Dehydrated Banks: Just Add Water

[FRED]

Dehydrated Banks: Just Add Water

Can insolvent lenders be floated by the U.S. government? Should they?

by Eric Janszen

March 21, 2006 on the very first day we re-opened iTulip.com as a Mass. S Corp. iTulip, Inc. we posted the following in the About section:

But what really kept the U.S. out of the poorhouse, if only until now, was the housing bubble. Not only did we fail to predict the housing bubble as the Fed's answer to the stock market bubble collapse, we argued that the Fed would never allow one to develop.

Wrong.

Our thinking was that in the past the Fed has been very quick to stop speculation in real estate, much more quickly than stock market speculation. Why? Real estate involves the banking system much more than the stock market bubble did and looking after the banking system is Job One for the Fed. Letting millions of homeowners buy real estate they can't afford with mortgages they can never pay back is a surefire road to mass defaults that can cripple the banking system. When a little housing bubble declined in the early 1990s, the U.S. banking system seized up. That response to the downside of that minor real estate cycle was a gran mal seizure compared to the massive stroke that the banking system is likely to suffer on the back end of this wild real estate freak show. More importantly, the political aftermath of a real estate bubble is economic devastation of the host country's economy. Lots of unemployment and negative wealth effects that keep consumers home sulking and saving, not out at the mall buying goods from Asia that keep Asian central banks inspired to lend, and the virtuous circle of lending, borrowing, importing and exporting going. Not good for recessionary, inflationary and other re-election sensitive economic matters. So why take the chance? Because it looked better, at the time, than the obvious alternative: a big recession and unemployment before the 2004 congressional elections. Never good for anyone's re-election bid. - http://www.itulip.com/about

In the wake of the post housing bubble credit crisis, the market system for endogenous credit creation that gave us CDOs, CLOs and other securitized debt instruments will continue to deteriorate worldwide over the next few years. Many experts from the investment banking community that we interviewed in 2007 were certain that the U.S. banks had successfully deposited the Risk Pollution on distant shores and that the banks were immune. Others, such as Dr. Peter Warburton, author of debtanddelusion, were not so sure. Now this.

A month ago, it was ``unthinkable'' that the banks wouldn't intervene to support auctions, said Steven Brooks, executive director of the North Carolina State Education Assistance Agency. ``I had certainly hoped and believed that that liquidity was there and was an important part of why this marketplace was good for investors and good for issuers.''

`Ugly' Market

From 1984 through 2006, only 13 auctions failed, typically because of changes in the credit of the borrower, according to Moody's Investors Service. There were 31 failures in the second half of 2007, and 32 during a two-week period beginning in January. That compares with more than 480 failures yesterday alone, according to figures compiled by Deutsche Bank AG, Wilmington Trust Corp. and Bank of New York Mellon Corp.

``It's ugly,'' said Luis I. Alfaro-Martinez, finance director for the Government Development Bank of Puerto Rico, which saw the rate it pays on $62 million of debt rise to the maximum of 12 percent set out in documents governing the bonds, from 4 percent at a Feb. 12 auction handled by Goldman. ``It's getting uglier.''

Auction Debt Succumbs to Bid-Rig Taint as Citi Flees, Bloomberg, Feb. 21, 2008

Should Insolvent Banks be Saved?

The lesson U.S. policy makers learned in the banking crisis of the 1930s and the S&L crisis of the 1980s was that the more quickly insolvent lenders are allowed to fail, bad loans written off, and solvent lenders take up good assets from them the more rapidly certainty and confidence returns and banking and credit system function is restored. What causes crises to escalate is extended uncertainty. It feeds on itself when market participants are not sure which banks are insolvent. Under those circumstances, banks tend to not want to lend to each other. They hoard capital in anticipation of rising loan losses and defaults. They restrict lending, which feeds back into the slowdown. This process is occurring today.

To solve the uncertainty problem in the extreme case as in the early 1930s the government declared a bank holiday March 5, 1933. Bank balance sheets were assessed to decide which banks were solvent and which were not. When the holiday ended one week later, one sixth of all U.S. banks were closed. That gave the market confidence that the remaining banks were solvent, thus ending the uncertainty. The banking system and lending started to recover. Similarly in the late 1980s and early 1990s literally thousands of small banks were allowed to fail. After the institution of sweep accounts in 1994 which lowered reserve requirements, the banking system started to recover. That laid the foundation for the current crisis; such is the nature of credit based money system.

