The damage spreads ….
I think it is fair to say that we have reached, for all intents and purposes, step 12 of Nouriel Roubini’s 12 steps to financial disaster — i.e. “a cascading and mounting cycle of losses and further credit contraction.”
Macro-man, speaking of the currency market, says crash.
John Jansen is a bit more verbose:
“The movements in the FX market are incredible. One friend just read me something which he has received from an fx trader which said that the only things that anyone desires to own are the US dollar,the Japanese Yen, gold, bottled water and bullets”
If 1998 is any guide, these kind of dislocations in currency markets won’t do wonders for the aggregate returns of the hedge fund industry. A host of high carry currencies (i.e. the currencies of countries with high interest rates) have sold off sharply. Look at the euro and Australian dollar v the yen, the Brazilian Real against the dollar and the Icelandic krona against pretty much anything. To facilitate comparison, I set all these currencies at 100 at the end of 2005.
Looking back to 2003 paints only a slightly less ugly picture.
The sell off in high-yielding currencies (and emerging market equities) is evidence a broad-based retreat from any kind of risk. Right now we are seeing huge moves in markets. But there is little doubt that these moves portend a major downshift in global growth, as economies that previously were flooded with credit have to adjust to a very different financial environment.
Treasury yields are now back down to where they were after Lehman’s bankruptcy, more or less.
The Fed has effectively promised to auction off its entire pre-crisis balance sheet to supply the market with liquidity. And since it has increased its balance sheet, it is actually going to be supplying a lot more than $900b of liquidity to the system. Willem Buiter thinks the world’s central banks now either have to guarantee all interbank lending or become the counterparty to all lending among banks. The banks simply don’t trust each other. On current trends, I suspect he is right.
2 unrelated questions.
1)Short term risks and events aside. Do you see that in a few months, global capital flow will change to a new stage? And the barriers will be so high that China’s capital restriction seems to prevail the regulatory developments.
2) Carry trade. Any detail and serious discussion on Japan’s currency carry trade history and impacts?
Deflation Models
http://globaleconomicanalysis.blogspot.com/
I had several models for how deflation might play out. Here they are.
Everything but treasuries sink
Everything but treasuries and gold sink
Gold sells off initially then rallies with treasuries
Yes, this treasury bull is extremely long in the tooth. And yes there will be a time to short treasuries. But there has not been a bull market in history, in anything, that ended with that asset class being nearly universally despised.
All things considered there is genuine pent up demand for treasuries right here in the US should foreign buying subside. The reason is simple. It is far better to make 3% in treasuries than to lose 30% in equities, commodities, or corporate bonds.
Potential For Deflationary Crash
At this juncture the markets are definitely in a potential deflationary crash mode. And as stated above, I believe the Fed is essentially powerless to do anything about it. The Fed cannot possibly bail out every bank, brokerage, airline, and automotive company that is in dire straits. They cannot force sovereign wealth funds to do so either.
The FED may be able to bailout many banks but the FED cannot bailout the SYSTEM.
Again: nationalize the banks. Don’t recapitalize. Really nationalize. Just buy their shares outright, at the present market price, with fresh FRNs, and consolidate them onto the sovereign balance sheet. Stop the crisis overnight. Doesn’t the Fed have authority to buy any asset in an emergency? If this isn’t an emergency, what is? If it doesn’t make anyone richer, in what way can it be inflationary?
The decoupling of gold and euros/oil is very worrying. The signs of a general run on paper are preliminary, but they’re there. Call it stage 13. CBs definitely don’t want this to get to the point where they have to deal with it by dumping gold reserves into the fire. Drastic action is required in order to repair the global fiat system.
the US house didn’t have time to vote down the original plan, add pork and re-run. It was the first vote or never.
It’s going to be tough once the food runs out at the grocery store…
Brad,
Why are the central banks being so nice to their funding banks? Can the Fed enforce interbank lending on threat of withdrawal of access to the Fed windows? Is it the case of the bad banks are begging while the good banks are hording?
Quote of the Day from Mish Shedlock:
The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
I am inclined to the opinion that regulatory and supervisory decision-making processes should lie entirely with the Board of Governors, and that the Board should be reconstituted to include the Secretary of the Treasury, the Comptroller of the Currency, the Chairman of the Federal Home Loan Bank Board, the Director of the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision, and the Chairman of the Securities and Exchange Commission.
