"Quasi-nationalized" US banks in 18 months? 2008- will make 1929 look like a "walk in the park"? EEE

[StefanX]

I had too much to drink with someone who is terribly plugged in (security clearances AND knows tons of people in academia and the officialdom personally, both here and overseas).

Unfortunately, I can't use many of the specifics he conveyed, but he is a very upbeat sort by temperament but also has been studying the banking/credit mess. He sees us going down the Japan path. Banks will not be technically bankrupt, but will have so many bad assets on their balance sheets, and will have taken hits to their equity bases, that 18 months from now they will be unable to make new loans. They will be quasi nationalized. BTW he said this in a completely evenhanded fashion, as if he was giving a weather report.

This, mind you, comes from someone who has written frequently for the American Enterprise Institute and tells me the Treasury and the Fed are working on this scenario now. This is far more dire than any forecast either yours truly, a constitutional skeptic, or even uberbears like Nouriel Roubini, have been putting forward.

http://www.nakedcapitalism.com/2008/01/links-11008-and-scary-tidbit.html

Very good econoblog, excellent writing by Yves Smith. Frequent comparisons of crappy WSJ articles verus better info in the Financial Times, plus lots of other assorted goodies.

If some or all of Bank of America, JPMorganChase, Citibank, WaMu etc are going to be quasi-nationalized sometime in 2009 or 2010, who do you want running things? Remember that 30 leading Economists Endorse Edwards ("EEE"). Yeah, it's true not all economists are geniuses, but I think this is one more big reason to go for the only ront-runner who's been endorsed by 30 leading economists and who doesn't take corporate donations.

Despite all the other problems we have, maybe the motto of this election should still be "It's the economy, Stupid." Americans who have managed to avoid thinking about all the other messes we're in may finally snap to attention when the blowback starts to hit their finances.

Here's another rather dire quote from an economic advisor:

Crisis may make 1929 look a 'walk in the park'.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.
...
"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," {economic advistor Peter Spencer} says.

"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park," he adds.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml

Seriously, we need to start asking our candidates how they plan to handle the coming financial tsunami.

[zabet]

1. Maybe the candidates

are in the income bracket
not effected by the 'looming
recession'. Until it hits
them personally, I do not
expect to see any action but broad
sweeping sentiments about
improving economy and creating
jobs.

[Zywiec]

2. So you think 25% of the country will be unemployed by the end of the year? n/t

[PDJane]

3. And taxation will continue to be on labour;

This administration would like to tax labour to hell and gone, so that their friends in high places don't end up jumping out of windows.

[lurky]

5. If nobody's working,

they'll be in big trouble.

[Zywiec]

6. Are you referring to Washington or Ottawa? n/t

[PDJane]

7. Washington for sure,

Ottawa, if we don't get rid of Bush Lite (Harper) and his cabal of merry yes men. *shrug* These guys would rather tas labour to the hilt than take the hit for bad policies.

[dmallind]

4. To all people who agree with this

Please contact me to sell me major index-based funds (take your pick - Dow, NASDAQ, S&P etc) one year from now at 75% of their value today or three years from now at 25% of their value today. If you are right you will be laughing all the way to the bank because you'll be able to buy them far cheaper than that and make handsome profits.

Absolutely really willing to go into legally binding contracts with funds placed in escrow until exercise date agreed upon so no chance of welching. I'm not super rich but I can free up about maybe $100K or so to make these deals so get in early if you are really really sure about this! Willing to deal in amounts as low as $1K up to the $100K on a first come first served basis so not just open to fat cats....