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Late last week, five central banks engaged in a coordinated plan to stop the panic in the financial derivatives markets, and return the banking system to some semblance of normalcy.

They failed.

The Bank of England alone poured in £49.5 billion ($100 billion). The markets took a sniff, shrugged, and went back to doing what they are so good at: herding themselves in the direction of the generally perceived trend.

The central banks now are reeling, shell-shocked. If the rescue effort last week didn’t work, it appears they don’t have the foggiest idea what will.

As the Financial Times of London, headlined its story on Monday: "Hold tight, the central banks have no plan."

This has been the year when many deeply held beliefs have been challenged. One such belief was that central banks have the toolkit to sort out any conceivable economic or financial crisis.

Last week’s co-ordinated liquidity action by five central banks taught us that this is not the case. The idea was that a co-ordinated response would reassure the markets, but it had the opposite effect. It turned out that market participants are not infinitely stupid. They know by now that this is not a liquidity crisis at its core. If it had been, it would be over by now.

It is a fully fledged solvency crisis that has arisen because two giant and interlinked bubbles burst simultaneously – one in property, one in credit – leaving banks and investors on the brink of bankruptcy, some hanging on by their fingertips. Yet there is nothing the central banks are offering at this stage to alleviate a solvency crisis.

Did you catch that? The banks aren’t just having a liquidity problem, meaning they’re a little tight for cash right now, but come back in two or three days, and we’ll have plenty. Noooo, this is a SOLVENCY crisis. As in, we don’t have any money right now, and we’re not sure when we’re going to have any. Or, as our wonderful British cousins would say: "Well, gov’nr, there ain’t no cash. Now, PISS OFF!"

Taking a knife to the entire Western banking system.

So, if the central banks can’t save the system, are there ANY options left?

Yeah – just trash the system.

And that’s what the central banks are thinking of doing. They’re just going to suspend the rules for a while, let the banks go on as if nothing has happened and nothing is wrong, and hope the problem eventually goes away. Hey, it worked when the dot com bubble burst in the late 1990s, why not now?

In its report of last week’s central bank debacle, the London Telegraph noted that the Bank of England’s Executive Director for Markets, Paul Tucker, was trotted out to float this idea of using the "nuclear option."

Tucker is the guy responsible for the Bank of England’s open market operations. That is, when the Bank of England wants to adjust or change its policy, it is Tucker who directs the buying and selling of securities with the primary commercial and investment banks in London to achieve the desired result. Tucker is also the chap who manages Her Majesty’s Government’s foreign currency reserves AND "manages the risk" of those reserves (i.e., Tucker also gets to play in the derivatives markets with HMG’s money). Finally, Tucker is responsible for "market intelligence," meaning he’s supposed to know what the hell’s going on. The Bank of England’s formal description of this duty sounds very impressive indeed: "market intelligence and analysis supporting the Bank's monetary and financial stability core purposes."

"Financial stability core purposes." That’s worth repeating a few times, since we’re talking about THE central bank here (The City of London is a bigger financial center than New York City, a fact all those conservative patriotic blow-hards thankfully haven’t latched onto yet).

So when Tucker speaks, folks who worry about these things best sit up and notice. And as the London Telegraph notes, Tucker does not speak very often.

It was the first time the Bank's executive director for financial markets had given a speech in almost six months, and in the intervening period the money markets - his aegis - had degenerated from a calm, smoothly functioning machine into a torrid mess.

So what did this chap, Tucker, have to say? Here’s the one crucial sentence, and the Telegraph’s explanation of what it means:

"Regulatory authorities around the world are monitoring banks' liquidity and capital positions, including in the context of Basel II."

It may seem like an bland piece of bank-speak, but Mr Tucker's comments are in fact one of the first indications that the financial authorities in the UK are now considering the nuclear option of taking a knife to the regulations that underpin the entire Western banking system.

OK, OK, I know you’re wondering how one little sentence can mean so much. The key to understanding this is to know what Basel II is. According to Wikipedia:

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse.

Yeah. Uh huh. Well, obviously, that didn’t work so good. So now we’ll just get rid of the rules, and voila, there’s no more crash!

The Telegraph’s explanation is quite good, and it’s worth your time to pop over there and read the entire article.

I would love to copy it here, but the Telegraph’s website has a pretty stern warning about copyright infringement. I don’t want to get them angry. I mean, these guys are in London, right?, and that’s where my fate and your fate is now being decided.

