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Governments do not know anything, bailout package for banks will create two economies.

Posted by Adrian on October 16, 2008

One that will be a stagnated economy (the banks) the other economy (the broader economy) in a deep recession. The extreme manner and gullibility that all the global governments have shown in their bank rescue package is disgraceful. Not only do they have no idea of how economics works, they are essentially creating volatility in the markets, by propping up private business (that created this mess, The banks) and removing the consumer from the picture; thus causing a false confidence in the market.

Anyone that has worked for a business, runs a business, or knows how a business model works in capitalism. Knows that when markets are full of risk and uncertainty, you shrink down your operations that means unfortunately laying off staff and de-leveraging to cover liabilities. You horde cash, restructure your business model to survive the slump. You don’t spend that much all invest in declining asset markets. You try your hardest to sit it out and survive.

What is a sickening paradox here (courtesy of the global governments that are pathetic) the banks, that should fail from bad business decisions and judgment (and greed) will now be propped up by the taxpayer. The illusion, or delusion that the governments and politicians of the world have accepted (and encouraged). Is that private business (banks) that are only concerned with their own survival, will be given money to plug holes in their balance sheets and will be able to off load it’s toxic shit into government backed, ‘bad bank’ deposits.

I agree with what Meridith Whitley (analyst) of Oppenheimer who said recently, banks will not reinvest into assets; they will shore up balance sheets.

So it’s an obvious outcome of a ‘bailout’ they will do nothing for the global economy.

Of course, as we have seen recently the market does NOT ‘buy’ the government backed ‘bailout’ of banks. All major indices are down and heavily sold off, particularly the S&P 500 9% and Nasdaq down 8.47%, refer to graph (NASDAQ – tech stocks and S&P 500)

(please note graph will adjust daily, running real time)

So consumption is clearly slowing in the States, this will create a shudder and ‘sell off’ in all indices as the ‘bail out’ plan is washed away with a deepening economic slump.

Watch currencies, as they are good indicators used by the market to see what countries are at risk. As discussed in Brace for a global recession (update 1) – ‘you can’t talk or buy your self outta this one’ (re governments and central banks). Commodity producing countries will take big hit’s.

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