Moldbug: The Paulson Plan put the kibosh on Nationalization, at least until after the election. The US Govt isn’t taking a partial equity, or senior debt, stake in financials for the $700B it’s putting in!
They clearly haven’t heard of “nothing for nothing”
Gold is fading in and out, but still down from its highs for the year.
-zanon
Definitions of the money supply are not timeless. The extension of the scope and practices of Troubled Asset Relief Program accompanied by Federal Government guarantees – assures a secondary market for housing – the “store of purchasing power” attribute of money.
I.e, there are various types of “tertiary money”. These assets possess general liquidity. They do not bear a direct, unit for unit, unvarying relationship to the primary, means-of-payment, money supply.
Though to pass legislation, or expand the scope of the Board of Governor’s powers (extension of discount window lending), will add to the existing, and excessive, monetary flows (MVt) that plague our economy.
I.e., there are classifications of tertiary money. And they involve federal insurance, underwriting, and guaranteeing, with the credit of the U.S. Government (U.S. Tax payers).
zanon,
Well, that was plan A. Or possibly plan B. Or even C. Do we hear a D?
People in Washington who believe in a free market need to (a) terminate efforts to convince everyone that we have one, and (b) focus efforts on how to get from here to a free market. Stopping the bleeding is part of (a).
Unfortunately the last thing the American electorate wants to hear is that this shocking number, 700B, over which so many words were spent, is wholly inadequate. Someone needs to (a) tell them that, and (b) reassure them that we actually are not on the gold standard, we really do have a fiat currency, the Fed truly can print money, and none of this need have anything to do with the “taxpayer.”
I think TPTB are afraid that if the voting population really understands this, the inflation genie will be out of the box and we’ll never get him back in. I don’t think this is true, but if it is, too bad. You can’t burn down America’s life savings in defense of a lie. Roll them ‘copters.
““The movements in the FX market are incredible. One friend just read me something which he has received from an fx trader which said that the only things that anyone desires to own are the US dollar,the Japanese Yen, gold, bottled water and bullets”
i think that the original of that – from many many years ago – was “krugerrands, a bicycle, and a machine gun.”
i would go for mixed partly wooded farming land in a temperate climate zone, a spring well to provide bottled water for the black market, cash and krugerrands securely concealed, taxes overpaid in advance, an organic farming system without machines, a barrel of malt whiskey . . . . and instead of a gun, a bow . . . . and wooden arrows ?
I like the sound of a barrel of malt whiskey.
Moldbug — I would think you would be celebrating the surge in demand for mold about now …
Outright nationalization of everything is politically impossible, as there are banks that claim that they are not as weak as the others, could make it on their own and thus their equity shouldn’t be wiped out (or close to it). But buying a lot of preferred stock looks increasingly feasible.
[...] Batatadas O ministro Mantega anda reclamando por aí da suposta irracionalidade dos mercados. Ele deveria, ao invés disso, procurar entender o papel do “carry trade” na alta e na baixa do real. [...]
MOLDBUG: Hah!
Indeed, there has been a whole alphabet soup of plans, all of them equally ineffectual at getting to the root of the problem (although they have helped with other problems, such as Goldman Sachs bonuses). And while the alphabet is finite, it can always be extended with ordinals.
It is true that Washington DC still actually believes in 1) the free market, and 2) what they had in the financials was a close approximation to 1. But people believe retail banks is free too, because except for FDIC and all the regulations, it is! I also find the calls for regulations quite pathetic, given how badly all the existing regulations, plus OFHEO, failed.
Finally, I have been truly appalled at the media coverage of this. When the house voted down the plan initially, the headlines ran “dow falls on plan’s failure” even though the market was down 200 on the open, fell 400 at about 1pm, was flat when the plan failed (2pm), and then dropped another 200 at close. The “reeducation” and “consensus manufacture” that followed was quite incredible, and then we have the plan’s passage, and subsequent dow plummet. I wait in vain for headlines reading “plan stunk, markets tank!”.
It would be one thing if the People believe the dollar had something behind it, and the Treasury didn’t. This would let Ben do the right thing without inciting the ire of the polis. But Ben also thinks we have some kind of non-fiat money (as does Trichet). There is no other explanation for all the inflation fear in an environment where widespread deleveraging is shrinking (concentrating) the money supply.
BRAD: Gold is doing well, but GLD has yet to return to the 100 it enjoyed earlier this year. I don’t think even this flight to quality is our abrupt and spontaneous shift to a new Gold Standard.