Originally posted to NBBooks on Sun Dec 16, 2007 at 07:50 PM PST.

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Comment Preferences

  •  tips (22+ / 0-)

    Tips for ...

    for what?

    faithfully recording recording mankind's newest descent into hell?

    The period immediately before World War Two began has been captured so vividly by the novelist, Alan Furst. He has written a series of espionage novels set in central Europe and in Paris in the period just before the war begins, and the early war years. He somehow has captured the essence of that period -- the anxiety, the hopelessness, the frustration, while watching the world careen into madness and murder. What was it like to sit at a Paris cafe in 1937, sipping a coffee, and reading about the Anschluss in the newspaper? Furst manages to make you feel it, to live it.

    Watching current events unfold, I sometimes feel the same sense of foreboding and hopelessness, the dark fear of the incipient descent into hell, that Furst manages to convey in his novels.

    I especially recommend Kingdom of Shadows, which focuses on the anti-Nazi espionage activities of a Hungarian count and his nephew, Nicholas Morath, both working together out of the Hungarian legation in Paris in 1938-39, before the September invasion of Poland. This is a small excerpt, where Morath relates to his uncle his train trip from Budapest to Paris:

       "Well, that was just the beginning," Morath said. "We were still in western Hungary." While the train stood in the station in Vienna, a man approximately Morath's age, pale, trembling, had taken the seat across from him. When the family that occupied the rest of the compartment went off to the dining car, they had started to talk.

       The man was a Viennese Jew, an obstetrician. He told Morath that the Jewish communities of Austria had been destroyed in a day and a night. It was, he said, sudden, chaotic, not like Berlin. By which he meant, Morath knew, a certain style of persecution - the slow, meticulous grinding of civil servants. Schreibtischtater, he called them, "desk-murderers."

       The mobs had run wild in the city, led by Austrian SS and SA, hauling Jews out of their apartments, and forcing them to scrub the walls free of slogans for Schuschnigg, the elected chancellor, in the plebiscite that Hitler refused to allow. In the wealthy Jewish suburb of Wahring, they made the women put on their fur coats and forced them to clean the streets on their hands and knees, then stood over them and urinated on their heads.

       Morath grew worried, the man was coming apart before his eyes. Would he care for a cigarette? No, he didn't smoke. Perhaps a brandy. Morath offered to go to the dining car and bring it back. The man shook his head-what was the point? "We are finished," he said. Eight hundred years of Jewish life, ended in one night. At the hospital, an hour before he'd made a run for it, a woman with a newborn child had taken it in her arms and jumped out a window on the top floor. Other patients crawled from their beds and fled into the streets. A young intern said he'd seen a man standing at a bar, the night before, who took a razor from his pocket and cut his throat.

       "Was there no warning?" Morath said.  

       "Anti-Semites in political office," the man said. "But you don't sell your house because of that. . .  

    Today, today ... we have free market fanatics in political office. And if you want to sell your house now, you can't. Nobody can get a mortgage. Nobody's buying.

    A conservative is a scab for the oligarchy.

    by NBBooks on Sun Dec 16, 2007 at 07:56:08 PM PST

    •  The thought occurs to me - one good thing (3+ / 0-)
      Recommended by:
      Odysseus, Aaa T Tudeattack, JG in MD

      from this crash might be that Shrub and his minions might be forced to face the fact they have bankrupted the country, and will be compelled to pull our troops out of Iraq in order to save money.

      But that would be a rational response, and I've long ago given up expecting anything rational from Shrub and his merry band of asswipes.

      A conservative is a scab for the oligarchy.

      by NBBooks on Sun Dec 16, 2007 at 08:55:14 PM PST

      [ Parent ]

      •  What would be the scenario for that? n/t (0+ / 0-)

        When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

        by JG in MD on Sun Dec 16, 2007 at 09:00:11 PM PST

        [ Parent ]

        •  George W Bush is sitting in his office (2+ / 0-)
          Recommended by:
          Jeffersonian Democrat, JG in MD

          and the phone rings. A frown comes over his face. "Yeah, dad, what's up?"

          GWB twiddles with a pencil, filling in the 'o's on a copy of the Constitution. A loof of relief washes over his face. "That's all? You just want me to speak to Bandar? Yeah, OK, put him on the line."

