Why Treasury won't explicitly insure all bank debts

"If the US is forced to move to more explicit guarantees for all bank deposits and liabilities, experts say it will have to provide roughly equivalent support for the non-bank sector as well. This could involve a full guarantee for money market mutual funds and funding guarantees for non-bank financial firms.

However, officials hope that the combination of strengthened implicit guarantees for banks and commercial paper purchases will suffice."

I have been arguing all along that these implicit guarantees are explicit to anyone who pays attention. Who do they think they're fooling? They might not have to go that far, but they will. What's not explicit?

Now at last, the head-in-the-sand ostrich (which appeared a couple of times in my previous blogs) has finally raised its ugly head, telling the world that we are all paying dearly for our long folly.

The volatile yet maddening market turns ridiculously wild. The only fortunate thing is that the greenbacks continue to hold on and remain firm – just can't imagine what would happen if it plummets too.

Never mind whatever is implicit or explicit. Never mind if the rescue plan is right or wrong. The US would have to turn its clock back to the post-1929 great depression days and start afresh from square one. There isn't any other better option. (Tan Boon Tee, btt1943@yahoo.com)

The Magic Words We Will Never Hear
WilliamBanzai7

Fellow Americans,

As you have heard by separate announcement,
the United States Treasury Department today announced
that it is extending an emergency line of credit in the
amount of _____________ Billion US Dollars to ACME Bank.
In addition, it was announced that the
Treasury Department by means of the recently
enacted "TARP" legislation, will be injecting an additional
____________ Billion dollars in the form of fresh equity capital.

The purpose of this statement is not to provide
the details of these matters which are covered
elsewhere. Rather, we the management and employees
of ACME Bank want to extend our sincerest
thanks and appreciation to the American taxpayers for
providing this financial lifeline to our company at
a time of dire need.

Although the recent events in the financial
markets are unprecedented, we take full
responsibility for the difficult position we
find ourselves in. We also want you to know
that we recognize the hardship being caused
by this crisis to each and every one of you. Many
of the activities recently engaged in by ACME
have contributed to this crisis. We a sincerely apologize
to each and everyone of you in this regard.

As a Company we pledge to
do everything in our power to redeem
the trust and confidence you have extended us.
Your trust and generosity is our
most valued asset.

Further, we pledge that from this moment on, we
will work 24/7 to rebuild ACME for the
good of the United States of America as well as our
stakeholders.

We look forward to your continued support.

God Bless You All

Sincerely,

ACME BANK

Stop posting over the weekends! You have been working nonstop since the meltdown and as much as we all appreciate your dedication and your insight, it is a beautiful weekend in NYC. Enjoy it with Mrs Curious Capitalist and Curious Capitalist Jr!

(The same goes for Barbara!)

From the NY Times:

http://www.nytimes.com/2008/10/12/business/12imf.html?pagewanted=2&hp

"It also raises questions about whether the administration's deep philosophical hostility to government ownership in private companies aggravated the financial crisis by delaying rescue action."

A big yes. Hey, I'm philosophically against it, but I believe in dealing in the real world.

"As recently as late September, the idea of letting the government acquire part of the banking system had been unthinkable in the Bush administration. To many officials, such intervention seemed like a European-style government intrusion in the marketplace."

As if the intrusion hadn't already begun and was expected.

The volatile yet maddening market turns ridiculously wild. The only fortunate thing is that the greenbacks continue to hold on and remain firm – just can't imagine what would happen if it plummets too.

that's the other shoe.

one of the likeliest outcomes of this crisis is nations taking steps to find ways to build firewalls that prevent a financial crisis in the US from destroying their own economies. Its one thing for a country to be impacted by a US recession -- but when the Ponzi scheme that is the US financial sector implodes, and its impact can bring down their own financial sectors, its obvious that something will be done to prevent a re-occurence.

And once that happens, its all over for the dollar.

"And another thing: If you borrow short and lend long, you're effectively a bank. It's becoming ever less clear to me what justification there is for nonbank borrow-short-lend-long-institutions other than regulatory arbitrage."

Quite. And if you provide insurance against the defaulting of a debt, you're an insurance company. It's all about regulatory arbitrage in this soon to be late and unlamented age of Orwellian finance.