The Four Horseman of the Apocalypse
Doug Henwood, in a fine rant, says the bank bailout announcement today might allow hedge funds to buy assets from the banks at cheap prices, guaranteed against loss by the government.
I hope this isn’t really what will emerge. But if it is, the Obama administration will have broken new ground in awfulness. The same formula that brought us this mess, an indulgent government encouraging reckless operators playing with other people’s money, will be applied towards solving it. It makes no damned sense.
But maybe such a plan would at least get enough bad debt off the bank’s books so they are no longer insolvent. And that would be at least a short-term positive. Or am I deluded?
Several months banks a Brit investment banker who was old enough and rich enough not to care what people thought said, “No one has experience with failure at this level. No one.” That, I think, is the real problem. No one really knows what to do because we’ve never been here before.
The next phase of the bank bailout plan presented by Treasury Secretary Tim Geithner (now slated for Tuesday) is expected to be multi-faceted but missing one key element: An admission by policymakers that major U.S. banks are insolvent.
They suggest that only two solutions exist. Either nationalize the banks or put them into FDIC receivership.
Some say, let the banks die, and their stocks and bonds become valueless. Serves them right. But what would the collateral damage be? Lehman Brothers was tossed to the wolves and not propped up. When it cratered, it took Iceland down with it (because Iceland banks used Lehman as their primary lender.) So we need to be careful of unintended consequences.
Meanwhile John Robb is sounding nearly as apocalyptic and foreboding as Jim Kuntsler.
The global Depression scenario is now dominant. Here are some of the drivers:
– An utterly complete regulatory capture of the US government by monied interests.
– The de-leveraging and deflation) feedback loop is now entrenched.
– A large number of countries from Japan to Spain to Latvia are already in depressions.
We can expect an organic realignment as small groups of people form new primary loyalties (either to violent manufactured tribes or resilient communities), slot themselves into open source movements, and challenge a wheezing group of incumbent nation-states. This is a global guerrilla century.
Well, I’m definitely for challenging the wheezing overlords and building something lasting and of use to everyone instead. But hopefully hundreds of millions worldwide will not lose their jobs and be rampaging in the streets first. Nor do I think it’ll get anywhere near that bad. The problem with apocalyptic predictions is that they scare people off and create paralysis of action. We need some optimism here, that’s how to get action.
And just maybe we’ll muddle through. Humanity has a way of doing that, y’know.