          GWB swings his feet up on top of the desk. He reaches in a drawer and pulls out Harry Truman's sign and starts scraping the dirt off his boots. "Heh! Bandar! Bro, how you doing?"

          GWB smiles absent mindedly. He looks at the dirty sign, and tosses it in the waste basket. He chuckles. "Yeah, well you're welcome. Just don't forget where you got all that moolah, Bandar! You know, my place in Paraguay still needs to have the pool relined."

          GWB's feet crash down to the floor. He face starts to pinken. "What do you mean, you can't?"

          GWB shifts in his chair nervously. His face is red now. "Yes, Bandar, thank you. The boys at Citibank weren't that happy, but I told 'em you were a fun guy and got 'em to go along. I said . . ."

          GWB folds one arm tightly across his chest. His face  has turned dark red. "But Bandar, you just told me you had made another $1.6 trillion. I don' . . ."

          GWB looks around nervously. There are crimson splotches on his cheeks and forehead. "Gosh, Bandar, it was HOW much?"

          GWB's leg muscles start to quiver. The splotches on his cheeks and forehead are a dark purple against a crimson background. "I can't do that Bandar. I mean, I'm supposed to stay the course, you know. What would peo . . ."

          GWB's legs spasm and he instinctively reaches up to pinch his nostrils together with his fingers. "Look, Bandar, I really didn't realize... I mean, I guess if you say it's that bad. But, Bandar, cut me some sla . . ."

          GWB's eyes frantically rove the Oval Office, looking for a box is kleenex. "OK, OK, Bandar. I hear ya. And this is going to save how much?"

          GWB puts down the phone and reaches for the Constitution. He starts to stand up, but stops in a sort of crouch. He picks up the phone and presses a button. "Hey, Rummy, er, I mean, Bob. Listen, I got an idea . . . "

          A conservative is a scab for the oligarchy.

          by NBBooks on Sun Dec 16, 2007 at 09:42:34 PM PST

          [ Parent ]

      •  Remember way back when (7+ / 0-)

        In 2000 and folks pointed out that Bush had run every one of the companies his dad gave him into bankruptcy - and that he might well do it to the country?

        It was a sort of cautionary joke at the time. Now it has become reality.

        I'm not part of a redneck agenda - Green Day

        by eugene on Sun Dec 16, 2007 at 09:07:52 PM PST

        [ Parent ]

  •  It might also do us all well (6+ / 0-)

    To bone up on the term corralíto and understand what it meant in Argentina.

    Bank run, anyone?!

    I'm not part of a redneck agenda - Green Day

    by eugene on Sun Dec 16, 2007 at 08:07:17 PM PST

    •  LOL, so it comes down to our relying on (2+ / 0-)
      Recommended by:
      Aaa T Tudeattack, JG in MD

      FDIC: The Bank Insurance Fund?

      O my God.....

      Remember all the times kossacks wrote such wonderful diaries about the social security trust fund?

      Remember how we all ignored the simple fact that the social security tust fund wasn't the "only" trust fund?

      Well, it's time.....

      Time to allow the dog of reality to bite everyone upon the butt.

      The FDIC trust account enjoys the same "crisis" that does the social security trust fund.

      The crisis is known as the general fund. No money.

      No fucking money.

      Run on the bank? LOL, I don't think so.

      Be better off running on the grocery store to buy seeds.......

      Single purpose usage belittles the search for true value.

      by 0hio on Sun Dec 16, 2007 at 09:37:40 PM PST

      [ Parent ]

      •  FDIC indeed. (1+ / 0-)
        Recommended by:
        0hio

        We moved all our money out of BofA two weekends ago, have some it in cash here at home, and put the rest in an NCUA-backed credit union (NCUA is the credit union equivalent of FDIC). My fiancee and I are in our late 20s, have little savings and aren't making a lot of income, so this isn't exactly a large amount of money we're talking about, but it still makes me feel a little better to not have all my eggs in the bankers' basket.

        I'm not part of a redneck agenda - Green Day

        by eugene on Sun Dec 16, 2007 at 10:21:49 PM PST

        [ Parent ]

  •  Only 300,000 pounds for this dumpy (4+ / 0-)
    Recommended by:
    eugene, Nab, dantyrant, JG in MD

    bedsitter!

    The party is over.

