Wednesday, October 01, 2008

Through the Looking Glass

I'm not sure when it happened, but it has. We now live in Alice's world.

We are being told with that unless we agree to spend/lend/guarantee $700,000,000,000 to big financial institutions our economy will melt down. We have all heard the clarion cry "There's no credit!!!".

At the same time we are told banks aren't lending to each other. What could they possibly have to lend to each other? They have no money. Right?

Perhaps they should give prospective borrowers the phone numbers for Citibank, Bank of America and Goldman Sachs. These three entities have raised $45,000,000,000 in new capital over the last couple of weeks and have been buying everything in sight; MerrilLynch, Washington Mutual, Lehman Brothers and Wachovia to name several.

What has actually happened is that solvent banks have raised the interest rate to insolvent banks. Makes sense. You have more risk, you charge more interest. The converse is, after all, what has caused the situation in the first place.

The people in charge of the solution, like Barney Franks and Chris Dodd, created the problem in the first place. Imagine. You can actually see video at YouTube of Barney Frank et al in 2003, 2004 and 2005 rejecting calls for more oversight of Fanny/Freddie. Insisting they were doing a great job. Amazing.

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