Don't count on it.


This problem is systemic and will affect far more than the financial sector. If the bailout doesn't pass soon, we will face a deflationary crash. Which of course is why it will pass. Give it a few weeks at most. They couldn't go along with it on the first run due to the overwhelming opposition.


They try to portray this situation as a liquidity crisis. It's not. It's a systemic insolvency crisis. The financial sector has listed toxic "assets" such as CDOs far above what they are worth. Frankly, since there are practically no buyers, by the mark to market method, they should be listed as valueless ($0.00). But nooooo. That means an asset that has been keeping these financial institutions afloat by the perception that they have positive equity actually makes them have negative equity if they are worthless. Thus these companies are insolvent. They are hoping the Fed/Treasury will bail them out by purchasing these 'assets' for something that will allow them to have a positive equity afterwards.


If this bailout doesn't pass, more and larger banks will be unable to make payments on their debts. When that happens, if they are bought or bailed out, but are allowed to fail, then the debts they default on also don't get paid... debts which are listed as assets for other companies. Chances are they too go under. This is one reason why you see so many mergers in the financial sector. They are trying to cancel out the debts that each owe to the other. When the number of players has been whittled down enough, mergers will be out of the question. At that point a monopoly has been established by the big players and they truly have become 'too big to fail'. When the offshore gamblers such as the hedge funds come knocking to collect on their winnings at the derivatives table, the the fait accompli has been unleashed.
The CDS and 'risk of default insurance' games allowed entities like hedge funds to buy insurance on companies (or other entities) that they had absolutely no association with (aka gambling).


That's what happened to AIG.

If/when the financial institutions are gone, no new loans are being made by them. The 'real economy' depends on these loans to function. Unless the US government/Fed is going to start loaning directly to the real economy (which they are in some sectors), many large companies will fall along with the rest of the financial sector. At that point, new investment from abroad will start to dry up. We borrow $2 billion every day from abroad just to function. I hope you see where things start to get hairy real quick.


The markets are still anticipating a bailout, which is why the fallout recently has been less than expected, but don't kid yourself. If it doesn't pass there will be more failures and people will get hurt (which will probably happen any which way).

 

but of course if it DOES pass... you're just putting more money into a system whose major problem is the lack of constraints in creating new money. you're fixing the problem in the short-term, but providing nothing to address the root-cause... again, a transfusion is fine, but only WITH a tourniquet. all i hear is talk of a transfusion... the blood will pour right on out again.
 

Right. The bailout isn't a solution. The PTB will not accept a solution that will benefit the average citizen.


Really, it's just a matter of choosing your poison. Do you want a fast, deflationary crash... or a prolonged stagflation and potential hyper inflationary crash...

Real solutions are not on the table. The banks will not be suspect to oversight. The Fed/treasury will continue to accumulate more power with the excuse they are the only ones who can fix things (when they are one of the largest culprits). The debt will continue to grow. There will be more deficit spending. The Federal Reserve Note will continue to be based upon debt. Fractional Reserve Banking will be allowed to continue. Wall Street will continue to lobby and have their way in the government. What little industry is left will continue to be shipped overseas or dismantled/shutdown. Paper will continue to be portrayed as real assets. The end of the petrodollar scheme will continue to encourage less investment in the US. The US will continue to be on life support just to pay the interest on an unpayable debt. Etcetera, etcetera...

People will only demand change retroactively. It's still all bread and circuses in Rome these days.

 

oh, i fully believe in the hyperinflationary future. remember a few blogs ago? when i asked how you were going to spend your first million dollar bill??
 

please forgive my optimism...