-zanon
Do not argue with Buiter.
Besides, there are no markets. Let’s all go home and come back when things are normal again. Only grownups should be outside these days. There is really nothing to analyse, or to gain from. Fools may try to make some money and a few lucky ones will, keeping alive the myth that man can beat the Market.
Anyway, the Europeans are doing what needs to be done (i.e. remove the opportunity to gain from wrecking banks) and the US has not and will not. Let’s see who wins.
[...] Stock Markets are all down. And there was some really wild moves in the foreign exchange markets. Brad Setser has the charts. [...]
What I’m really curious about is will they revise our 3.3% 2Q GDP growth number, and will it be an upward or downward revision?
Brad,
Nouriel Roubini is not the only one whose predictions are coming true at the moment. Richard Duncan’s predictions from his 2003 book (which he revised in 2005), The Dollar Crisis: Causes Consequences and Cures warned that the global imbalances would cause a great depression that would be the biggest economic story of the 21st century.
He argued that global aggregate supply is beginning to outrun global aggregate demand as the countries pursuing export-oriented growth are producing more and more goods without a corresponding increase in income among worldwide consumers. Eventually, he predicted, US consumers will not be able to borrow more for consumption. Like other debtors they will be forced to pullback, causing the depression.
Roubini’s ideas and Duncan’s ideas do not conflict. In fact they coallesce around the same idea: the American consumer can no longer afford to pile on debt. I see something that you and Roubini wrote in 2005 in the CESifo Forum (6) to be the link between the two:
“No doubt the dollar’s position as the world’s reserve currency and the depth of US financial markets creates an intrinsic source of demand for both dollars and dollar denominated assets. However, this could prove to be a mixed blessing. The dollar’s privileged position could increase the risk that the world will finance large US trade deficits for too long, delaying the needed adjustment and making the eventual adjustment all the more difficult and unstable.”
In our book we propose a plan for getting the United States out of this mess. I briefly describe it at the end of our commentary that was published in Enter Stage Right this morning. The commentary is called, “Palin gets it, but the bailout makes it worse.” You can read it at:
http://www.enterstageright.com/archive/articles/1008/1008bailoutworse.htm
Howard Richman
http://www.tradeandtaxes.blogspot.com
bsetser, I guess I’m not the fiddling-while-Rome-burns type. I’d love to see remetallization, but I’d prefer to see it done right and not at the expense of everyone else’s misery. There’s a big difference between a policy initiative and a panic.
Also, panics can reverse as easily as they start. It’s a long way from sold-out retail shops (a bottleneck in refining capacity, not a real shortage of metal) to anything like a spontaneous remonetization. One day of acting like a currency does not a currency make. Give it a couple of weeks at least.
As for the banks, I don’t see the point in an equity wipeout, for solvent or insolvent banks alike. I favor a straight acquisition in which USG buys all shares outstanding at the current market price. Why punish anyone? At least, any further? Surely, the message has been sent already…
Moldbug: Separating solvent from insolvent banks makes sense if your end goal is to get the current system back up on its feet.
Nationalizing everything makes sense if your goal is a reboot, and I don’t think we’re there yet. As you say, give it a couple of weeks at least.
Brad: Moldbug is not talking about re-capitalization by injecting funds, and taking an equity (or preferred debt) stake. He’s talking about simply buying the bank at par. It isn’t a cram down, it’s a buy out.
-zanon
Rien:
I have been waiting for someone to challenge the “to big to fail mantra” we incessantly hear in the US.
Europe seems to be starting on a path that sounds interesting to me. Will watch to see “who wins”, if the contest is in deed a comparable one.
I’ve been getting my financial crisis management theory and experience on the fly, so I can’t point to any brilliant solutions of my own, dating back to where they could have made a difference.
But with my new and improved hindsight, I think we should have told the FDIC early on not to worry about the mere $50B they had in insurance money in their account, and the government would back the FDIC with any amount necessary. (as an alternative to some of the other near $2T in spending so far). The articles I’ve read about bank bailouts all seem to agree that authorities need to move quickly to takeover zombie banks, because they just eat more good flesh and blood and get more expensive to bail out later.
I think if the FDIC had known for sure they had the wherewithal, they may have moved sooner and quicker, and maybe improved the situation. Depositors would be protected and bank run psychology averted. A minimal amount of money would be spent on evil doers.