This time the banks in the most trouble are very large; the smaller banks that did not participate in careless mortgage and other creative lending based on securitization and financial engineering are in decent shape. This is more or less what occurred in Japan; the troubled banks were "too big to fail" from a macro-economic standpoint. As the crisis dragged on uncertainty of solvency spread leading to the kind of self-reinforcing crisis we see today in the U.S., the UK and some European countries. Instead, banks are being nationalized (passed into state ownership) either explicitly as in the case of Northern Rock in the UK, supported by government as in the case of the state-owned bank IKB in Germany, or implicitly in the U.S. via a commitment of continuous cash injections by the Fed and other institutions.

What impact will the recession and credit crisis have on U.S. banks? This article by the FDIC Scenarios for the Next U.S. Recession March 23, 2006 begins with the statement:

"Despite a favorable outlook, there are at least three widely acknowledged areas of near-term concern that could pose risks to the economy going forward: a spike in energy prices, a decline in home prices, and a retrenchment in consumer spending arising from record consumer indebtedness."

Almost two years later all three conditions are extant. Here's what the FDIC expects to happen to the banking system.

This FDIC analysis is remarkably clear and prescient. Take the analysis of the consumer risks, for example.

Consumer Debt and Lack of Saving

A large, long-term increase in consumer indebtedness has raised concerns that the next U.S. recession could originate in the household sector. The housing boom of recent years has resulted in a surge in new consumer debt, most of it in the form of mortgages. Historically, recessions have provided an opportunity for households and businesses to retrench and rebuild balance sheets that might have become strained late in the previous expansion. The response of businesses during the 2001 recession provides a classic example in this regard as investment, spending, and hiring activities were curtailed sharply from their heady, late-1990s pace. In part because of the wealth-offset provided by housing, however, the long “jobless recovery” following the 2001 recession did not weigh heavily on the consumer sector. Consumers did slow their pace of spending growth in 2001 and 2002, but spending growth never fell below a 1 percent annual pace in any quarter—and in no quarter did it actually decline. By contrast, during the early 1990s recession, consumer spending declined for two straight quarters. At this point in time, however, the consumer sector has not experienced a real recession in 15 years.

In some sense, this long recession hiatus itself raises concerns. Consumers have gradually become more indebted over time—so much so that they are now spending more in aggregate than they earn, resulting in the much-lamented negative personal savings rate. The personal savings rate may turn out to be a bit of a statistical anachronism in an economy where so much spending is driven by the accumulation of wealth rather than current income. Even so, home prices will not boom forever. Even a moderation in home-price growth would reduce the amount of new home equity added to the economy each year. This slower accumulation of wealth, coupled with rising interest rates that increase the cost of tapping that wealth, could soon begin to curtail the pace of U.S. consumer spending growth. Just as there has been a positive wealth effect from soaring home prices in recent years, the concern is that an end to the housing boom could result in a slowdown in consumer spending growth. However, it is important to keep in mind that such an outcome would likely play out over several years, as happened during the boom.

Today's AP business story, More People Tap 401(k) Accounts for Cash: More Americans Tap Retirement Accounts to Make Ends Meet is clear indication that consumer debt and lack of saving are hitting home.

The FDIC analysis notes that the fate of the banking system is not directly tied to the economy. On the positive side:

The first half of this decade provides another example of how the fortunes of the banking industry need not directly follow the performance of the U.S. economy. During and just after the 2001 recession, the U.S. economy experienced the loss of trillions of dollars in stock market wealth and the failure of hundreds of publicly traded companies, including Enron and WorldCom. Associated with this corporate turmoil was a significant credit event for large banks that had made loans to corporate borrowers. Between 2000 and 2002, the annual loan loss provisions for FDIC-insured institutions rose by $18 billion—a 61 percent increase. Meanwhile, job growth recovered very slowly, with payroll employment not reaching its pre-recession level until early 2005. Despite this adversity, FDIC-insured institutions posted record earnings every year between 2001 and 2005.

