Monday, September 15, 2008

Glass Half Full Kind of a Guy

So everyone is talking about the credit crunch and various financial institutions problems in terms of a capital shortage which strikes me the same funky inside-out black-is-white way "savings glut" was applied to describe the phenomena whereby American's were cajoled, no "forced", to import and consume a reasonably larger percentage than they produced and/or exported just because it was there or just because they could. I, on the other hand, see the current problems in terms of an excess of assets, or "asset bloat". For their capital was their capital, and no one forced them (except perhaps the spectre of Shareholder Activists writing letters asking for your removal as CEO) ) to lend to all manner of stupid and risky projects, poor credits, or absurdly securitized turds on dangerously poor terms and at pitiful spreads leading to excessively dangerous levels of capital gearing that in many circumstances (like deep recession) one would plausibly cause said assets to be behave in a correlated manner. Indeed, there was nothing other than the fact that they were highly conflicted and stupidly incented agents and not principals of the [now-diminished or wholly vaporized] equity capital they shepherded that made them do it, from the lowest signatory to the highest man with the over-sized corner office. In the process, they have cavalierly spoiled a reasonably good thing called the financial system - severely damaging it's health, longevity, and confidence therein.

Saving glut? Glass half-full? Capital shortage? Ummmm, I think not....and just so everyone is clear: the fixes (note I didn't say intermediate solutions) are deflationary.


Binggan said...

With the US 10y yield at 3.45% the bond market concurs.
Will the US avoid a Japan like scenario?

Anonymous said...

Yes, the US will avoid a Japan like scenario - for I reckon it will be much worse. Japan's was hardly bad classically speaking in terms of unemployment, poverty, even enterprise destruction. It was only bad in terms of the opportunity cost of barely participating in something akin to a fictional prosperity. I would choose Japan's centrally-planned sort of managed revulsion any day over whats in store in for the USA.


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