But this seems to be the approach taken so far in Europe, although a smaller size country with disproportionate size banking industry don’t have the money to pull it off.
But then the FDIC can’t really address the IBs and counter party risk, so that one still looks like a lose-lose.
Actually, Brad, analysts seem to have said the one thing most investors hate to hear, (at least in asia) portfolio liquidation – in other words, erm, a few more days of this?!
Hey, look on the bright side, at least they can’t say there isn’t liquidity, it’s just not going where those dying of thirst are…
But giving interest on the money being parked with the authorities is really the ultimate joke, c’mon, you’re admitting that the banking swystem is now on life support, need the “machines” to circulate the blood?!
[...] Brad Setser is on this, too. His charts are better. Actually, his everything is better. This entry was written by Nemo and posted on 2008-10-06 at 12:42 and filed under Finance. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL. « One Fed movement a day is healthy The Real Great Depression » [...]
There is a post at http://www.gotoguy.com/?p=400 about market cycles and the fact that the government is postponing the inevitable. We should let failed companies fail and let the market correct itself. This bailout won’t be any more effective than the New Deal was for our last depression.
cant get the charts on here.
anyway, if this crisis is worse than any in the last 50 years. EURJPY n GBPJPY, as examples, have more to go. The lows were 90 for EURJPY in 2000 and GBPJPY at 130 in 1995.
So?
With European corporates borrowing up for renewal by the year turns and plenty of credit review at year end, im not too optimistic about the outlook for the Eurozone.
And we have yet to touch on the consumers and laymen on the streets. Its not looking good.
zanon,
If a bank is insolvent, its market cap should already be 0. So I’m not sure the issue is particularly germane to the proposal.
Basically in my world USG would do the same thing with solvent and insolvent banks, except that it would pay for the former (by purchase from the present shareholders, at the present market price). Acquire all the bank’s assets; assume all of its liabilities. This does not strike me as a particularly dramatic feat of creative accounting.
The basic issue is that even the solvent banks are maturity transformers. Therefore, even the solvent banks depend on liquidity insurance, perform credit expansion, etc. Ie, they are – in the wonderfully candid words of Christopher Whalen – government-sponsored entities.
Once the banks are nationalized, you have all the time in the world to think about the best way to privatize them. For the meantime, they can operate in compliance with their existing policies and procedures. Which are already regulated to basically the last toe hair, anyway.
I mean, it doesn’t really matter, because none of this will happen. But if you’re proposing politically implausible fixes, why not go all the way and actually fix the system?
Moldbug: You and I are in violent agreement.
Unfortunately, right now you cannot tell solvent from insolvent bank (liquidity/MM issues aside) because banks are not being honest about the value of their assets on the balance sheet. If they were forced to write down those assets, then their equity would be zero.
But this is not true for all banks (again, liquidity/MM aside). The Treasury wants to get the system up and running again as it was before, so eventually they will have to separate the wheat from the chaff (which TARP does not do).
They will not nationalize everyone unless they want a total reboot. Which I, too, hope will be on a gold standard, with matched maturity, etcetera
-zanon
RBA cuts 1% to 6%. So that leaves the Eurozone. Unless and until a concerted effort by the Central Banks to show their committment to lessen this credit crunch, the banks mistrust aside, the crisis remains unabated.
Brad, any idea how and by how much should the CBs cut to help ease the money woes?
zanon,
The accounting uncertainty you describe is why I think the most judicious definition of solvency is the present equity market capitalization. If it’s 0, the bank is insolvent. Otherwise, it’s not
If you nationalize both the wheat and the chaff, the solvency of the institutions that were nationalized becomes a completely moot point. It does not matter which asset or which liability belonged to which old-regime bank.
Our new Ministry of Loans is in the much more pleasant position of analyzing the individual assets, not the banks. Moreover, it can use the market to assign both interest rates and default risks, in a very simple way: by putting the MBS on EBay. Or whatever. Or, of course, USG can simply hold them to maturity. Effectively, nationalized mortgage or MBS payments just become another revenue stream, just like tax revenue.
Cedric,
I have no special insights in “Too Big To Fail” (TBTF). TBTF is what every bank manager aspires too, because then his thin capitalization allows him to enjoy many agency benefits (at the expense of shareholders, customers and possibly taxpayers.