However, the part of this analysis that bears most directly upon current circumstances is excerpted below, my emphasis.

Historically, the fortunes of the banking business have varied with economic cycles, but the worst of times in recent memory were not predominantly the result of recession. During the roundtable discussion, FDIC Chief Economist Richard Brown pointed out that, as one would expect, loan growth tends to decline and charge-offs tend to rise during recessions. Even so, the industry has seen its biggest swings outside of the U.S. business cycle. As an example, Mr. Brown pointed to the “100-year flood” of losses in the banking and thrift industries, or the failure of over 2,500 federally-insured banks and thrifts between 1980 and 1993.

[The chart to the left] shows that while there have been increases in bank failures during and immediately after recessions, these increases are dwarfed by the episodic surge in failures between 1980 and 1993. This wave of failures took place during a period that included two U.S. recessions and a seven-and-a-half-year economic expansion. During this period, according to Brown, the U.S. economy experienced a rolling regional recession that moved from the farm belt to the oil patch to the Northeast to Southern California. This rolling regional recession featured some significant regional boom and bust cycles in real estate. These real estate busts were partly due to the 1986 amendment to federal tax laws on real estate investments. This tax policy change essentially dampened demand for commercial real estate investment and put downward pressure on real estate prices. Poor risk management practices and fraud also were common factors in the episodic wave of bank and thrift failures. The lesson of this episode appears to be that the business cycle is not necessarily the dominant factor in explaining banking industry performance—and failures, in particular—in the modern period.

My read is that the combination of household and consumer retrenchment, so-called business cycle recession, and falling real estate prices following an extended period of poor risk management and widespread fraudulent lending activity are the antecedents for another "100 year flood" for the banking system. The banking system did well through the last recession due to ability of the banks to take advantage of monetary policy.

Part of the reason that the banking industry has been able to produce such strong financial results amid economic adversity was the response of monetary policy to the recession itself. Between 2000 and 2002—as the corporate credit event was boosting the industry’s provision expenses—low nominal interest rates and a steep yield curve were helping to boost net interest income by some $33 billion, while the industry was also able to realize gains on the sale of securities of $11 billion. These offsetting factors were more than double the increase in credit losses.

The analysis raises two key questions. One, can the banking system escape the 100 year flood without a massive spike in the number of bank failures as occurred in the late 1980s and early 1990s? Two, banks survived the last recession due to monetary policy – low interest rates – and support from the endogenous credit system, that is, the invention and sale of securitized loan products. How can monetary policy and the endogenous credit system work to support the banking system this time?

I expect state based credit creation will continue to expand to compensate for dysfunction that is spreading across the credit market. More and more real estate and other loans and assets will move from the private sector's to the federal government's and Fed's balance sheet. The distinction between this development and the nationalization of the U.S. banking system will be largely semantic.

iTulip Select: The Investment Thesis for the Next Cycle™
__________________________________________________
For the safest, lowest cost way to buy and trade gold, see The Bullionvault

To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List

Copyright © iTulip, Inc. 1998 - 2007 All Rights Reserved

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer

[jk]

Re: Dehydrated Banks: Just Add Water

a few scattered comments on a nice analysis:

The personal savings rate may turn out to be a bit of a statistical anachronism in an economy where so much spending is driven by the accumulation of wealth rather than current income. Even so, home prices will not boom forever. Even a moderation in home-price growth would reduce the amount of new home equity added to the economy each year. This slower accumulation of wealth, coupled with rising interest rates that increase the cost of tapping that wealth, could soon begin to curtail the pace of U.S. consumer spending growth. Just as there has been a positive wealth effect from soaring home prices in recent years, the concern is that an end to the housing boom could result in a slowdown in consumer spending growth. However, it is important to keep in mind that such an outcome would likely play out over several years, as happened during the boom.

i am still disturbed by the misuse of the word "wealth" to mean asset inflation. yes, a house, for example, is a form of wealth - a long-lived asset that provides a valuable service - shelter. but if its market price rises it provides no more shelter than the year before. it is pure money illusion. i hope someday our society refinds solid ground in its notions of wealth.

