Posted on 10/14/2008 12:55:09 PM PDT by Freedom_Is_Not_Free
After pointing a gun to the head of Congress, threatening a financial meltdown in case his plan was not approved, Treasury Secretary Hank Paulson has finally arrived at the only logical conclusion: his plan will not work.
Desperate for a Plan B, Paulson is slowly warming to the suggestion of many economists: inject some equity into the banking system. Unfortunately, it is too little and too late. The confidence crisis currently affecting the financial system is so severe that only a massive infusion of equity capital can reassure the market that the major banks will not fail, recreating the confidence for banks to lend to each other. The piecemeal approach of 100 billion today, 100 billion tomorrow used with AIG will not work. It will only eat up the money, without achieving the desired effect—without reassuring the market that the worst is over. Simply stated, nothing short of a 5% increase in the equity capital of the banking system will do the trick. We are talking about 600 billion. Unfortunately, even if the government is willing to spend this kind of money, there are three problems.
(Excerpt) Read more at itulip.com ...
Jefferson wrote thousands of letters, and they are collected online at a terrific U. VA. website. You can find his letters grouped by any subject imaginable. He has over a dozen on banking alone.
People not paying any attention to the actual state of affairs in the market, nor to the actual moves by the different players, are trying to comment on it based on nothing but spin in the pundit press. They are hopelessly out of touch with realities on the ground. They are the equivalent of would-be play by play commentators on the super bowl who are out in the parking lot watching previous games in reruns.
Bernanke was the smartest econ prof in the Ivy League! That's supposedly why he was chosen for his position.
And that's good enough for me! NOBODY is smarter than the smartest Ivy League econ profs!
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market, and so check the movement."
~~Harvard Economic Society, October 19, 1929
"Business will turn for the better this month or next, recovering vigorously in the third quarter and end the year substantially above normal."
~~Harvard Economic Society, May 17, 1930
Mises essentially concludes that credit booms result in painful credit contractions. Have we had a credit boom? Are we in a credit contraction? Is it painful? He also concluded that we either endure the pain or the currency would be destroyed trying to avoid the pain. Is that happening now?
Can we skip the technicalities of whether Mises' assumptions about capital since his conclusions were correct?
Once again you are composing obtuse prose pretzels. To hide your lack of understanding, I think. Anyway, trying to grasp your point here, are you saying that the editors of the H.E.S. in 1929 and 1930 were stupid, but Bernanke is brilliant?
And if that was your point, (it's hard to find the points in your pretzel posts), why should we believe that?
Am I one of those people? I bought Friday early PM manually at a low point and automatically sold 2/3 of it this morning on triggers. Or was I just lucky? In fact I was not, I pretty much knew what the G-7 would say and I knew what the market reaction would be. I also know that what they are proposing is ultimately ineffective, hence my partial sale today.
The demand that a chosen asset should have a chosen return, and that everyone else's economic freedom should be curtailed to benefit you, without you ever moving what you hold in response to the real world, is not a reasonable nor a just demand. It also isn't realizable in the corporeal universe. The value of *everything*, fluctuates with *every* economic action of everybody else, all over the world. Demanding that the values of things never move, is demanding that other men never act.
I know. We don't want moralizing about some of your vile friends and colleagues who took down our banking system by writing contracts that have now racked up several hundred billion dollars in defaulted promises that they would never in their wildest imaginings have been able to keep. They were just betting against he odds that they would never have to pay out on them. Nothing immoral their just a bad trade.
Except that if you do that anywhere else in the world besides wall street you go to jail for fraud, assuming you live to have the trial in the first place.
But you can prevent Greenspan from giving it out at 1%, well below the risk of inflation and default. Why didn't you prevent Greenspan from doing that?
Money is supposed to be a store of value. The reason it isn't is people who debase it to avoid economic pain or for political gain. We used to just have the former, but now the two are connected. The two party system is inextricably linked to the credit bubble as we saw in the bailout vote.
I would swear I was hearing that right up to moments before Paulson's Verge of the Abyss of Doom speech.
In fact, I am not sure what all the fuss is about since we are not even in a recession IIRC.
Rothbard, for example, suggests 100% reserves for demand deposits but certainly supports investment banking - that is - where the investor KNOWS that his money is being lent out and will therefore be unavailable to him for a given time period, and also that it will be at risk.
Where they have trouble with the current system is with the idea that depositors are fooled into thinking that they can have access to their monies at any time when in fact the banks have lent out all but a fraction of those monies. This makes banks, essentially, bankrupt, and opens them to the possible ruin of bank runs.
And of course they have problems with the central bank using the banking system to (dishonestly) inflate the money supply, the practice of which allows the government to deficit spend and which is essentially theft of purchasing power from savers.
As for Bernanke being a fool... he's certainly a smart man but in one respect he IS a fool. He thinks he can predict the future. He can't.
He did believe that it was possible for a society to flat run out of capital, if it overextended investment beyond current savings. But he was hopelessly wrong on that question, and his error rests exactly on his faulty understanding of "quantity of capital". If a value quantity is meant, then the primary cause of changes in the quantity of capital is *not* savings (it is, instead, change in value of existing capital as its use is redirected), and investment may indefinitely outrun savings. If a physical quantity is meant, then there is no necessary and in fact no empirical relation between this quantity and the total earnings of capital, and it is not regulated by the rate of interest.
The currency is in no danger of being destroyed by extensions in the quantity of money to meet its panic, safety demand. Panics aka deflations are scrambles to get into money, destructions of currencies aka hyperinflations are scrambles to get out of it. They are not remotely the same thing and there is no danger of modern trained economists confusing the two, or treating one as they would treat the other.
He said total losses from the meltdown will be about $3 Trillion. That is, looking forward now. Looking backward, total losses could be even higher. 'Should 'a, could 'a, would 'a and zabba, dabba dooo.
Oh, well. Nothing to see here. Time to move on . . .
"I'd like to see mainstreet try to live for 6 months without financiers directing their activities. They be reduced to shooting each other over the last can of campbells." posted on Saturday, October 04, 2008 3:38:33 PM by JasonC
What amazing hubris! It's like hearing the officers of the Titanic screaming in rage at the passengers.
I don't demand that my money should have any return, I simply demand that it not be inevitably cheapened by excessive credit. We just saw a credit boom, followed by an inevitable credit bust, followed by devaluation of the dollar. Are you saying that those three events (especially the first one) are solely the result of free men acting with free will? No government involvement?
What a howler! Now I get it, you are pulling our legs! Like Andy Kaufman, pretending to be the character! Oh, good one Jason!
Well they did all rush (or slide) to one side of the ship thus causing it to capsize.
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