"Buying Time" Doesn't Fix Financial Crises, It Makes The Next One Worse

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The strategy of "buying time so the financial system can heal itself" by protecting a systemically destabilizing financial sector has failed because it could only fail.

The core strategy of central states and banks to fix the Global Financial Meltdown of 2008 was to buy time: take extraordinary emergency monetary and regulatory measures to save the parasitic too big to fail banking sector and the rest of the crony-capitalist Wall Street parasites, and initiate an unprecedented transfer of wealth from savers and Main Street to the banks and Wall Street via zero-interest rates and credit funneled to the very players who caused the crisis.

The idea was that the system would "heal itself" if authorities simply "bought time" by saving the financial sector from its own predation. The second phase of "buying time so the financial system can heal itself" was to institute policies (ZIRP, etc.) that restored the financial sector's obscene profits and socialized its losses by transferring them to the taxpayers.

The terrible irony in the official strategy of "buying time so the financial system can heal itself" is the policies prohibit healing and guarantee the next financial crisis will be greater in magnitude than the last one.

There is only one way for any financial system to heal itself: enable the open market to discover the price of capital, credit, assets, collateral and risk. When participants finally discover the market price of their assets and collateral are much lower than the valuations claimed in credit bubbles, the market clears itself of bad credit and overvalued collateral in a market-clearing event in which overpriced assets are marked down, firms that overleveraged weak collateral are declared insolvent and liquidated, and creditors who can no longer afford their loans are declared bankrupt and their remaining assets liquidated to pay their creditors.

There is no other healing process but this one: enable transparent, open markets to discover the price of capital, credit, assets, collateral and risk and let those firms and individuals who overleveraged and made bets that blew up go bankrupt.

What "buying time" has done is destroy the market's ability to price capital, credit, assets, collateral and risk, stripping the system of the essential information participants need to make rational, informed decisions. By crushing the market's ability to generate accurate pricing information, central state and banking authorities have insured the system cannot possibly heal itself while maintaining perverse incentives that guarantee the next financial crisis will dwarf the previous one.

The official policy of "buying time" has another fatal flaw: it maintains a parasitic financial sector that expanded to a structurally unhealthy dominance over both the political and economic sectors. Once financial profits ballooned from a modest share of corporate profits to dominance, this enabled financiers and bankers to buy political protection of their skimming and scamming:

The strategy of "buying time so the financial system can heal itself" by protecting a systemically destabilizing financial sector has failed because it could only fail. The policies that "saved the financial system" only saved it from the healing process of the market discovering the price of capital, credit, assets, collateral and risk.

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orangegeek's picture

Gewberment knows best.  Just ask them.  They'll tell you.

Cattender's picture

you know the NEXT Big Economic SHOCK is coming.......

ZH Snob's picture

their hubris is astounding.  but you would think that those who run businesses other than the financial services would be up in arms and use their power and influence to stop this thievery.  don't they understand that the banks are essentially killing their customers? the more these guys steal from us, the less we have to buy all the other guy's crap.

Zirpedge's picture

Never gonna happen, stocks always go up up up! When will the government find the strength to ban incindiary language in reference to bankers as "parasites". Banking is an essential component of a thriving capitalist system. If you don't like our capitol allocation, go to some other country and try to build something better. See if you can get a contractor off his hammock for anything less than cash up front.

dontgoforit's picture

At what cost, the banks?

Zirpedge's picture

Who the hell keeps downvoting me? Reveal yourselves you foul creatures of the ZH. 



Harbanger's picture

I gave you a -1 for being a nazi fag that wants to ban "incindiary" language and I gave you another -1 just now for being a sensitive nazi fag that cares about downvotes.

fonzannoon's picture

He is one of the few poeple on here who's avatar is a real picture of himself.

Radical Marijuana's picture

Zirpedge, I am not used to people on Zero Hedge posting such breathtakingly ridiculous comments as yours, without some hint that they are being sarcastic.

The foundation of the entire political economy has become private banks making the public "money" supply out of nothing as debts. That system exists due to the application of the methods of organized crime to dominate the political processes, to manifest utterly INSANE situations such as the very EXISTENCE of the Federal Reserve Board itself:


The Federal Reserve "Explained" In 7 Minutes

Few people who regularly read Zero Hedge are unaware of the foundation of the system being enforced frauds, which have already destroyed anything like "free market capitalism" long ago.

