Paul Volcker, former Chairman of the Federal Reserve may have given the ultimate epitaph: "The bright new financial system – for all its talented participants, for all its rich rewards – has failed the test of the market place."
And it is any wonder that Professor Nouriel Roubini declared:
"The process of socializing the private losses from this crisis has already moved many liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued."
In my opinion, the Fed has already become "unglued". Whatever guarantees given to secure the indebtedness of CitiGroup and others to prevent a run on these banks are useless.
It is bankrupt!
End Notes
[1] There are two banking systems in existence today. The Traditional Banking System – i.e. High Street banks and the Shadow Banking System. But the players in both the systems overlap because, the major banks of the traditional system helped spawn the shadow banking system. In fact they are the key players in the use of the so-called "new financial products, the CDOs, CLOs, MBS" etc and which have now turned toxic – worthless, junk to be exact.
[2] See my website archives: Roubini Warns of Sovereign Bank Failure – February 20, 2009 www.theage.com.au
[3] See: Implications of repo markets for central banks, CGFS Publications No 10, March 1999.
[4] Gary Gorton, Information, Liquidity, and the (Ongoing) Panic of 2007 prepared for the Jackson Hole Conference 2008
[5] "haircut" here refers to the rate payable for the cash loan or the margin.
[6] Peter Hordahl and Martin R King, Developments in repo markets during the financial turmoil BIS Quarterly Review, December 2008
from Global Research, March 10, 2009
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