It would seem that the government has pumped enough money into the economy to create a recovery.  The inevitable result of the recovery will be high inflation once all of theextra money pumped into the system starts circulating.  The Fed and Treasury can't pull the money back out - the economy is to fragile for them to sell treasuries, toxic securities or mortgage backed securities.
High inflation will lead to a dollar collapse.  Within the year the US Dollar Index should fall to .5.

A true recovery will only come when wages rise to match increases in productivity.

Wages provide the true support for the economy.  Investment is productive if their is someone to pay for the result, otherwise investment simply pushes up asset prices.  We have seen in 2001 and 2008 that pushing up asset prices is simply building a house of cards.  The government shouldn't be figuring out how to encourage investment (we already have too much).  Instead, the government should be encouraging higher wages and savings so that we can have prosperity without borrowing money.  Why?  Because there is only a limited amount of time left before the world refuses to lend us any more.

That's not to say that there aren't times to encourage more investment (such as in the 70s).  But from the 80s onward the government has been suppressing wages and encouraging investment, with increased consumption paid through increasing debts.  Those trends need to be reversed for at least a decade.

All of the TARP money given to banks actually goes to their holding companies as preferred shares.  The FDIC can rescue the bank, but not the holding company.  So rescuing the holding companies is giving money to the shareholders and bondholders, but does not protect the depositors at all (who are the only ones the government is supposed to protect).
Why aren't the banks lending out that money?  Well, since it goes to the holding company they can buy other companies, use the money to absorb losses or use it to back new securities.  However, no one wants to make new securities.  The actual loans to individuals and businesses are done by the banks themselves, who can't loan out the money given to the holding company.  And in fact those direct loans have only fallen 4% so far, so they don't even need rescuing (since they are based on new deposits, which are increasing).
So all of the congressional hearings about where the money is going are a complete farce.  The Fed and Treasury knew as soon as they gave out the money that none of it would be lent out by a bank.  They just wanted to protect the holding companies from being declared insolvent.  All the talk that this was being done to keep the loans flowing was so much nonsense - a distraction covering up the real reason the money was lent.  That's why there has been so little transparency.
All the talk about not being able to say exactly where the money went since money is fungible just covers up that NONE of the money can actually be lent out.  The accounts of the bank and the holding company that owns the bank aren't the same anyway.

Says the banker:

Not me!  My assets are rock solid if we hold them to maturity.  (The fact that they sold the securities as quickly as possible and used short term financing to create them is apparently irrelevant).
The problem is that the government tried to encourage poor people to own homes.  (The fact that they benefited from and lobbied for such is also apparently irrelevant).
If only the government would have regulated Fanny Mae and Freddy Mac more closely we wouldn't have any problems.  (The fact that they competed with Fanny Mae and Freddy Mac and wanted to bring them down so they could expand their business, and the fact that mortgages from Fanny Mae and Freddy Mac go into foreclosure less often than mortgages from other bank is apparently irrelevant as well).

What the banker will never say:

That as a country we simply borrowed too much money (which is of course how a bank makes a profit).

This thought is not original to myself.

If a bank doesn't want to take a loan and mark it to market, why does it bundle the the loan into a mortgage backed security?
The whole idea of a mortgage backed security is to combine a bundle of mortgages, slice them up into tranches, and sell the tranches.
There just isn't any point in a mortgage backed security unless you sell it.  If you want to hold the loan, don't make it a MBS!

These days when the government talks about reviving the credit
markets they are not talking about banks making direct loans.  That has
only fallen 4%.  What they are talking about is that most of the new
securities and derivatives being issued are backed by the government.  They
want to revive Mortgage Backed Securities, Collateralized Debt Obligation and so on.  Strangely, there still is a market in
Credit Default Swaps which may be the most destructive of the lot, but only because the
government is preventing a rippling effect of one failure leading to
another,

But where did that money come from?  Mostly abroad.  And they are
just not that interested any more.  The government could keep nationalizing
the financial sector and eventually restore the securities market by having
one government backed institution buy from another, but it will still all
be backed by the government.

If they just gave up the effort and left us with traditional loans we
could actually increase the number of them to compensate from the sharply
reduced credit available once securities and derivatives based on them went
away.

I'm not sure what to make of the Federal Reserve these days. Early on in the credit crisis I could understand what they were trying to do. Our system is fatally flawed, but by propping it up they prevented an immediate collapse, even if the long term consequences are worse. No one really wants to live through a great depression.
However, the collapse has now happened. It's too late to keep people believing in the current flawed system. We need to change the way our government is run to make it work again, instead of being corrupt and profiting those with money. We need to regulate our markets so that they work without government intervention instead of having government take over the markets. We need transparency in the markets so that no one can profit from hidden information and so we can have confidence in the solvency of companies.
So what is the Federal Reserve doing? Not only are they not improving transparency in the markets, they won't even let us know what they themselves are doing. They have made EIGHT TRILLION dollars of loans, spending, commitments and swaps. They are sitting on hundreds of billions of dollars of toxic securities, but we don't know exactly what or where they came from. We have no greater idea now which banks are solvent than we did when the credit crisis started.
And since we don't know what's going on, we have no idea how corrupt the Federal Reserve is being. Are they just passing money to their friends? Have they given up on the nation and decided to loot as much as they can before the end? The current administration has spent its entire term looting the nation with massive spending funneled to contractors who happen to be their friends.
Finally, the Federal Reserve, which is supposed to oversee banks and by extension (as least their spending shows this) the rest of the economy hasn't passed a single regulation to prevent a repeat performance in the future. Until this is done even if we hit rock bottom no one will trust putting their money back in the markets.  Look at the latest fifty billion dollar ponzi scheme uncovered.
So after all this what is the Federal Reserve's latest bright idea?  They want to issue their own debt in competition with treasury debt. As soon as people figure out what a sham this all is, the dollar will collapse and stop being the world's central currency. The entire nation will be impoverished.  I guess their job will be done.