There is still lots of disagreement with respect to what to possibly "do" about the situation whereby government becomes the biggest form of organized crime, controlled by the best organized gang of criminals, the biggest gangsters, the banksters ... Most people who face those social facts still then propose impossible "solutions" based on "reforms" that will somehow "stop" that happening.

My recommendations are based upon more fully facing those facts, and therefore, going through recognizing the full meaning of the situation that money is necessarily measurement backed by murder.

Currently, that situation exists through the maximized possible deceits and frauds, running through and through the entire established system. Private banks making the public "supply" out of nothing as debts IS AN ENFORCED FRAUD, which dominates everything else. There is NO genuine "cash," only Money As Debt, within runaway debt slavery systems, which have generated debt insanity numbers! The vast majority of people deliberately ignore those central social facts, other than when looking at superficial aspects of that situation, as isolated components of the overall system. The controlled opposition tends to propose "solutions" which will miraculously stop those being the central social facts, or which pretends to be able to fix some aspect of the problem while leaving the root cause still in place.

Any period of relative calm in a system based on enforced frauds is always necessarily a calm before another storm. Our civilization has become almost inconceivably crazy and corrupt, due to it being controlled by the triumphant application of the methods of organized crime, WITHOUT THAT BEING ADDRESSED AND UNDERSTOOD.

In that context, Zirpedge, if you were not being sarcastic, then you are a such a clueless mainstream moron that you do not even have a clue how clueless you are! The banksters ARE parasites that are killing their host. To attempt to prohibit stating that fact would only ensure that it got even worse faster than it already is!



The Velocity Of Money In The U.S. Falls To An All-Time Record Low

"Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars.  This unprecedented intervention ... has also made our long-term problems far worse. So when the inevitable crash does arrive, it will be much, much worse than it could have been. Sadly, most Americans do not understand these things."

NoDebt's picture

Bah!  It's different this time.

In all seriousness, I like reading Charles' articles.  He just needs to ditch that hyphenated last name.  That's chick stuff.

Rainman's picture

I only hope they buy enough time for me to be dead when it blows all to hell.

Should I feel selfish and guilty ?

dontgoforit's picture

I think many of us feel the same way, but my gut tells me it's gonna blow and we're in for a rough time.  QE will not be able to stave off the inevitable - that which they've made worse by their messing with every aspect of the financial pinions that hold the peaceful world together.  Set up for the big fall.

Radical Marijuana's picture

Yeah, any relatively older individual can only hope that the system will last longer than them. The younger you are, the less likely that becomes!

vaft's picture

How fortunate for the babyboomers, who continually voted in favor of this monstrosity of a system, that it won't undergo a catastrophic implosion until AFTER their children and grandchildren have finished sending in the last of the payments to keep their entire generation on cruise control. Has there ever been a generation with more spite for their own progeny than this one?

Racer's picture

They created parasites that kill instead of parasites that just feeds off its host

Dr Benway's picture

Ah, but it's the classic tragedy of the commons. It's in each individual banksters' interest to loot as much as possible, but the aggregate overlooting leads to collapse of society including the bankster group.

Bemused Observer's picture

Exactly...TPTB really did think they would be 'caught up' in the incoming tide of the business cycle. They've had us all treading water, just waiting. Certain that once that tide came back in, it would wash away all their sins, and the people would be so happy things were getting better that they'd 'forget' all about that unpleasantness that got us here in the first place.

dontgoforit's picture

And many have forgotten.  However....the tide is not going to be a glorious thing this time.  The piper's bill is more than we can pay.

grekko's picture

Not true!  They endebted us in debt, which we can't pay back.  Their books will go to shit soon.  They made this mess, and they will go down with us.  Then hunting season opens for elite bankers.

yogibear's picture

The Federal Reserve has created a financial fantasy land. Money grows in computers and buys ever greater amounts of US treasuries through make-believe accounts (Belgium).

The ticket holders to this fantasy land are the financial elite. The tickets keep going up in price allowing fewer to enjoy the fantasy land. Eventually this fantasy land goes bankrupt when too many people are priced out.

Jack Sheet's picture

Roll out the Coppock indicator.

vaft's picture

m-must.. cl-close... g-gr--green....


jal's picture

Who wants to have the situation to go back to the way it was?

Let it crash. I don't want to go back to the way it was. It will only lead to a repeat performance.

This is not the matrix.

its realality.

Bemused Observer's picture

Yes, that is exactly what has to happen. This economy is like a guy who is nauseated...he has to puke, he NEEDS to puke, get it out. But he tries hard NOT to, because puking is SO nasty, and you get that shit all up in your nose...so he just lays there, moaning, wondering WHY he isn't getting better.

