In case you have forgot what is causing the “financial crisis” gripping the world in static non-investment, read this NY Times article by Alan Blinder – Six Errors on the Path to the Financial Crisis.

When considered retrospectively, it certainly seems like another one of those things “they should have warned us about”. The role of Government is oversight; but the role of the monetarist post third-way committee of inspired insanity we have been calling Government has been to submit us to ten years of extreme capitalism to prepare the world for some utopia. Trouble is the electorate became greedy as their mortgages became insignificant and their property values escalated things seemed dandy.

Trouble (for Gordon Brown) is that the electorate is swinging away from Tony Blair and his pretense at being a Labour Government in the UK. Gordon Brown’s supreme act of socialism will be to nationalise the banking system? He could. He is not the only Government weighing that option. Is that a financial utopia?

The world just turned a great big corner and we could finally now realise that constant speculation about OWG (One World Government) and being branded with bar codes – the age of fear – the age of conspiracy – it’s over. American culture celebrated this and it celebrated vampires. The walking dead. You gotta wonder why.

It is not the twists and turns of our culture that have caused the financial disaster they are calling “the meltdown”. Read the linked article above for a full description of what caused it (or read Disturbing Trends historically, but that would take far longer).

The way back is to cancel the CDOs that are dragging the system down. Make instruments non-insurable except by the actual current owner and then only allow one payout on insurance hedge bets. Do it retrospectively and wind back some of the nonsense.

It is never going to be a fair recovery when already execs expect to walk away with 30 million dollars in a golden handshake after cash injections by the tax payer. It is not business as usual. Those taking money from the tax payer however legit should consider surrendering a goodly portion of what anyone would recognise as ill gotten gains.

If that is impossible – well it is not impossible, but payment of 61 trillion when no capital is changing hands is impossible. It is either that or allow the economy of the world inflate to enable that additional capital to exist – like an international scale Zimbabwe. Is that where the economies of the world are headed?

Probably not. But the warning signs are there and they are far worse than we ever considered likely. At least it will be a Northern Hemisphere summer as the effects of layoffs start to really bite.

Afterword: also, check this article in the NY Times, especially the last three paragraphs. One guesses that I can quote it – as I have argued the same that Mr Geithner has been arguing (much to my surprise).

Failure is an option. To eject those who now exhibit signs of financial dementia with a safe but realistic exit option is reasonable – but to not effectively insist they are taken out of the future map of investment decisions is futile. If 61 trillion dollars of new capital is added to American and UK pool – both economies will suffer devaluation of what portion that is to current total capital to fund those contracts.

It is an option. It will affect the world economy. But these “bonuses” are based on laws that were being used creatively to squeeze funds for personal retirement funds of executives who did not in fact bring any value beyond actual growth to their own portfolio. It is as though perhaps the world has become so obsessed by gambling which is not surprising considering the nature of the human soul.

There are those who worked for genuine reward and there are those who have not. They know who they are – in the end it does not matter. A country depends upon the intelligence of rich economic manipulators (like insurance giants) to legally exercise choice with money, ultimately led to a plethora of greedy decisions. To fix the problem Western Governments are prepared to continue to inflate their economies, just enough so that leverage takes over and grinds these fruitless contracts out at a huge discount to counter capital gains tax?

In a world with all this additional capital, it has the potential to be extremely inflationary. It may seem like the start of a depression because the banks do not know what liabilities they will suddenly face. It looks like one because all these companies are being driven by a belief that they have to layoff staff like mad. It is utterly silly, decisions being made to make the numbers look good.

Why do we not recognise this for what it obviously is?

Next article to explore that…

Disturbing trends predicted that Bush would need more bail out funds and it looks like we sort of got it right. Though he has left the White House, he is still technically President – and the Bank of America and Citibank are moping up the bail out cash like blotting paper. It is not the end yet. But it may be the end of the beginning of this crisis, although I have seen that prediction before.

Sorry, we were right. Them pesky derivatives.

Independent.co.uk

Bail out monies being injected into the economies of banks that have poisonous investments (i.e. derivatives) are showing little result as they are absorbed into the inflated capital these failed instruments represent. Each bailout of the banks only makes the problem last longer and worse.

Bailout the holders of negative equity mortgages, they will still have impossible repayments down the track. The economy will adjust hugely before it starts to recover. Our prediction is that about May/June there could be a massive deflation/adjustment that could see recovery start more quickly than people realize as false financial instruments fail rather than the bank behind them. If the bailout succeeds it is preventing mass bank failure at that stage.

So much more may be achievable by what Obama is about to do. Making the economic machine (people) work more rather than succumb to depression is a better answer. Banks are going to fail, and when they do, they perhaps will be nationalised, and the management replaced.

Links:

NZ Herald article