the panic is in the corporate press types who see their white shoed buds heading for a major whacking. Cramer's croc tears for the people losing their houses is cover for a bailout for billionaire hedge fund managers who for the most part have the bulk of their money in their own funds.
Markets are stupid. We've had boom/bust cycles for centuries as greed gets out of hand from time to time. Without the pain to keep the bozo's honest (at least a little), speculation gets crazy. How can any sane person pay the value of a house for a tulip bulb? Or $5K for a frigging beanie babie? Yet people do it. Over and over.
Social benefit? What makes you think most people give a rats ass about social benefit? They care about THEIR benefit. Hence the Republican/Tory parties.
The sums are tiny. Less than we are pissing down a rathole in Iraq in a month.
Yes but people don't realize this.
If the central bank lent 500 billions USD worldwide for one week and saved a 10% interest spike to the private banks involved (all numbers are way above what happened) that makes it to less than one billion USD of "giveaway", that is less than four days of Iraq war cost (10 billions USD per month IIRC).
It's not a reason to do it, but that's not big money.
I'd say that's more than 'a bit.'
The Iraq war isn't really comparable, because that's treated as a straight outlay - effectively it's just public spending by one government.
But what's happening with the ECB and other national banks is that they're using their own reserves to try to solve a problem that was created in the US by the US money markets, and which should have remained local to the US.
The Fed meanwhile is hemming and hawing and throwing in some token liquidity to make it look as if it's doing something. But Bernanke has done almost exactly nothing so far - possibly because he knows he doesn't have to as long as Europe, Japan and the rest will provide the US with more cheap cash for a little longer.
we're getting close to a total of $200-$300 billion of liquidity injection from various central banks over the last week or so. I'd say that's more than 'a bit.'
That's loans to European banks, usually secured. The only real subsidy is that these funds were lent at 4% rather than the then prevailing 4.7% caused by the drying liquidity. So the actual subsidy would 0.7% of the above amount, if the money were repaid only in a year.
But Bernanke has done almost exactly nothing so far - possibly because he knows he doesn't have to as long as Europe, Japan and the rest will provide the US with more cheap cash for a little longer.
Not quite either: while the ECB has provide straightforward loans against deposits of treasuries to banks, the Fed has apparently lent against mortgaged-backed paper, i.e. the toxic underlying assets - if mortagages are the problem, then these amounts are much more likely to become actual subsidies - in any case, it makes the Fed one of the potential losers of the mortgage defaults.
Meanwhile, what the ECB has done is allow the European Banks to have enough liquidity to reduce their exposure to US "toxic sludge" without being forced to distress sales, i.e. without giving up a lot of the potential residual value. That allows European banks to eat their losses, but nothing more (panic would have forced them to take much larger hits). everybody is being hit by the underlying mess, but the scope of these losses is dwarfed by the potnetial losses if the whole pyramid unwinds brutally.
So the ECB has done its job, I'd say. And it would seem that they still intend to raise their main rate to 4.25% from the current 4% at the next meeting, thus showing that they intend to continur their tightening policies, even after that targetted intervention. In the long run, we're all dead. John Maynard Keynes
The private banks saved : (amount outstanding) * (number of days to maturity / 365) * (rate in spike mode - rate in normal mode).
Here: 500e9 * 7 / 365 * (x+10%-x) ) ~= 1e9.
We can say this is a subvention from central banks to private banks.
i thought it was an investment in our security from terror!
so cornfused... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
If the risks were genuinely understood, why are central banks in a panic?
I think they are panicking because the realisation is dawning. It reminds me of the realisation - post Piper Alpha - of the Lloyds' reinsurance spiral.
How corrupt and/or stupid do the markets as a whole have to be to keep repeating this cycle?
It's not really a matter of markets being corrupt or stupid so much as them being markets. They do what they do. Garbage in gives rise to garbage out.
Variations on this theme will continue and for as long as we have a deficit-based system we will see cycles of Schumpeterian creative financial destruction.
What exactly is the social benefit of any of this nonsense?
That depends upon how you define "Society" and whether or not you believe in the "trickle down" of the wealth siphoned off by the intermediaries running the system. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Money flows upward from poor to rich. That is the whole point and purpose. That is what it is for. It may not be quite right to call it a benefit . . . The Fates are kind.
hahahaha....
why it's those extra porsches and cartier watches....there's a reason they're called 'fundamentals' you know.
the feds just lowered the discount rate....
to combat the credit crunch...no need to worry about that, says sky news... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