  •  Weimar (9+ / 0-)

    Saw this posted somewhere yesterday... seems appropriate:

    The eyes of all were turned to the Reichsbank. The pressure exercised on it became more and more insistent and the increase of issues, from the central bank, appeared as a remedy....

    The authorities therefore had not the courage to resist the pressure of those who demanded ever greater quantities of paper money, and to face boldly the crisis which...would be, undeniably, the result of a stoppage of the issue of notes. They preferred to continue the convenient method of continually increasing the issues of notes, thus making the continuation of business possible, but at the same time prolonging the pathological state of the German economy....

    It is certain that the rise in home prices, which was the immediate consequence of the depreciation of the exchange, had given a definite thrust to the increase of note issues and of the floating debt.

    But it is important not to forget that that last stage of the depreciation of the mark was, in a great part, the direct consequence of an erroneous financial policy in the preceding years. Besides, the increase of the note-issues, following the increase of home prices, was not at all a necessary action, as some writers seem to believe. An energetic financial and monetary policy and a more circumspect banking policy would have broken the vicious circle....

    Costantino Bresciani-Turroni, The Economics of Inflation, 1937

    Scary.

    •  Beyond scary...THIS is the story; and noone cares (6+ / 0-)

      We are so freakin' screwed...and what just compounds my concern is how little coverage this is getting, in terms of the severity of the problem. Just not exciting enough for the MSM or the typical US citizen.

      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

      by bobswern on Sun Dec 16, 2007 at 08:18:24 PM PST

      [ Parent ]

      •  ICAM more! The thing is the typical citizen (3+ / 0-)
        Recommended by:
        eugene, bobswern, JG in MD

        is interested. But it's the media that is too lazy to understand it or look into it or explain it because they've decided the public doesn't care.

        But when you present the fact that a weakened dollar takes away money from you and your savings just as much as taxes do, I think people can understand that better.

        •  really I think everyone is just in (4+ / 0-)

          shut our eyes and don't look mode. Because the prospect is too scary to contemplate and most of us wouldn't know what to do to escape fate.

          I mean, whenever I try to think of what to do I get a headache. And when I ask smart highly informed people, they don't know what to say either. So we watch the slow motion train wreck even if we know what's coming. And those that don't will wake up one day to discover it when it's way too late.

          At the top? I think they just figure they'll escape with whatever they can get.

          "Get informed, and let it change you."--wonderingmind42's chemistry professor

          by DemocracyLover in NYC on Sun Dec 16, 2007 at 08:40:58 PM PST

          [ Parent ]

      •  What adds to my fear and foreboding (5+ / 0-)

        is that even most people here on DailyKos, among the most intelligent of our citizens, don't understand that all other issues pale in comparison to this. Endless diaries about this candidate and that candidate, filled with bellows of indignation and outrage echoing back and forth in our little echo chamber. While the financial system is COMING DOWN, and most don't know or don't care, when the MOST IMPORTANT thing we can do right now is put forward policies alternative to the prevailing free-market, monetarist orthodoxy the led us into this mess in the first place.

        A conservative is a scab for the oligarchy.

        by NBBooks on Sun Dec 16, 2007 at 08:45:49 PM PST

        [ Parent ]

        •  NB, We've Heard It Before (3+ / 0-)

          There's always someone saying that the sky is falling. Nobody realizes this is different.

          Besides, imaginary money drawn from credit cards and home price increases has been the coin of the realm in the U.S. for so long that nobody can get the concept that the music is about to stop.

          When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

          by JG in MD on Sun Dec 16, 2007 at 09:03:40 PM PST

          [ Parent ]

        •  Milton Friedman (3+ / 0-)

          amd his disciples didn't have the vision to think they could ever fail so sure were they of their doctrine.

          It could well be a couple of trillion in assets lost to the declining prices in real estate. Until the US housing market drops more through 2009 and finds a bottom, this will not be sorted out. The large banks will be fine they just may own a lot of real estate they can't get rid of.

          Think Tank. "A place where people are paid to think by the makers of tanks" Naomi Klein.

          by ohcanada on Sun Dec 16, 2007 at 10:10:26 PM PST

          [ Parent ]

          •  They haven't failed (2+ / 0-)
            Recommended by:
            ohcanada, Snarcalita

            This is precisely what Friedman wanted.

