Hang on a minute, I think your logic fails at this point: are you saying that the Fed pawnbroker would quietly let the Banks walk away, leaving the Fed with the fake Rolex?

Yes, I think that the system has become that corrupt. Otherwise, the Fed needs to nationalize the banks and that cannot be done. It would be socialism and it would hurt friends.

I don't think that would be possible, because it could not remain hidden, I suspect, and if it is done transparently then politicians, in the US or more likely overseas, would have a field day.

You mean a field day like they already had one on the bullshit about Iraqi aluminum tubes and biological labs on trailers? Yeah. It worked really well.

You've seen Mozilo, O'Neal and Prince in front of the House Oversight committee on Friday, right? It's not really that they are disconnected from reality. They are very well connected into reality. They simply don't give a shit. Nothing the government can do unless it takes radical steps to lock them up, seize their assets and, more importantly, given the hold of the ruling class on mass media, to muzzle them. Can't happen. The government would have to turn upside down the two major tenets of Murika, property rights and freedom of speech (for those who own a lot of property and the loudspeakers).

And silly furiners, well, they are already voting with their feet if you look at the dollar/euro exchange rate. Anyway, no one cares about silly dirty furiners in Murika. They are nasty Yank-haters and if they bark, US politicians will blame them for hurting the US economy.

But that doesn't reinflate the bubble - merely stop it deflating, and it does nothing for retail price inflation because none of the money will get out into circulation anyway.

The money will get out in circulation because it won't go to the housing bubble but somewhere else. You can count on them to find an other way to push US consumers deeper into debt. The housing bubble will be the Fed problem, which will tide it up by throwing free money to support existing loans with very low rates and by holding rotten loans outside of the market.

I don't think so. The best the Fed can do is to avoid deflation by providing "quasi equity" through pumping in liquidity for as long as it takes banks to rebuild their balance sheets.

It's not about the economy. Ultimately, I'd say it's not even about the financial sector. It's about saving the ruling class at everybody's else expense. All the rest can be blamed for the commoners on nasty furiners: China, petro-monarchies, Europeans, etc. They don't give a shit if the economy tanks and everybody else is impoverished as long they can hold and reinforce their relative position. It can actually help them by making their targets weaker for their predation. If there is a shock, great! Just another opportunity to push for more "reforms".

Chris, I think your problem is that you seriously underestimate how degenerate and shameless modern capitalism has become. You are still trying to look at it as if it was run in everybody's interest. You are 25 years late.

~~~~~~

Actually, something about the House hearing shocked and depressed me quite seriously. AFAIK, it was focusing on fuzzy notions of fairness about the CEOs pay.

But (AFAIK) no one pointed out the absolute obvious : a corporation doesn't go from record profits to abysmal losses overnight. For that to happen requires grossly rigged accounting, either out of staggering incompetence or outright fraud, or both. In that case, the answer is clear and deliberate fraud and it doesn't matter if it is wrapped in GAAP, anointed by audit firms and backed fantasy mark-to-market valuations on markets where no one gives a shit about what they are buying and selling. It was clearly not borne by any reality, very much like the famous opinion letters used by Enron to justify its accounting acrobatics. It was just mutual back-scratching in a giant Ponzi scheme.

Put plainly, fraud.

So no one pointed out that the CEOs outlandish pay days were "justified" by completely unsubstantial and fraudulent accounting and were never earned in the first place.