by A swedish kind of death
Thu Nov 13th, 2008 at 12:33:20 PM EST
This is how I understand the current financial situation. Correct me if I am wrong. As I understand it the financial markets are right now somethink like:
- Company A owns company D billions, that debt is insured by company B.
- Company B owns company C billions, that debt is insured by company A.
- Company C owns company A billions, that debt is insured by company D.
- Company D owns company B billions, that debt is insured by company C.
Suddenly everyone has realised that no one has the billions. Oh, and they do not either know exactly how the others debt/insurance situation looks.
Their assets are the loans to the other banks, and their liabilities loans from the other banks and their insurances of the loans. It is obvious it will collapse, but before that they all milk the taxpayers for what they are worth and all hope that when it all hits the fan, they might be the last bank standing.
While the banks play their cards very thightly, they do not trust each other. Remember, they are waiting for the other banks to collapse. Thus that which depends on the banks as credit intermediaries are dying. You know stuff like production and trade.
Heaping money on the banks will not solve anything. Depending on the size of the problems, nationalisation of collapsing banks might not help either. If the tangled obligations are deemed larger then what the state could stand paying, you have just moved the problem.
As I see it, transparency is the key to restore confidence. This could be done by b´s suggestion of declaring all of these exotic obligations null and void. It could probably be done in other ways too, I am no expert on finance, nor do I really know how entangled the system is. But apparently no one knows that, which is exactly why everything is freezing.
As it has become apparent that this financial web and its faults span every nation, a multinational solution would be necessary. Again b´s solution would fullfill that, there might also be other ways.
But what we can know is that constructive, multinational solutions for the good of the people - and against the wishes of the banks, the greed-is-good think tanks, and others who stand to loose - is very unlikely. Thus trade and production will slow down untill it gets so bad that new solutions look worthwhile.
Please correct me if I am wrong, because if I am right and nothing is done I would say we are looking at a 1930ies depression scenario globally.
This is a crosspost from a comment originally made at Moon of Alabama. No one yelled there that I was wrong, so I will try it here.