Posted on 09/27/2008 11:32:07 AM PDT by Petronski
I've received phone calls in the last hour from two economists I respect, one of them Larry Lindsey, the other in a position where he'd prefer not to be named. Both have government experience, neither is alarmist by nature, and they say this:
The huge European bank Fortis is apparently about to fail. The ripple effect on the American banking system could be disastrous, with bank runs, liquidity crises, and stock sell offs possible Monday. Wachovia may well fail next week. As Larry put it, this really will be 1933 soon if we don't move rapidly to stabilize the banking system.
And here's the bad news: the current bailout bill, whatever its merits and likelihood of passage, does nothing to address this.
Congress should pass by Monday simple legislation doing two things:
1. Giving the FDIC authority to provide unlimited deposit insurance through the FDIC for transaction accounts in banks.
2. Authorizing the Secretary of the Treasury to provide unlimited protection of principal in money market funds through the Treasury's exchange stabilization fund.
Maybe my acquaintances (and I) are too worried; maybe this legislation wouldn't quite be the right solution. But I wanted to sound what may be, unfortunately, a needed alarm.
William Kristol is editor of THE WEEKLY STANDARD.
‘The huge European bank Fortis is apparently about to fail.’
Gee, Will, do you think this will help Fortis, or do you want to bat clean up for Charles Schumer?
This is Saturday. The world didn’t end Friday as had been predicted by the “national news media.”
Think ING will buy them up? We are now starting to witness the quickest consolidation of any industry in the history of time. 6 months from now, the landscape of financial co’s/banks will look completely different than it did 1 yr ago. Wow.
I don't remember people predicting a meltdown for Friday specifically.
However, it could happen...and soon.
I missed those predictions.
Hmmmmm. All I’ve been hearing for the past two weeks is that this fiasco HAD TO BE DONE by Friday. Guess I was wrong.
Still cheerleading the bailout, a bailout you have no clue about, you don’t know any of the details, other than the fact that the same people who engineered the problems in the first place are in charge of distributing the bailout money. And Bill Kristol is just another soft-ass wuss republican, part of the eastern ‘elite’ pusses who are in bed with so many of these Wall Street crooks that I won’t believe anything he says.
The solution is simple, it is elegant, and it will work.
- Force all off-balance sheet "assets" back onto the balance sheet, and force the valuation models and identification of individual assets out of Level 3 and into 10Qs and 10Ks. Do it now. [Denninger calls this 'transparent balance sheets']
- Force all OTC derivatives [i.e. credit default swaps] onto a regulated exchange similar to that used by listed options in the equity markets. This permanently defuses the derivatives time bomb. Give market participants 90 days; any that are not listed in 90 days are declared void; let the participants sue each other if they can't prove capital adequacy.
- Force leverage by all institutions to no more than 12:1. The SEC intentionally dropped broker/dealer leverage limits in 2004; prior to that date 12:1 was the limit. Every firm that has failed had double or more the leverage of that former 12:1 limit. Enact this with a six month time limit and require 1/6th of the excess taken down monthly.
Once 1-3 are put in place then send in the OTS and OCC examiners and look at every financial institution in the United States. All who are insolvent and unable to raise private capital immediately are forced through receivership where the debt is converted to equity and existing equity is wiped out. With the CDS monster caged the systemic risk is removed, the bondholders provide the cushion for recapitalization (as it should be) and the restructured firm emerges with no debt while the former bondholders are now the owners (of the equity) in the resulting firm.
This will also help with the coming bad car loan crisis and bad credit card debt crisis.
The problems actually hit the ground last summer, have been intensifying ever since, and people are just beginning to wake up and notice. Things are coming to a head, and soon.
We’ve been taking small amounts of cash out for weeks(Wachovia) and keeping it in case of an emergency...we’ve left a substantial amount in, also. I’m not worried about eventually getting our cash, I just am not one who would enjoy standing in a queue waiting to make a withdrawal if there should be a run on the bank. We have enough cash squirreled away to tide us over until the panic passed. We have a 20 year old who’s in college and he never has cash always uses his debit card. We advised him to have a little stash for gas/groceries, etc. should his bank fail and he not be able to use his debit card. It’s just like preparing for a hurricane, IMHO, the preparations include having cash on hand, it only makes sense.
If it melts down, it melts down.
How long do we think we can continue to artificially prop-up a broken system?
The more doomsaying I hear, the more convinced I become that we need to just let it burn to the ground and sift through the ashes later.
But there were no predictions on a market meltdown as far as I know. But that can't be put off forever...the sooner something is passed, the better.
You bring nothing but personal insults and lies.
Ironic that you’re telling me what I don’t know, but you’re wrong about it.
He had that kind of attitude.
bttt
What an astoundingly bad idea.
I’ll stick with the basics of the Paulson plan.
I was going to link that here. Thanks.
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