Bank bail-out – Banks got bailed out but killed everyone else. The Minsky cycle’s argument is that concentration of wealth (which we have now) leads to economic contractions. The subsequent economic contraction exposes that much of that wealth was paper based non-real speculative fake wealth. Those over valued assets behind the fake wealth then find their true market place value, insuring a real true market value.
The concentrated wealth gets redistributed like a full powered sprinkler in a summer day. The redistribution occurs not so much as cash being splashed around, but as debt being cancelled.
Think someone had a $500,000 business loan based on highly speculative assets with Citibank. Guy can’t make loan payments. Citibank goes bust. Private investor buys loan portfolio from FDIC for 25 cents on dollar, so it cost them $125,000. Private investors now go to non-performing loan businessman and tell him we got a deal for you; we are going to work with you to refinance you and your new loan amount is $200,000. Debt-beat businessman is now able to make loan payments and fix his balance sheet and move on. The investors that bought the loan will make $75,000 + interest. The debt cancellation of $300,000 is the definition of concentrated wealth (Citibank) being redistributed to needy person (debt beat loan guy).
This last point is what and where Bernanke and 20+yrs ago the Japanese Central Bank interfere to protect the banking vested interest. By bailing out banks and keeping interest too low too long the have artificially created a financial environment where prices remain artificial, and on purpose are trying to create a new speculative wave to avoid true price discovery.
You have to understand that until Greenspan got in in ’87. Banks had to pay by law a minimum of 5.25% interest in savings account and maximum loans were kept at 18%. These rules in effect from the 30′s when they were written during the depression, prevented the Federal Reserve from manipulating the economy too much and becoming bubble blowers.
Greenspan deregulated and gutted rules specially for Savings & Loans and their mortgage loans, and then the bubbles started. (1st RE bubble/Saving & Loan Failures – 1987-1991) (Tech/Internet Stock Bubble – 1995-2000) (2nd RE Bubble/Too Big To Fail bail-out). I saw this first hand because as a senior in high school in April-June ’86, I took night classes to get my NJ RE license. I let expired in 1993, because I never made any money (was to young, no one trusted me).
This attempt at a bubble again is not being help by demographics worldwide in the develop world; the political winds of the neo-liberal economics also favor austerity with decrease government spending; the outsourcing of the developed world manufacturing infrastructure, and massive deregulation, which have gutted the world wide economy into a world of Target, Applebee’s, WalMart, and miscellanous jobs that don’t have real earning power for an individual or a family based on the nuclear family, it might work on families that are multi-generational and don’t mind 5 people to a bedroom but other than that is going nowhere.
U.S. Economy Looking More Japanese
Is the U.S. Turning Japanese?
In the 1970s, many Americans feared Japan would set the tone for growth in the 21st century economy. One research group says that may be the case — but not in the way feared decades ago.
The Economic Cycle Research Institute, a private research firm that has been bearish on the U.S. economy, says the U.S.’s performance in this recovery is looking ominously similar to that of Japan’s “lost decades,” the period from 2Q 1992 until 1Q 2013, when Japan suffered through little economic growth and steep deflation.
