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The Last Hurrah for the Banking System

 
UnwanteDreams
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User ID: 404735
United States
07/30/2008 11:40 AM
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The Last Hurrah for the Banking System
By Mike Whitney

28/07/08 "ICH" --- The Bush administration will be mailing out another batch of "stimulus" checks in the very near future. There's no way around it. The Fed is in a pickle and can't lower interest rates for fear that food and energy prices will shoot to stratosphere. At the same time, the economy is shrinking faster than anyone thought possible with no sign of a rebound. That leaves stimulus checks as the only way to "prime the pump" and keep consumer spending chugging along. Otherwise business activity will slow to a crawl and the economy will tank. There's no other choice.
The daily barrage of bad news is really starting to get on people's nerves. Most of the TV chatterboxes have already cut-out the cheery stock market predictions and no one is praising the "impressive powers of the free market" anymore. They know things are bad, real bad. A pervasive sense of gloom has crept into the television studios just like it has into the stock exchanges and the luxury penthouses on Manhattan's West End. That same sense of foreboding is creeping like a noxious cloud to every town and city across the country. Everyone is cutting back on non-essentials and trimming the fat from the family budget. The days of extravagant impulse-spending at the mall are over. So are the "big ticket" purchases and the "go-for-broke" trips to Europe. Consumer confidence is at historic lows, disposal income is a thing of the past, and all the credit cards are at their limit. The country is drowning in red ink.

Something has gone terribly wrong with the economy, but no one knows what it is? In the last three months bank credit has shrunk faster than any time since 1948. The banks aren't lending and people aren't borrowing; that's a lethal combo. When credit-creation slows, the economy falters, unemployment rises and the misery index soars. That's why Bush will have to mail out more stimulus checks whether he wants to or not; his back is against the wall. He'll try to make it look like the economy is still breathing on its own and just needs a spell on the respirator before resuming its normal activities. But Bush is wrong; we've reached Peak credit and the blood-transfusions won't work anymore. The vital signs have shut down and rigamortis is already setting in. Our goose is cooked.

MORE BANK RUNS

On Friday, after the market had closed, the FDIC shut down two more banks, First Heritage Bank and First National Bank. Two weeks earlier, regulators seized Indymac Bancorp following a run by depositors. The FDIC now operates like a stealth paramilitary unit, deploying its shock troops on the weekends to do their dirty work out of the public eye and at times when it will least effect the stock market. The reasons for this are obvious; there's only one thing the government hates more than seeing flag-draped coffins on the evening news, and that's seeing long lines of frantic soccer moms and blue-collar working guys waiting impatiently to get what's left of their savings out of their now-deceased bank. After all, flag-draped coffins merely indicate that we're losing a war, but lines at the bank prove that the system is broken. And the system is broken, that's why people are depressed and confidence is waning.

Banks-runs are a shock to the collective psyche; they demonstrate that the stewards of the system are imcompetent and have made a mess of things. When depositors see a bank run they realize that their hard-earned money is not safe. That's why they get edgy and cut back on their spending. When their confidence wanes, it extends to the whole system. Suddenly they start questioning everything they once took for granted. They become skeptical of the institutions which, just days earlier, seemed rock-solid. That's why bankers surround themselves with marble columns, vaulted ceilings and lofty-sounding titles; to maintain the illusion of security while masking the truth, that fractional banking is the biggest scam in history. It relies on the "greater fools" theory which assumes that bankers can be trusted to only create credit when it is backed by sufficient capital. But it is not true. The banks have put us all at risk.

Bank runs are a direct hit on the foundation of the free market system. Unchecked, the tremors can ripple through the entire society and trigger violent political upheaval, even revolution. The public may not grasp their significance, but everyone in Washington is paying attention. They take it seriously, very seriously. It is a sign that the system is disintegrating and it may be irreversible.
"You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad.

“The war we fight today is more than a military conflict,” Mr Bush said. “It is the decisive ideological struggle of the 21st century.”


You are a slave..., like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind."
UnwanteDreams  (OP)

User ID: 404735
United States
07/30/2008 11:43 AM
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Re: The Last Hurrah for the Banking System
SABER-RATTLING AT THE FDIC

An article in the San Francisco Business Times said that the FDIC is worried about the reporting on Internet blogs. They'd rather keep banking system's troubles out of the news. The publicity just further undermines the publics confidence and spreads fear. Sheila Bair, chairman of the Federal Deposit Insurance Corp., summed it up like this after the run on Indymac:

"The blogs were a bit out of control. We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it. The misinformation that came out over the weekend fed a lot of depositors' fears."

Is that a threat? The cure for a failed banking system is adequate capital and prudent oversight not threats to critics of the system. That's balderdash. Commissar Blair apparently believes that bloggers should be treated the same way as journalists in Iraq, who, if they veer ever so slightly from the Pentagon's "the surge is a great triumph" script, find themselves on the smoky end of an M-16 at some unmarked checkpoint outside Baquba.

If Blair wants people to take her seriously, she should stop the paramilitary-type mothballing operations to shut down banks and tell the American people the truth about what is going on. The banking system is busted; Blair knows that as well as anyone. Now its time for someone to accept the mantle of leadership, step up to the microphone and tell the public what they really need to know:

"My fellow citizens, we are embroiled in the greatest financial crisis our nation has ever faced and we will have to take emergency action to keep the entire system from melting down."

How hard is that? But it won't happen, because everyone in the administration has an aversion to telling the truth; it's like the Devil and Holy Water. Besides, its easier to blame the bloggers, that harmless subspecies that spend long hours pecking away at their keyboards in their windowless 5' by 7' hovels.

Bloggers aren't the problem; the problem is a system that's collapsing from decades of abusive credit expansion creation and insufficient capital. Now everyone is going to pay for the excesses of the few.
"You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad.

“The war we fight today is more than a military conflict,” Mr Bush said. “It is the decisive ideological struggle of the 21st century.”


You are a slave..., like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind."





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