afraid to face the music

I heard another economist talk on KQED last night. This one was from Harvard -I forget his name, not that it really matters in the scheme of things. 

Once again the story was the same: the administration is not doing enough to mitigate the crisis. It is afraid to "grab the bull by the horns." The monster bailout is too little, too late. And then there was more talk about "toxic assets" and possible bank failures. It appears nobody wants to admit these toxic assets are not toxic as in, "of questionable value," they are simply worthless. Totally and completely worthless. There are no "toxic" assets because there are no assets to begin with.

Anyone who talks about selling toxic assets or setting up a clearinghouse to sell toxic assets is yet another scam artist trying to fool the public into buying worthless paper. No wonder savvy investors are not interested in the Geitner plan. They've learned their lessons.

Unless and until we face these facts, the crisis will not get resolved. Not only that, the longer we wait, the more serious the problem will become and the more damage will ensue. It is one pill the Obama administration does not want to swallow. It is one danger they are not prepared to tackle. 

The reality is that all of the nation's major banks are de facto bankrupt and will have to go through bankruptcy procedures of some sort to be salvaged. Since everyone seems to agree that we need those banks, we cannot simply let them go out of business. That would be an even greater disaster and might cause a profound lack of trust in our currency. If that happens all bets are off. That is why I think you should own real gold. Real, as in tangible metal.

Even though Obama does not want to admit to it, the solution is simple: the US has to nationalize its major banks. At the very least it has to nationalize these banks for some short period of time. In essence much of it has already happened. We the tax payers are keeping these businesses alive. We are the de facto owners.

What is truly shameful however, is that the government did not want to get legal ownership in return for its cash. It did not want to become a shareholder with shareholder rights in return for the money it donated. Therefore its bailout money is nothing more than a donation to the rich. No wonder people are getting upset!

And why did that happen, you may ask? Because the folks in Washington are simply too chicken or too stubborn to admit that the great capitalist Reaganomics system has failed. That there is no other way out than to nationalize the financial system in order to avoid total disaster.

If stubbornness is the cause then we are seeing something that is eerily reminiscent of the previous administration's stubbornness to admitting failure in Iraq. If that is true, then change was just another empty campaign promise. If stubbornness is not to blame then there is only one alternative: weakness. I am not sure which is preferable.