Thursday, October 7, 2010
Graphic Illustration of Why Superficial Financial Fixes Will Fail In An Environment Where Giant Banks Are Allowed to Hide Massive Debt
I've written a lot about why superficial fixes will fail as long as the giant banks are allowed to hide their massive debts. See this, this and this.
I've also repeatedly noted that the size of the derivatives market dwarfs the global economy - and forms a giant overhang over it - and writers such as Chris Floyd have argued that there is "not enough money in the world" to pay off the derivatives debts.
But sometimes images can illustrate what words can't quite convey:
Many people are being dragged underwater by the bottomless pit of debt:
Indeed, the failure of governments to force the giant banks to write down their debts is dragging many businesses, cities, states and entire nations into the abyss:
(Click any image for larger version.)
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The problem with the above idea is that banks outwit politicians every time. Banks’ response to the above suggestion would be “if we’re forced to write down our debt, that would bankrupt many of us, and the world economy would be severely damaged.”
ReplyDeleteThe response of politicians OUGHT TO BE: “we are happy to see you bankrupted. We (the state) will just take over the relevant banks, and wipe out, or give the shareholders and creditors a big haircut. And in due course we'll sell these state shareholdings back to the private sector. As to any deflationary effect of banks going under we’ll simply effect enough stimulus to counteract the deflationary effect. Moreover, unlike the stimulus effected to date, we’ll direct the stimulus to Main Street and not to the criminals and fraudsters of Wall Street.
Unfortunately the chances of politicians actually doing the latter are remote. First they’re too stupid. Secondly they’ve been bought by the above mentioned criminals and fraudsters.