which is closer to the truth than labeling whats going on as American

When you write,

“Whether it makes sense to speak of it as ‘borrowed’ money, depends on whether the monetary or fiscal authorities are careful to match the money they create with publicly-traded assets. In the US, we’re always very careful to do this,”

the implication (at least to us non-financial folk) is that the Obama Administration bailouts and exponential national debt enlargement may be good policy. Is that what you’re saying? Or maybe you’re just objectively commenting on what the markets are doing, sans judgement on policy.

We print all the money we need… I too used to think it was those dirty foreigners loaning us the money… but it is actually the Federal Reserve printing it and giving it to the Treasury that finance’s Obama’s 1.5 TRILLION dollar deficit… and now the bailout of Europe.

and how it works is the true VooDoo economics.

The money isn’t going into plant/equipment and innovation build GDP. It will go into financial assets. It bypasses the average joe. Pretty soon it will be a positive feedback loop producing exactly nothing, just a whirl of shiny electrons spinning about.

You will have to enlighten me on how TARP prevented a depression. Are you secretly Robert Gibbs? Ben Bernanke?

TARP encourage irresponsible behavior and has continued to be a helicopter drop of money into a multitude of favorite Democrat political causes. Combined with other out of control spending it is a recipe for economic disaster. All we have done is kick our issues down the road to meet political calendars. Someone will have enlighten me how that comprehensively “prevented a depression” as opposed to say a triage approach that would have included managed bankruptcy.

that TARP prevented an immediate depression. But supposing it did, it came with a price: the structure to forever change America – TARP and the rest of the bailout bills all come with a lot more than cash to save the economy.

over that same period of time. How do you it was TARP, and not increased balance sheets of the Fed and FDIC that saved us from depression.

The more I think about, TARP was just a head fake to distract the public from the actions of the Fed and the FDIC and to make Congress feel like they were doing something.

http://www.federalreserve.gov/releases/h41/current/

Or, at least the Federal Reserve is not supposed to be the Hedge Fund of Last Resort.

The Fed can add liquidity to the markets through open market operations. But open market operations should be limited to the purchase and sale of US Treasuries, not the purchase and sale of other debt like MBS.

The TARP initially was about purchasing “troubled assets.” Again, the federal government should not have it’s own hedge fund with the dual responsibility of keeping insolvent corporations in business and making a buck for the taxpayer at the same time.

No argument regarding the Fed’s role in market stability. Ditto the original, simple goal of TARP. However, this is more a question of methods, operating principles and the generous intersection with political goals.

For example, I am curious if the $90.0 billion we put into AIG or the $45 billion put into Citigroup or the $50.7 billion in GM (Dear Lord, how are they even on this list) were the right moves (just to name a few). Especially given these companies fairly extensive history of operating inefficiently and irresponsibly. On the latter two, I would love to see the long-term changes in their business models this gratuitous intervention has spawned. To date, I see some nice PR and belt tightening. Beyond that, not much. In fact, I personally believe a managed restructuring of GM, for example would have made the entire industry more responsible and healthier in the long run.

For Europe, we own a piece of this bailout (albeit well laundered) vis a vis the IMF. So I would ask; how does rewarding irresponsible spendthrift nations who lied to the ECB about debt levels and having very little political ability to make requisite debt reductions (irrespective of what they say) improve our economic viability over the long run? In my mind- it does not.

For our country as you know, another tricky part will be a bit further down the road when inflation becomes a factor. Add to that a total picture of our future debt including entitlements, the implicit loss of freedom and capitalist departures that are byproducts and I frankly don’t see the wisdom or sustainability of this approach. In fact, it makes me think that, as Hayek put it, our capitalist system including free markets and private ownership is under attack in a way that threatens our very existence.

My general issue with TARP has always been that it (whether by design or not) preserved the staus quo. That presupposes the “status quo” should be maintained- and I am not convinced it should have been. I think over the next 5-10 years, we will discover the wisdom, or lack thereof, of this approach.

I think solvency (not just liquidity) is still an issue for me. There are just too many questions about this whole ECB rescue structure and member central banks buying each others debt. The entire liquidity/inflation picture is just a bit too unsettled for me.

Wasn’t the black hole the result of plummeting valuations in the context of reserve requirements, triggering more sales, triggering plummeting valuations, etc.?

Most supporters of TARP say that withtout TARP unemployment would be higher than the current 9.9 percent level.

So, the argument has been made that TARP saved jobs as a net, at least indirectly.

Of course, no one can prove conclusively that without TARP the economy would be worse off than it is now. But what we do know if that by sending the signal that the US taxpayer will suffer the losses for bad investments in too big to fail financial institutions while allowing investors to receive the returns, the capital markets are now distorted and business that are not considered too big to fail have a difficult time getting capital.

If I purchased my house for 500,000 dollars with a 5 percent down payment and the value of my home goes down to 400,000 dollars and I lose my job and need to sell, does this count as a liquidity crisis, since I think that in a few years my house will again be worth 500,000 dollars?

The way a situation like this is supposed to work is that my home is sold for something around the current market value of 400,000 dollars, I lose my downpayment and the lender loses some of their investment. This situation is not supposed to result in having the government “inject equity” into my home to solve the “liquidity crisis” I am experiencing.

Sure, I understand that banks play a more important role in our economy than an individual homeowner does. But keeping a bank that is either illiquid or insolvent in business for too long simply ends up costing the taxpayer more money.

The FDIC was created for the purpose of handling bank disruptions. But now the government taking the power it was given and asking for even more. No matter how much money and power we give the government, the government continues to ask for more and the budget deficit grows even larger.

All of this is somehow required to provide “stability” to our financial system.

but can you read anywhere in the charts how a stock can trade down from the 40′s to less than a buck and back to 40 . . . in a half hour.

Back to bail outs, I see Fannie and Freddie are back with their hands out asking for billions and billions more. Chump change?

http://www.theatlantic.com/business/archive/2010/05/fannie-like-freddie-reports-another-huge-loss-and-needs-more-cash/56444/

Once the market realizes that we *will* have a “double dip’ recession (starting either this summer or fall), the market will trend down in short order. In fact, I suspect the process has already started – currently the market is only up under 350, and I suspect, by the end of the trading day, we’ll be lucky to still be up 200…

Europe is afraid of the social unrest, but all they are doing is buying a little time. The demographics are a perfect storm. Too many old people with too few young people to support them. They also have imported too much cheap labor and not assimilated them into each country’s society. Sounds like a perfect storm to me.