Posted by: graemebird | September 22, 2008

Joe Cambria And Bailouts.

Prior to this rush of bailouts JC’s main argument justifying fractional reserve is that the only real problem was moral hazard. He reckoned that the Feds were always bailing people out so that there was moral hazard which means that it was the Feds and not the banking system that were responsible for new money creation.

This analysis was in response to me saying that the banks create the money and then the Feds bail them out by producing more cash when things start to look shaky. So that once the banks had created the money the horse has bolted. Hence my argument was that the Fed had really no choice but to follow through with the cash when things got shaky or the whole thing would implode.

He couldn’t handle this. Since he wants to be able to say: “The government is to blame” in unequivocal terms. Its a sort of Pavlov’s dog thing. So his argument was that the Feds ought never bail out the banks with that extra cash or it would create the moral hazard that lead to the banks creating too much credit.

Now bear in mind that when I was talking about bailing the banking system out I was only talking about providing actual cash when the ponzi-money started dissapearing.

Now look what happens. The American institutions are falling and would have all collapsed by now but for fed action. The Feds have been funnelling in extra liquidity for 13 months now but it still hasn’t ended the crisis. And now they are using hundreds of billions of USD to LITERALLY BAIL OUT INDIVIDUAL INSTITUTIONS.

Has JC said that I was right? NO

Is JC claiming that the FED is doing the wrong thing and creating moral hazard? NO!!!

No he’s out there praising the Feds bailout actions.

So when these fractional-reserve religionists are out there laying on their excuses for the practice just remember that they will change their tune depending on the problems of the moment.

Morgan Stanley and Goldman Sachs want to sidle up to the Federal Reserve window and get loan money at wholesale rates…. Yeah sweet says JC. No problem. “Not a bad idea” he assures one enquirer.

You and I cannot sidle up to the Fed window and get loan money wholesale. Thats a subsidy. This is a subsidy for multimillionaires. How many times I have lectured these idiots at Catallaxy that these people have us over a barrel because when they get in trouble we are forced to bail them out. But no said JC. They wouldn’t get in trouble in the first place if they didn’t have the moral hazard he says.

Now they are in trouble and JC is saying. Sure. Bail them out. A hundred billion here. Thirty billion there. Two hundred billion there. No problem. If you are a group of multi-millionaire bankers here have some cash. We got plenty to go around.

Its the flat learning curves I object to. There is no doubt about it that the Fed ought to have created a lot more cash long ago and brought in a reserve asset ratio. But that would mean these guys couldn’t make a great deal of money for such unproductive behaviour.

So next time don’t be fooled by JC and his ilk. Because he’ll just change his tune when the crisis comes and the central bank is showering crony-town with cash.

Its the JC welfare program. “NO INVESTOR LEFT BEHIND.”



  1. Trading is an unforgiving game Mr Bird, and the only way a trader like JC can look at himself in the mirror each morning having lost a packet on his bad calls is to forget them altogether or rewrite history. Not to mention I’m sure he’s got some incredible self interest involved. Up to the eyeballs in the US financial system I bet.

    Unfortunately this bailout and socialist take over is all a result of the currency fraud – ponzi scheme. A system that manufactures its own crises so that the socialists can slowly take everything over.

    We may avoid a depression by this process but I fear that the this slide into socialism is far worse.

  2. You are probably onto something. Like he just has to dump his former “positions”. Whether they be trading positions or the opinions he was holding last July. Not change them but exorcise them entirely. So before he was claiming that the only problem was with moral hazard. Now he’s saying “sure, bail them out, 850 billions no problem…”

    And no RAR is necessary in his view. Even though the bailout will likely add to the monetary base and so imply a new round of inflationary lending unless an RAR of some sort is whacked in quick smart. So one part of the cycle he’ll hold one position, then he’ll forget it again as is appropriate to keep the whole racket going.

    Must be a trading zen thing. Else he’s a complete fuckwit.

  3. Mr Bird,

    I always believe in multiple explanations so I think both options in your last sentence might be true. The question is where the US is going to raise its trillion dollars of bailout money from. There is some suggestion that they will hire some of Mugabe’s advisors and use his solution to monetary difficulties as they won’t be able to raise this amout of money in the bond markets in any sort of reasonable time.

    Either way we are going to hell as the investor lobby lines up for welfare at the cost of further currency debasement.

  4. Το πουλί αναπαράγει με τα σκυλιά. Έχει έναν πολύ μικροσκοπικό εγκέφαλο.

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