During and just after the 2001 recession, the U.S. economy experienced the loss of trillions of dollars in stock market wealth and the failure of hundreds of publicly traded companies, including Enron and WorldCom. Associated with this corporate turmoil was a significant credit event for large banks that had made loans to corporate borrowers. Between 2000 and 2002, the annual loan loss provisions for FDIC-insured institutions rose by $18 billion—a 61 percent increase.

don't these numbers, from just 6-8 years ago, seem quaint! imagine getting worked up over losses spread over the whole banking system of only $18 billion spread over 2 years! nowadays, with our modern financial know-how, you could get a bank or two writing off an amount like that on a sunny afternoon. $18billion "a significant credit event"? those ancients of 2000-2002 had no conception of modern finance, did they?

More and more real estate and other loans and assets will move from the private sector's to the federal government's and Fed's balance sheet. The distinction between this development and the nationalization of the U.S. banking system will be largely semantic.

if appears that the government may move the paper onto its own books in some fashion, thus becoming the buyer of last resort, or perhaps "dump," for the banking system instead of nationalizing the banks themselves.

[GRG55]

Re: Dehydrated Banks: Just Add Water

...if appears that the government may move the paper onto its own books in some fashion, thus becoming the buyer of last resort, or perhaps "dump," for the banking system instead of nationalizing the banks themselves.

Sounds like what's already happening to America's medical care system. As more citizens find themselves without employer sponsored coverage (hello GM & Ford), and aging Boomers ramp up demand on the system, the government steps in to assist with prescriptions and (the now popular campaign pledge) "affordable health care". Could the US start to emulate the single payer system of its northern neighbour?

[Jim Nickerson]

Re: Dehydrated Banks: Just Add Water

Sounds like what's already happening to America's medical care system. As more citizens find themselves without employer sponsored coverage (hello GM & Ford), and aging Boomers ramp up demand on the system, the government steps in to assist with prescriptions and (the now popular campaign pledge) "affordable health care". Could the US start to emulate the single payer system of its northern neighbour?

It needs to a decade ago or probably even further back. Lobbyist will prevail for providers, drug companies, device makers, insurers and for-profit hospitals.

[Chief Tomahawk]

Re: Dehydrated Banks: Just Add Water

Question:

I'm new, but visited the Itulip site for about a year-and-a-half before subscribing.

It seems to me there were a lot more (well, more frequent) article postings w/ commentary in the left-hand column and more Eric Janzen pieces in the center column a few months ago than there are now. Am I missing something?

Thanks.

[FRED]

Re: Dehydrated Banks: Just Add Water

Question:

I'm new, but visited the Itulip site for about a year-and-a-half before subscribing.

It seems to me there were a lot more (well, more frequent) article postings w/ commentary in the left-hand column and more Eric Janzen pieces in the center column a few months ago than there are now. Am I missing something?

Thanks.

Your observation is accurate. Since the Harper's article came out a month ago, EJ has been tied up in interviews, travel, writing book proposals for publishers who approached him, and so on. That's winding down. Frequency of new articles should pick up again next week. Thanks for your patience.

[donalds]

Re: Dehydrated Banks: Just Add Water

Quoting the WSJ: "The huge role Fannie and Freddie play in the mortgage market has grown even bigger since mid-2007, when other investors took fright and virtually stopped buying home loans other than those guaranteed by Fannie and Freddie or insured by the Federal Housing Administration. Meanwhile, another set of government-sponsored institutions -- the 12 regional Federal Home Loan Banks -- have stepped up their lending to mortgage companies cut off from other sources of funds."

http://online.wsj.com/article/SB1203...googlenews_wsj

The news story then goes on to say:
"Fannie and Freddie acquire home loans and hold them as investments or bundle them into securities held by other investors. They collect fees for guaranteeing payments on those so-called securitized loans -- and take a hit when lots of homeowners default. Though Fannie and Freddie are owned by private shareholders, the companies were created by Congress to help ensure a steady flow of money into housing. Investors assume the government would bail them out in a crisis."

