Bailout

President Bush said: "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it."  But as Gore Vidal once noted, the US government prefers that "public money go not to the people but to big business. The result is a unique society in which we have free enterprise for the poor and socialism for the rich." 

The game was over  last Wednesday when yields on three-month Treasury notes fell to zero in a panic flight to safety, and investors began mass withdrawals from America's $3.5 trillion money market funds.

Except for investment banks that were involved in speculative hedge funds and credit derivatives, the commercial banking system remains largely salvageable. Most of the Fed's actions were made at behest of Wall Street and were not warranted by the ample liquidity of the banking system and fast growth of credit since 2001; bank credit continued to expand at very high rate of 12% per year during 2001-2008, implying absence of any credit freeze for the economy at large. Most notorious was the cutting of the federal funds rate from 5.5% to 2%, which was highly applauded by bankers, politicians, and academicians, yet failed to stimulate the economy.

Massive injection of liquidities since August 2007 by the Fed to the banking system have allowed banks to pour money into speculative oil, food, and other commodities markets; they aggravated food inflation, disrupted transports sector, slowed down economic growth, and pushed unemployment to 6.1%.

The market can take care of bad assets - Merrill, Lehman, Morgan et al have shown that in the last week . We can lend money at interest if needed, not take on bad debts. The Mortgage and Financial Institutions Trust (MFI) Paulson' proposal only devalues the dollar and doesn't do anything for real estate values etc.

Ron Paul warned of this.

When the U.S. government owns all mortgages, the real estate market will be completely subject to political, rather than financial, concerns. Will foreclosures be outlawed? Will loan term easements and principal reductions become standard campaign issues?

While it is dizzying to predict how this plan will be implemented, it is fairly simple to foresee the macroeconomic consequences. The U.S. dollar will be shattered beyond repair.

The world has seen nothing like this, in peacetime,  since President Franklin Roosevelt shut the banking system in March 1933, though his words were more memorable than last week's Bushisms:

"The rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence. They know only the rules of a generation of self-seekers.

"The money changers have fled from their high seats in the temple of our civilisation. We may now restore that temple to the ancient truths."

Foxy News by Deek Williams:
 
"...I'm selling short, here are tonight's headlies...

 Shopping continues to be popular among brain dead, ignorant morons. Despite the recent credit crunch and decline in the value of stocks and shares; in spite of the pointlessness of material acquisition; ignorant of the suffering and exploitation of the peasants in China, India and wherever else we get our cheap stuff  from, hallow, vacuous, empty consumerism continues to be the main leisure activity of many people. - which is just as well, since buying things props up the whole fake economy.  
...And if we didn't buy things the shops would close, unemployment would soar, poverty would mushroom, social upheaval would follow, the breakdown of society, riots, chaos, the collapse of the banking system, martial law, revolution, dead and dying in the streets, the monarchy run out of town or killed in their beds, religious leaders strung up, the government hunted down and beaten to death with rolled up copies of the Anti-Terrorist Act, the end of industry, a return to subsistence  and living off the land, the survivors thrown together in huddled communities. Anyway, don't let it happen.  Shop for your lives...spend for victory...and die in debt.

...Thanks, and now the weather; the future lives of millions of American taxpayers will be spent bailing out the failures and excesses of a few greedy banking families. Nationalism and fear will keep many of them from noticing; others will simply live in the debt and misery until an unnecessary war kills them all. Have a nice weekend."