Some economic crisis links (10.17-10.18.2008)

Pam Martens asserts:

Americans are correctly outraged at the spectacle of U.S. crony capitalism crashing stock and bond markets around the globe while simultaneously watching the poster boys of crony capitalism on Monday, October 13, 2008 march up the granite steps of the United States Treasury building in their Armani shoes and heist a fresh $125 Billion of taxpayer dough in broad daylight.

According to Yves Smith of Naked Capitalism:

Bernanke is trying desperately to stop deleveraging. That is neither a wise nor viable objective. There is too much debt relative to the underlying economies. More has to be written off, and the trick is how to do that without producing a crisis in confidence (oh wait, we are past that point, aren't we?). But what Bernanke and his fellow central bankers are trying to do is move bad assets over to the government balance sheet AND provide equity to banks so they go make more loans. The problem is that this merely increases aggregate indebtedness, when a signficant rataionalization needs to take place.

Hopefully, Treasury and the Fed are out of panic mode and will be a little less quick to throw money at every problem that arises. But if they continue with their recent pattern, the US is on its way to debt default, either via substantial inflation or an explicit failure to pay [emphasis added].

The bailout is meant to loosen the credit market in the near-term. Yet, the New York Times suggests that that objective is unrealistic. It is unrealistic because the recipients of the government's aid may hoard their gift-money or put it to other uses.

On the other hand, Mike Whitney reports that "[t]he credit markets have begun to thaw. Interbank lending is beginning to ease and the financial system has begun to function a bit more like it should." Yet, Whitney does not use this information to predict a return to normal banking operations. Following William Engdhal (here), He instead expects the Wall Street survivors to use the new and emerging situation to attack the European Union. This fight is in their interests and theirs alone. He concludes with:

The damage that the investment banks and their non-bank counterparts (Hedge funds, broker dealers, SIVs etc) have done to the broader economy and the lives of hundreds of millions of people around the world who will suffer needlessly for their excessive and fraudulent activity, is incalculable. Still, the remedy is simple and straightforward. The banks in question should be forced to establish their solvency according to "mark to market" evaluations (Triple A MBS=$.22 on the dollar) and if they cannot meet minimal capital standards; they should be taken into receivership, their equity shareholders wiped out, their leading executives removed, and they should be transformed into public utilities under the supervision of the Congress of the United States. Once the banks are entrusted to our elected officials, we can move on to the Federal Reserve. The "price fixing" and manipulation of interest rates by privately-owned banks is a failed experiment. It's time to move on. Abolish the Fed.

News from the Bizarro World: Steve Lohr of the New York Times suggests that excessive government regulation produced the Fannie Mae and Freddie Mac debacle!