04-10-2008, 03:20 PM
Is it possible to see this present economic crisis as a variation on the oldest kind of money crisis - That is, a crisis of a debased currency?
We talk about banks circulating money. But is what they have been circulating really the same currency as the one we use in our everyday transactions. It seems to me it is not. And that therein is a clue to the problem.
'Our' currency is regulated in its supply by the government/central bank. It has the explicit backing of the tax raising power of the government.
Surely what has happened over the last decade is that the international banking system has tired of being limited by the regulated flow of national currencies and invented its own unregulated currency? What else is the mortgage backed security if not a form of money. It is exchanged, it is bought and sold, it is valued it even has a 'I promise to pay the bearer' on it in the form of the signature of the person who took out the mortgage.
But right there is the problem. The promise is very weak. AND the amount of crap paper has been unregulated.
Seen in this light isn't one way of seeing this whole problem, that the banks made the most elementary mistake of all. They debased their currency.
They invented a currency. Then like every greedy idiot in history they wanted to be richer and decided the easy way to do it was to print more money. But there is only so much gold and silver (solid loans) out there. No problem - just mix tin into the gold and silver and don't tell anyone. IE write MBS paper backed not by solid gold promises but backed by tin, alt-a and ARM loans.
And to make it worse this debased currency has been leveraged 30-40 times and insured in a vast upside down pyramid of credit default swaps. The latter beinbg the financial world's equivalent of the network of mutual guarantees that bound the 'Great Powers' together before WW1 and led them all into the abyss like men roped together falling into a crevasse.
If you buy this analogy then it is clear that the 'bail out' cannot work. The problem is the tin is mixed into the currency. The tranches of worthless stuff are mixed in with the good loans. Result - no one trusts the currency at all.
The banks won't lend to each other because they know their vaults are stuffed with counterfeit, debased currency.
The banks want to exchange their debased currency for our 'real' money.
And what makes me annoyed is the talk about how their 'assets' will regain in value. Tin doesn't often magically become gold or silver just because you leave it in a drawer for a while.
Sorry, I ramble. I'd like to know if others with greater knowledge, think I have misunderstood or if there is some sense in this.
We talk about banks circulating money. But is what they have been circulating really the same currency as the one we use in our everyday transactions. It seems to me it is not. And that therein is a clue to the problem.
'Our' currency is regulated in its supply by the government/central bank. It has the explicit backing of the tax raising power of the government.
Surely what has happened over the last decade is that the international banking system has tired of being limited by the regulated flow of national currencies and invented its own unregulated currency? What else is the mortgage backed security if not a form of money. It is exchanged, it is bought and sold, it is valued it even has a 'I promise to pay the bearer' on it in the form of the signature of the person who took out the mortgage.
But right there is the problem. The promise is very weak. AND the amount of crap paper has been unregulated.
Seen in this light isn't one way of seeing this whole problem, that the banks made the most elementary mistake of all. They debased their currency.
They invented a currency. Then like every greedy idiot in history they wanted to be richer and decided the easy way to do it was to print more money. But there is only so much gold and silver (solid loans) out there. No problem - just mix tin into the gold and silver and don't tell anyone. IE write MBS paper backed not by solid gold promises but backed by tin, alt-a and ARM loans.
And to make it worse this debased currency has been leveraged 30-40 times and insured in a vast upside down pyramid of credit default swaps. The latter beinbg the financial world's equivalent of the network of mutual guarantees that bound the 'Great Powers' together before WW1 and led them all into the abyss like men roped together falling into a crevasse.
If you buy this analogy then it is clear that the 'bail out' cannot work. The problem is the tin is mixed into the currency. The tranches of worthless stuff are mixed in with the good loans. Result - no one trusts the currency at all.
The banks won't lend to each other because they know their vaults are stuffed with counterfeit, debased currency.
The banks want to exchange their debased currency for our 'real' money.
And what makes me annoyed is the talk about how their 'assets' will regain in value. Tin doesn't often magically become gold or silver just because you leave it in a drawer for a while.
Sorry, I ramble. I'd like to know if others with greater knowledge, think I have misunderstood or if there is some sense in this.
Now could you tell the second thing which came to your mind?