Catastrophic system failure

Sorry no one trusts company Directors, the Gov't or the FSA.

A Director says their company is sound then three days later it is Nationalised.

I'm afraid you cannot treat Shareholders that way.

No wonder the owners are now selling up.

The federal reserve have no choice but to bail out the banks rightly or wrongly.

https://video.google.com/videoplay?docid=-9050474362583451279

The only way out of this would seem to be inflation = repudiation.

The Weimar solution, in fact.

What then?

Robert

As a UK taxpayer - Brown is asking me to foot the bill.

I still don't know why. What do I get for my money?

'Financial stability' is just words...

In the US the electorates representatives were not persuaded - ours were not even asked (not that I voted for my MP anyway...).

The 'wall street crash' seems to be used as a bogey man -- times are different - there is no US dustbowl and crop failures...

So just what is the risk here?

If the banks go bust, can't people can found new building societies.... etc

Oh please, what exactly is different about today as compared to last tuesday? A few unsustainable businesses have been taken over by some better run ones, and those left have been publicly told that they can no longer socialise their losses.

This is now entirely a problem of perception in the stock market (and media reporting like this has a large influence). I know you like the doom and gloom angle, but I think you're over-egging this pudding Mr Peston.

Come on Robert!

You know the inevitable has started!

A 700 Billion dollar deal is still a 'fire hose at 35000 ft' on a forest fire of contagion!

There is no money in the system - the black hole is enveloping us!

Put it under your mattress!

The system hasn't failed yet. The American political system is not breaking down yet. It is a critical time but not the end. The system is being tested to its limits both politically and financially. It is all we can do now to sit and wait.

Instead of the government trying to use tax payer's money to prop up private banks, money which eventually ends up in the pockets of the traders and fat cat bankers, were not use the same cash and create a National Bank of Britain, which would provide a role model for all other banks to adhere to. The National Bank of Britain would not lend you at 10 times your fake salary and it would pay you BoE base rate - 1% interest on your deposits. It would not enter into any dodgy financial transactions and would be there to serve as a beacon of stability, even if slightly uncompetitive. Private Banks would then need to be 100% certain of their actions in order to attract depositors.

But we are not seeing any moves towards this goal, so it seems to me that "financial stability" is not what the governments want (both Labour and Tories) - what the governments want is to take our tax money and pay those fat cat bankers and numerous fund managers and traders who have made hundreds of millions of salaries and bonuses in the past decade - and now that they have squandered the assets they were entrusted with they look to the government to bail them out. They should be taken to the cleaners with their mismanagement of the funds that were entrusted to them, this is our deposit accounts and our pensions.

Luckily the US senate did not vote this outrageous propositions by Bush+co. Imagine, the fat cat banker who has paid himself billions of profits in the past decades from your own savings and pensions, now comes back to you and arrogantly tells you that your only option is to pay him even more money to fix the system - which himself has broken.

Outrageous!

Why aren't the banks being forced to disclose the extent of their off balance sheet losses? Then we might get an idea to what extent they need bailing out? Too radical?

The problem seems to be that this crisis has peaked just weeks before the elections. Neither Republicans or Democrats want to support Bush, who has got to be the worst president ever.

And because the US is so insular they do not seem to care that this is effecting the rest of the world as well.

Where is Jed Bartlet when you need him?

"At the moment, it's the breakdown in the US political system that's doing as much damage as the breakdown in its banking system.

It's wider than the US, but, yes, this is a political breakdown more than anything else.

My view, for what it's worth, is that over the last 20 years or so we have lost sight of the fact that successful human governance is a joint-venture between intellect and populism; a joint-venture in which it is critical that each camp has respect for the other. We need to recognise that it is calamitous if either camp is allowed to dominate, because it is only by combining the strengths of each that society can function at all.

Where we appear to have reached is a situation where populism is far too dominant, and has been for a number of years. It's time for a process of education which re-establishes the need to recognise that precise rational thought is an essential lubricant of human progress, despite the politically difficult fact that it is an ability restricted to a fairly small portion of the population.

Throughout all of the last year and right up to now it seems to me that banks and financial insitutions are STILL not taking responsibility for their actions.
All I see reported is company representatives saying the equivalent of "it's unlucky" rather than "we messed up".

In my opinion, what is needed is a complete ban on dubious financial instruments and short selling. Rather than use taxpayer cash (or rather future taxpayer cash, as it doesnt actually exist but is merely a government 'promise') I'd be happier to take the pain of a recession.
I'm very sceptical that any amount of cash will solve the problem here, there's too much fictitious wealth in the system. We need a massive adjustment regardless.

Let's take the hit but make sure through draconian financial services legislation that it can never happen again.

Anyone successful businessman will tell you that there are three levels of decision making.
1. The perfect decision (which fixes the problem)
2. The less than perfect decision (which may not fix the problem but at least moves you forward towards a fix)
3. No decision.

Yesterday, Congress voted for 3 at a time when delay is the biggest risk to finding a workable solution.

Robert Peston reports: 'Extraordinary quantities of loans have been provided by central banks to commercial banks - but it hasn't made the banks much more willing to lend to each other.' If the banks have been loaned this money and they are not using it for the purpose, then the central banks should withdraw it.

Come on Mr Preston. You make it all sound as though it has never happened before.

The same thing happened only 7 or so years ago. Melt down due to dot com. Then there was the endowment mortgages, pension mis-selling and multiple other scams.

The fact is the financial system is corrupt and governments keep putting sticky plasters over the valleys.

Stock markets are for gambling not investing.

Everyone is now waiting for the bottom as they always do. To pretend financial meltdown is a joke.

The only question is who is stupid enough to loose their money and who is clever enough to make money.

The only certainty is, Joe average will definately not make money.

As for hedge funds, every average person knows they shouldn't exist. For a small group of people with no sector business knowledge to buyout a company is sheer stupidity. The only business plan is to place the company in huge debt (Gearing). But their banky mates will give them our money to risk over and over again.

Quite frankly I hope hedge funds go under too.

The Global financial markets are now beyond restoration. $700bn is a drop in the ocean. Let the toys fall on the floor.

Society has paid these bright leaders of the financial world many millions in salary and binus - now is the time for them to earn their keep and sort out their own mess.

We need HIGH interest rates to discourage borrowing and encourage saving. Banks will only lend to each other if the RISK/REWARD ratio is met. Today the risk is high, low interest rates will not reduce the risk, it will increase the risk......

