After all, if you could get the government to hand you a trillion dollars with no oversight, just for inflicting some pain on the little people, what would you do? The symptoms of the shock (via CR):
The cost of borrowing in dollars overnight rose the most on record after the U.S. Congress rejected a $700 billion bank-rescue plan, putting an unprecedented squeeze on the global financial system.*
The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today...
But why is LIBOR going up? Of the two emotions that drive the markets, which drives LIBOR? Fear ("confidence") or greed? Stirling Newberry, looking at LIBOR's history, answers greed:
The basic internbank rates are set by central banks, and those central banks try and get banks to follow. Usually, and this means almost all the time, banks lend only a small amount above the rates set by central banks. Central bankers are often known to follow the LIBOR, or try and lead it by a bit. Historically speaking, the difference between central bank rates and LIBOR is small.
However, three times in the last year the LIBOR has spiked well above the rates set by central banks [and now it's spiking again], and banks have stopped lending to each other. Was this fear? Or was it greed? Realize that which ever it is matters for fixing the problem. If the problem is that banks are terrified of lending, then the answer is to insure and clean up balance sheets. If the problem is greed, then the answer is to bring back into alignment incentives, so that banks are no longer doing things that are good for them, but bad for every one else.
Why greed? Well, Stirling gives a long disquisition on interest rates, inflation, and how Bush funded the war that I don't understand. However, this second data point I do understand:
The other piece of data that obliterates the fear theory comes from some data from the collapse of Lehman Brothers. When Lehman was allowed to collapse, itself a suspicious decision, it was holding a large overnight loan from Citibank. The Federal Reserve paid back that overnight loan, rather than had Citibank sit with billions tied up while Lehman was disposed of. This was done, correctly, to prevent turbulence on the financial markets. But what it says is there is no overnight loan risk. If banks were afraid of being caught lending to a bank that went under, then there would be a very large spread between overnight loans, that the Fed will make good, and whatever length of time that the bank will have to just eat and wait for. There is no such spread, the longer term LIBOR rates are well behaved compared to the overnight rate.
Not fear. Therefore, greed.
Now, even a child can see that an overnight lending rate from one bank to another is extremely susceptible to manipulation by the bankers. So, think of LIBOR not as an impersonal economic force, but as a number, controlled by a small committee of people with a whole lot of money. In fact, think of it as a number on a dial -- a dial that connects an electrical wire directly to your stones.
If they crank that dial hard enough, and often enough, you give it up, and then they get a trillion dollars of your money, so that they can continue to live in the style to which they have become accustomed, after < gambling the rent money away by playing the ponies. You'd have to be "insane" to resist!
See how simple?
NOTE * Give it up NOW NOW NOW, or it will be the worse for you! Still via Bloomberg.
``This is unheard of, the money markets should be the engine driving the financial system but they have broken down,'' [what a coincidence] said Kornelius Purps, a fixed-income strategist in Munich for UniCredit Markets and Investment Banking, a unit of Italy's largest lender. ``Any institution that hasn't completed its 2008 funding needs by now is going to be in very serious trouble. More banks are going to need to be bailed out.''
Note the lack of agency in that sentence. "Need" to be "bailed out" why and by whom and for what?
- lambert's blog
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shock doctrine indeed
good catch
It went around as a joke last week, but there IS a bailout ...
that would do some good.
It would put people back to work. It would fix the country's infrastructure. It would be an answer to offshoring (damn hard to hire people on the other side of the globe to patch roads and lay brick right here in the good old USA).
Wages -- especially if set at a minimum of, say, $12 hourly -- for this kind of work would turn over here at home, too.
Now, the key is that you have to do this with a non-profit. There is no more widely-known non-profit than the US government (unless it's the State of Texas, but I repeat myself). You would have some side-bet construction too (barracks for the new-age CCC workers, or tentage, or nickel-burger joints along the way).
What's needed is not 'relief' for the bankers and investors and financial engineers who've driven the national economy off a cliff. Jail time, maybe, but no bailout.
Our national energy policy has, since the days of Ronnie Raygun, sucked. Our policy on infrastructure (aka deferred maintenance and 'no new taxes') has likewise sucked. Our ability to do upkeep has been blown out in favor of short-term profits on 'new' stuff (aka cheap Chinese crap).
It's time we took a long hard look at changing not just the way we do business on Wall Street but the way we treat workers in America.
What's needed is to put American citizens back to work on American projects, right here on American soil and using American products. Brick streets; fix the bridges on the Interstate. Unionize the work for safety's sake, and make sure the level of craftsmanship is at least as good as it was in the 1930s.
You could take down some of the dams in the Southwest too -- if rather than taking them completely out, you wanted to put in a secondary dam a half-mile downstream that was only 2/3 the height, you could then allow more water out, generating more hydropower, and reinvigorating the riverine ecosystems. Yeah, you'd lower the levels of the reservoirs, but that could be a very good thing in the long run anyway. Plus, while the power for e.g. Tempe and Scottsdale got marginally less cheap, the load on the coal-fired, LNG-fired and (coming whether we like it or not) nuke-fired plants would drop a little.
We need to rebuild the nation. We need to rebuild our roads, our bridges, our network of electric transmission lines (and why not bury them as we go, for the sake of weatherproofing them if not for the aesthetic value?) and yes, our non-air-based, national mass transit systems.
Trains rather than buses; light rail in town, heavy rail between town. Yes, engines are power hogs. But the same number of pounds of goods and/or passengers can travel on one diesel or diesel/electric train that you need 200 trucks to move (or 450 SUVs). Get a monorail for passengers (elevate the tracks or bury them, to prevent wildlife strikes and weather-related outages) and you could rival air-travel speed and comfort.
It means changing the way we look at many things. Luxe won't be your own private Hummer anymore; it'll be a sleeping berth on the monorail. Business 'travel' will be by teleconference.
Costs will come down and people who have been left out of the "profit circle" will find themselves on the upslope, instead of in the 'trickle down economics' cellarages.
It will be a socialization of the profit, as opposed to only the risks. The Village
hates and fears this, because it raises the outside-the-Village
people up a step (or more) without adding significantly to inside-the-Village
perqs. But it's the right thing to do for the common good and the country.
We can admit that we're killers ... but we're not going to kill today. That's all it takes! Knowing that we're not going to kill today! ~ Captain James T. Kirk, Stardate 3193.0
We can admit that we’re killers … but we’re not going to kill today. That’s all it takes! ~ Captain James T. Kirk, Stardate 3193.0
1 John 4:18
"Put American citizens back to work
on American projects, right here on American soil and using American products."
Now that would be a winning politial campaign this year. Landslide.
"Do what you feel in your heart to be right -- for you'll be criticized anyway. You'll be damned if you do, and damned if you don't. " - Eleanor Roosevelt
This is so discouraging
This is learned helplessness. If we don't get the money, they warn, they will destroy us. It's highway robbery and those we've elected to protect us from this kind of thing are on the verge of letting them do it.
But, we've always been at war with Eastasia...