Tuesday, March 24, 2009

Ominous Signs Re: Money

Do not ignore the following signals since the Obama administration evidently strongly believes in central planning. Drudge headlines China’s call for a global currency this morning. Last week Bruce Wiseman warned of coming international monetary regulations. The London Summit will convene April 2 as world leaders meet to discuss ways out of the current financial crisis. Michael Camdessus of the IMF, has already suggested that "the global village" should "urgently and radically" implement international regulations. The US will send Timothy Geithner, who has recently called for a Global Monetary Authority, to this meeting.

There have been many steps, or rather, missteps to put us in this financial crisis, but in my mind, the most egregious is the mark to market accounting rule* imposed on financial institutions in late 2007. It exaggerates bank assets in good times, encouraging market bubbles and exaggerates bank losses when the bubbles begin to burst. Despite numerous calls for the easy rescission of this arbitrary rule, no one in either administration has considered changing it. Instead, both Bush and Obama have demanded money, and lots of it, to throw at the problem. And with government money, comes more government regulation.

*As I explained in frantic emails begging Congress not to pass the TARP bill, mark to market means that a bank’s assets are controlled or marked by the last sale of a similar asset. Thus, one distress sale, for whatever reason, can devalue all similar assets immediately and severely limit the amount of money a bank can lend.

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