Hopefully we won't see a domino-effect in collapsing banking and finance, Robert, although I appreciate that possibility is now very much more real.

Another pressing problem in my opinion is that if Capitol Hill is going to have 'another bite of the apple', and let's say this time the bill passes, will the freeze-out have already hit 'Main Street'? i.e. those borrowers who depend on advances to fund corporations, payrolls, operations and so on.

If the end point is a Wall Street crash - equivalent to falls in the markets of up to 25-30% on one day - there is a point of no return presumably. I haven't seen much indication yet that point has been reached.

Hopefully anyone on this forum who ranted about short-sellers will now reflect that the markets are having their worst drops of the crisis so far, now that short-selling of financials has been banned. Time to find another straw man to burn...

Mr Bin Laden must be sitting in his cave rolling around in helpless mirth as Uncle Sam presses the 'self- destruct' button...
and Congress can't meet again until Thursday because of the Jewish New Year holiday! You couldn't make it up!

A toute a l'heure...je dois cultiver mon jardin!

"That sentiment was expressed to me in the past 12 hours by bankers, fund managers, regulators and politicians."

Perhaps you ought to try talking to some normal people Robert?

I'm personally very amused at the outrage being expressed at the refusal of US taxpayers to bail out the world economy.

So much for the shrinking influence of the US and the rise of China - anyone remember China?

#13 wotmenah

You forgot numbers 4 and 5, I think your list should look something like;

1. The perfect decision (which fixes the problem)
2. The less than perfect decision (which may not fix the problem but at least moves you forward towards a fix)
3. No decision.

and

4. The bad decision which moves you away from a fix
5. The worst possible decision that completely screws any chance of getting a fix


In my opinion, passing this bill would have been a 4, if not 5!

It is fairly simple really:

1. Any and all quoted businesses that provide mortgages or trade in or have anything to do with products derived from mortgages are toast until Thursday afternoon, when the House will probably agree something.

2. Poulson was always half-hearted and insufficient to cover all of the liabilities of the estimated 900 trillion US dollar mortgage related 'securities' which sit in the books as assets of so called expert financial traders around the World.

3. The 900 trillion US dollars of insane/unwise bonds and derivatives need cancelling as soon as possible - globally making the contracts void ab-initio should do the trick, if the 'industry' is unable to agree.

4. This mess will take a generation to fix and many people will suffer.

5. The cause was Reganomics and Thatcherism's relaxation and abolition of regulation in the 1980s.

6. The Republican Party in the US and the Conservative Party in the UK MUST say so and agree that their 'gods' were false gods if they, and we, are to move towards a more rational system. If they do not, or cannot, then the time warp that they live in will spread its contagion for some years to come.

7. Discussions about sensible regulation are critically urgent in the US and the UK.

8. Globally, Professional Accountants MUST speak out about the impact of 'mark-to-market' asset valuation on the accounts of financial institutions. (Essentially no institution that holds on its books, as an asset, an asset that has no market can continue to be allowed to value the asset at any value - in short as mortgages can't be sold then they have zero value.)

The contradiction at the heart of the problem in the US is that, whilst Americans are overwhelmingly in favour of market capitalism in principle, they detest - and, frankly, are envious of - Wall Street.

They urge their elected representatives to vote down a bill which is seen as rescuing Wall street fat-cats. They just don't think it affects ordinary Americans.

Oh really? Maybe Lehman, etc, doesn't much affect the average American. But the health of institutions like Fannie, Freddie, AIG, Washington Mutual and others most certainly does. The public ignorance over this issue - the belief that a meltdown in America's financial system won't actually affect Americans - is staggering. The words "turkey", "voting for" and "Christmas" apply here.

The way ahead for legislators is to bridge the chasm between belief in capitalism and contempt for Wall Street.

The bill needs to be modified to assuage this contempt. "Make it tough on Wall Street, but get it done" seems obvious.

Take equity in return for the bail-out. Cap salaries, restrict (or even forbid) bonuses. But get it done.

Bush's bill has come at a curious time. With elections in November and an angry electorate, 133 Republicans and 95 Democrats decided they didn't want to be tagged as a supporter of a bill perceived to be a bail-out of "greedy fat cats".

That's the political system working as it should, not a breakdown.

If somebody explained to the American electorate why things would be worse without this bill, they might take the pressure off the Congressmen. However, I think American voters would not believe a word coming out of either Washington or Wall Street. Why should they?

Perhaps it's time to jettison the Anglo-American version of capitalism; that is, stop American politicians being bought by people who have power because they can *sometimes* direct the flow of speculative money. That is, remove mere profit as both the highest aim and the fundamental driver of human activity. That is, seek to generate wealth with the aim of improving all of Mankind's lot instead of enriching a very small elite at the expense of most of the rest of the world.

Here we are worrying about stock markets. Around 2 billion people have to get by on less than $2 a day. Viewed from that perspective, the wailing and gnashing of teeth emanating from Wall Street sounds childish.

I now believe we are heading the Japanese way in 90s. All bobble blown and interest rate heading to zero%. Also I expect this to lead to high unemployment.

Government will not be able to protect all the depositors money as there is no cash or that much credit available to the government, so in few weeks time they will also lose out.

Main shareholders are ordinary public through pension funds and insurance funds. So they will lose out again.

At the end every one will be the losers.

Robert

Heard you on R4 news. Thanks for aksing the question 'is it just hysteria'.

The bankers said how it affected bankers and banking - but still didn't say how it affected me (and other non-bankers...).

If the economy fundamentally requires banks, then it should have banks run by people who are good at running banks (and demonstrate that ability by not going bust) -- not the current shower of failures, and certainly not know nothing politicians.

Seem to me that to make way for 'good banks' the bad ones have to be left to fold.

Still don't know what I am getting for my (taxpayers) money...

#10 - Lord Vetinari

Jed Bartlett was an ecomomist too, so doubly the best choice in the current situation.

Shame America has never actually had a president that capable, fair of intelligent!

Instead Bush does increasingly less...

This is just a confidence thing now, isn't it?

The size of the root problem, bad mortgages on overvalued real estate in the US, is no way near big enough to justify the panic. In my view, the bailout itself is an ill thought out panic measure and it's a very good thing that it's been rejected. I mean, c'mon ... the idea of the government buying assets off the banks, just because nobody else will, is absolutely ludicrous. Please let it go.

