Turns out it was only a dry run.
Bubbles Forever: Paulson plans to spend $250 billion buying stock in private banks - which he told Congress 30 days ago was the wrong thing to do. And just the country's largest institutions, but hundreds banks across the nation.With their new capital, banks are supposed to lend, lend, lend, re-inflating the housing market. In addition, the FDIC will insure the loans banks make to each other as a way to
dump even more bad loans into the economy get the American consumer to go ever further in debt. Greenspan would be proud.
A Jack Benny Moment: Turns out credit, not capital, is the foundation of the American free market system. We are not capitalists, we are creditists. The US government has taken over ownership of America: it provides mortgages, life insurance, investments, banking, and soon car manufacturing. No one is talking about the death of capitalism. Not yet. But I'm thinking, I'm thinking.
That was Then, This is Now: The large, and largely theoretical, supply of oil the cornucopians were touting in tar sands and oil shale depends on getting huge investments. Projects that were possible at $110 a barrel are not at $80.
High Finance: Neel Kashkari, Goldman Sach's nominee in charge of Paulson's piggy bank, says the Treasury will only invest in "healthy" banks. If they are healthy, what the hell they need my money for?
Only The Good Die Young: The Pentagon, backed by DOE, is now complaining that its warheads are so yesterday and they need a whole bunch of new and costly nuclear warheads to lob at wedding parties in Pakistan.
Bucks Euros: $1.750 trillion. Austria, France, Germany, the Netherlands, and Spain have committed 1.3 trillion euros to guarantee bank loans and to (partially) nationalize banks throughout the continent. Makes Paulson look like an also ran, even though Paulson is going to use his allowance to buy banks, not crappy paper as the Congress authorized. This means that all the bad paper has found a permanent home, hidden int he back offices of nationalized banks.
News from the Front: with the main planting season only a couple of weeks away, farm supply outfits in Zimbabwe have no seed maize to sell, not for Zimbabwe dollars, not for US dollars, not even in exchange for gasoline.
Party On: The old economic order, based on a borrow and spend consumer paradigm, is dying. Injections of liquidity do nothing about the bad loans that have gone bad. The solution is simple. Americans must be forced to pay cash. No credit for new cars, plasma TVs, clothing, vacations... everything. Mortgages must revert to 20% down and payments less than on-third of income. This solution is unacceptable to the citizenry and the politicians and to Wall Street, so the wound will be left to fester and grow. Inflation, inflation, inflation.
20 / 20 Vision : "The Fed and the Treasury have decided the problem is that banks are not lending enough. The reality is that banks have lent too much." Mike Shedlock