            I'm not part of a redneck agenda - Green Day

            by eugene on Sun Dec 16, 2007 at 10:22:27 PM PST

            [ Parent ]

            •  shudder.... (1+ / 0-)
              Recommended by:
              eugene

              and what will the Friedmanites create in the vacuum of a banking meltdown.I am sooo naive sometimes, so much to learn,so much to read.

              Think Tank. "A place where people are paid to think by the makers of tanks" Naomi Klein.

              by ohcanada on Sun Dec 16, 2007 at 10:55:03 PM PST

              [ Parent ]

          •  Au contraire, oh canada...the large banks toast (3+ / 0-)
            Recommended by:
            ohcanada, Snarcalita, dantyrant

            Read my "Mortgage Meltdown" link in my comment, below.

            Actually, it's the large banks that are pressuring their governments to RETROACTIVELY change the laws so they don't have to payoff bond investors.

            The bonds out there, floating around at 1000% of market value are all redeemable at the 1000% amount, because fraud has been PROVEN; the buyers get 100% investment back; and these bonds are now trading at 10% of face value. This redemption clause means the bonds' outstanding value is...here's the incredible part...greater than the total sum of all the assets of all of the top US banks....COMBINED.

            So, the banks are behind these regulations changes, so they don't get screwed...simply screw the investors and the taxpayers....YEAH! THAT'S the ticket!!!

            "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

            by bobswern on Sun Dec 16, 2007 at 10:24:12 PM PST

            [ Parent ]

    •  curiously (1+ / 0-)
      Recommended by:
      dantyrant

      I just checked my currency converter.  The dollar is now at 1.45 to the Euro down from 1.49 last thursday.

      I wonder what that is all about, it seems odd for the situation.  And believe me, I check this frequently; living in Europe on a VA compensation paid in dollars.

      "Jedoch ich wollte, dass ihr nicht schon triumphiert: Der Schoß ist fruchtbar noch, aus dem das kroch." -Bertolt Brecht

      by Jeffersonian Democrat on Mon Dec 17, 2007 at 01:10:35 AM PST

      [ Parent ]

  •  It's official, there's panic over at the Fed, too (7+ / 0-)

    And, everyone just keeps playin' their fiddles...

    Yep, Rome is burning, and noone gives a shit. Until it hits home...a little bit at a time, every day, for a few months...then people will look around and begin to get a clue. But, it's too late, across the board, anyway.

    We are so screwed!

    See  this piece from this past Thursday's NY Times. Read it from the back to front, focusing on respected financial commentator Barry Ritholtz's statements.

    Also, checkout out the article by Sean Olender from last Sunday's SF Chronicle, IMHO, the very, very best overview of what's going on now   right here.

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Sun Dec 16, 2007 at 08:15:28 PM PST

  •  Going off the capital standard? n/t (3+ / 0-)
    Recommended by:
    eugene, bobswern, JG in MD

    -- We are just regular people informed on issues

    by mike101 on Sun Dec 16, 2007 at 08:18:53 PM PST

  •  Excellent diary (1+ / 0-)
    Recommended by:
    JG in MD

    thankyou.

    Think Tank. "A place where people are paid to think by the makers of tanks" Naomi Klein.

    by ohcanada on Sun Dec 16, 2007 at 08:25:00 PM PST

  •  Complicated Economic Stuff (2+ / 0-)
    Recommended by:
    eugene, dantyrant

    I have a funny sort of memory, it's scattered. I just read a story about how US banks' stacks of capital, amounts required by law, are falling below something or other. But details escape me.

    Now, gee, this City of London thing sounds kind of the same. And they seem pale and distracted, kind of like how Greentrees or whatever his name is looked when he was talking to Stephan-whoever today.

    Maybe I'll just scoop out my retirement money and put it under the mattress. Saves eyestrain from reading the monitor and brain strain from figuring out what it is I'm reading. Too much trouble.

    When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

    by JG in MD on Sun Dec 16, 2007 at 08:27:09 PM PST

    •  Better not be paper bills you're putting (0+ / 0-)

      under your mattress... That's no store of value.

      •  Whee, It's Christmas (1+ / 0-)
        Recommended by:
        dantyrant

        Does that mean I get to go out and buy diamonds and rubies? Goody!

        When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

        by JG in MD on Sun Dec 16, 2007 at 08:32:08 PM PST

        [ Parent ]

      •  If banks fail (2+ / 0-)
        Recommended by:
        dantyrant, JG in MD

        Cash will still have value. Are you going to use a gold coin to buy gas? Silver to buy meat and bread?

