NY Times
href="http://www.nytimes.com/2007/10/16/business/16fund.html?ex=1350187200&en=c71cef9b628ff8d5&ei=5090&partner=rssuserland&emc=rss">reports
that large banks are working on a perpetual motion machine:
The new entity, called a Master Liquidity
Enhancement Conduit, or M-LEC, could raise as much as $200 billion or
more through the issuance of its own securities, and use the money to
buy securities that otherwise might be dumped on the market.
Just what we need, another circus, but this time with More Smoke! More
Mirrors!
I am skeptical, obviously. But don't take my word for it.
Though yesterday’s move was
meant to reassure the markets, investors
reacted with doubt. The Dow Jones industrial average fell 108 points,
and financial stocks were among the worst hit. “I
don’t really see that this is going to make a significant
difference,” said Jan Hatzius, chief United States economist
at href="http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-org"
title="More information about Goldman Sachs Group">Goldman
Sachs. “It seems a little more like a P.R. move,
frankly.”
Mr. Hatzius said he wondered “why this is going on when
previously the official word was that things were getting
better.”
Maybe I'm wrong, but I think that they cannot create wealth by creating
a new type of financial instrument. The fundamental problem
is that the financial system does not have as much wealth as it thought
it did. Putting it in a different box does not make it more
valuable.
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It's not about helping you and me. It's about the "big three" banks acquiring assets of those other institutions that are now in no position to avoid giving them up at fire-sale prices. The weakened, now looted, institutions will be left with few good assets, lots of liability -- and guess who will clean up the mess? Hint: it won't be Neil Bush.
To be fair, to my unexpert eye that seems to be pretty much what the entire financial system is based on. That and the dubious theory that if you pass money round fast enough it will create more money out of thin air (or perhaps more accurately, be able to convince other people you have the ability to do so, so they will give you their money).
"It's about the "big three" banks acquiring assets of those other institutions that are now in no position to avoid giving them up at fire-sale prices."
No, not quite: the bank that doesn't want to sell its assets at firesale prices is Citbank. The other big banks have agreed to help Citi shuffle stuff around to keep the losses of the books for a while, with a little arm-twisting from Treasury.
"NY Times reports that large banks are working on a perpetual motion machine"
All right! And not a moment to soon....