Northern Trust has said they will make up for any losses.

Rogoff (with Carmen Reinhart) has done very serious work on financial crises. They have constructed a major database with economic indicators included. I think their definition of a crisis focuses them on events bigger than what the IMF looked at (ie, the Reinhart/Rogoff has somewhat fewer incidents, but much longer timeframe, they’ve gone back 800 years) and done more intensive data gathering on them. Both of them are very straight shooters

Here is a post with a link to the IMF paper.

Here is a post with a link to a short but good Reinhart/Rogoff paper.

The sentiment expressed here hits the nail on the head. But this is practically the only time I’ve heard it said out loud? How come? I mean, it’s blindingly obvious what the endgame is, yet, even as the Emperor is prancing down the street stark naked, everyone seems to commenting on his hair. It’s all quite amazing.

http://www.ft.com/cms/s/0/dd9aa390-84d6-11dd-b148-0000779fd18c.html

America will need a $1,000bn bail-out

By Kenneth Rogoff

Published: September 17 2008 19:06 | Last updated: September 17 2008 19:06

One of the most extraordinary features of the past month is the extent to which the dollar has remained immune to a once-in-a-lifetime financial crisis. If the US were an emerging market country, its exchange rate would be plummeting and interest rates on government debt would be soaring. Instead, the dollar has actually strengthened modestly, while interest rates on three- month US Treasury Bills have now reached 54-year lows. It is almost as if the more the US messes up, the more the world loves it.

But can this extraordinary vote of confidence in the dollar last? Perhaps, but as investors step back and look at the deep wounds of America’s flagship financial sector, the public and private sector’s massive borrowing needs, and the looming uncertainty of the November presidential elections, it is hard to believe that the dollar will continue to stand its ground as the crisis continues to deepen and unfold.

This massive asset deflation is not going to be contained to the US (take a look at a 6mo bric chart), so a cut for ROW int rates is inevitable. I can’t imagine the US isn’t on the receiving end of the ensuing disintermediation. Good luck modeling that into your “never” scenario.

>> I suggest you read the IMF paper on 124 banking crisis The most successful approaches by far did not involve trying to validate bubbly valuations.

Would love to. Reference? I am sure you've posted it here but I just scanned through I couldn't immediately see what you are referring to.

I think the big difference between our respective POV's is that you see this as a banking crisis whiolst I see this as an comprehensive economic crisis. You see the banks as being broke. I see the country as being broke.

In Japan (and this is the deflationist's eternal retort), the banks were broke, but the country wasn't. Household savings were high, and a productive manufacturing sector provided for vibrant export earnings. By stark contrast, the US sees not only the banks broke, but households broke as well. (When I say "broke" I mean hopped up on credit they won't be able to pay back.) And critically, the US no longer has the means to self-finance their consumption.

Thus, Japan did not have to, as their economy slowed due to a contracting banking sector, finance externally at increasingly dear rates. As their imposion occurred, they got dividend cheques each month from overseas.

The US is in a quite different spot. It has no means now of self-financing and will have to go cap in hand just to stay afloat.

Credit expansion was the lifeblood of the Japanese banks. Credit expansion is the lifeblood of the entire American economy. That's a big difference. You simply cannot unwind a bubble economy without driving the economy itself into insolvency, including its productive sectors, without which an economy will never come back.

I look forward to reading the IMF piece. Then perhaps I can speak to the other 123 cases cited.

>> And in the Great Depression, contrary to popular retellings, the Fed in fact did try to reflate early on, It expanded the monetary base considerably in 1930, but money supply fell nevertheless because individuals and businesses were pulling money out of banks. You cannot reflate if the institutional plumbing has the equivalent of a water main break. We were unable to reflate until 1934, AFTER deposit insurance was instituted in 1933.

Fair enough. I am not stuck on a single measure. But we agree that reflation was a key part of the recovery? If so, why aren't we hearing more about it these days?

If I may answer my own question (!), I believe it's because the powers-that-be cannot afford to unnerve foriegn creditors. It's the policy action that dare not speak its name.

But surely hear, amongst friends, we can call a spade a spade?

Regards and thanks for this space.

I understand why banks would find that attractive as its purpose is primarily collateral for other work.

Why would any mutual, MM, pension funds buy them at this point? Have they stopped and simply been replaced by broker-dealers?

Is it contractual clauses limiting cash positions, a bet that yields will further decrease, term limitations where high quality short term debt is avoiding the market and the only liquidity left is t-bills? Are T-bills just a parking spot marginally preferential to cash?

Home prices dropped in 24 of 25 U.S. metropolitan areas in July from a year earlier as foreclosures eroded property values, according to Radar Logic Inc. New-home sales fell to a 17-year low in August, the Commerce Department said Sept. 25. Lumber futures fell 15 percent in September, capping a 21 percent drop in the third quarter that was the biggest since 2002.

“The credit crunch is definitely affecting demand,” said Jamie Greenough, a lumber broker and analyst at Global Futures Corp. in Vancouver. “Jobs aren’t getting done because people can’t get financing.”

Lumber futures for November delivery dropped $2.80, or 1.4 percent, to $196.40 per 1,000 board feet on the Chicago Mercantile Exchange. Earlier, the price fell the exchange’s $10 daily limit to $189.20, the lowest for a most-active contract since October 1991. Futures are down 18 percent in the past year.

http://files.commonfund.org/video/EndowmentInstitute.html