FDIC and bank run scare

If push comes to shove, it can borrow INDEFINITELY, so long as there are buyers willing to purchase U.S. treasuries.

Somebody correct me if I'm wrong, but just how long can the government borrow from itself to cover losses in private banking?

Quite a long time, actually.

How long can we keep digging the indebtedness hole before the whole thing falls in?

Very slowly: we were already in the hole way back there in 2001; Iraq made it a lot worse; the housing bubble made it worse still; the Chinese have been happy to fund this ride in return for our factories. The whole thing is falling in now. Where this gets bad is if there is a major capital flight and USG is forced into default. You'd be out of work; upside is you'd still own your house, free & clear! (Who's going to collect?) That's a ways off tho.

The Fed is trying to get someone to buy WaMu; I think the best plan here would be for the Fed to finance a deal where Wells Fargo takes over the retail banking operation, and the mortgage part of WaMu gets folded into FannieMae, since FannieMae is already on the hook as loan guarantor anyways. (In effect, a lot of extra paperwork would just go poof, without much increasing fed liabilities.) I don't think they'll do that tho, since they seem to be behind the curve.

At any rate, the thing to get through your head is that 1998-2008 was one long fraud perpetrated by a lot of elite wealthy people. (Both parties suck here.) The upside is is that while we'll all be a lot poorer, there's a chance to just make this whole thing go away and go back to something that resembles a cross between the New Deal and Crunchy Conism. (Think 'It's a Wonderful Life'!)

Unfortunately, what is likely to happen is a lot uglier. That way lies protection of nominal face values of financial instruments, and then price controls, rationing and inflation and the like.

max
['I think are elites are not very smart.']

Things that make you go, "hmmmmmm"

I am starting to wonder if we are not approaching the fullness of tie for a Year of Jubilee. You may recall this when it was advised for 3rd World Debtor nations. Now the entire world is in hoc to each other and there seems to be less cash and more electronic IOUs floating around. In crime fiction one of the dictums is "follow the money"/ If there were a money trail here, to where would it lead? Is there a single or small group of culprits holding all this paper. Or is it (as I am guessing) a Worm Ouroboros, swallowing its own tail. If it is a Worm, then the Jubilee (in its most simplistic way) would allow people to stay in their homes, the banks to stay in business, and the housing finance issue to fade away. If there are culprits, perhaps they can be identified and some manner of negotiation set in motion. If we cannot determine who is going to benefit from all of this debt, then perhaps no one will benefit. If no one benefits from the debt, then no one will lose if it is all forgiven. There is more than a little Biblical precedent for this.

Let's face it, as it stands now the home owners are going under, the banks are going under, and the government may soon follow in their wake. Radical problems require radical solutions.

If true, let's see if MSNBC or CNN report this:

foxnews.com/story/0,2933,423701,00.html

A group called the Center for Responsive Politics keeps track of which politicians get Fannie and Freddie political contributions. The top three U.S. senators getting big Fannie and Freddie political bucks were Democrats and No. 2 is Sen. Barack Obama.

Now remember, he's only been in the Senate four years, but he still managed to grab the No. 2 spot ahead of John Kerry — decades in the Senate — and Chris Dodd, who is chairman of the Senate Banking Committee....

Now remember: Obama's ads and stump speeches attack McCain and Republican policies for the current financial turmoil. It is demonstrably not Republican policy and worse, it appears the man attacking McCain — Sen. Obama — was at the head of the line when the piggies lined up at the Fannie and Freddie trough for campaign bucks.

Sen. Barack Obama: No. 2 on the Fannie/Freddie list of favored politicians after just four short years in the Senate.

Next time you see that ad, you might notice he fails to mention that part of the Fannie and Freddie problem.

Some good comments.

The answer, 'as long as the printing presses can run," is the right one. The big risk is the bailout plus the deficits and the paper that has to be printed to pay them leads to a collapse in confidence in the currency. Then it's Weimar or Zimbabwe time. Good for the debtors, perhaps, but not for the lenders. Of course, the economy has been run for the bondholders for some time now.

The GOP has implemented more socialism than any "leftist" government, with less discussion. We taxpayers now own the world's largest insurance company, among other things.

One has to hope the people will keep believing that the gummint will cover their accounts. As long as they do, there won't be major bank runs on individual deposits. Holders of large amounts of money are probably pretty nervous by now. If I had more than $100K in cash, I'd divide it up between as many banks as I could.

Remember, we're still the locomotive. If we sneeze, China catches the flu and Thailand and Malaysia come down with TB.

This could be very bad juju, indeed, and the candidates seem to be totally incompetent to deal with any of it. Meanwhile, the foxes have they keys to the henhouse.

Lord, have mercy (Repeat 100 times).

If I am not mistaken, there have been fewer than twenty bank failures in the last year. There are some 7000-odd commercial and savings banks in this country. There were over 1,000 bank failures in 1988-99.

EricW
Next time you see that ad, you might notice he fails to mention that part of the Fannie and Freddie problem.

As has been repeatedly pointed out, there is no 'Fannie and Freddie problem'. They were not mismanaged, they were not involved in fraudulent activity, they did not make poor decisions.

Their job was to buy good mortgages to take them off the hands of banks. Not subprime, not Alt-A, but good mortgages. Which they did. They were established to do that, and they did.

The problem is that, suddenly, everyone became aware that all mortgages, thanks to housing prices collapsing, were worth a good deal less than previously appraised by the entire industry. This resulted in Freddie and Fannie not actually having enough assets to cover their debts, instantly bankrupting the companies. All the stockholders were wiped out, and the companies 'died'.

However, the US mortgage industry requires someone to buy loans, that is simply the way it's set up now, and without those companies no one would get any loan at all and no one would be able to buy a house, which would screw up the real estate market even more. Likewise, without Freddie and Fannie paying back the banks they owe, the financial market would be completely screwed up. In addition, someone has to execute the mortgages they hold and actually collect the money.

So the Feds essentially took Fannie and Freddie and continued to operate it. You can disagree with that, you can disagree with the position it was created to hold in the banking industry, but what you can't do is pretend it was somehow 'screwed up' by the Democrats running it. It did exactly what it was intended to do, in fact, it kept doing this blatantly dangerous behavior well past the point that a sane company without restrictions in its creation would have branched out to avoid having all its eggs in one basket.