        I'm not part of a redneck agenda - Green Day

        by eugene on Sun Dec 16, 2007 at 08:35:13 PM PST

        [ Parent ]

        •  Not saying paper money is worthless (1+ / 0-)
          Recommended by:
          eugene

          Just that inflation's starting to kick in and the value of each dollar is affected by the actions of the central banks.

          •  Paper Money (2+ / 0-)
            Recommended by:
            eugene, dantyrant

            being worthless isn't a problem until hyperinflation, we won't have to use gold to buy bread any time soon.

            But our meager pittances have nowhere to go. Especially taxable meager pittances in retirement accounts, on which don't get me started.

            Where did I read that article on IRAs and 401(k)'s that admitted they never had been the be-all and end-all they were supposed to be and we were sold a bill of goods there too?

            My reaction was "Duh!" but nobody was around to hear me and the cats don't care.

            When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

            by JG in MD on Sun Dec 16, 2007 at 08:54:20 PM PST

            [ Parent ]

            •  Hyperinflation (1+ / 0-)
              Recommended by:
              JG in MD

              technically means year/year inflation of 100%. We don't have that, but we did see quarterly inflation of nearly 3% in some of the numbers announced last week. This isn't good.

              •  Erm... (0+ / 0-)

                That should read 3% in one month. Wholesale prices rose 3% last month in particular.

                •  Ermmm Did you say 3% in a month? (1+ / 0-)
                  Recommended by:
                  dantyrant

                  JG is perturbed. Surely you mean .3%.

                  When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

                  by JG in MD on Sun Dec 16, 2007 at 09:20:04 PM PST

                  [ Parent ]

                  •  Newp. (0+ / 0-)

                    A record jump in gasoline prices pushed wholesale inflation up at the fastest pace in more than three decades in November.

                    At the same time, retail sales showed unexpected strength, undermining assertions that penny-pinching consumers are leading the economy into recession.

                    The Labor Department said Thursday that wholesale prices rose at an annual rate of 3.2 percent last month, the biggest increase in 34 years. The jump stemmed from a 34.8 percent surge in gasoline prices.

                    (Link)

                    It's not across-the-board, but still... yikes.

                    •  Annual Rate of 3.2% (1+ / 0-)
                      Recommended by:
                      dantyrant

                      Why doesn't that translate to an inflation rate of 3.2%, which isn't so bad?

                      What am I missing?

                      When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

                      by JG in MD on Sun Dec 16, 2007 at 09:39:12 PM PST

                      [ Parent ]

                      •  Inflation Rates for 2007, What Am I Bid? (1+ / 0-)
                        Recommended by:
                        Ignacio Magaloni

                        Here are some numbers from a randomly chosen inflation data website.

                        Jan 2.08% Feb 2.42%  Mar 2.78%  Apr 2.57%  May 2.69%  Jun 2.69%  Jul 2.36% Aug 1.97%  Sep 2.76%  Oct 3.54% Nov 4.31%

                        I can't tell from the site whose numbers these are, but November is scary.

                        I'm not sure what my point is. I had one. Oh, I remember. Monthly inflation needs to be seen in context, and whose numbers are we seeing any time we look at inflation?

                        It's almost 1 am here, so I'll be folding soon. It's been fun chattin' about financial catastrophe with ya.

                        When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

                        by JG in MD on Sun Dec 16, 2007 at 09:54:41 PM PST

                        [ Parent ]

                      •  Hrmm.... (1+ / 0-)
                        Recommended by:
                        Ignacio Magaloni

                        I should read these things before I put them up. Saw the 3% and clipped, but I didn't check that the rest was right! Here's the relevant passage:

                        Bond markets have been awful for traditional investors in recent months. For those people looking to buy and sell bonds, there has been much money to be made. However, for the coupon-clipping public, bonds haven't worked out too well as the coupons are worth less and less moving forward. The news that import prices shot up a mammoth 2.7% in October ALONE should underscore the point that a 4% annual yield on a 10-year Treasury Bond is an affront to common sense.

                        With much talk coming from the Fed about even lower interest rates going forward and the PPT working diligently to buy the long end to create and maintain (hopefully) lower mortgage rates, the bond market is not the place to be for anyone who is looking to maintain a standard of living. Double that for anyone who is looking to increase wealth.