It's obvious that these troublesome "toxic" assets do have value ... that value being the future cash flow from mortgages being paid off or (where they default) from properties being seized and sold. Most banks have them written down already to around 20 cents in the dollar and that sounds on the prudent side. Even if it isn't, you can analyse and take a reasoned view of what the ultimate value might be. Half of the exposure is, in any case, with Freddie and Fannie.

So, there is no reason why the banks themselves can't step up and start behaving sensibly. They should be able to drop the paranoia, drop this laughable "we're too scared to lend to each other" business ... in due course, a liquid market should evolve for the distressed assets (there are loads of precedents for that) and, in the meantime, they can just hold them and take whatever coupon income comes their way. We have capital ratios that banks have to stick to and, if they're in compliance with all that, even after a writedown to 20 cents, what's the big problem?

There are potentially large profits to be made by people who buy this stuff very low ... that's the essence of risk / reward banking and that's what should be happening, yes?

The whole point of bankers is to manage risk, move money about and provide credit. That's what they're there for, right? It's very important and they get paid silly money for doing it. If it now proves that they are not up to the job, merely because one sector has gone nasty, then one of two things should happen ... either let things run their course (if you're a free marketeer) or, if you're a believer in government solutions, nationalise them.

At the present time, they are being ... cue Californian valley girl dripping with contempt type accent ... "Patheddic" ... and I find it hard to imagine a less deserving case for state support. IT MUST NOT HAPPEN.

It is a failure of the American political system, but it is a failure due to the doctrine of separation of powers embedded in the US Constitution. The whips in the UK House of Commons have tight control over the members (especially on the government side of the house) because of the large number of government jobs, from PPS upwards in the gift of the Prime Minister. There is no such greasy pole in the USA where the executive is a separate branch of government. The House of Representatives, especially, is a loose cannon in the system. Even the Senate has a history of undermining the government in international affairs because of its constitutional role in ratifying treaties. One only has to look at its treatment of the Treaty of Versailles, the founding of the League of Nations, the Montreux Convention, the Kyoto Treaty. The list goes on and on.
European parliamentary government has a lot to be said for it. It leads to strong government. The US system leads to government ham-strung by a populist rabble.

By inclination my politics are dead centre. The fence is a comfortable place to sit!

For the first time ever I was impressed by Cameron on R4 this morning when he emphasised that the solution in the UK had to be co-operative and he refused to speculate on what happened next.

This is a much more earthshaking event - a Tory leader not trying to stuff someone. Whatever next.

The intereviewer had it right though - what is happening in the finaincial markets provides a much bigger challenge to right wing parties who have to face the truth - that unfettered, unregulated free marketeering is a dangerous out of control animal.

There is another point that the Tories might struggle with. It is possible that Europe, as a region might deal with this better than the US. We are politically much more pragmatic. Suppose Europe decides to buy up all of the "toxic" investments generated in America but held on this side of the pond. It is a feasible option. This leaves the US to struggle on alone.

The consequences of inactivity in the US and interventionism over here could be that the US sufferes years of depressed growth and Europe leaves it behind.

Just imagine how much it would stick in the Tory craw if Europe did it better than the US.

As for what happens next .... Nobody knows but it will be one hell of a ride.

Dear Robert.

I recently read about the Great Depression, 1929, and the involvement of Montague Norman in creating the Financial collapse of the world economy, then i read, Secrets of the Federal Reserve, and then i realised just what a bunch of crooks bankers are and how they manipulate people and their money.
So it is right and proper that they deserve all this hassle they have caused, but it is they who have created the problems for the ordinary man and women so, this time around lets see some of them arrested for Fraud.I hope the FBI and British police find a few to bring before the courts, they do not deserve to get away with what they ahve created.

Of course it's a natural reaction to pour scorn and vitriol on "The Fat Cat Bankers" who caused all this ... but just remember that although they were driving the gravy train most of us jumped on board. Let him who does not have credit card debt or an uncomfortably large mortgage throw the first stone !
And a prediction ... things will really get bad when the first pension funds start crashing in a couple of weeks time.

Comment 21 : s_slatt

Absolutely correct. We have to get away from the commonly-held view that any decisive action is preferable to indecision.

It's this sort of anti-intellectualism that is the chief contributor to the calamity that is currently unfolding.

There may be a pattern emerging in response to the banking problems :

European governments are inclined towards nationalisation and state intervention.

However the USA is inclined towards market reaction - takeover and bankruptcy.

I listened to Cameron being interviewed on R4 this a.m and it is now apparent he is between the two stools. He doesn't want the upheaval of bankruptcies but is scared of mentioning 'socialist ' solutions and terrified of mentioning Europe for all the old divisive reasons.

Cameron is left with making the worn out plea for improved regulation

The Conservatives may be praying for the US Democrats to broker solution .

John from Hendon asked yesterday what we all thought Plan B was in the US.

How about if HP writes out 700bn worth of treasury notes over time in tranches being careful not to flood the market at any one time with a maturity date that corresponds approximately to the unwind date of all these bad mortgage assets.

HP can then swap these notes directly for the really bad assets with the US banks.

HP then gets these bad assets out of the banking system and into his septic bank, and the banks get the up front liquidity they need from the market rather than from the US taxpayer by then selling these notes on to private investors.

The US government has then effectively underwritten these bad assets which is what the Republicans said they wanted.

The following struck me this morning.

It's a game of Russian Roulette, who will blink first.

The markets have the ability to fix the situation themselves but are too panicked / greedy / stupid (make your choice) to do so.

The Governments are panicking that voters will lose money if companies go under and are not bought by competitors which, in turn, means they lose votes.

At some point, one of two things (I can only think of two at the moment but I am sure there are more options) will happen, either the Governments will blink (and the House Of Representatives etc. will vote for a bail out) or the markets will get so low that they begin to see value in the most depressed of companies. If the former happens then no one knows if it will fix the situation. If the latter happens, then, erm, no one knows if it will fix the situation.

Actually, I've thought of the third option, greed and panic prevail and they work themselves into a self perpetuating total meltdown.

Each of these options (and others that I've not thought of) are equally likely in the current headless chicken situation.

Did I hear right this morning? Did I really hear an American congressman say he refused to back the Wall Street bail out because he thought it would take America "down the slippery slope to socialism". Should we be rethinking our "special relationship".
I suggest there is a vast chasm between the way this vast continental North American collection of states is run and governed and the way our group of comparatively tiny islands is administrated.
As such I can see a danger in the British Isles being sucked from the comparative safety of a united Europe, with largely common aims, into a vortex of the apparently self-absorbed and anti-socialist US.

