saying most people are completely delusional towards the reality of our world. But can you blame them? I hear CNN and other big news stations constantly downplaying the crisis and picking up on slight improvements. At the end of the day most people also don’t want to know the truth. They want to be blindly guided and told what to do. Unfortunately this is our world.

  2. guidoamm Says:

    No argument there. What I find most difficult is to instill a sense of urgency in my circle of friends and acquaintances. Everyone I know and/or come into contact with, takes me for an amusing crank. Informed; but a crank nonetheless. Other than on some fora on the net, everyone I know or meet still seems to believe this is just another bump in the road and I struggle not to come across as a wild eyed Chicken Little. That is why I said we must find ways to communicate the urgency of the situation in a “believable” manner.

  3. Uncollected99 Says:

    “Our job now is to inform the masses in a rational yet believable way…” I totally agree with you guidoamm that is why I commented on your other article about the global currency.

    I understand one can get emotional and upset about certain things but if we are to “inform the masses” then it also needs to highlight and expose the true big picture.

  4. guidoamm Says:

    We agree on that. Our job now is to inform the masses in a rational yet believable way…

  5. Uncollected99 Says:

    Interesting read and of course this is completely true. Fact is: The current show is only the “tip of the iceberg”

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