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BoA has slipped $53 trillion worth of derivative loss risk into the FDIC which is going to be a booger to try and monetarize without jacking inflation up eight or nine percent.
She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
Bailing out banks is crap policy because it bails out bondholders who should have gotten to see their wealth vaporise, and rescues management that should by all rights have been subjected to prosecutions and berufsverbot. Not because it causes inflation - any inflation from excessive asset valuation has already taken place prior to the crisis.
That aside, there is nothing wrong with eight or nine per cent yearly inflation that depreciating the currency by six or seven per cent vs. the -Mark won't solve. OK, that's probably a little too aggressive, considering the US' foreign trade balance - but depreciating the currency by three or four per cent per year while retaining the 2-3 per cent yearly domestic inflation target is certainly possible.
Friends come and go. Enemies accumulate.
Fortunately, interest rates don't work according to the loanable funds model.
And if those derivatives are credit default swaps and there is a default event, the claims of those who purchased the insurance take precedence over all others. Not a good time to have your money in BOA, even if only a small portion of bonds defaulted. And the FDIC is hand to mouth and looks at its available cash to decide who they can "resolve" in any given week. Why do I suspect that voting for a few hundred billion dollars to hold BOA retail depositors harmless might be where Congress finally draws the line?
"It is not necessary to have hope in order to persevere."
That is more reassuring...
tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
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