Let the Bush men (voters) pay.

Can I ask a really silly question (again) ? If the markets are tanking because shareholders are selling, WHO IS BUYING these shares?

Everyone is leaping onto the "regulate banks" bandwagon.

Sure we'll need clever targeted regulation in future, but unless such regulation is "global" we will see a jurisdiction/tax regime auction where banks will be sited where regulation is lightest.

The credit markets are global - the bubble was global- the solution will ultimately be global - sometime in the next generation - well maybe.

What has happened to the withered husk of global financial institutions such as the World Bank and IMF in all of this? Conspicuously silent.

Do they have a role? If not let's can them and save some $$$

Peter Mandelson, Gordon Brown, Robert Preston et al. It makes my blood boil that these stalwarts of Europe and the Uk have the temerity to criticise the US political system for voting down the Paulson bail out package. What right do they have for attacking the US taxpayer and expecting them to fund the rescue of the UK financial system. Things are a lot tougher in the US than the UK right now and yet we stand here moaning and whining, which is typical of a nation that has lost it's sense of ownership. I have the impression that these great British Isles have really become the 51st state. Ordinary US taxpayers hate the idea of subsidising Wall Street vultures while at the same time being kicked out of their homes. It's time we stood up, accepted responsibility, dig in, rein back and batton the hatches. We will survive this with frugality, appreciation of life versus consumerism and good old fashioned improvisation. We are all to blame for this mess and for us as British citizens and Europeans to expect the American taxpayer to bail us out is maddening in the extreme. Well done Congress. If only our politicians would listen to the people before throwing our hard earned taxes at incompetent institutions and instead plough the money where we the taxpayer want it sown. Pathetic.

This comment was removed because the moderators found it broke the house rules. Explain.

I agree with the recent posts that - at its heart - the rejecton of US bail out by the American people results from a lack of trust in politicians.

Congressmen - although they rely on bankers dollars for their campains - rely on the ordinary vote for thier seat. Their constituents told them that if they voted for this bill they would be out of a job.

Democracy in action.

Yet the Congressional leaders, the president and the great and the good of the financial world all said that - while it was unpalatable - the bail out was the best solution and that furthermore the pain of not bailing the banks out would be much worse than dumping on the Taxpayer.

People simply didn't believe them.

Politicians from time to time bemoan the disengagement of the public from politics but you can tell they don't really care - as long as the gravy train keeps rolling. Well guys, this is what happens when you really need to take the public with you. They think you are lying and do the opposite of what you want.

Ironic, isn't it, that the George W Bush era began with a dereliction of duty by the Supreme Court, and ends with a dereliction of duty by Congress, neatly book-ending an eight year dereliction of duty by the executive branch.

I for one am glad that the US has stopped this lunacy in its tracks. Perhaps, since it is so keen to follow what the American's do, our own Government will follow suit and stop bailing out failed banking/financial sector businesses.

At the end of the day, these businesses have failed because of the greed of those involved within them. For decades they have piled up huge potential risks at our expense and now expect us to save the day with taxpayers money.

The answer should, and MUST, be NO NO NO! Let the bankers who have acted irresponsibly for decades carry the can - just as any other Company Director in Britain would have to!

At the end of this cycle will come the stability Britain's economy needs because the weak, the greedy and the glutanous will no longer be in control of our destiny.

#21 s-slatt

I find it difficult to put the proposed solution into your categories 4 or 5 as the proposed solution is based on the, albeit painful, nevertheless valid solution in Japan when all the commercial loans went bad.

I am minded to put it into category 2 as I believe that it does not address the issue of the need for re-capitalisation, but that could not be addressed solely by the US and will probably need to involve sovereign wealth funds.

There is also a very strong argument that no decision is always worse than even the wrong decision as wrong decisions can always be modified, whereas no decision not only doesn't fix the problem, but also doesn't even move you towards finding the right decision

Dithering is never a good strategy and is not quality one normally finds in good leaders.

A factor that hasn't yet been considered in the immediate hiatus is the effect of the current financial instabilities on pensions. People due to retire in the next few years may well find that their pension funds (dependent to an extent on share prices and dividends) are no longer adequate to sustain them. This will have an impact on government spending in future years, and may well be a contributory factor to future tax rises. I would be interested in Roberts view on what (a) the state; and (b) the individual should be considering in this matter.

People asking why the banks can't sort it out between themselves should look to the FSA.

The FSA have some pretty bizzare requirements on 'capital adaquacy' and the such - no only are the bizzare because they don't really make sense, but bizzare because the evidently dont work!

The fact that banks can't afford to pay their contribution to the 'financial compensation scheme' with out a taxpayer loan makes a mockery of the scheme -- what if the other banks go bust before they ever pay it? do new banks get lumbered clearing this old debt that they had nothing to do with? etc..

Robert - you indicate that "There are two big fears: first that the risk of a serious recession in the US and in Europe ; second the danger of a domino-effect collapse of a series of financial firms."

There is an underlying serious problem - total lack of leadership - at Government levels (US and UK to name only two) - at Corporation Level. They are sitting and waiting for someone else to bail them out.

We will do everything possible to maintain stability - this seems to be the latest PR phrase to be used to get you off the hook (short term). It shows no vision or understanding of the problem.

Perhaps we should take a week out - close all markets for a week, while the dust settles - take off line all computer driven trading - Determine how quickly all Banks can report on the "true" state of their health. It is all going to come out at some stage, let's get on with it now.

To RufusTFirefly and others...

I am aghast at the naivety of some on this blog. This is not just bad for the banks, this is all business, the business that employs you. Don't think that if you work for the government that you are immune either.

The banks will not or cannot lend any money long term or even advance credit for a couple of months.

All businesses need credit from time to time. If they don't get it then they will fail to pay their suppliers and employees. The suppliers will fail, as will the suppliers suppliers. They will all go bust. All the bank's and business's employees will join the dole queue.

Tax revenues will collapse. The government will have to cut public spending and thousands of government employees will lose their jobs as well.

For better or for worse our money system is run by Banks. Their criminal actions in gambling my money has put in jeopardy the whole world economy.

Once this is all over debt securitisation and pseudo un-capitalised insurance such as Credit Default Swaps must be outlawed.

