Quote:
Originally Posted by Villages Kahuna
Here's a good article by a well-known professor of economics at NYU's noted Stern School of Business. It explains four options available to "fix" the banking/frozen credit problem. I might note that these do seem to be easily convertible from "ideas" to "plans" as Steve suggests is necessary before any are adopted.
But what was alarming -- but not surprising -- is the author's calculation that in aggregate the U.S. banks are already insolvent. I've thought that to be the case, describing it as "insufficient capital", for a while now. But the author's analysis of the situation is far worse than I imagined.
But the author seems to present some pretty well-thought out alternatives, explaining why he selected the one he did. (He chooses nationalizing the big banks, which is what seems to be happening.) In any event, this aticle is definitely worth the read...
http://www.forbes.com/2009/02/11/gei...l_roubini.html |
The article reminds me of an old military story where a medic at an aid station is working feverishly to bandage a wound and is getting all sorts of advice over the radio on what he should do next. However, what no one is recognizing is that the enemy is charging toward the aid station and all the bandages in the world won't stop the oncoming bullets.
The banking industry is not working in isolation of the rest of the economy, and any "bandaging" of banking without dealing with what caused the wound is blind reaction.
As long as we are continuing a negative balance-of-payments in the scale that exists, banking can only watch money sail offshore. The negative BOP, the unemployment rate and the quantum of debt held offshore is what is squeezing the money supply, and all the sleight-of-hand that the banking industry tries cannot change those facts. We can bandage the money supply with a cash infusion, while watching the economy continue to be shot because we never reacted to the commercial enemy coming over the hill.
I agree wholeheartedly that the "global economy" which has the US not making anything and just becoming the "intellectual" services provider (in other words, not getting hands dirty and staying white-collar) has castrated not only our economy, but our future ability to defend ourselves. Our manufacturing capacity saved our bacon in the 1940's and made sure we could have guns-and-butter in the 1960's. Today, we are buying military goods from other nations, and cannot parallel-produce military and civilian products as in the "olden days." That's a risk for our national security.