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...fears are growing that the money central banks are pumping into markets are not putting out the financial fire.
Am I the only one who believes that the US solution of just making more "liquidity" available in this crisis is more like putting another log on the fire than extinguishing it?  Can any feasible amount of money help until and unless someone in charge of directing the flow of that money knows what the assets and liabilities of each affected institution are? Failing to do that is like keeping the flue on the fireplace closed.  It doesn't put out the fire, but slows it down and causes the house to fill with smoke.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 2nd, 2008 at 12:54:40 AM EST
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 You put your finger on one of the bizarre elements in this theater piece.. Many people have addressed this issue- George Soros' plan deals with the issue of evaluation of assetts and liabilities- of the banks themselvesd-by suggesting the use of experienced bank examiners, Dean Baker has also pointed to the difficulty of valuing the trash, and has a rational plan. Bill Greider -- lots of good ideas, even from l;iberal democrats.

A massive liquidity injection also seems to me to be a stopgap measure, doomed top fail in even the medium term.
I think this is exactly the plan--lots of smoke now, then let it burn, after the election, so Obama has to put out the fire.
 

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Thu Oct 2nd, 2008 at 02:09:22 AM EST
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The liquidity being provided by the central banks is of the very short term kind (ie overnight) - it's just to help banks manage their till, if you will. It does nothing to solve the state of their balance sheets, it simply prevents them from collapsing overnight because other banks don't want to entrust one another with their cash.

The way things are cannot last for ever, but it can last for a while, as banks fund themselves mostly ia the Centrla Bank instead of via the interbank market.

This Forbes article gives an idea of the size of the respective markets:


If all the recent hysterical chatter about lending being "frozen" or "shut down" refers to anything real, it is not about banks loans (through Sept. 17) but about such arcane financial markets as asset-backed commercial paper or loans between banks. But this too is mainly about financial firms, not Main Street. Non-financial commercial paper increased from $156 billion at the start of the year to more than $204 billion from Sept. 3 to Sept. 17, dipping only modestly since then.

Economic journalists seem oddly fascinated with the last column of the table--interbank loans from one to another (aside from fed funds). "Banks won't even lend to each other," said a TV reporter, "so how can we expect them to loan to business or consumers?" But interbank loans are obviously tiny, and banks rightly regard lending to other banks more risky than lending to Main Street. There is no reason to expect the minuscule flow of interbank loans to determine consumer and business loans. That little tail can't wag the big dog.

That paragraph is slightly misleading, because the interbank market may be small, but it plays a vital role in ensuring that the whole things functions - exactly like the till in a store: the cash in the tills is only a small part of assets, but imagine what would happen to business if the cashier had no change whatsoever, or refused to give back what it had.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Oct 2nd, 2008 at 03:08:54 AM EST
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And yet, there are still deals being made. See yesterday's big news for the cinema business, that 14,000 screens are being funded by Chase and Blackstone to the tune of a billion dollars... Five studios ink digital cinema deals - Hollywood Reporter

This deal has been in the works for quite a while, and given the egos and polish of the titans involved, it is amazing that any of them are allowing any of their peers to make any money. But it had to be done since, when it is over, the studios will jointly save over a billion dollars in duplication and distribution costs every year~!.

I guess a billion dollars and 8-10 years payout is not so much compared to wind farms and 25 year payouts...but it shows that there isn't a complete standstill in the markets.

Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland

by siegestate (siegestate or beyondwarispeace.com) on Thu Oct 2nd, 2008 at 09:23:36 AM EST
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On the upper levels, Hollywood has been and mostly is still a small community who know each other.  It would not surprise me to find that those who extended this credit have known long and well the character of the borrowers and the nature of their business.  As it should be.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 2nd, 2008 at 10:18:20 AM EST
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