Nouriel Roubini writes: Last Friday I pointed out in my “Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs” that we were at the point of a risk of a systemic financial meltdown with the beginning of the mother of all bank runs: stock markets gave a vote of no confidence to the Senate passage of the TARP legislation (equities down 4% on Thursday) and to the House passage of the legislation on Friday (equities down 3% after the passage of the bill in the House).

At the same time last week money markets, interbank markets, credit markets were all imploding with all interbank spread at new all time highs, credit spreads going up through the roof and the roll-off of the financing – via commercial paper – of the corporate system. As I put it last week we were facing:

This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains shut down the risk of an economic collapse similar to the Great Depression becomes highly likely.

Indeed by last week a mother of all bank and non-bank runs was underway and even a well designed and well implemented TARP (let alone the poorly designed one passed by Congress) could not address the problem of a short term liquidity panic and run.

And with the liquidity and credit and banking crisis hitting European financial institutions this severe crisis was becoming global last week. I then suggested that only radical and urgent action could stop this mother of all runs such as the following ones:

Since the crisis of confidence and liquidity was becoming more virulent over the last few days and during the weekend in Europe one would have expected a radical response over the weekend along the lines suggested above by the Fed and other central banks. After all Bernanke stated on Friday that the Fed would do whatever was necessary to deal with the liquidity crisis. (10/06/08)
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Roger Cohen writes: Repeat after me: pigs can’t fly. Repeat after me: if you don’t work you die. Repeat after me: fire will certainly burn.

Perhaps these truths seem self-evident. But let’s face it, the whole Wall Street debacle, with its cost of some $700 billion to generations of Americans, was based on the fathomless human ability to disregard facts and believe in cloud-cuckoo-land.

Risk no longer existed. The penniless could afford a $200,000 house. Real estate prices could only rise. Securities full of toxic loans would prove benign. Debt was desirable, leverage lovely, greed great. Two and two made five. The moon was a balloon and streets were lined with gold.

How could it happen? That outraged question springs now to everyone’s lips. But from Dutch tulips to Californian dotcoms, great heists have happened and will again. No flight from reality is as sweet as the illusion that money grows on trees.

A friend wrote suggesting I take a look at Rudyard Kipling’s poem, “The Gods of the Copybook Headings,” in the light of current events. … The poem begins:

The fourth verse sets them out.

As it happens — life’s ironies — I was reading Kipling after watching the vice-presidential debate, or more precisely Sarah Palin, the winking “Main-Streeter” from Wasilla. And the words of hers that rang in my ears were:

Huh?

I’m sorry, Governor Palin, words matter. Life has its solemn lessons. “Never Again” is a hallowed phrase. It’s applicable not to the loss of a mortgage, but to the Holocaust and genocide.

According verbal equivalency to a $60,000 loan and six million murdered Jews, or 800,000 slaughtered Rwandans, is grotesque. Perhaps Palin didn’t mean it, but that’s no less serious. The world’s gravity escapes her. …

Palin, Mainstreeter that she is, loves to drop her g’s, so she’d no doubt call the poet Kiplin’. She might have asked, with that wink, to call him “Rud.”

That’s cutesy politics. But pigs still don’t have wings. The world’s still a dangerous place. It’s time for copybook realists in the White House. (10/06/08)
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