Tricky Finance has been with Us for a long time. It is really hard to put a Start to it, as it probably ranges some distance before the creation of US Steel and the financing of the Union Pacific. The point I would begin is somewhere in the 1970s, when it became financial fashion to raid Pension Funds for Cash; look where they are today. Milken taught Us that Junk actually means Junk. Credit Default Swaps learned the Banks how to borrow against ‘Blue Sky’; long a tradition down in Texas. Geithner now wants Us to buy into Raiding the FDIC. We lost the Pension Funds at great Cost to the American Taxpayer, We lost out in the S&L Bailout, lost our investment potential with Milken, it has cost Us a viable Banking system, and now Geithner wants destruction of the protective power of the FDIC, by giving away their Reserves. Modern financial practice has a great Track Record.
Mike Shedlock alleges that Wage Deflation has set in, which is absolutely the worst way to handle a Downturn. Recovery is only stalled with massive Job losses, and crippled by Wage Cuts. There are better ways to handle loss of Sales, though they are far more risky than Wage Cuts, which cut Marketing and Sales personnel as well as Productive capacity; all this coming in the face of a more disinterested Consumer. Most Companies will cite inability to acquire loan funding in the current Period, but real fact may highlight a Corporate unwillingness to risk any personal loss; letting both Employee and Consumer suffer as a consequence. It is exactly this ‘Me First’ attitude which turns Downturn into Recession, Recession into Depression. Why do the rugged Individualist Risk-Takers always disappear with the first hint of clouds in the Sky, leaving Us all to weather the Storm?
I will not say that I agree with John Hempton, or will I say that he is far off the Mark in his assessment. Americans lack the inherent corruption in the English tradition, which has always found it convenient to license the ability to steal. The Mortgage Tax Credits advanced by Congress and Presidents did lead Households to overcapitalize their Housing; it leading them to buy what they could afford in maximum monthly payments simply to gain as much value from the Tax credits as possible. The shadow Banking system–We are talking about the CDS system here–is obviously at fault; why don’t Bankers have the same protection as do Doctors against unqualified practice? I do know that there is far more ‘Slash and Burn’ in Banking, than there is ‘Surgery and Cauterization’ in Medicine. lgl