October 8

Janet Tavakoli: On the "biggest fraud in the history of the capital markets". interview with Ezra Klein of Washington Post, via zerohedge.

When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up for a few hundred billion dollars. But we didn’t. Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one....
This can be done with a resolution trust corporation, the way we cleaned up the S&Ls. The system got back on its feet faster because we grappled with the problems. The shareholders would be wiped out and the debt holders would have to take a discount on their debt and they’d get a debt-for-equity swap. Instead we poured TARP money into a pit and meanwhile the banks are paying huge bonuses to some people who should be made accountable for fraud. The financial crisis was a product of our irrational reaction, which protected crony capitalism rather than capitalism. In capitalism, the shareholders who took the risk would be wiped out and the debt holders would take a discount but banking would go on.

The true nature of our balance sheet recession. Bob Bronson, via dshort.
includes link to Richard Koo's presentation

Pictures of deflation. Chris Whalen presentation to AEI.

The largest U.S. banks remain insolvent and must continue to shrink. Failure by the Obama administrationto restructure the largest banks during 2007 to 2009 only means that this process is going to occur over the next 3 to 5 years --- whether we like it or not. The issue is recognizing existing losses --- not if a loss occurred.

Japan Launches Global Quantitative Easing. John Makin, AEI.
the article is alright, but actually not that informative; but it is noteworthy if only for this quote:

"The experimental-drug phase of monetary policy has begun."