The bank that lends the money should be responsible for collecting the interest and should lose out if they don't. Only that way will we get sensible lending policies. If the price paid is a slower less liquid and dynamic economy then so be it.

We already have the "slow food" movement. We should have a "slow banking" movement!

"The cause was Reganomics and Thatcherism's relaxation and abolition of regulation in the 1980s."

Exactly. Unrestrained free market capitalism has always been a mindless beast.

I'd also like to point the finger at the big accountancy firms whose lack of ethics, if not outright dishonesty, has contributed to the situation where there are black holes of unknown size in every large company. Company bosses have acquiesced to creative accountancy, because it meant they could indulge their enormous greed.

Credit crunch, what credit crunch?

I just recieved a letter from my bank advising me that the 3,000 Euro overdraft facility which I never use has been extended to 15,000 Euros - and I didn't even have to ask.

Robert,
Can you let me know why, if defaulting mortgages are a major part of the problem, the Fed does not guarantee the mortgages rather than bail out the banks? This would not necessarily mean the bank bailing out homeowners in every instance but to make things easier for them e.g. longer repayment periods, lower interest etc. Would this not have the effect of providing confidence to the banking system? It would also mean the money is going to Main Street rather than Wall Street so would be more acceptable all round. You are also helping out the people most needy. This wouldnt be an easy process and not without moral hazard but probably easier than what they are proposing!

30:

Good ideas, but the concept of Europe doing better, while the US does worse, begs one question - where is the UK in this? A European success, or an Atlantic failure?

You are right that Europe will do better than the US, because Europe has a far more prudent financial model. France, for instance, has never allowed the kind of insane mortgage and credit card lending that has happened in the US. Much the same can be said for other Eurozone countries, even including Spain.

But I do not think that the UK fits into this 'strong Europe' category. Our financial system - and our speculative, debt-driven economic structure - looks a lot more like the US than Europe to me.

When does Robert Peston sleep?

Although the failure of the US economy will undoubtedly adversley effect the UK economy and ultimately cost me personally, I am absolutely delighted that the prop up deal was rejected. It seems to me inevitable that US will now have to come to terms with the fact that their right wing economic capitalism does not work and that the people who need to pay for this whole mess are the ones who have been robbing the ordinary man blind for so many years. I hope, pray and believe that this whole episode will signal the fall of capitalism as it exists today and usher in a new era of more responsible world economics.

My parents are 80 years old. They have a mortgage-free house, which is their only asset. I have no liking for City fat-cats; but I do not want my parents on the street with a worthless pension and a worthless home.
Therefore, the system needs to be saved.
By the way, what about the huge amounts of tax the 'fat cats' will have paid (at 40%) on their inflated earnings. Perhaps we should close the half-dozen hospitals that were built with it.

Would it not be more sensible to assist the man on the street who is struggling to pay his mortgage and ensure job losses are keep to a minimum... treat the cause and not the effect...

I'm buying gold coins, baked beans and a shotgun. Who's with me?

#22 -

"3. The 900 trillion US dollars of insane/unwise bonds and derivatives need cancelling as soon as possible - globally making the contracts void ab-initio should do the trick, if the 'industry' is unable to agree."

Yup - I agree entirely. That's what has got to happen.

It may require the G8 governments acting in concert - some hope!

Here's another perspective on all this:

"Oh no, shares are getting less expensive - panic"

"Oh no, oil is getting less expensive - help!"

"Oh no, houses are getting less expensive - armageddon!"

The money supply has grown massively in recent years which has made everything more expensive for everyone. It wasn't 'real money' and now it needs to disappear. Lots of people will get burnt but those that don't will find the world less expensive and maybe we'll not make these mistakes again.

I would be interested to know what all those who propose doing nothing because bankers should take their medicine would like to happen to banks. Should they just be let fail? Have all the 'let em go hang band' all transferred their deposits to National Savings and handed in their cards and cheque books? Have they sold their shares last week, and given up on their pension funds, endowments and the like?

#32

I'm gathering stones as I write.

I don't have a mortgage, no credit card debt and no pension to speak of. Also, I don't own a house and am renting at a time of decreasing rents.

So I should be happy, no?

Well, 6 months ago I was unhappy with my lot and determined to do something about it. I considered I was in a "very bad way" for the lack of owning my own home and zero pension.

However, right now, I don't feel so badly off.

That said, in order to come out of this with any benefit personally I need to pick the right time to start a pension and buy a house. If I get that right, I'm laughing. If I get it wrong, I'm more stuffed than I was before.

Many famous people have said (and I am paraphrasing), in times of trouble, there is opportunity. The only question is whether the right opportunities come along at the right time and whether I have the ability to spot them.

There are a lot of people who could not buy their first home due to stupidly inflated prices. It is possible, though by no means certain, that this period of economic turmoil will turn out to be the best thing that could have happened for them.

The rest are in a very precarious position. As with all things, there are winners and there are losers.

At the moment, nothing is certain. Keep your eyes peeled for the opportunities.

And your fingers crossed....

A lot of financiers and financial journalists (yourself included) have really lost the plot over this one. A few banks will go bust, a few businessmen will lose their jobs, then new banks will rise up to replace them. In the short run, it might be hard to get a loan. But in the long run all this will have a positive effect with banks being more prudent after having taken their medicine. The bail-out was a disastrous idea.

And in two years we'll have forgotten all about this.

Personally, I think the House of Representatives made the right decision. Oh sure, without the rescue package, there is going to be a lot of pain. A lot of people will lose money and some will lose their jobs. That's tough.

But the markets will recover. That's what they do. It may take months, it may take years, but they'll get there.

The alternative is pumping $700 billion of taxpayers' money into a black hole. That would royally screw the US economy for a long time to come. I just don't think they can afford it.

Let's face it, we're all as guilty as everyone else.

It almost doesn't matter what job you're in.

If you sell shoes you've been doing better because people have afforded more shoes.

If you sell houses you've been doing better because people have been buying more expensive houses.

The whole economy is based on buying and selling. I need people to buy off me and you need people to buy off you. Maybe not directly but the company you work for.

If as some here encourage we should save every penny and never borrow because it's the prudent thing to do, none of us would last very long.

It's going to get hard as purses tighten, but let's not panic, worst case scenario is everybody stops spending because of this financial crisis.

Our domestic economy is build on debt...personal, corporate and Government. Everything around us is a mirage. It isn't real.

We need to reduce our expenditure in every home, in every business and in Government.

