Baseball91's Weblog

July 21, 2009

Another Minsky Moment

According to Elizabeth Moyer in Forbes in November 2008, fighting the financial crisis has put the U.S. on the hook for some $5 trillion, one report says. According to a report by the inspector general for the $700 billion Troubled Asset Relief Program, government’s maximum exposure to financial institutions since 2007 could total nearly $24 trillion. The watchdog overseeing the federal government financial bailout, Neil Barofsky, examined the 50 programs set up by the Federal Reserve as well as by the Bush and Obama administrations, and sent his report to Congress. Barofsky was to give testimony today to the House Oversight and Government Reform Committee.

By the end of October 2008, more than half of the U.S. banks were pretend banks. A failure by the government to support the U.S. financial system could lead to “a depression,” Senator Charles Schumer, a New York Democrat told reporters in September 2008. “To do nothing is to risk the kind of economic downturn this country hasn’t seen in 60 years.” Now, we were all going to have pretend dollars in those pretend banks. Like Citibank and all the other that needed rescue.

Those pretend banks? Providing a broad glimpse at how TARP recipients used federal capital, the report shows 43% of the banks used the money to meet capital or reserve requirements set by regulators. “Absent an infusion of capital [the bank] was unable to continue to meet the needs of its retail and commercial customer base,” one institution wrote.

What was the scale of the problem?

World GDP $47 trillion

World stock valuation $121 trillion

Bond market $85 trillion

Credit derivatives $473 trillion

Bloomberg had reported the total bailout and loan guarantees, the stimulus, totaled $9.7 trillion. As a result of big banks in too many businesses, this republic is threatened. This was not just a sub-prime crisis when people cannot buy homes and cars from a banking system. And the rest of us cannot sell. Where half of the banks are on the brink.

In a world with street smarts, you learned eventually that the “gang” problem had come to a neighborhood near you. Now you learned that the same thing happened in the world of pretend banks.

With the system of government, why did we let financial institutions concoct a fix to the problem that in their greed they created? It was a worldwide bailout which would take 30 years or more to resolve and end up costing more than $350 trillion in the credit derivatives written, from what I had read.

No one would escape the world of “pretend” banks, where 43% of the banks used the money to meet capital or reserve requirements because there was no money there.

This was the latest version of gang warfare afflicting modern society.

What did you want to own in all of this? China’s reaction to this question, with currency, would determine the next chapter of American history.

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1 Comment »

  1. Comment by baseball91 — October 12, 2011 @ 4:11 AM | Reply


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