You make a very mistaken ( and I would suggest highly "naive" ) assumption that only the players that "got their hands caught in the Jar - Citi, BoA, Merrill, etc. will go under." Again, you fail to appreciate the magnitude of the problem that this Country faces . . . and while your cut and dried economic "Darwinism" reads well, it doesn't fit in the nice neat little "box" that you think it does. There are far too many "players" involved in this banking meltdown than you have so naively suggested. And they aren't just contained by the geographical boundaries of the United States either. To suggest that this situation only effects the Citi's, BofA's, and Merrill's of the world is absurd. It sounds nice and neat and tidy - - - especially with the hope that from the ashes the strong and "good" will survive, but it isn't realistic. Not one bit realistic at all.
I'm a firm believer in NOT FUCKING with the normal business cycle. Recessions are good, and they help clean up the mess caused by excesses in various parts of the economy. That being said, we have already fucked with the business cycle and we are now being FORCED to conitinue this terrible policy. Our only hope is that the economy will absorb the shock over the coming years. We are definitely robbing peter to pay paul but it could work. There is no question we have no other choice now.
let's just make sure it ends with the removal of any central bank mediating our markets and socializing institutional losses. if the banks didn't have a lender of last resort, they'd have measured and taken their risks a lot more realistically that's a free market.
Its well-known CDO's were spread across the globe. No surprise there. Perhaps you can tell us why, in fundamental-terms, a bank failing in France, is of anymore (or less) importance than a bank failing in America? Your critique is littered with vagaries and colorful imagery, but little substance. Would it surprise you to know the Top 15 US Banks sit on nearly Half-A-Trillion in retained earnings, alone? Go check their balance sheets. I encourage you. Most enjoyed consecutive YoY profits since 2005. And only a small few had a bad quarter ever since. Keep in mind, these are massive institutions earning billions every quarter - all during this sub prime "contagion"! And if thats not enough, they're sitting atop massive cash reserves!! Now, consider the total theoretical exposure from sub prime - worst case. 400 Billion? 700 Billion? Say a Cool Trillion. Just the top 15 Banks in America ALONE could shoulder half that loss. Some of course would go under. Some would not. That leaves the other 100 or so American Banks to step up and fill their shoes. What I see is economic fear mongering to justify Government bailouts. Financial balance sheets are padded to the max and these guys are screaming "Cataclysmic Meltdown"! "Rampant Deflation"!!! ECONOMIC ARMAGEDDON!! Yet, we still see blank ink, YOY, QoQ, with lots of cheddar to spare. The only pie-in-the-sky proposition is yours - the bail out of distressed institutions. That worked well in Japan, didn't it? Whether you choose to accept it or not, recessions and bankruptcies are an established fixture in the natural cycle of business recovery. You shout - its too big to fail! I say bullshit. Its a mathematical impossibility. Whatever wealth retained by the Global Financial Industry prior to the run up, is the net wealth the Industry would posses if the market were to crash tomorrow (give or take for jockeying amongst players). Plenty of astute lenders would survive this "Biblical Meltdown"; only to go on and thrive off the carcases of those solmen few. Who lent so faithfully, so we could all, *sniff*, so we coul all enjoy the American Dream of...*HONK*...home *HONK*...HOME OWNERSHIP! God rest their brave, brave souls.
Oh yea, and my 'trite little commentary' on economic "Darwinism" is what CAPITALISM IS ALL ABOUT. Or, perhaps, in your part of the world, the new law of the jungle is survival of the unfittest!! Lol. Reminds me of someone I know....You get it right, or you get eliminated. Do tell, why are these banks "too big to fail"? Enlighten us.
Still waiting for someone to answer this: Who can provide a SINGLE REAL WORLD EXAMPLE that proves an already-exploding Credit Bubble can be neutralized by ramping up with more credit? Just one example where credit woes (inflation & looming bankruptcies) were solved by more credit.
And yet my words were sufficient enough to have threatened you and your ego enough to produce three consecutive posts, including a bit of plagiarism. Interesting.
Actually, only two consecutive posts. Nobody expects your intellect to meaningfully address the third. Is this the end of you? Make a couple backhanded smears then tuck tail? You haven't answered one of my questions. What a surprise.
Brazil in 2001-02 suffered an economic meltdown equivalent to the US 1929-32. They pursued a laissez-faire economic policy and after Lula got elected, he put a hawk atop the central bank, who kept rates high to quash inflation and defend the freefalling currency. Anyone care to point out Brazil's GDP growth rate, stockmarket performance, and real estate appreciation from Q4 2002 to the present date? Let's just say it is about as far from landis82's prediction as possible. And this is a developing country, not the biggest and most resilient economy in the developed world. In 1997-98, Asia experienced its own meltdown equivalent to the 1929-32 crash. They pursued a reasonably hands-off approach (except Malaysia), and they recovered smartly within a year or so. Same with Russia - they let lots of banks go bust, slashed taxes, and got a decade of huge growth with the stockmarket going up 40 fold. Taiwan in the late 80s had a credit and stockmarket bubble just as bad as Japan. Unlike Japan, they pursued a reasonably free market response to the crisis. Anyone wanna check Taiwan's performance compared to Japan's in the 1990s? Despite being a smaller, less educated, less deep economy, they vastly outperformed the Keynesian approach that the BoJ and MoF took in Tokyo. In the 1930s, Hoover and FDR pursued a policy of heavy intervention in markets, destroying commodity supplies to keep prices high, refusing to let wage rates adjust, imposing price controls and supports, large spending on public works, seizing gold from citizens in order to facilitate a currency devaluation. The result was a decade long depression with unemployment in the double digits until WWII. Sweden pursued a more hands off approach and had a much more mild recession which was over within a couple of years. Anyone see a pattern here? The idea that the US cannot withstand some banks going bust is nonsense. If Asia and Russia could see their entire banking system go insolvent, and recover within 18 months, why can't the US? You will have 18 months of fear, recession, and panic, and then 5-10 years of high growth, stable currency, and low inflation prosperity. The current path will produce a protracted slump, rising inflation as soon as the crunch troughs out, and even further currency losses which will exacerbate the soaring commodity prices which are hitting the poor and middle class with skyrocketing costs of basic necessities. Landis82's scaremongering flies in the face of the historical record.
Cutten, you brought up some great examples. Examples where the patient went belly up and it took the economies years to get back on track, fortunately those crisis were local in nature, so every economy could draw on global growth to get back on track. Let's look at 1990. In many regards, you can compare it to today. Crude oil was rocketing sky high, inflation fear was all over in news headlines and the US was facing a severe housing recession. Banking stocks were in a freefall. Most were cut in half or worse in a matter of months. Many many small banks failed. Bankruptcy rumors made the rounds on JPM and C, while they kept denying them fiercely. In the end they didn't go out of business. And the Fed cut rates. They didn't raise rates as some lunatics suggest today! They didn't stand pat! The economy recovered without having to send dozens of the major financial institutions into bankruptcy potentially causing a global economic melt down. Based on this example, I don't see why that consequence would be beneficial to the economy "in the long term".