that bubble would be the current administration acting in unison with the Fed to print more and more money to prevent corrections from further taking place, which in their warped view, is a big no-no until we get to the point where bubbles inadvertently begin to form again in all asset classes with inflation running at double digits. imho it'll take place not soon, but it definitely will about in 5-10 years.
The outcome you're predicting is certain: It's the infamous 'inflate or die' mantra that troubled nations inevitably employ when all other solutions seem more painful. So, they'll print money as fast as can be (figuratively - it's all electronic transactions now), flood the U.S. with liquidity, hope and pray that this will re-inflate those 'toxic asset' values (i.e. house prices), and the banks will go from their current states of insolvency to solvency once again. The problem Bernanke & Geithner have is that the shot clock is running, and no one knows how much taxpayer money they'll have to pour into the black hole that is the U.S. banking system before time runs out, in order to stave off what might be inevitable nationalization.
Would it have been cheaper for governments and central banks around the world to just guarantee deposits and let these financial entities go bust? Sure the cost would run up in the trillions but that is the case also today and still there is great uncertainty about the safety of these institutions no?
The podcast is now up on the website and free to download for one week: http://www.thisamericanlife.org/Radio_Episode.aspx?episode=375 This is the best program, whether on tv, radio or in print, that I have come across this year, and it will amaze you when you realize the black hole of shit we are truly in. If no one believes you when you tell them there is likely not a solution to the problems we face, just have them listen to this podcast.
Chances are they will not be able to "print fast enough", just like in the 30s. Hugh Hendry's (12/31/2008) take on the risk of Dollar devaluation via the printing press vs. a Dollar shortage due to deleveraging:
it's not like they will really have to print them. it's just a figure of speech. they'll just type in a few strokes at their computers, hit enter, and VOILA! instant credit! they didn't stop following M3 for nothing.
This is a good question and I haven't heard anyone in charge answer it well, maybe someone has. "Too big to fail" is the usual answer, but why? Bernie Sanders (I-VT) said "A bank that is too big to fail is a bank that is too big". Amen. Perhaps it is all money down the rathole either way. If the FDIC takes over the bank depositers will need to be paid. Banking-business relationships will be destroyed. Too disruptive. OTOH, if you could get past one hell of a month, new banks would start popping up everywhere.
Hendry's take is interesting. I just can't buy into it, even though I really like him and respect him. I don't see how there will be dollar shortage just because asset sale prices will generate fewer U.S. dollars because asset purchases will also draw fewer U.S. dollars out of the system ($1 will be worth whatever the market will bear, whether on the buy or sell side). As to the general point of this thread, just nationalize the damn banks and get it over with already, so that we can begin to prepare to dig out from the looming depression.