The United States alone has put the equivalent of twenty percent of the world’s economic output into an attempt to haul the economy back from the brink. The US is the world’s strongest economy, but does the nation have the economic clout to mitigate this financial tsunami?
Central banks and governments around the world are trying to stick their fingers in the dike and hold the deluge back, but do they have enough “fingers” and assets to succeed?
What is even more frightening is an allegation by Warren Buffett that the banks don’t really have a clue as to what their true exposure is.
Interestingly, Mr. Buffett had previously stated banks simply have no idea what their exposure could be. "When Charlie [Munger, his business partner] and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don't understand how much risk the institution is taking." (Ibid)
So, riddle me this: if the banks really have no clue as to what their exposure is; if they don’t know exactly how many bad debts they hold, how can we even contemplate bailing them out, when we don’t know what we are bailing them out of, what the bill is, or if we have the money to effect a realistic bailout?
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