Getridofthemnow

Where We Go from Here: Best and Worst Cases

No one needs the talking heads of "today" to tell us that the problem is capital and solvency, not liquidity. Read this from the book, "Fifty Billion Dollars", written by Jesse H. Jones, the director of the Reconstruction Finance Corporation (RFC) from 1932-1945:

"Despite all these efforts, as fast as one situation was improved, several others got worse. It became increasingly evident to us that loans were not an adequate medicine to fight the epidemic. What the ailing banks required was a stronger capital structure." (page 22, Chapter 2, "Aid to Banks" )

The book the provides what amounts to "instructions" for how to handle widespread insolvency, beginning with the "A-B-C" bank plan and the use of preferred stock. Sadly Jesse wrote the text so in the future leaders could learn from the RFC experiences - what worked and what didn't work.

If Ben Bernanke is such am "expert" on the Great Depression, I truly wonder what he and the Hankster have been thinking. Maybe Ben needs to re-read some of these old texts, as the only smart thing they have done so far seems to be the suggestion of direct capital injections into the banks.

Are there other motives at work? Did they really not perceive the situation as being that desperate? Do they think its a OTC and NYC problem, rather than a real banking crisis?

Let me add that this crisis is no where near over. There remains a woeful lack of a systematic program to address the banking crisis in a way that allows the separation of the true healthy, from the sick but recoverable, and the walking dead. There are no plans for such effort. Thus, we are destined to watch more banks fail - large and small - and customer and others lose more and more faith and trust in our financial leadership.

Buffett Warned Us in 2003

Excellent article/post. Thanks for sharing. Now, let us not socialize the whole system. Wait. Reverse that. It's already happened. Time to go drink some vodka comrads.