Wednesday, September 17, 2008

PRIVATIZING PROFITS . . . AND SOCIALIZING RISK (AKA, TOO BIG TO FAIL)

I'm too numb to post anything thoughtful about the financial situation. Just do yourselves a favor and read this, from the Cunning Realist. Highlight:
The past eight years have constituted the fastest, most complete reversal of fortune in this nation's history. One party controlled the government for almost all of it. Obama/Biden have been handed on a silver platter one of the starkest policy debacles ever, and just weeks before an election. If they don't hammer the White House and Republicans every day for this, they deserve to lose. And if voters don't think change is needed, they deserve whatever John McCain gives them.
Or maybe this is the highlight:
A couple of big-picture realities have become obvious. First, our financial system as it's currently constituted is neither profitable nor viable without artificially low interest rates. Moreover, in an age of risk socialization, the winners are those who acquire an implicit government guarantee by becoming "too big to fail." Individually, each reality has broader implications -- together, even more so. Perma-low rates and system-saving bailouts and interventions aren't possible without a de facto dollar standard; the longer-term inflationary consequences are too serious.
Oh, just read the whole thing. It'll take you 3 minutes. But you'll stay scared all day.

Labels: ,

8 Comments:

Blogger Rickey Henderson said...

Moreover, in an age of risk socialization, the winners are those who acquire an implicit government guarantee by becoming "too big to fail."

Yep, that's what it is. If you're a major investment company looking for help, it's not enough to merely fuck up just your own finances and threaten the jobs of all your workers. No, you need to fuck up so badly that your escapades threaten the well being of the entire market. THEN you get some government assistance.

8:13 AM  
Blogger Smitty said...

I enjoy Obama's response to this issue, in that McCain's economic policy has been top wait until the situation gets so bad that emergency measures have to be taken, rather than regulating this market the way we should.

I love how McCain is out there every day now saying the economy is in poor shape. FLIP FLOPPER!!!

9:45 AM  
Blogger DED said...

I kept hoping that the AIG bailout wasn't going to happen. [sigh]

3:38 PM  
Anonymous wfta said...

I guess I’m ahead of the game since I’m learning to live without electricity. I reluctantly subscribe to the too-big-to-fail theory because if we reach the good-credit-can’t-borrow point it gets so much worse for me, da litt’l guy. Hopefully it will be appreciated by the voters that GOP defines “moral hazard” as poor and working class people having access to healthcare. For those of us in the middle, the third quarter 401k and IRA statements just need to arrive before November 4th.

But there are still seven weeks left for a Cheney Gambit.

11:40 AM  
Anonymous wfta said...

And one more thing: I read about the AIG bailout in the WSJ at lunch. I guess the difference in the paper since becoming part of Newscorp is that the old Journal couldn’t explain what it meant by “complex financial derivatives” and the new Journal sees no reason to try.

2:34 PM  
Blogger Weaseldog said...

Morgan Stanley and Washington Mutual are circling the bowl now.

No one seems interested in stepping for them.

CitiCorp may be on the ropes soon too. They have more bad paper than anyone.

4:37 PM  
Blogger Edwardo said...

From my site: Disasterporn.blogspot.com

WAKE THE &%$# UP!

ATTENTION, AMERICAN PEOPLE! YOUR GOVERNMENT, IN THRALL TO THE CORRUPT PLUTOCRATS OF WALL STREET, IS ABOUT TO BAIL OUT WHAT IS LEFT OF THE FINANCIAL SERVICES INDUSTRY AND, WHO KNOWS WHO ELSE. YOU ARE GOING TO PAY IN WAYS YOU NEVER DREAMT OF IN YOUR WILDEST NIGHTMARES.

IF YOU DON'T TAKE DRACONIAN ACTION NOW, HERE IS WHAT IS GOING TO HAPPEN:

THE U.S. BOND MARKET, THE PLACE WHERE THE GOVERNMENT RAISES ESSENTIAL FUNDS TO PAY FOR THE DAY TO DAY RUNNING OF GOVERNMENT WILL BE DECIMATED. WHY? HOW?

LET'S START WITH...

1.) YOU THE TAXPAYER, HAVING VERY LITTLE WHEREWITHAL, WILL, GOING FORWARD, PROVIDE SHRINKING TAX RECEIPTS TO THE GOVERNMENT.

2.) FOREIGNERS, SENSING THE PARLOUS CONDITION OF OUR NATIONAL COFFERS, OVERBURDENED AS THEY WILL BE WITH NEW, CRUSHING OBLIGATIONS, (AND DISLIKING US ANYWAY) WILL CEASE TO PONY UP AT THE BORROWING TABLE.

3.) THIS WILL NECESSITATE MASSIVE MONETIZING-PRINTING MONEY- BY THE GOVERNMENT IN ORDER TO PAY FOR ALL THAT THEY HAVE NO FUNDS TO PAY WITH. THIS WILL IN TURN LEAD TO HYPER-INFLATION. IN A HYPER-INFLATION, SUCH AS EXISTED IN WEIMAR GERMANY, BONDS CAN NOT BE PROPERLY PRICED. THAT SPELLS AN END TO OUR CREDIT MARKETS. WHEN THAT DAY ARIVES, WE WILL WELL AND TRULY BE A FINANCIAL AND ECONOMIC BACKWATER.


An Open Letter to Barney Frank!

Dear Congressman Frank,

Today you were reported to say,

"It will be the power — it may not be a new entity. It will be the power to buy up illiquid assets," Frank said. "There is this concern that if you had to wait to set up an entity, it could take too long."

The illiquid assets you refer to are illiquid for good reason. They are worthless. There is no market where there is no value What, pray tell, do you propose to pay for these worthless assets with since the funds do not exist to pay for them? In any case why would you pay money for something the rest of the world treats as worthless? From the start this initiative reeks of a catastrophic boondoggle for all but Wall Street and the financial industry in general. From what coffer do you propose to shower enormous sums of money on Wall Street in exchange for the worthless paper? The funds aren’t there, which means you will have to endorse monetization for the purchase of worthless paper. This will have the purpose of cheapening the value of the U.S. dollar which will adversely effect hundreds of millions of people who are blameless in Wall Street’s self inflicted debacle. Finally you run the very great risk of imperiling the U.S. Bond Market as your proposed action almost guarantees a downgrade of U.S. Sovereign debt. Please reconsider your present course of action. It is neither fair, efficacious, or sound.

8:47 AM  
Blogger Mike Eberhart said...

Yes, we are marching towards the inevitable: total failure of the current system of massive debt (government, corporate, and personal) that masquerades as "economic growth".

Companies are "too big to fail", but yet what is the government's "solution" to the problem: further consolidation among the remaining companies. This is insanity! I guess we just sit back and watch, because even now, our elected officials won't stand up and stop this. I like a few (like Ron Paul) that come out and say how bad the problem really is, but otherwise they are all the same.

11:26 AM  

Post a Comment

Links to this post:

Create a Link

<< Home