NPR: No More Bailouts! No! Well, Maybe

No More Bailouts! No! Well, Maybe

Filed under: News

Rocco, concerned about changes to Section 23A

Patricia McCoy

An early warning?

If you read down to the last paragraph of this Federal Reserve press release you'll find a cryptic paragraph about changes to something called Section 23A of the Federal Reserve Act. The bottom line: The FDIC (which insures your bank deposits) could now be lending its stability to some of those dicey mortgage backed securities. If the FDIC runs out of money (and many worry its pool is too small) the government would likely step in.

And that's a bailout.

Even if it doesn't come to that -- the government is now in effect shouldering some of the risk of those mortgage bonds that everyone is calling toxic waste.

Here's the story.

If you listen closely you may be able to hear Patricia McCoy's dog Rocco ("18 pounds of pure testosterone") barking in the background of the interview. He was very upset about the financial crisis, and she had to lock him out of the room.

Thanks to Credit Slips for the tip.

David Kestenbaum

9:32 AM ET | 09-16-2008 | permalink

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I hear a lot of pundits say a lot of things. But what is often over looked is the mechanics of our monetary system. Money must be created from debt and it is the aggregate of performing debt that reflects the health of this system. Our biggest problem is that so much debt is not used to create new revenues, and, the level of these debts.

http://lakeweb.com/money/creditmarketdebt_GDP_06.pdf

When the burden can't be maintained, much less made to grow, then there is monetary deflationary pressure. And, commodity deflation does not have to be coincidence with monetary deflation. The world will likely face continued commodity inflation from here on out.

This is the worst of conditions for the Fed. They have to continue supporting non performing debt to stave of deflation in an inflationary environment.

What is different this time around? We are a planet of going on 7 billion people, a lot of which want to aspire to a higher standard of living. The West got here by treating resources as limitless and with a cheap pool of Asian labor.

In the Thirties we were electrifying the country and could treat resources as limitless. There were a lot less 'first world' people on the planet at the time. Yet the burden of debt that had to be unwound had a devastating effect. This time around?...

Best, Dan.

Sent by Dan Bloomquist | 12:07 PM ET | 09-16-2008

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