If you allow me a brief remark about banking economics: banks usually combine several businesses, with variable synergies and often shaped by regulation, rather than competition (the US system is a fine example). Regulation of financial services is highly problematic. Hence banking economics depend very heavily on business mix, scale effects specific to each component business, and synergy and diversification effects. For instance, in the US banks can reduce their lending costs (consisting of operational costs and credit losses) by achieving optimal scale in operations and achieving optimal diversification in terms of industries and geography. But the economics of other businesses, such as investment banking, brokerage, consumer finance, transactional banking, may have completely diffrent geographical and scale effects (for instance in investment banking there is a “winner takes ll” bias, whilst relatively small commercial lenders can be quite competitive and consumer banking has basically uniform profitability characteristics within a relatively wide band of sizes above a minimum.
Banking and insurance belong to the most difficult businesses for pricing and accounting, because of a large contingent element. What we see currently are phenomena that are simply too hard to manage rationally, much of hat happens (credit losses, asset price volatility and changes in the competitive/regulatory environment) is simply off the scale and banks are generally not capitalized to cope with this, because (a) regulation did not demand so much and (b) capital is very expensive compared to other sources.
In a TBTF environment small players disappear and the industry assumes the characteristics of a highly regulated set of utilities. Investment banks do not flourish in such a structure but commercial banks do, especially in smaller economies (an “economy” is an area bounded by (a) regulation (a) legal system (c) currency. In that respect a bank in Luxemburg (a country with 300.000 odd people but Belgian Law and a EURO member) is part of a much bigger economy than bank in the UK (non-EURO).
I think that the current crisis has much to do with lack of scale in TBTF terms, both in the US and Euroland. Nationalization is the obvious short term remedy, to be followed by privatization as TBTF units with very stringent regulation. Alas, that would spoil the fun for many people.
Makes sense, but then there is that annoying problem to solve that we always have with failure of regulation.
Also Congress passes silly little laws like F&F is responsible for supporting prices in the housing market, banks must make loans to people that can’t qualify for loans, Pi=3, etc……
Maybe if we had the ECU regulate our banks and Congress regulate ECU banks it might work better?
How to Ruin the U.S. Economy
by Ben Stein
Posted on Monday, October 6, 2008, 12:00AM http://finance.yahoo.com/expert/article/yourlife/112984?count=30&start=6#dtk-cmtscnt
1) Have a fiscal policy that creates immense deficits in good times and bad, burdening America’s posterity with staggering burdens of repaying the debt.
2) Eliminate regulation of Wall Street and/or fail to enforce the regulations that already exist, instead trusting Wall Street and other money managers and speculators to manage other people’s money with few or no regulations and little oversight.
3) Have an energy policy that disallows producing our own energy and instead requires that we buy energy from abroad, thus making our oil prices highly volatile and creating large balance of payments deficits, lowering the value of the dollar and thus making the problem get progressively worse.
4) Have Congress mandate that banks and other financial entities lend money to persons they know in advance to have poor credit ratings or none at all.
5) Allow investment banks, insurers, and banks to bet their entire net worth and then some on the premise that borrowers known to be improvident will in fact repay those loans.
6) Allow the creation of large betting pools called “hedge funds” that can move markets and control the outcome of trading, thus taking a forum for savings and retirement for families and making it into a rigged casino game that exists primarily to fleece suckers like ordinary working men and women.
7) Have laws that protect corporate officers from being sued for misconduct but at the same time punish lawyers in the private sector who ferret out such misconduct and try to make accountable the people responsible for shareholder and investor losses. If one of those lawyers gets particularly aggressive in protecting stockholders, put him in prison.
9) Scare Americans into putting up $750 billion of their hard earned money to bail out the billionaires and their friends who created the market for loans to poor credit risks (The “subprime” market) and the unbelievably large side bets on those loans, promising that such a bailout would save the retirement savings of Americans, then allow the immense hedge funds to make the market crater immediately afterwards.
10) Propose to save the situation by surtaxing the oil industry, which is owned by our fellow Americans, mostly in their retirement plans, thus penalizing Americans for investing in companies that efficiently and legally produce an indispensable product.
11) Insist that the free market requires that banks and insurers with friends of the Secretary of the Treasury be saved but allow other entities not so fortunate to fail, thus creating total uncertainty and terror among financial institutions, and demolishing all of the confidence built up in financial circles since the days of FDR.
12) Then have the Republican candidate say he would keep on the job the Treasury Secretary who facilitated the crisis, failed to protect the nation from the crisis, got the taxpayers to pony up to save his Wall Street buddies, and have the Democratic candidate, as noted, say he would save the day by taxing the stockholders of energy companies.
