Saturday, May 24, 2008

When Ian Welsh Speaks...

.....I Listen

The graph above is from the St. Louis Federal Reserve Bank, and it shows is how much cash US banks have on hand that they haven't lent to somebody.

As you can see they are bankrupt.

Or, as Ian and friend ChiDyke say, because the banks are still in business the technical term is actually 'insolvent'.


What's the upshot?

Well, that the US Fed is going to make regular folks pay for the malfaesance of the rich.

(US Fed Chairman) Bernanke said (as paraphrased by Mr. Welsh) "I am going to make Americans pay to clean up this mess. The huge amount of money that was transfered to rich people will not be paid for by the rich, instead it will be paid for by ordinary Americans".

The Fed saying that it will take any crap paper the banks care to give it at near par, even if they aren't worth anything, even if they are such garbage that no one but the Fed would take them, is a massive government bailout.

But government, in this case, means "American citizens". There are only two ways the US can pay for the trillions of dollars of losses. You can tax and directly bailout, or you can print money. Neither of these is free - the cost of taxation is obvious, the cost of printing money is inflation.

The rich.

They really aren't like you and me.

After all, when we get in trouble the banks make us pay.

With extravagant extras like, say, I dunno, our houses.


Oh, and as an added bonus Ian also explains what is really driving the ridiculous rise in oil prices, and it too has a whole lot to do with all the leveraged cash floating around that has been reaped by the selling off of all that crap paper.


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