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Bailout package details emerging and a stunning expansion of FDIC coverage

Tuesday, October 14, 2008, 12:55 PM

As several have commented on the posting below, there is now more detail on the bailout package details.

I'm not sure how much value there is in analyzing all these moves and wrinkles, in part because I think the whole situation is just too complicated to predict, and partly because I doubt we are being entrusted with the whole truth.

Still, there's some interesting stuff here.

Joint Statement by Treasury, Federal Reserve and FDIC

Today we are taking decisive actions to protect the U.S. economy, to strengthen public confidence in our financial institutions, and to foster the robust functioning of our credit markets. These steps will ensure that the U.S. financial system performs its vital role of providing credit to households and businesses and protecting savings and investments in a manner that promotes strong economic growth in the U.S. and around the world. The overwhelming majority of banks in the United States are strong and well-capitalized. These actions will bolster public confidence in our system to restore and stabilize liquidity necessary to support economic growth

Translation:  Boilerplate all the way. Nothing interesting here, except that it reveals a bias that economic growth will return once "liquidity is stabilized."   I hold a different view.  I happen to think that we were living on borrowed money and borrowed time.  I do not believe that we can return to "the way it was" by simply restoring liquidity.

Last week, the President's Working Group on Financial Markets announced that the U.S. government would deploy all of our tools in a strategic and collaborative manner to address the current instability in our financial markets and mitigate the risks that instability poses for broader economic growth. This past weekend, we and our G7 colleagues committed to a comprehensive global strategy to provide liquidity to markets, to strengthen financial institutions, to prevent failures that pose systemic risk, to protect savers, and to enforce investor protections.

Translation:  Okay, this is positively Orwellian in some places.  I would dare say that "protecting savers" would include not forcing them to bailout rich Wall Street banks with direct subsidies and future inflation.  Further, savers would certainly enjoy some free market interest rates (lots higher than the Fed's fictitious rates) that are higher than inflation.  Allowing savers a positive return would be the best way to "protect savers," while negative rates would reward banks and speculators.  Virtually everything done by the Fed and the Treasury to date has been at the pronounced deficit of savers. 

And the part about "enforcing investor protections" is thoroughly duplicitous, given the recent mid-flight rule changes that the SEC has dropped on the market lately (e.g. shorting rules).  And I won't even mention the options backdating scandal and other well-documented abuses that were never investigated or concluded. 
(more) » Read more


Handouts to Wall Street Announced

Monday, October 13, 2008, 9:00 PM

Once again, the "will of the people" was overridden by Congress in their haste to respond to an "emergency," and, once again, it turns out the people's instincts were right.

Remember the initial $250 billion that was going to be used to buy troubled assets which "we had to do right away!" because otherwise there would have been untold misery and millions of jobs lost?

Turns out we don't need to buy any of those assets right away after all.

Who knew? » Read more


A Flood of Money

Monday, October 13, 2008, 8:27 AM

Well, the G7 met and decided that what we needed was, unsurprisingly, a flood of money.  An unlimited wall of new money to replace the money that mysteriously evaporated into the mist of the credit crisis.

I say "unsurprisingly," because this has all been tried before.

When John Law's infamous credit experiment started to unravel in 1720, the French authorities first resorted to decreeing that their failing paper promises were worth more than gold  and silver, and then, upon the almost immediate failure of that edict, to printing as much as necessary to buy out the failing equity and debt issuances upon which the entire bubble was formed.

The whole thing collapsed in rather short order, and the angry, destitute crowds took matters into their own hands shortly thereafter.

Here's how I summarize the news from this weekend: » Read more


Why the dollar rally is going to fail

Saturday, October 11, 2008, 3:25 PM

Through all of this crisis, as regulators and politicians and bureaucrats have labored to inject needed funds back into failing financial institutions, few are asking the harder questions.

Such as:

  • Does this crisis represent something deeper, like a general and unavoidable failure of our entire monetary system?
  • Are the failing institutions worth saving?
  • Will it work?
  • Can the government afford it?

I understand the desire and urgency to "get something done," but I worry that a failed effort will be worse than no effort.  Why?  Because our monetary system is, to put it bluntly, somewhat of a Ponzi scheme, and therefore depends more thoroughly on trust than other systems.

After all, when a currency is backed only by a taxing authority, it is critical that the legitimacy and omnipotence of that authority not be called into question.

People are beginning to ask questions. » Read more


Welcome to

Friday, October 10, 2008, 12:59 PM

... and our growing online community dedicated to exploring the intersection of the Three E’s: the economy, energy and the environment.

The next twenty years are going to be completely unlike the last twenty, and this website is designed to help you learn about the challenges we face, take action in your life and community, and connect with others from all over the world around this material. » Read more


Berlusconi Says Leaders May Close World's Markets

Friday, October 10, 2008, 12:15 PM

An interesting bit of news:

Oct. 10 (Bloomberg) -- Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they ``rewrite the rules of international finance.''

``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said today after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global.''

The really interesting part is here where he hints that a second aim is to revisit the Bretton Woods agreement.

Translation:  The US dollar's role as the world's reserve currency is up for debate.

» Read more


A "Banking Holiday" Described

Friday, October 10, 2008, 9:27 AM

In a few comments, readers have specifically asked, "What do you mean by a banking holiday?"

This is a fair question and I can answer it easily.  A banking holiday will consist of a period of time where your bank's doors are closed and you will have limited access, if any, to your funds.

"What are the possible impacts of a banking holiday?"  Now this is a harder question to answer.  In reviewing the Argentinian experience, the most direct impact is that a large portion of trade will shut down, leading to a rapid depletion of consumer goods from store shelves.

Trade will still happen, but at the glacial pace imposed by a direct cash/barter economy.  In Argentina, there were stories of farmers buying cars from dealers using soybeans. Presumably the dealers then traded the soybeans off for something else they wanted.

If a banking holiday ensues, things will be very confusing for a while.

Below is
a snippet from the September 19 Martenson Report where I try to illustrate the progression of a banking holiday using a scenario format. » Read more


Markets set to open down - hard

Friday, October 10, 2008, 9:12 AM

Dow futures are sitting at -418, or nearly -5% from their close yesterday.  SNP futures are in equally bad shape.

The world markets are having an even worse time of it.

I now raise the prospects of a banking holiday to being a world-wide event.  I will not be even the slightest bit surprised if Monday is the beginning of a market holiday. Followed quite possibly by a banking holiday. » Read more


New Ad Policy takes effect immediately

Friday, October 10, 2008, 1:51 AM Readers:

In a separate blog entry, I introduced myself and described how I’ll be helping Chris. The post included an explanation of the need to add site advertising so we can continue to offer the Crash Course and Chris’ blog for free.

I was surprised and delighted by the number of responses. This is a vibrant and passionate community, and many members shared their views about advertising. I’ve taken the feedback to heart, and I am pleased to announce our new ad policy incorporates your feedback. » Read more


Markets break down - Dow plummets below 9,000

Thursday, October 9, 2008, 3:30 PM

Okay, folks, we are in the midst of a pretty serious stock market breakdown.

Yes, we've had bigger down days, but this is on the heels of some of the most concerted behind-the-scenes and out-in-the-open official intervention that we've ever seen.

This means the market has lost confidence, not just in the US authorities' ability to manage the crisis, but more generally in central banking. 

» Read more