Why did the US Banking System Not Collapse?

Posted: May 22nd, 2008 by: h-2

Admit it, you read the news, Wall Street sits poised on the edge, but somehow it hasn’t collapsed yet. Why? It took me a while to realize the answer, and I found an article today while checking out some new news sources, Business Intelligence – Middle East in this case. I’d suspected this was the case, and the following article shows it fairly clearly.

Sovereign funds from the Middle East and Asia were also highly active in providing more than US$43 billion in capital to Wall Street banks starved of funds during the credit crisis that erupted last Summer.

Sovereign wealth funds – JPMorgan Chase catalogued 50 of them – are pools of money derived from official surpluses, such as foreign reserves, commodity revenues or fiscal sources. Profits from the funds are meant for the benefit of a particular nation’s future generations.

A steady and deep source of capital for many private equity firms and hedge funds will likely be welcome news, especially since many private investors have become more risk averse lately.

The report also cites talk that sovereign funds may provide private equity with debt financing for leveraged buyout deals, replacing bank financing, which dried up in the face of the crisis.
BI-ME and Reuters, 22-05-2008

Got it? Good. The USA is being bought at fire sale prices, in pieces here and there, as it systematically self-destructs. Commodity prices are rising so fast that the money wants to go somewhere, and it’s going to prop up the ailing Wall Street banks. Who else would have put the money out, after all, than people whose pockets are overflowing with profits from record commodity prices, especially crude oil?

Nobody is talking about this, because the media is still trying to pretend that it’s all OK, and will turn out fine. What better time to inject money, and of course, get control, over any enterprise, than when it’s absolutely desperate, and nobody else will lend it money? Standard loan shark practices, only practiced globally now.

How this will play out will be interesting to see, short term it’s not easy to know what the markets or US economy will do, but long term I have some pretty serious doubts. What to do about all this though remains a mystery to me, it is starting to appear that everything is working at a level of fundamental abstraction that is profoundly unsustainable. At some point you have to let reality back in, then you have to see what you really have in front of you.

When this time comes, it’s not going to look good, that’s for sure, but what it’s going to look like exactly remains to be seen.

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