no third solution

Blogging about liberty, anarchy, economics and politics

‘Smart People Are Realizing the Banking System is Broken’

October 9th, 2008

DJIA down something like 700 points, that’s the lowest it’s been in over 5 years. Looking at the chart, it’s a veritable cliff at about 3:30pm. General Motors trading at levels not seen since the 1950s. Their dividend yield is 13% and nobody is buying. This kind of gives you the impression that nobody believes there will be a dividend!

So much for that surprise 50bp rate cut yesterday…

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I hope the FED plans on buying a lot of commercial paper, hell, let’s just nationalize the entire goddamned economy, while we’re at it.

The Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, the White House said on Thursday.

NYT also reports that this is happening even though it is at odds with President Bush’s “free-market” philosophy.

There is no free market philosophy in the current administration, nor is there a free market philosophy in any administration which seeks to impose systematic, top-down controls on the entire economy. A free market abhors the idea of nationalizing industry, of bailing out lenders, too big to fail. The free market did not cause the current economic Vesuvius, because the U.S. economy is not a free market.

There is no shortage of ideas, ranging from the partial nationalization proposal to a guarantee by the Fed of all lending between banks.

Translation: there is no shortage of ideas, ranging from bad, to worse.

Like, further inflationinjecting more liquidity into a broken economic system, or nationalizing more banks. Oh well, as the saying goes, when the only tool you have at your disposal is a hammer, sooner or later, everything starts to look like a nail.

But neither the individual corporate bailouts nor the Fed’s enormous emergency lending programs — including up to $900 billion through its Term Auction Facility for banks — have succeeded in jump-starting the credit markets.

‘The core problem is that the smart people are realizing that the banking system is broken,’ said Carl B. Weinberg, chief economist at High Frequency Economics. ‘Nobody knows who is holding the tainted assets, how much they have and how it affects their balance sheets. So nobody is willing to believe that anybody else isn’t insolvent, until it’s proven otherwise.’

That’s right. A TRILLION DOLLARS has not been enough to assuage people’s fears. Nobody wants to be holding toxic assets, at any price.

The more money the Government prints into the economy, the more distorted become the price signals, and the more impossible it becomes for people to accurately assay the values of anything. This isn’t quite Econ 101, but it’s not Ph.D. Thesis material, either.

Meanwhile, the price of gold is soaring – not because it’s becoming more valuable, but rather, because the currencies against which it trades are becoming all the more apparently less valuable. The chart of gold essentially is the inverse of the DJIA chart, at top…

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no third solution

Blogging about liberty, anarchy, economics and politics