Why this Blog?

A place where I can lament the changing times; for eccentric comments on current affairs and for unfashionable views, expressed I hope, in cogent style; also occasional cris de coeur largely concerned, I regret to say, with myself.


I welcome your comments, so do please write. Please note however that all comments are moderated prior to publication. Whilst I fully appreciate that life can be frustrating, nevertheless, abuse, SMS language and illiteracy will not be tolerated!

Monday 22 September 2008

Financial Chaos Part II

Image source: here

As you will all know by now, the announcement that the United States Government is prepared to commit the staggering sum of $700,000,000,000 to buy so-called toxic debt, prompted on Friday last, a surge in stock values around the world.

As is often the case with parties, the passing of the weekend has brought a hangover ,and stocks have fallen again, with the leading indices all down by around 2%. And as might be expected, oil is up by over 8% and gold now stands at $904 - $35 up.

It seems to me that having had the weekend to think about things, investors are perhaps wondering what will be the consequences of the staggering "investment" proposed by the United States Federal reserve Bank in the form of one Hank Paulson; will the cure be worse than the disease perhaps?

Well, one observer, Mike Swanson thinks that the proposed programme will be fatal for the dollar, suggesting instead that the example of Franklin Delano Roosevelt be followed:

A banking crisis happened in the beginning of the Great Depression, but Franklin Roosevelt and the government did nothing like what is being proposed today. They did not bail out the banks. What Roosevelt did was declare a banking holiday. He shut the banks down. for about a week Then he had officials go into all of the banks and look at their financials to determine which banks were truly bankrupt, which were fine, and which could be saved with a little bit of money. When the bank holiday ended the banks that were bankrupt did not open back up and the ones that were fine did.

Confidence was restored, because depositors now knew if their bank was fine or not - and it didn't require putting the financial future of the entire country at risk to do this. It cost hardly a dime. Yes some people lost money. A lot of banks went under, but the dollar didn't go to zero and future generations weren't saddled with debts. The credit freeze ended in a week.

Mr Swanson's article makes interesting reading and I commend it to you.

Until the next time

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