Banks should go to the wall...like a lot of businesses and a lot of individuals as the pain involved is the only way for people and institutions to learn the lessons for the future. We can do nothing about the past.

It is time for UK plc to find another way of earning her living in the future, other than borrow, spend and consume. Government needs to get off the back of people and put their money back in their pockets at a time when it is most needed. The BoE needs to reduce interest rates.

Britian's foriegn policy needs to strengthen econmoic ties with the emerging BRIC economies: China, Brazil, India and Brazil.

It's time for us Britons to find our entrepreneurial zeal once again and get out on the world stage to sell our products and services to earn a honest living.

What we really need to to also is ditch Gordon Brown's borrow, spend , consume and debt-fuelled frenzy of an economic policy!

Why does everyone refer to "The market(s)" as if it's some abstract beast that can't be controlled? People ARE the markets. People MAKE the markets. People DICTATE the markets! All that has been lost in this year's series of grand catastrophes is common sense, rationality, cool heads and, so it seems, any degree of economic intellect.

It is unacceptable to keep harping on about the fact that banks simply do not "trust" each other hence the paralysis on interbank lending. A US bailout would be nothing more than "Daddy" bailing out his spoilt, thick, over-indulged children, who would make exactly the same mistakes over and over again, and again and again, and would still not play nicely with the other kids in the schoolyard. (It's called history repeating itself folks, or, for the more philosophical among you, it's the dialectic of life). A bailout would not restore trust, it would simply over-compensate and gloss over a fundamental incompetence and financial illiteracy that seems to have dogged even the soundest institutional stallwarts of late.

Get the bankers back to school. Force feed them (and world treasuries and regulators) to learn about and finally understand the complex structured products, models and algorithms that they've so ignorantly but readily used. Dissect the complex CDOs and CDSs and get product composition and mechanics back to basics. If a mum doesn't seatbelt her three year old into the car and an horrific accident happens killing the child and not the mother, the mother goes to Jail. Bankers and bankers alone have killed the financial system. They didn't buckle up their passengers or indeed themselves. Let them live with the consequences. In Darwinian (and Capitalist) terms, let the strongest and the most adaptable to change survive (they will), let the weak and irresponsible fall.

The House of Representatives did the right thing by refusing the buy junk bonds with public money.

There was no proof that $700bn was a full and final payment that would solve the problem. There is no discussion of other options. We are told that businesses will get in trouble and people will loose jobs, but $700bn is a big fund which could help businesses directly.

Instead, we are told it will be the end of the world if we do not act now. This is just seems an attempt by the bankers to panic the government into bailing them out.

Dear Robert,
*32

The pension Funds, Now that is the reality of it all, the ditching of funds, why did Gordon Brown tax The Pension Funds SO HE DID CREATE the the run on them?

The problem goes back to the 1980's, when Thatcherism and Reaganomics arrived on the scene. The philosophy that the market will prevail relies upon the assumption that those running the markets are responsible people. That has been shown to be a false assumption, with plenty of letters and comments to that effect to be found in newspapers and online forums over the years. Some people could see it coming. There's no choice now, but to ensure that responsibility is enforced by regulation.

Perhaps transparent and honest book keeping would allow us - in an instant - to tell whether an institution is liquid, or not.

"Neither a borrower nor a lender be.." Our banks and financial systems seem only to want to borrow - and the lending has been forgotten. And they phone me up and offer their services as "Financial advisers"!!

#39

A) They're not tanking. FTSE is up 30 points as I right this.

B) The market makers.

Not a system failure. There was no Systematic approach. No rules. What we are witnessing is a geo-political transfer of power within finance capital to the East.

The Dollar will not be sustainable as the central currency of the global market. What happens when you pour thousands of billion dollars into holes in the ground to support to support the banks.. Each Govt telling us that there is then enough cash to maintain confidence that the hole in the ground can be passed opff as a solid financial institution? Ans A hole in the ground that rather than spporting the structure rots the cash..rapid devaluation and re-alignment of international debt and power. The sun is rising in the East again.

here's a jolly scenario:

the markets recover. there is no string of bank failures.

congress does not pass any bailout. the republicans loudly reassert free-market ideology.

mccain gets elected on an anti-wall street ticket.

the housing market collapse and credit crunch only really bite early next year, and then things get very ugly.

What I want to know is what's next for the UK economy? Over the last 5 - 10 years, the UK economy has been based almost entirely on financial services or government spending. Given the fact that the financial system is now in chaos and the government tax receipts are going to be massively hit - what sector of industry will we turn to in order to revitalise the UK economy. We've no manufacturing industry any more so who do we turn to to provide the jobs that are going to be required when the government starts laying people off when they cut services in order to balance the books?

I would like to suggest three immediate measures:

1. Slash interest rates to 2% - there is little inflationary pressure in the economy and possibly even deflation is ahead now that commodity prices seem to have peaked.

2. Raise VAT to 20% - just in case there is any inflation.

3. Give local councils a £2billion capital fund to purchase local flats and housing producing a new set of council housing that can be targeted at key workers.

There is of course a risk of a capital flight to higher interest rate economies but I think any major economy that shows itself to be aggressive in its solutions will attract capital.

Lies all around! who to trust?

On Friday 26th September B+B stated that it was well funded and could last through 2009.

The next day it was nationalised. The country is being lied to - There is NO trust anywhere

so I, who saved and invested sensibly, instead of borrowing more and more money to buy expensive houses, cars, holidays, gadgets and stuff I simply had to have because I could show no control, will end up paying the price. Where is all this money promised by governments going to come from? The problem is that they just fiddled while the country burned - watching trillions rack up in debt, content to see their happy constituents voting for them and what was in their pockets.

And now, there are some people with money who were "prudent" (Gordon's favourite word), that are the only ones who can actually finance this mess. So watch, while the government come after us to try to squeeze every penny they can out of us.

How fair is that? This has been a catastrophic failure of government. While the bubble was inflating and mass hysteria was taking place (the exuberant excesses of credit and material goods in the last 7 years), the government should have done something about the warning signs and slowed it down. No point in blaming it on global economics - show some governance. Capitalism and the free markets do not work when you are talking about things so inherent to the system as the infrastructure of a country. Look at banking. Look at the railways. Look at the energy industry. Look at schools. Look at hospitals. What happens if any of these fail (the simple risk/reward model of a free market) - they cannot be allowed to. So where is the risk? Plenty of reward though.

