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Published on Sep 20, 2008

Thursday 18 September 2008 - Finis

Presented by Paul Donovan

+ Capitalism does not work without a functioning banking system. A functioning banking system requires banks to trust one another and markets to operate smoothly. We have disorderly markets and systemic failure at the moment.

+ Systemic failure needs a system wide solution. Bailing out institutions one at a time will not stabilise the current environment. The good news is we are now approaching the END GAME. The crisis will continue until governments act. The situation is rapidly becoming so serious as to force governments to act.

+ The end game will require liquidity from central banks and fiscal commitments from governments. Liquidity injections are not inflationary, because there is no excess money supply - injections are meeting excess demands. Governments have the ability to expand their balance sheets to deal with the crisis.

+ Fundamentals do not matter for now. In disorderly markets economics and economists are ignored (which is why bad things happen). Things will only stop being bad when economists are listened to and we get a systemic bail out for the systemic problem.


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