I had too much to drink with someone who is terribly plugged in (security clearances AND knows tons of people in academia and the officialdom personally, both here and overseas).
Unfortunately, I can't use many of the specifics he conveyed, but he is a very upbeat sort by temperament but also has been studying the banking/credit mess. He sees us going down the Japan path.
Banks will not be technically bankrupt, but will have so many bad assets on their balance sheets, and will have taken hits to their equity bases, that 18 months from now they will be unable to make new loans. They will be quasi nationalized. BTW he said this in a completely evenhanded fashion, as if he was giving a weather report.
This, mind you, comes from someone who has written frequently for the American Enterprise Institute and tells me the Treasury and the Fed are working on this scenario now. This is far more dire than any forecast either yours truly, a constitutional skeptic, or even uberbears like Nouriel Roubini, have been putting forward.
http://www.nakedcapitalism.com/2008/01/links-11008-and-scary-tidbit.htmlVery good econoblog, excellent writing by Yves Smith. Frequent comparisons of crappy WSJ articles verus better info in the Financial Times, plus lots of other assorted goodies.
If some or all of Bank of America, JPMorganChase, Citibank, WaMu etc are going to be quasi-nationalized sometime in 2009 or 2010, who do you want running things? Remember that 30 leading
Economists Endorse Edwards ("EEE"). Yeah, it's true not all economists are geniuses, but I think this is one more big reason to go for the only ront-runner who's been endorsed by 30 leading economists and who doesn't take corporate donations.
Despite all the other problems we have, maybe the motto of this election should still be "It's the economy, Stupid." Americans who have managed to avoid thinking about all the other messes we're in may finally snap to attention when the blowback starts to hit their finances.
Here's another rather dire quote from an economic advisor:
Crisis may make 1929 look a 'walk in the park'.As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.
...
"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," {economic advistor Peter Spencer} says.
"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do,
this could make 1929 look like a walk in the park," he adds.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml Seriously, we need to start asking our candidates how they plan to handle the coming financial tsunami.
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