And we know, from previous government incompetence like selling gold at the bottom of the market, that we will nationalise these institutions and then not capitalise on them when they recover. They will be sold off to the private bankers and politicians friends just in time for them to start making bucketfuls of money. Now, if the proposals included guarantees that the taxpayer would benefit in the future from massive profits until such time as we maybe recouped the equivalent of 500% or 1000% of the investment at todays prices before the big shots start getting ridiculously inflated bonuses then maybe we would be more amenable but history tells us that we, the taxpayer, are bound to get shafted yet again.

The end of western civilisation as we know it, buildings crumbling, shops empty, the fields barren, lawless gang warfare around us.....

Look the only problem we have is that the banks have forgotten what their job is, so we should explain to them.

If they won't lend to other banks the Fed/BoE won't lend to them.

Problem fixed.

Now lets look at a real problem - Global Warming, that's a real one, along with world hunger.

I hope that the kid's in Africa aren't hit too hard by the falling stock markets.

#50

This is not bad for my business (as you will see if you look at my other posts) and it certainly doesn't need credit right now.

Businesses don't run on the same principles as individuals. Yes, some need credit to get them through cash-flow problems, but few need it in the magnitudes that we're talking about here and lending criteria has always been much stiffer for business than individuals. By and large businesses pay their suppliers and employees from cash, not credit. Generally the idea is that you have 30 days to sell the product before you settle the bill, and as Tesco have demonstrated today, retailers are not having any problems doing that.

If liquidity can be improved by next year most businesses will be OK (in my opinion).

This government has built it's reputation around an intricate web of mechanisms designed with the sole intention of keeping expenditure off the balance sheet, and away from scrutiny.

Is it therefore suprising that we find companies operating in a similar fashion. These are private companies; it is the responsibility of the board and the shareholders to resolve any financial difficulties. Any bank that requires government intervention should immediately hand-over assets/equity to the equivalent value, otherwise the assistance should not be approved.

I also find it laughable that GB feels he is the best man to lead us out of this mess; considering he was the man who led us into this mess and isn't even prepared to recognise that fact.

It's time for change - a lot of change.

#67

Ditch Brown and do what, allow the ideology that is at the root back into power, as I and others have said - and one day those who worship Thatcher will wake up to the fact - Reagonomics and Thatcherism was the origin of this mess.

Re 53, AnitaES - if the Fed backed mortgages, what incentive would anyone have to make their mortgage payments? The US govt would end up with everyone's mortgage tab and have to massively devalue the dollar to pay it, which would destroy the US economy.

Re 62, this is one of the key problems - if you let every bank go (and that would pretty much happen if the central banks cut their gargantuan levels of emergency funding to zero right now), the damage to the world economy would be extreme. There's a balance between punishing the wrong-doers and cutting off one's nose to spite one's face. I'd be inclined to start clearing out some prison space though, for the financial executives who broke their contract to run a sound company, especially those who did so while fraudulently taking enormous bonuses.

It's disappointing that the BBC's coverage of this issue has become so hysterical in the last 48 hours--and so opinionated. Peston describes the lack of a deal in the US as "catastrophic" and used the same word on Radio 4 this morning. Since when did reporters take such strong lines on a story? And why isn't he putting the alternative view-- that this is a game of chicken between bankers and governments in which the bankers are saying, in effect, "Give us the money or the economy gets it." No one doubts there is a problem here, but shares aren't in "freefall" this morning, the economy has not collapsed, and there is a strong continuing case that those who created the problem should not simply be bailed out. Doing so will simply create the conditions for yet another bubble, and another bail-out, paid for by taxpayers, in ten years' time.

The time for ideology is not now. There is a generation of people in the uk and no doubt abroad that have taken significant mortgages to buy a decent home in this period of house price inflation. (Those being in their 20's and thirties now)

Life is not fair and whilst I agree that the years of hyper bonuses to the city elite are somewhat disconcerting, we all benefited from 10+ years of growth, and look to any director, CEO or individual with surplus cash and you could see extreme returns for the privaledged few... we should exclude this emotional argument at this point in the unfolding series of events.

- to take a stand on ideology at this time is plain wrong

we need to support the authorities as we attempt a rescue of the economic system that we all participate in / benefit from, and when stability returns, our employers are less distressed and the appropriate level of lending (at the right price) is offered to enterprises, but also you and I, we regulate with vigour to stop this particular event happening again..... and prepare for the next one.....

#46 wotmenah

The reason I put it into 4, pushing 5, is that I disagree that the $700 billion bailout option is the best way, or is even the best of a bad lot.

I do agree with you that dithering is not a good idea, but choosing the wrong path could be much much worse.

We keep being told that this is the only choice we have, and that if we (by which I of course mean the US Congress) don't choose it now, everything is going to come tumbling down around our ears.

However there are quite a few economists and other experts who believe that this was completely the wrong plan to fix the US economy. And I am more inclined to believe them than the people who caused these problems and who are now saying "give us a load of money, now close your eyes and turn around, and when you turn back everything will be alright"

With all due respect, why is it that so many are pointing fingers at politicians and regulators when the bankers should have and I would argue, did, know better. When I'm assaulted should I blame the criminal responsible or the police who didn't show up in time? Primary responsibility for this disaster lies with the bankers and their lawyer facilitators, and we shouldn’t forget this. The “originate and distribute” model was and is inherently flawed, as it removes the incentive bankers should have to carefully assess/model risk before jumping into the deep end of the pool. In this sense unbridled securitisation represents the greatest moral hazard banking has ever seen. But the bankers and their lawyers knew this – they were just too busy banking their ill-gotten gains to care. What is needed is the financial services equivalent of RICO, that US legislation designed to punish organised criminals by seizing their assets with virtual impunity. If it works for the Gambinos, it will work for the Goldmans too.

Certainly, "casino financing" and a "betting-on-horses attitude" are finished.
Is it really a catastrophe?
Or is it now just a battle of pessimists and optimists?
Don't forget, for every seller at a certain price there is a buyer.

#22 John_from_Hendon

About your last point, I read the draft of the bill for the bail-out in the US and it seems that there is a clause that would allow the authorities to suspend the need to mark to market!

It is section 132:

"SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING"

and it worried me a lot (I posted it on 2 previous threads but only got 1 comment.)

What do you (or any one else) think?

"A sense of powerlessness to direct events in global markets". Why should anyone other than a control freak (or an ex-GOSPLAN apparatchik) think that trying to direct events in global markets is a good idea?

