Yes, we understand that it is considered the duty of those in charge, the usher in the burning theatre, to maintain order, and certainly NOT to create a panic rush for the exits. But we wonder at what point as they reassure the public to remain placidly in their seats eating popcorn with their kids, and shut off the fire alarms, and describe the smoke wafting in between the rows as cigarette fumes from the Ladies Lounge, that a fine line in motive and outcome is crossed. And as the privileged few are allowed to slip out the side doors first, after collecting their expensive coats and valuables, we wonder at what point this becomes something more than the duty of a public servant, and a despicable act of fiduciary negligence.
Wall Street Bank Run
By David Ignatius
Thursday, February 21, 2008; Page A15
Washington PostIt doesn't look like an old-fashioned bank run because it involves the biggest financial institutions trading paper assets so complicated that even top executives don't fully understand the transactions. But that's what it is -- a spreading fear among financial institutions that their brethren can't be trusted to honor their obligations.
Frightened financiers are pulling back from credit markets -- going on strike, if you will -- to escape the unraveling daisy chain of securitized assets and promissory notes that binds the global financial system.
As each financier tries to protect against the next one's mistakes, the whole system begins to sag. That's what we're seeing now, as credit market troubles spread from bundles of subprime residential mortgages to bundles of other kinds of debt -- from student loans to retailers' receivables to municipal bonds.
Investors are nervous because they aren't sure how to value these bundles of securitized assets. So buyers stay away, prices fall further, and the damage spreads.
The public, fortunately, doesn't understand how bad the situation is. If it did, we might have a real panic on our hands...
The answer to Wall Street's bank run may be a version of what saved Main Street banks during the Great Depression. PresidentFranklin Roosevelt created the Federal Deposit Insurance Corporation in 1933 to reassure the public that there was an insurer of last resort for the banks -- and that people's money was safe even if they couldn't see it or touch it or put it under a mattress. Rep. Barney Frank and other congressional experts are weighing different approaches to this problem of how to backstop the markets...
The hubris in this system was Wall Street's confidence that it could value paper securities that had been sliced and diced so many times that they no longer had solid connections to their underlying assets. [the essence of a bubble - Jesse]The nation's leading financier, Warren Buffett, had warned years before that "derivatives," whose value was balanced loosely on the real assets underneath, were the equivalent of "financial weapons of mass destruction." But in the rush for profits, nobody listened. [His was a lonely voice in a stream of propaganda to the contrary, and conspiculous silence from almost all the financial commentators, economists, and media - Jesse]
I've saved the worst for last. Do you want to know who is bailing out America's biggest banks and financial institutions from the consequences of their folly -- by acting as the lender of last resort and controller of the system? Why, it's the sovereign wealth funds, owned by such nations as China and the Persian Gulf oil producers. The new titans are coming to the rescue, if that's the right word for their mortgage on America's future.
We respectfully differ with Mr. Ignatius on two points. The people did not "ignore" the warnings. The warnings were willfully muffled by the corporate media, and a steady stream of financial and government 
propaganda which assured them that the problem is contained, the stock markets are rising, the Fed's got your back, and so all is well.
Secondly, if the foreign Sovereign Wealth Funds pick up the tab for this, it might well be the desired endgame for the insiders and politicos, because in the ensuing liquidation the SWFs will be demonized and their markers will be ripped to shreds and tossed, one way or the other. When Wall Street and Washington look for someone to take a visible hit on this, it will be those who don't vote and don't sit on juries.
The best bet is that whatever cannot be laid off to foreigners is going to be spread over the American public, probably as a monetary inflation and a continued lowering of living standards for all but the top 1%. And a maximum effort will be made to "move on," and the same people that caused it will convene committees to come up with programs and reforms to fix the problems, and administer cursory slaps on the wrist for the worst of the perpetrators, with a few designated scapegoats taking the big hits. Déjà vu all over again.
But is now the time for abstract discussions about economics and stewardship? As a practical observer might conclude when the seas withdraw ahead of an approaching tsunami: head for higher ground!
IMF External Relations Department,
Morning Press
Thursday, February 21, 2008
Wall Street Bank Run
David Ignatius, a Washington Post columnist, wrote today..."Wall Street Bank Run" Washington Post
