Extracted from newspapers
By Daniel at 20 April, 2009, 10:43 pm
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“There are several reason why investors and trders should be sceptical about claims that everything is fine and it will clear skies ahead. For one, analysts such as Paul Krugman and Jospeh Stilglitz (both Nobel prize-winning economists) have written extensively about why the present US bank bailout plan is doomed to fail.
Suffice to say that Wall Street loves it because it amounts to a one-way bet in which taxpayers are paying to benefit the financial sector. This point was also recently made by economics Professor William blak, the former regulator in charge during the US Saving & Loan (S&L) crisis of the 1980s anf the former director of the Institute for Fraud Prevention in a TV interview earliert his mth (www.pbs.org/moyers/journal/04032/009/watch.hmtl)
Profession Black alleged in the interview that the prestn US administration is covering up the extent of the bailout because the sums are such, much larger than reported and officials are scared stiff og the consequences if the truth is known.
He also pointed put that after the S&L crisis, a law called the PROMPT CORRECTIVE ACTION LAW that mandated automatic NATIONALISATION when a banking crisis hits was passed, BUT THIS IS NOW BEING IGNORED:
“I think, first, the policies are substantially bad. Second, I think they completely lack integrity. Third, they violate the rule of Law This is being done just Like Secretary Paulson did it. In violation of law. We adopted a law after the Saving & Loans Crisis, called Prompt Corrective Action La. And it requires them to close these institutions. And they’re refusing to obey the law.” said Professor Black.
He also stated that hiding the extent of mess in order to gain public confidence and propping up insolvent banks were what the Japanese did in he 1990s and so, quite logically it could lead to same outcome as Japan- a lost decade of growth.
Our take on all of this is similar, and one we’ve expressed many times before- the relentless pumping to inflate an economy built on poor fundamental and such other tactics as changing the accoutning rules to give greater leeway in how they value their toxic assets may fool people some of the time, but not all people all of the time, because the underlying economics have not changed.
Those bullish on the recovery should ask themselves this question. Since the present bounce originated from Wall Street and since US stocks are rising because of the government’s bank rescue plan, how strong will the recovery be once there are signs that the scheme may fail?
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The future will tell..