Aug 28 2008
Economy far from out of the danger zone; Policy actions on path to worsen situation
Below are a few articles with clips we think are worth a read. Absolutely not! The worst is far from past, and below are a few reasons why. If you can only read one, read the last one listed — the one on deleveraging and banks. Written by Mises scholar and Chief Economist of Mann Global, Frank Shostak, it reveals once again the Rosetta Stone for this economy, explaining why current policy makers are on an unfortunate path to compounding the problems rather than fixing them — as if things needed to get worse!
The Real Cost of a Full Freddie and Fannie Bailout
The real cost of the bailouts will easily exceed $1.3 trillion. In fact, the real cost is likely to range between $1.3 trillion to $1.6 trillion, and is not unlikely to reach $2.5 trillion.
U.S. Says Banks on `Problem List’ Rose 30% in Quarter
“The U.S. Federal Deposit Insurance Corp. said its “problem list” of banks increased 30 percent in the second quarter to the highest total in five years as more commercial real-estate loans were overdue.
The list had 117 banks as of June 30, up from 90 in the first quarter and the highest since mid-2003, the agency said today in its quarterly report without naming any institutions. FDIC-insured lenders reported net income of $4.96 billion, down 87 percent from $36.8 billion in the same quarter a year ago.”
Freddie, Fannie Failure Could Be World `Catastrophe
“If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic… If it is not the end of the world, it is the end of the current international financial system.”
Is Deleveraging Bad for the Economy?
Is it true that if every bank were to attempt to “fix” its balance sheet, the collective outcome would be disastrous for the real economy? On the contrary, by adjusting their balance sheet to true conditions, banks would lay the foundation for a sustained economic recovery. After all, by trimming their lending, banks by implication also curtail the expansion of credit “out of thin air.” As we have seen, it is this type of credit that weakens wealth generators and hence leads to economic impoverishment. Contrary to the proponents of the “paradox of deleveraging” we can only conclude that if every bank were to aim at fixing its balance sheet, in the process curtailing the expansion of credit “out of thin air,” this would lay the foundation for a healthy economic recovery.