                        This morning, we saw a 3.2% increase in the PPI for the month of November. Naturally, this was blamed on high energy costs. The spin here is that this is only producer-price inflation and has nothing to do with what people see in their day-to-day cost of living. We will get that report tomorrow. I am sure that when you take out everything that matters like food and energy, the report will be somewhat ‘tame' and totally incongruent with the experiences of Main Street. Why mention price inflation in a discussion about bonds? The fact is that many people use fixed income investments to create cash streams for income in later years. The value of these cash streams is eroding and absent borrowing, part-time employment or drastic increases in Social Security, these people are seeing a dramatic reduction in the purchasing power of their fixed income investments. (Link)

                        •  Now I Get It (1+ / 0-)
                          Recommended by:
                          dantyrant

                          That screwy memory of mine is real, so I thought I'd slipped a cog again.

                          In fact, just having this discussion at 1 am is so out of character for me that I'm probably in bed dreaming I'm typing.

                          I'll check back in the morning and see if I'm really here.

                          When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

                          by JG in MD on Sun Dec 16, 2007 at 10:12:58 PM PST

                          [ Parent ]

              •  Inflation (1+ / 0-)
                Recommended by:
                dantyrant

                My sense is that the numbers used by different players in the game are different.

                The squished middle class laughs when published inflation numbers are low, and they should. Why should they learn the definition of "core inflation?" They know what it's costing them to live, and that the moneymen don't give a damn about them.

                The different groups of moneymen have their own views of inflation.

                What's the rate of inflation?

                What do you want it to be?

                When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

                by JG in MD on Sun Dec 16, 2007 at 09:18:47 PM PST

                [ Parent ]

  •  If i'm reading this right (4+ / 0-)
    Recommended by:
    eugene, Snarcalita, dantyrant, JG in MD

    you're saying that cooking the books is now out-in-the-open, up-front, in-your-face the way things are done.

    Basically, if you have influence/control over the central bank, you can get free money, while the dolts, schleps, and peasants actually have to work to get theirs.

    And they say bankers don't rule the world?!?!?

    •  Bankers are already creating money out of thin (2+ / 0-)
      Recommended by:
      eugene, JG in MD

      air and lending money that they don't have. This is the function of a bank, after all. Let's not get so indignant at the proposed changes when the whole system is outrageous! :)

      •  are all banks like that? (2+ / 0-)
        Recommended by:
        dantyrant, JG in MD

        Including in the Islamic world? Just asking. ;^) We seem to have accepted the most pathological concept of banking as the norm in the western world.

        And you're right that it's outrageous--most people's heads would explode if they ever learned how our banking system operates. Either that or they'd call you a liar and a tinfoil-hatter.

        •  Indeed! (2+ / 0-)
          Recommended by:
          Snarcalita, JG in MD

          "The process by which banks create money is so simple the mind is repelled."

          John Kenneth Galbraith

          It does sound like the stuff of tinfoil hattery doesn't it? Not that I'm necessarily averse to such things-- it's hard to escape these days.

          You're right, Islamic banking operates on different principles. I recently read an article suggesting that it was Iran's banking that was behind the push for war -- seems like a bit of a stretch to me.

          •  just goes to show (0+ / 0-)

            Doubt it's connected to the push for war but it does show other models of banking are possible. And a lot of the problems we have with our banking system are more difficult to resolve because war-addicted governments like ours have to keep borrowing money for their adventures, and the temptation to inflate away the debts with fiat currency manipulations is too overwhelming.

  •  I honestly wish more Dems talked about this (3+ / 0-)

    as it annoys me that I had not heard of the crises with the central banks and the solvency issues in the monetary system until I was in the process of mocking the crazy of Ron Paul and came across some of the YouTubes on this subject and then got a little more understanding about where some of his support comes from.

    If I lived in Iowa, I would definitely be asking the candidates what they would do about the world's banking crisis and what they would do to strengthen the dollar.

  •  Hyperbole? (1+ / 0-)
    Recommended by:
    glaser

    I got kind of nervous when I read this in Sean Olender's article (link above)

    We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers. At stake is nothing short of the continued existence of the U.S. banking system.

    Money writers are supposed to be calm for fear the rest of us find out that the financial markets are and always have been based on air floating around in invisible balloons on which economists write.

