R.C. Lim, Attorney and Counselor at Law

Trillion Dollar Hole?

I heard Michael Lewis on Marketplace offer a somber figure. Evidently the IMF’s estimate of total bank losses from the crisis to date is about ONE TRILLION DOLLARS different from the self-reported figures of bank losses tallied by the FDIC.

WOW! - that’s a whole lot of cheese….

His prediction was that there’d be another shake-out during which a few leading banks would collapse, but that this might be a good things because the real political power to carry through the important reforms would arise.  WOW AGAIN! I am not sure how he can be so sanguine when it really does appear that the U.S. may have now already played it’s one and only trump card - the heretofore limitless appetite of foreigners for dollar denominated debt.

I wonder if he also imagines that Treasury Secretary Geithner would be kicked to the curb for engineering a failed rescue. There is certainly a lack of appreciation for Geithner’s core laisser-faire beliefs. I think few have really registered how completely the monetarists have made the Federal Reserve Bank a captive regulator.

If you don’t already know, Milton Friedman’s influence on the officers of the Federal Reserve Bank has been nearly total. In fact, the reason that the Fed did not pass regulations preventing the excessive risk-taking that led up to this crisis (at least on the mortgage side of things) was not because they didn’t already have the authority to do so, but rather because the monetarists at the Fed firmly believe that the only appropriate use of regulation (and really law-making more generally) is to control the money supply. It’s super libertarianism. It’s another vestige of Reagan’s economics beings transmitted to the Dems through Clinton. That’s it. Hence Geithner’s suggestion in Congressional hearings last week that Congress give new statutory authority to the Fed to prevent future crises is really just ridiculous. This is because Geithner knows as well as anyone that the Fed is an institution totally dominated by individuals who would avoid rulemaking this way.