alt.politics.economics

there it is, one of the most important statements in this excellent
article,
"It is like stripping a bank that has a run from its best assets and
keeping only the bad assets on its balance sheet"

when you free up the wolves to feed on the sheep as the conservative
reaganomics did, once the wolves exhaust the inventory of sheep. the
starving wolves will turn on themselves for sustenance.
once the free market parasites gorge themselves in their
cannibalistic fever of eating their own, then what, depression?

we must remember, that the fed is a private sector free market self
regulating institution. it is beyond federal and state regulation, it
is a self regulatory institution made up of members from the free
market.
so is it surprising to see the free market not self regulate itself
as libertarian dogma insists will happen, not in my eyes.
you see the free market is just that, free. free to do as you please
with no one to say no to them.
this is simply a self preservation mechanism we all have. if thru
your own greed and incompetence you destroyed your own environment,
you simply rewrite the rules to suit the occasion. and one with the
freedom to do that will.
to say that greedy selfish conservatives would just sit back and mind
some sort of silly free market rule that they should sit back and fail
is one of the most absurd assumptions since someone said the earth is
flat.
the only way they will fail is to simply exhaust all avenues no
matter what the consequences.
to make the silly juvenile statement that they should be allowed to
fail is to ignore the human races drive to stay alive. they will
simply find a way in just about all cases of deregulation to survive
in one form or another.
this is a prime example,
Section 23A is one of the most important parts of the Federal Reserve
Act. It prohibits "covered transactions" with any one affiliate of a
Fed member bank in excess of 10% of the bank's capital and surplus,
and up to 20% in aggregate for all bank affiliates. The purpose of the
section is to protect the capital of the bank, even if that means
allowing non-bank units or the parent holding company to be
decapitalized or even fail in a "market resolution.".... The Fed's
August 20, 2007 letter to BAC [Bank of America] allows the lead bank
to extend up to $25 billion in collateralized loans to affiliates, an
amount equal to 30% of the bank's regulatory capital. The "securities
financing transaction" will effectively allow the securities affiliate
of BAC to "serve only as a conduit" for the bank to lend to
"unaffiliated third parties." The letter notes at the bottom of Page 3
that any such loans will be eligible for excemption from the automatic
stay in the US Bankruptcy Code, a comforting legal distinction that
may have little impact on the increasing rancid economics of financing
CDOs.

"The right solution would have been to punish the banks that created
these dangerous schemes in the first place by forcing them to take the
losses on their illiquid and/or impaired asset; or to bring such asset
on balance sheet and take the capital charges or liquidity charges
required to do that. Forcing the banks to sell the asset and take the
losses would have helped to create secondary markets for these
illiquid assets; thus, while losses would have occurred this would
have reliquified a frozen market. The super-conduit scheme, instead,
is a shell game to prevent the losses to be recognized and, as a by
product, it will keep the SIVs asset off the market for a long time
and thus avoid the losses to be recognized and the secondary market
for such assets to be created and made liquid."
of course the above statement is correct, except that that is not
what humans do. the survival instinct is bred deep into us, and that
comes first. so if you have to force someone to do the right thing in
the "FREE MARKET', then its not free any more.