That guy is gonna have a LONG night ahead of him if he doesn't get up and go worship that marble goddess and get it over with.

Handful of Dust's picture
Half of Americans can’t afford their house



June 3, 2014






Over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years, according to the “How Housing Matters Survey,” which was commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation and carried out by Hart Research Associates. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.


The story rings true. I, myself, had to make a huugggeee sacrifice....throwing Mother-in-Law out and placing her in a nursing home, sadly 873 miles away. It's not been easy.

shovelhead's picture

I can hear Rodney Dangerfield doing a punchline here.

RaceToTheBottom's picture

Maybe WS firms or AIG or that Warren buffet pirate can create a new insurance product that will help the Muppets handle those contingencies?  


Maybe create an Insurance product for when your other insurance products don't cover your insurance needs.

gdpetti's picture

I think you are kidding, as those nursing homes aren't known for being cheap. That said, one can't 'extend and pretend' forever. The rug has to pulled before Mother Nature does it for us or the brass ring will forever lie beyond one's grasp.

SofaPapa's picture

The twentieth century is an outlier historically.  An inconceivable increase in wealth was achieved on the back of energy utilization the world could never have imagined in its wildest dreams.  Now that that pulse is passing, the elites are collecting the wealth created for themselves, leaving the labor class to figure out how to live on the standard of living that existed before the pulse ever occurred.  The only question is if the labor class can be fooled into going along with it.  So far in the US (though not in the outlying parts of the empire: Syria, Egypt, Ukraine...), the propaganda has worked perfectly, and the elites are winning.  No one knows the future.  But if this blows, there will be a social explosion similar to that of the French Revolution, but on a global scale.  The single most important weapon in the elite's arsenal is control of information.  If enough people ever see the lies for what they are, I wouldn't want to be identified as one of the liars... I think many of these guys recognize the level of risk.  That's the adrenaline high for them, I suppose.

shovelhead's picture

Look at the bright side...

Full employment with human powered wheat threshers and water wheels.

We're gonna party like it's 1799.

Bemused Observer's picture

" Now that that pulse is passing, the elites are collecting the wealth created for themselves, leaving the labor class to figure out how to live on the standard of living that existed before the pulse ever occurred. The only question is if the labor class can be fooled into going along with it."

Ha! The problem is that it isn't a matter of 'fooling' them...they CAN'T go along with it, they don't have the money, period. TPTB haven't accepted this yet, but that doesn't change anything. They are trying to keep what they have looted, and are hoping that the labor class will work harder to make up the difference.
Not for 8 dollars an hour they won't. But paying them more means giving up some of their 'loot'...And there is the conundrum...

moneybots's picture

"The strategy of "buying time so the financial system can heal itself" by protecting a systemically destabilizing financial sector has failed because it could only fail."


Which they knew all along.  Bernanke wrote in 1988, that QE would not work.

A debt based system can't heal by increasing global debt by 30 triilion dollars.

GreatUncle's picture

A little more cynical here ... time was bought at a cost to populations for those who would lose the most too secure their position. Nothing changed economically though and at some point the debt has to be crystallised like it should have in 2008.

shovelhead's picture

They weren't just buying time.

You forgot the magic money multiplier.

They were also buying more hookers and blow and that creates a trickle down effect.

A rising tide lifts all boats and all that jazz.

zipit's picture

Hookers and blow create an orgasmic effect.  FIFY

AdvancingTime's picture

Modern Monetary Theory often referred to as MMT to its many believers removes much of the risk ahead and guarantees that we will always be able to muddle forward. MMT also known as neochartalism is a economic theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money.  Newly acquired tools like derivatives and currency swaps  allow us to print and  manipulate away problems.

While reading an article about the growth of debt in China's non-financial sector I was forced to reflect on how debt is effected by the interest rates. In Europe the ECB had to step in to halt the economic collapse of Spain, Italy and several other countries that were on the brink. What you pay in interest on debt does matter accept in the manipulated land of MMT. Have we been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years? This is a key question we must face. More on this subject in the article below.


AdvancingTime's picture

Years ago before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own its problems. Many people thought Japan should face up to the mess it had created and do the right thing.

Broadly accepted was the concept that only by letting its zombie banks and industries fail could Japan clean out the system and move forward. Has the Fed set us on the course of "lost decades?" More on this subject in the article below.