Warren Buffet called derivatives 'weapons of financial mass destruction'.  One reason is that credit default swaps actually magnify risks.  When a loan, bond or security fails instead of having one party take a major loss, with credit default swaps there may be ten companies that have pay out, only one of which goes to the holder of the security.  So those ten companies should do the following.  When the security is offered up for auction at the bankruptcy each of the ten companies should offer up 10% of the value of the security, pool that money together and buy the security at full value during the auction.  That way, since the security was payed off at full, all of the credit default swaps pay no value in return.  So the original holder of the security get full value (which they were going to get anyway), each of the ten companies offering the credit default swaps is only out 10% of the value minus a tenth of whatever they end up actually paying at the end, and the speculators who expected to be payed off by getting a credit default swap to bet against a company actually end up getting nothing.  Do that a couple of times and the only ones who will actually want to get a credit default swap will be the owners of the actual security.  The market for them will go away - but why do we have a market on insurance in the first place?  Would you want a market on your life insurance, with ten people hoping that you will die soon?

Why are all of the remedies being offered by the Fed and other central banks not working? Banks won't lend to other banks or to companies as long as they fear being stuck with the collateral (which may be worth a lot less than face value) due to the bankruptcy of the borrower.
So what is needed is a program that restores confidence in the collateral. The Fed could set up a program to insure that for AAA rated collateral, if the borrower goes bankrupt the Fed will take the collateral and give the bank cash instead. The Fed is already doing this directly with banks, so why not make a regular program of doing the same on interbank lending? But the cost to the Fed would be a lot less - they would only have to come up with cash when a company goes bankrupt. And they would be compensated by getting an insurance fee. This is a program that could be made permanent, and hence let the banks know what the rules are instead of worrying what the Fed's next move is.
Once that was in place the Fed could do the same for AAA rated collateral provided by businesses for a loan. Fannie and Freddy are already doing the same with conforming loans, which is one of the few active credit markets.

A priceless quote from Barney Frank:
"The national commitment to the free market lasted one day."
And another:
"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices."

Why did this happen?  The obvious answer is the huge amount of debt our nation owes the rest of the world.  Any slowdown in the constant inflow of money will start shrinking the financial industry, which depends on debt.  When there isn't enough money to go around cracks start appearing, which the Fed has tried to plug as they appeared.  However, even the latest plan won't solve this problem - the government will need to borrow the $700 billion to buy bad debt as well.

Another important problem is that economists seem to have forgotten the importance of anti-trust legislation.  The only way to keep a company from being too big to fail is to keep it from getting too big in the first place.  First the dividing line between commercial banks and investment banks was removed.  Then banks starting buying each other without impediment (especially including recently).  Finally the banks and insurance companies started trading Credit Default Swaps in such a way that the fall of one could drag the rest down with them.  Economists were looking to spread the risk - but when the risks were held by fewer companies for amount 10 times greater than what was being insured all that meant is when any cracks started to develop the whole system was ready to go down together.  We need to go back to having many banks, not tied to each other and insured by the government so that the entire financial system can not collapse at once.

One of the ideas behind deregulation is that an informed consumer will make the proper choices to meet their needs - at least they will do a much better job that the government ever could.  Why is it then that so much is concealed?  

You buy a service and you don't know what the total cost or hidden fees are.  You invest in a 401k and you don't know what the real administrative costs are.  You give to a charity and you don't know what the real administrative costs are.  You buy a product and you don't know what prices the same company is selling the product for in different venues.  You have a sale that is '50% off!', but off of what?  You buy insurance without knowing if they will fight you when paying a claim (regardless of what the exclusions say).  You buy a house and you only have an hour or a few hours to read and understand the actual contracts you are signing (regardless of what you were told or saw earlier).  

How is it that the average consumer is making informed decisions?  If you are smart and careful you can do a better job but no one ever knows everything they should about the transactions they make.  We all kind of get used to being ripped off on occasion, and blame our lack of attention.  But after a while you can't trust businesses any more.  And if their is no trust in business relations, how can you properly value assets?  We are seeing that now with no one really knowing how much mortgage backed securities are worth.  Once most businesses make their money by concealing the truth the capitalist system breaks down just as much as with endemic government corruption.

 

I wonder how many people have noticed what a disaster it has been to try to privatize the public sector? Lately we have Fannie Mae and Freddy Mac coming back to bite us after the government tried to create private corporations to do the public good of encouraging housing. We saw the Fed stepping in to save Bear Stearns.  We saw the total waste in Iraq of trying to contract out parts of the military's job. And contracting for the rest of the government has meant spending more to get less.  It used to be a given that the government and business should maintain a distance from each other, just like the goverment and churches.  The failures are going to lead to more goverment intervention in the future - but certainly not in a way today's leaders would want.

 My wife invited me to join.  I guess this means now I'll need to think of something to post!