There, that should do it.
Danish Central Bank *raised* its interest rate today.
[...] carry trade takes it on the chin. (Brad Setser, [...]
[...] Brad Setser points us to this extraordinary post: The movements in the FX market are incredible. One friend [...]
Hyman Minsky and Charles Kindleberger had two nice words for this stage: panic and revulsion. I think we have finally gotten there, at least in a lot of markets.
Cedric,
There is no point in developing ideas about what should be done, except as a way to analyze an opponent’s policy space.
We live in democracies and that implies that only projects with sufficient political energy are adopted. Political energy differs from economic feasibility or desirability from a welfare perspective. It is what politicians can use to expand their base, which includes measures that please important backers. Ultimately, voter interests count too but only if they re sufficiently articulated and concentrated. In our media democracy, that is increasinlgy problematic. Sorry if this sounds cryptic.
The bottom line is that economics matters up to a point, but very indirectly, and only if politicians and media ll agree to educate the public “objectively”. In all other cases, the crude notions that exist among voters are massaged by superficial media and manipulated by both politicians and media, resulting in a volatile and patchy set of expectations and values that act as a framework in which politcal messages (”promises”, “threats” and “assessments”) are broadcast. Economics is a particularly dangerous theme for politicians (compared to social and moral issues, because of much greater (and less predictable) variability of economic conditions. Politicians campaigning on positive economic policy issues (to be distinguished from “economic” topics like criticizing an incumbent’s lack of success in…etc) tend to be dsperate or reckless. I guess political investment mnagers like Rove would agree with this view. Economics has too many moving parts for sound politics.
Of course, having ideas about what should be done (better) is very useful from a personal therapeutic perspective, and great conversation material. Or academic content.
[...] week, perhaps unsurprisingly it’s HL’s most read article and horrifyingly enough, as Brad Setser pointed out yesterday, we’ve pretty much reached step [...]
Moldbug: “If a bank is insolvent, its market cap should already be 0″
Not true. The equity of the firm, as Merton described, is like a call option on the value of the firm’s assets. Its market value cannot reach zero. It is impossible to tell whether a bank is insolvent or not without knowing the full details of its assets and liabilities, and if it is insolvent, the shareholders have an incentive to gamble with what is left for the creditors in the hope of making back their losses.
That is why I would argue that, to end the uncertainty that is paralysing the money markets, the government should seize any bank whose solvency is in doubt, with the presumption that the shareholders should receive nothing (with the possibility of compensation after the government has recapitalised and disposed of the bank).
Yen is still way, way undervalued, owing to threat of intervention to keep carry traders from worrying about the huge losses that would come from proper valuation.
RE:
You’re right, of course. I was writing too casually. The firm’s market cap cannot reach zero until some bankruptcy process has actually declared the equity defunct.
I agree completely with your conclusion. My only caveat is that the solvency of all banks is in doubt, because the mark-to-market interest rate of their long-term assets is rising and can rise more or less indefinitely, and the market price of the assets that collateralize these loans is sinking and can sink more or less indefinitely.
There is just no conceivable bank which is strong enough to resist these forces indefinitely. Therefore, they should all be nationalized.
Again, I do not see the motivation in the rule that the shareholders should receive nothing. I think the “seizure” should be a normal acquisition. Even from a practical political standpoint here, I don’t see why you’re trying to generate a set of losers here. Surely in an ideal structural fix, there are no winners and no losers.
On the contrary, Moldbug, I think settling winners and losers is key to resolving the present crisis. At the moment, the crisis is largely financial, as it becomes clear that bets have been made which have lost, and it is doubtful that the losers will or even can pay. The solution, I believe, is for the state to establish who owes who what, negotiate what can be transferred if the full amount cannot be, and extract some money out of those who have done well out of intermediating the mess. The public spending priority should be on measures that facilitate this settlement, not on preventing it.
The problem is political; it will take strong leadership to explain why it is necessary to resist the demands of the losers, especially if, as in America, they may well form the majority. I totally reject your flag day solution. It will simply lead to another, possibly bigger, crisis down the road.
[...] – Yahoo! Finance Check out this blog- a bit technical but here is an especially good recent post: Brad Setser: Follow the Money
history of bow and arrows…
A Trackback is one of three types of Linkbacks, methods for Web authors to request notification when somebody links to one of their documents….