Sunday, January 18, 2009

The Debts of the Spenders: The Bad Bank Idea

US government officials are now considering a "bad bank" to hold the bad assets of bank balance sheets. UK officials are also reportedly researching similar proposals.

This new credit that world governments are pumping into the banking system can THEORETICALLY offset the deflation in the private sector without triggering long as it is contained w/in the banking matrix.

This is accomplished through electronic swaps and transfers between governments and large institutions (corporations, ngos, quasi-govt bodies, etc.). In the past, bodies like the Resolution Trust Corporation, or RTC were established to handle credit failures. But now the problem is complicated by the existence of derivatives whose notional value FAR outstrips any real
economic value by orders of staggering magnitude:

40x-50x the ENTIRE GDP of the world by common measures.

We can enter a discussion about the different kinds of derivative packaged instruments - CDOs, CDS, CMBS, etc. - and how much value is retained within these "assets" (and I use that label very loosely). But the talking points will always return to the focal point of marketability - if private buyers are unwilling to buy then just how much value is really there? I don't have a specific answer because the books have been sealed by the Treasury and authorities by judicial order.

These derivative pools are a ponzi scheme where the banks relied upon new borrowers to pay interest to existing holders. The banks even had mathematicians who ran complex equations to manage the money pools and decided who gets what payment. Once the last sucker was in, there is no more new money to payout the previous investors their interest.

Madoff, the hedge fund con artist, is a minor blip on the radar screen compared to the utter levels of fraud being concealed by the authorities.

Governments can backstop existing debt obligations ...but can central banks print more money than has ever existed in the world?

Remember, the modern financial system is built on trust in the government, trust in social order, and trust in debt.

And what happens when there is a need for REAL currency to circulate throughout the economy? Case in point - America's auto bailout which I have discussed previously. Workers, sub-contractors, suppliers, small businesses, and other economic actors that had NOTHING to do with Wall Street gamblers are going to have to take money out of the system eventually.

The results will not be pretty.


MC Shalom said...

Chairman Ben S. Bernanke, You Bail Out, We Opt Out.

All of Our Economic Problems Find They Root in the Existence of Credit.

Out of the $5,000,000,000,000 bail out money for the banks, that is $1,000 for every inhabitant of this planet, what is it exactly that WE, The People, got?

They Bail Out, We Opt Out

Opting Out Is Completely Anonymous.

The Credit Free, Free Market Economy

Is Both Dynamic on the Short Run & Stable on the Long Run, The Only Available Short Run Solution.

I Propose, Hence, to Lead for You an Exit Out of Credit:

Let me outline for you my proposed strategy:

Preserve Your Belongings.

The Property Title: Opt Out of Credit.

The Credit Free Money: The Dinar-Shekel AKA The DaSh, Symbol: - .

Asset Transfer: The Right Grant Operation.

A Specific Application of Employment Interest and Money.
[A Tract Intended For my Fellows Economists].

If Risk Free Interest Rates Are at 0.00% Doesn't That Mean That Credit is Worthless?

Since credit based currencies are managed by setting interest rates, on which all control has been lost, are they managed anymore?

We Need, Hence, Cancel All Interest Bearing Debt and Abolish Interest Bearing Credit.

In This Age of Turbulence The People Wants an Exit Out of Credit: An Adventure in a New World Economic Order.

The other option would be to wait till most of the productive assets of the economy get physically destroyed either by war or by rust.

It will be either awfully deadly or dramatically long.

A price none of us can afford to pay.

“The current crisis can be overcome only by developing a sense of common purpose. The alternative to a new international order is chaos.”

- Henry A. Kissinger

They Bail Out, Let's Opt Out!

If You Don't Opt Out Now, Then When?

Let me provide you with a link to my press release for my open letter to you:

Chairman Ben S. Bernanke, Quantitative [Ooops! I Meant Credit] Easing Can't Work!

I am, Mr Chairman, Yours Sincerely,

Shalom P. Hamou AKA 'MC Shalom'
Chief Economist - Master Conductor
1 7 7 6 - Annuit Cœptis