    We know that confidence and belief hold up normal markets. As for out-of-control markets, they've been reined in before. We ordinary folks who don't believe the balloon writing want to think this market will be repaired too.

    When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

    by JG in MD on Sun Dec 16, 2007 at 08:39:23 PM PST

  •  It's an Interesting Question (2+ / 0-)
    Recommended by:
    eugene, Ignacio Magaloni

    We suburbanites need to know how to live in a broken-down economy when we're not in a position to grow gardens and form food co-ops. I just re-read Living Poor With Style from the 1970s.
    Practical living for us wordy but nonpractical people.

    When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

    by JG in MD on Sun Dec 16, 2007 at 08:45:37 PM PST

  •  When life was simple (3+ / 0-)
    Recommended by:
    ohcanada, Snarcalita, JG in MD

    My God, How the Money Rolls In!

    Tune: My Bonnie Lies Over the Ocean
    Source: Standing Song Stone Book

    My father makes books on the corner.
    My mother makes second-hand gin.
    My sister makes love for a dollar.
    My god, how the money rolls in!

    Chorus
    Rolls in, rolls in, my god how the money rolls in, rolls in!
    Rolls in, rolls in, my god, how the money rolls in!

    My grandma makes pink prophylactics
    She punches the end with a pin.
    My grandpa does bootleg abortions
    My God, how the money rolls in!

    Chorus

    My brother's a poor missionary
    He saves gorgeous women from sin
    He'll save you a blonde for five dollars
    My God, how the money rolls in!

    Chorus

    My cousin's a poor dirt farmer.
    He tosses his crops in the bin.
    He sells our when there is a shortage.
    My God, how the money rolls in!

    Chorus

    Oh, I'm just a poor mercenary.
    I don't care if we lose or win,
    As long as you're still here on payday.
    My God, how the money rolls in!

    Chorus

    My mother's a boarding-house keeper.
    Each night as the lights grow dim,
    She hangs a red light in the window.
    My God, how the money rolls in!

    Chorus

    My mother asks home politicians
    To play in a night full of sin.
    My father pops in with a camera.
    My God, how the money rolls in!

    Chorus

    My cousin sells shields to the Tartars.
    The plywood they're made with is thin.
    Myself, I'm renowned as a doctor.
    My God, how the money rolls in!

    Chorus

    My brother, the poor mercenary,
    He hires out to help people win.
    Since both sides are paying his salary, My God, how the money rolls in!

    Chorus

    http://www.calonsong.org/...

    needs something intelligent here

    by Ferrofluid on Sun Dec 16, 2007 at 08:55:32 PM PST

    •  Great old song (1+ / 0-)
      Recommended by:
      Ferrofluid

      I have an old Tom Lehrer book around here somewhere...

      Oh, okay, I won't sing. But it's your loss.

      When it rains it rains the same Upon the just and unjust fella But more upon the just, because The unjust steals the just's umbrella.

      by JG in MD on Sun Dec 16, 2007 at 08:58:59 PM PST

      [ Parent ]

  •  So, where is the nuke? (0+ / 0-)

    Basel II gets suspended and banks let their capital/debt ratio drop below 8%.  

    How is that substantially worse than what has already happened?  Essentially, this Basel II safeguard was already bypassed by the use of SIVs....now the chickens are coming home to roost.  In reality, the banking system is already on the verge of collapse and relaxing Basel II might bring them back from the brink (but probably won't).

    -5.75 -4.72 3.14159 2.71828

    by xynz on Sun Dec 16, 2007 at 11:16:59 PM PST

  •  This doesn't sound like a solvency problem (2+ / 0-)
    Recommended by:
    Ignacio Magaloni, Lovo

    The money's out there, it's just that none of it's anywhere where it would do any good.  It sounds like a confidence problem.  As in, people who really ought to have known better have been running a confidence game, and the suckers are starting to run out of money to keep it going.  The solution to such a problem is simple: take the money from the con-men, and give it back to the suckers, and keep doing it until the con-men realize there's no reason to keep playing their game.  Of course, that would take a great deal of political will, and one of the problems with money is that it tends to dissipate any political will opposing those who have it.  

  •  Read it and weep (0+ / 0-)

    the real bad news

    When I was telling people in July that it was already past 'sub-prime', it was either CT, TFH, or 'you're scaring me!'

    What is past, is prologue

    by US2oz on Mon Dec 17, 2007 at 04:04:01 AM PST

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