Banking Crisis

I've been following the continuing banking crisis in the European press and find a lot of what is being described as repetitive and confusing. Which I gather is part of the problem. Hard to tell exactly what is going on. At fault, though, would appear to be the ability of banks to by-pass traditional prudence in lending behaviour by emitting tradeables against their assets-backed loans such as mortgages. The housing market slows down and disaster strikes. Yet this mechanism is part and parcel of how the world economy now works and involves transfers of funds that make industrial development possible in emergent economies. There is no going back: that is the argument from today's Le Monde.

Is there greed in the system: more likely confusion because there are as well secondary products, some very sophisticated on those troublesome tradeables, in the hope of squeezing high immediate returns on what is long-term debt. And tut!, some banks have created companies to buy back their own emissions. Conceptual difficulties, argues Le Monde.

Governments - certainly with the help of Central Banks - will need to help untangle all that. Sigh!

If the volume of money transactions is starting to create scale problems, there might be solutions in terms of what can be allowed at what level of play. Traders will always be traders but market ideology was developed in the context of mercantilism: national economies looking for advantage, backed by war, with innocent colonies to be had. Today's requirements are for liquidity to make economic development possible in more or less monetized parts of the world, the wars are largely police-actions and the colonies are on Mars. Let's get real.