"Central banks could cut interest rates". If there is a shortage of credit then why are you advocating reductions in its price? This is a great example of why no-one should try to direct events in global markets. Such a person would probably make daft decisions like reducing interest rates when actually they need to go up.

I say well done to the US Congress for rejecting Paulson's plan, and how about letting the market have what it is CLEARLY signalling is needed, i.e. higher interest rates?

Robert, why do you use the expression "...the breakdown in the US political system..."?

There is no "breakdown".

Surely, what we have been witnessing is a democratic process working extremely well. It may have come up with the 'wrong' answer, but I've seen absolutely no evidence in recent days that's it's 'broken down'.

Comment 46 : wotmenah

The problem with your argument seems to me to be that you equate any decision to maintain the status quo with dithering. This is not necessarily the case, is it? The decision for "no change" may be because each of the options on offer is perceived to be inferior to what's currently in place. This doesn't mean that there is no superior option - just that at present it's not on offer.

It's quite possible that reaching the best solution is more likely from a position of stagnancy than from one where there is a momentum in the wrong direction.

I am surprised at some of the comments made on the bbc site. Many do not seem to recognise the possible implications of a few banks going to the dogs and a few fat cats losing their jobs. I am no economist and have never invested in stocks and shares, but by just using a little common sense even I can see that the possible "domino effect" of this will impact every one of us and the consequences could be anything from a minor inconveience for a few people to a global disaster resulting in the collapse of the world economic system. Not even oil rich countries are potentially immune as if their customers have no money - they will end up with a plentiful supply of oil but with no one able to buy. Only time will tell how this pans out.

#82

See my post @ #83...

As for change, yes, we need to get back to a regulated mixed economy, were personal greed (the Harry Enfeild type of "Loads of Money" scenario) is not allowed to control both the money markets and Govt.

#39 sanitychecker

"Can I ask a really silly question (again) ? If the markets are tanking because shareholders are selling, WHO IS BUYING these shares?"

If I understand it correctly the whole point is that everyone is trying to sell and no-one wants to buy, this means that the sellers drop their price to try to entice a buyer. The more people selling - the more the price drops, as buyers have more choice and can demand more for less.

Hope that helps, in my head that made perfect sense.... ;o)

"the normal levers pulled by central banks and governments aren't very effective"

So, we have a financial system that is uncontrollable? A system that exists at the whim of a few very wealthy people?

T.I.N.A? I think we're about to see old Maggie proved wrong.

The system must change. Indeed, it must be destroyed.

If there is to be any bail out it should be for the poor people losing their homes because greedy bankers lent them money they knew was unaffordable so they could get their next fat cat bonus.

Prohibit house repossessions for two years and let the banks sort it out.

The only way that any money should be given to the banks is under tight conditions that makes them suffer for their mistakes and gives them real pain. The directors need to feel the p;ain not be insulated in the bank.

They should get some money but only if reforms are put in place. No more big bonuses, nor more ratching up of prices to buy businesses to satisfy their power egos.

They are often very bloody with businesses when they run into difficulties and generally show little mercy or understanding if businesses make mistakes. Why should they be a special case?

Its time that the heads of RBS, HSBC etc., were given the smell of a P45 perhaps that would then focus their minds on being more prudent as this is what they have given to many of their customers and shareholders by their wrecklessness. Lets fire the people at the top as they made the mistakes. I didn't make their mistake so why should I pickj up their tab. Why should the status quo continue. Time they fell on their swords and did the decent thing. No apologis necessary, resignations speak Louder.

Some posters are raising some very interesting questions. It may be that there are opportunities here, because houses, and investments, are getting cheaper. Physical assets still exist - houses, factories, oil refineries, the physical infrastructure, have not been vapourised. It's the financial numbers that we attach to assets, not the assets themselves, which are going up in smoke.

Is this actually an opportunity disguised as a catastrophe?

Let me suggest a way of looking at this - I call it 'time phasing'.

Investing is something that virtually all of us do in one shape or form. It might not be shares or bonds, it might be houses or pensions, but it's all investment.

The critical issue is timing and time-phasing. Timing - when to buy or sell - is obvious. What about time-phasing?

House prices and mortgages illustrate this. House prices have gone up and up for years. Now they are falling, much more sharply, I think, than published numbers are telling us. But they will not fall back to, say, 1998 levels. Someone who bought at the peak (last summer) is certain to lose out. Those who bought ten years ago will almost certainly still be ahead. Someone who bought, say, three or four years ago, is likely to be roughly where he/she started.

As house prices rose, young people (in particular) were forced to take on hugely-expensive mortgages to get on the ladder. Older people (in general) saw paper increases in their house values.

This was a (rather bizarre) transfer of wealth from young people (who need income and are, initially, asset-poor) to older people (typically more comfortable, and comparatively asset-rich because they already owned houses bought at historic - much lower - levels of cost).

As house prices fall, this equation reverses. Older people will be sitting on smaller paper gains than previously. In the future, young people will find that houses are more affordable.

The net balance, if you think of it in this way, is actually positive. The older person's loss is simply on paper; the value of their house might have risen, but so would the cost of an equivalent house if they move. The young person's benefit isn't purely paper - it is a REAL, cash benefit in terms of servicing a mortgage starting at a much lower level.

Two snags here. First, this net gain presupposes, of course, that these young people still have jobs. That's why we DO need to stabilise the financial system so that non-financials businesses stay afloat. If bankers suffer, no one minds that except bankers. But if 'ordinary' businesses suffer, we all lose.

Second, those on the wrong side of the time-curve - those who bought houses over the last three or so years - are in dire straits. They need practical help, focussed on being able to stay in their homes. Government needs to create some sort of 'transitional relief' fund. Perhaps they could use NR and BB as part of this.

In the situation of a young person looking at this, I would suggest they take a sober look at their circumstances. If one's job is reasonably secure, this transition situation actually helps. It's a bad situation, but it is not without its benefits.

I can't believe how many people don't get it. Yes, it's objectionable to bail out banks. But it's somewhat more objectionable if the whole system of lending breaks down so that people can't buy houses, can't borrow to expand (or even maintain) their businesses and can't rely on their pensions being there in the morning.

Economies aren't magic. They rely on institutions. One or two can fail and the system will survive. But with a systemic problem like this, there is a need for Government to step in before the dominoes all fall. Congress has just abdicated that responsibility in an outrageous act of populist lunacy that we will all pay for.