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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 464934  
Subject: Re: An interesting Fiscal Cliff observation Date: 12/13/2012 12:26 PM
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Putting an end to lending money to banks at 0% and borrowing it from them at 2% would also destroy the TBTF banks, and the global economic system.

It would seriously disrupt a dysfunctional global economic system. Since it is dysfunctional, some disruption is needed.

But that isn't necessarily the best way to go about it.

No more Goldman, no more Citi, no more Wells Fargo, etc. None of these banks are solvent because they are loaded to the gills with assets that are marked to fantasy. The only way to keep them functioning (and keep the $100M bonuses flowing) is to prop them up with this massive corporate welfare.

If we decide we need to prop them up, the props should come with strings attached.

Specifically, there should be targeted bailout plans for these zombie banks - plans that include SHRINKING THEM and/or BREAKING THEM UP so that when the bailout is completed, none of the pieces are TBTF.

Unfortunately, the primary beneficiaries of the current bailout plan are not TBTF banks. They are TBTF governments. And the bailout plan is designed primarily to (thinly) mask that fact and to avoid recognizing the necessity of downsizing and rationalizing those governments.

(In fact, several governments that in a rational world would be considered bankrupt, are being asked to save governments that are even worse off.)

The sad thing is, we probably don't want to see a world where the government stops subsidizing these banks. It would essentially require implementing a new global economic system in a relatively short time period,

So far so good...

and would probably result in war.

I consider a significant war the most likely result of JUST the euro-zone balance-of-payment/balance-of-debt issue. Without considering all the other erm, stuff, going on.

But the longer we put off rationality, the worse the transition period will be.
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