> Willem Buiter's FT comment,
> Those whom the gods would destroy, they first
> make mad
> <http://blogs.ft.com/maverecon/2008/09/those-whom-the-gods-would-destroy-
> the y-first-make-mad/> : What is likely to happen next?
Buiter's nightmare scenario isn't the future, it's already the past.
> No US bank
> will lend to any other US bank or any other highly leveraged institution.
Done. Interbank lending has shut down - and that's far more important to the real economy than gyrations in stock prices, which take more time to feed through to the real world.
> CDS spreads for banks explode, as will those of all
> highly leveraged financial institutions.
Done and done.
> Remaining sources of
> external finance for banks, other than the facilities created by the
> central banks and the Treasuries, will dry up.
Done.
> Banks will stop providing credit to households and to
> non-financial enterprises.
Done.
> The government nationalises all US banks and other highly
> leveraged financial institutions.
Buiter makes this sound like a problem, but it's really the first step towards the solution: buy out the banks and recapitalize them, NOT THEIR BAD ASSETS.
It's simple: bad debt = ocean, bank = dam. If there's a hole in the dam, you don't try to drain the ocean. You shore up the dam. Then you send in the accountants and figure out where the bad debts are, and write them off.
> None of this is unavoidable, provided the US Congress grows up
> and adopts forthwith something close to the Emergency Economic
> Stabilization Act as a first, modest but necessary step
Won't work. Japan tried to drain the ocean in 1996-2000, and they were a net creditor with a world-class industrial base. It failed.
Intellectual, I knew that the US Empire was run by a narrow-minded, blood-stained, utterly incompetent gangsters. But to see the kind of stupidity and jackassitude on display by our elites is mind-boggling. We literally have a political overclass that doesn't understand the first thing about fractional reserve banking. Unfreakingbelievable.
-- DRR