Carnage Continues in Banking Industry: Global Financial Crisis Expected to Deepen


The Price of Oil may be down, the price of unleaded dropping at the pump, but the banking meltdown continues unabated.  It seems that each day brings news of yet another bank “writing down” (Declaring a Loss) on more loans usually totaling in the billions, like the 4 billion Lehman Brothers is likely to write down in the third quarter. It’s becoming old hat to see massive amounts of wealth disappear in a puff of smoke as the financial sector continues to be rocked by the storm set off by the subprime crisis. There are limits to how far we can go without major consequences being faced, by one and all, about greedy lending practices and the incomprehensibly socialist meddling of the Federal Reserve System.


Aug. 19 (Bloomberg) — Credit market turmoil has driven the U.S. into a recession and may topple some of the nation’s biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund.

“The worst is yet to come in the U.S.,” Rogoff said in an interview in Singapore today. “The financial sector needs to shrink; I don’t think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.”


I distinctly remember Treasury Secretary Henry; call me Hank, Paulson, testifying before congress that he was sure he wouldn’t need to use taxpayer money to buy shares of the defunct Fannie Mae and Freddie Mac but it would calm the market if investors knew he could do that if he needed too.  I distinctly remember some of the senators grilling him about the idea that authority like this tends to magically get used despite the best efforts of whatever administration is requesting it and that they wanted a downside number as to how much of a risk they were taking by granting this authority.  Needless to say Secretary Paulson declined to give a real number and now we, as well as the senate, will find out together how much it’s going to cost us to nationalize Fannie Mae and Freddie Mac.


Freddie Mac and Fannie Mae “should have been closed down 10 years ago,” he said. “They need to be nationalized; the equity holders should lose all their money. Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds.”

U.S. Treasury Secretary Henry Paulson asked Congress on July 13 for emergency powers to inject “unspecified” amounts of government funds into the companies if necessary.


So what are we in for in the future?  It would seem that despite the best efforts of the government, and the Central Bank of the United States, otherwise known as the Federal Reserve; we’re going to be treated to “consolidation” of investment banks, (More Bank Failures) and an inflationary wave that’s going to be years before it’s contained. But isn’t that what granting the Fed sweeping new powers in the banking and securities industry was designed to stop?  Isn’t that why Secretary Paulson got sweeping new powers to use our tax dollars to outright nationalize bankrupt lenders like Freddie and Fannie so these insane government bailouts or “nationalizing” elements of the finance industry would not be necessary?  How bad is the crisis if a Freddie and Fannie can borrow directly from the Federal Reserve with a guarantee that the United States Treasury will “support” their stock with our tax dollars because they’re “too big to fail” and yet Freddie and Fannie are expected to fail anyway?  I suspect our future is not unlike that of a mushroom: we’re to be “kept in the dark and fed prodigious amount of fertilizer.”


“Like any shrinking industries, we are going to see the exit of some major players,” Rogoff told Bloomberg, declining to name the banks he expects to fail. “We’re really going to see a consolidation even among the major investment banks.”


Chairman of our branch of the Global Money Trust, also known as the Federal Reserve System, Benjamin Bernanke, has kept rates low so that all the loans necessary to keep the financial and banking industries afloat can be made, for the common good, even at the cost of an inflationary tsunami that’s even now bearing down on us.  The question becomes what if, despite the low rates   that’s killing the purchasing power of ordinary Americans; we lose lots of banks and finance institutions anyway while having made the recovery that much worse by the inflation unleashed by the failed rescue effort?  It’s bad enough to have huge banks and finance companies go belly up but what happens when government bailouts fail to contain the situation?  Its bad enough that the world looks on our finance system as problematic but when our governments unprecedented rescue efforts are for not: can the crisis of confidence spread to our governments financial credibility?  Who bails out the government when no one buys their debt instruments anymore?  Now that’s a real meltdown and a party I would just as soon skip. 


“Rates are too low,” Rogoff said. “They must realize we’re going to get inflation if things stay where they are. They need to raise rates but I don’t think they are going to because they’re way too nervous.”


The government is playing a dangerous game with its interference in the free markets.  Its so intent on saving the credibility of the financial markets that its risking far more of its own credibility than is prudent or even legal if we bothered to follow our own laws.  Our own folly is dragging us inexorably toward bankruptcy and the failure of our currency which in turn is dragging us inexorably toward socialism as we frantically try to solve the problem with steadfast refusal to accept the consequences of our actions. For the moment things may seem fine with gas prices going down and the dollar “strengthening” from the fear of the Russians.  Just wait until the next big institution goes down the drain!  Enjoy this interlude because the government is playing Russian roulette with this crisis and when the gun goes off none of us will ever be the same again.


Check out this artical at Bloomberg!

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