Bill Yeager 10/04/08

1. INCREASED DEPOSIT INSURANCE
Reasonable step but at least some of the cost (and risk) for this should be transferred through to depositors. Businesses will like it as they won’t have to operate as many multiple accounts. Funds will now shift further into cash deposits (and away from equities and higher risk options including gold.)

(Australian Situation)
If conditions worsen, expect the some of Australian Government to offer some protection for bank, credit union and building society deposits. A benchmark is the 90c in the dollar paid by through the Victorian Government to ordinary depositors after the collapse of the (aptly named) Pyramid Building Society. Most of the smaller Australian financial institutions who can’t keep going will get swallowed before they go bust.

2. MARK TO MARKET RULES

It probably doesn’t matter either way. Mark-to-market rules will be irrelevant to the many holders of commercial paper and SIVs that will fail over the next 12 months.

Optimal policy action should depend on whether the financial garbage deserves to go in the little green bin of the big yellow recycle bin. If the asset has little chance of regaining value it should be written off in the small green smelly bin.

Six months ago I would have been happy to relax mark to market rules on the grounds that actual default rates remained low and because SIV’s held to maturity were likely to be paid in full. This is no longer the case. A rapid increase in commercial paper defaults is happening and it is now apparent that many collateralised SIVs are leveraged to the point that only a small default rate – often under 5% - is required for investors to lose all of their capital and interest.

OTHER PREDICTION
Five years of double digit inflation in debtor countries at the very least.

More focus will soon shift to impacts in other debtor countries (including Australia), Europe, Russia, the Sub-Continent and China. The media continues to wrongly portray the crisis as a North American problem, not withstanding the observation that easy credit, asset bubbles and deleveraging are global problems.

Dan's post today indicates that a lot stocks are over sold. This may be true but only very good day traders can make any money at the moment. I’m lying low (except for a tiny continued investment in some gold juniors).

In order to mop up decades of excess they can re-implement death duty equivalent to the highest marginal tax rates on all heritable assets. Get congress to append that one to TARP with those supposed "anti-populists" Paulsen & Bush & Biden & the neo-cons to sign on.

And even though South Sea and Caribbean islands may beckon a bubble of asset transfers for a short while .... they never last out there.

The rest are wealthy, some beyond belief, including Paulson with his 500 million. Those others who have billions have absolutely no worry about how they will survive. Is this the only way to conduct the world in the 21st century? The existing banking model does not work, and neither does the abysmal American political system, as this present "crisis" proves. What happens when the now three largest banks in America collapse?

Those large majority of Americans, and others, who just want to let the markets fall where they might because they do not want a bail-out using the tax-payer's money are ostrazised by the so-called educated others who say that they have no knowledge of how the markets work and they will be sorry when they have no pay-checks or homes. Those Americans have listened to the scare tactics of the bush government for eight years and are by now desensitized to those tactics. There is little remaining belief in the American political systsm.

What the so-called educated fail to realize is that the people have seen what has happened in their, their father's and grandfather's lifetimes and they know that the system does not work for them. So, why allow the mess to continue, at their, their children's, and their grandchildren's expense to prop-up the weathly status-quo? I share the same question.

The Rothchilds banking system should be replaced and these so-called "instruments" that those of you who are quoting and going-on about should be dissolved. Yes, there will be loss. Life is about loss.

When everyone is in the same financial boat, someone will realize that a new model that recognizes everyone is needed. Otherwise, this bail-out by US taxpayers is just more of the same to keep a failed system alive, until the next time that the fat-cats are hurting.

Now that his campaign to win the Republican nomination for President has been deep sixed by our corrupt electoral process, the talking heads in the corporate media are referring to him as an "economic genius". How typical.