Understanding nationalization to mean government control, the above would not suggest nationalization. Am I correct in understanding that your description/analysis equates the above description with nationalization? If I am correct, then I would conclude that what you describe as nationalization really isn't nationalization. Perhaps you are using using the equation rather loosely, more figuratively.

In any case, I suspect these real or quasi-government agencies will fail in arresting the housing crisis and then by extension the debt crisis. If this then turns out to be the case, then nationalization as you have used it here will too have failed.

If I am correct, where then will this lead us? What might be the result/outcome of said failure?

[FRED]

Re: Dehydrated Banks: Just Add Water

Quoting the WSJ: "The huge role Fannie and Freddie play in the mortgage market has grown even bigger since mid-2007, when other investors took fright and virtually stopped buying home loans other than those guaranteed by Fannie and Freddie or insured by the Federal Housing Administration. Meanwhile, another set of government-sponsored institutions -- the 12 regional Federal Home Loan Banks -- have stepped up their lending to mortgage companies cut off from other sources of funds."

http://online.wsj.com/article/SB1203...googlenews_wsj

The news story then goes on to say:
"Fannie and Freddie acquire home loans and hold them as investments or bundle them into securities held by other investors. They collect fees for guaranteeing payments on those so-called securitized loans -- and take a hit when lots of homeowners default. Though Fannie and Freddie are owned by private shareholders, the companies were created by Congress to help ensure a steady flow of money into housing. Investors assume the government would bail them out in a crisis."

Understanding nationalization to mean government control, the above would not suggest nationalization. Am I correct in understanding that your description/analysis equates the above description with nationalization? If I am correct, then I would conclude that what you describe as nationalization really isn't nationalization. Perhaps you are using using the equation rather loosely, more figuratively.

In any case, I suspect these real or quasi-government agencies will fail in arresting the housing crisis and then by extension the debt crisis. If this then turns out to be the case, then nationalization as you have used it here will too have failed.

If I am correct, where then will this lead us? What might be the result/outcome of said failure?

Our point is that US banks are in the situation similar to Japan's banks in 1990, that the situation is not the US in 1930s or late 1980s, that is, the banks impacted are too big to fail so they will not be allowed to. The Bank of Japan purchased stocks that were loan collateral to support prices in order to avert outright nationalization. Similarly, entities of the US government have committed to holding loan collateral on their books if necessary and in some cases the assets directly.

You are correct that nationalization strictly speaking refers to the event of a private bank coming under direct ownership by a government entity. We are saying that if a private bank's assets are guaranteed or held by government the distinction between nationalization and dependency on government support is, from the standpoint of taxpayer liability, precious.

[jk]

Re: Dehydrated Banks: Just Add Water

Quoting the WSJ: "The huge role Fannie and Freddie play in the mortgage market has grown even bigger since mid-2007, when other investors took fright and virtually stopped buying home loans other than those guaranteed by Fannie and Freddie or insured by the Federal Housing Administration. Meanwhile, another set of government-sponsored institutions -- the 12 regional Federal Home Loan Banks -- have stepped up their lending to mortgage companies cut off from other sources of funds."

http://online.wsj.com/article/SB1203...googlenews_wsj

The news story then goes on to say:
"Fannie and Freddie acquire home loans and hold them as investments or bundle them into securities held by other investors. They collect fees for guaranteeing payments on those so-called securitized loans -- and take a hit when lots of homeowners default. Though Fannie and Freddie are owned by private shareholders, the companies were created by Congress to help ensure a steady flow of money into housing. Investors assume the government would bail them out in a crisis."

{snip}

In any case, I suspect these real or quasi-government agencies will fail in arresting the housing crisis and then by extension the debt crisis. If this then turns out to be the case, then nationalization as you have used it here will too have failed.

If I am correct, where then will this lead us? What might be the result/outcome of said failure?

the federal home loan banks operate differently from the gse's. iirc they are just loaning big bucks to, e.g, countrywide bank et al. i think the take away here is that the banks are kept liquid and are helped enough to avoid having to sell paper into a no-bid market. this stretches out the process so that the paper can be held long enough to default [or not] over a prolonged period, instead of all being marked down at once.

according the ny times [yesterday on line] in the meantime, the expansion of gse guarantees to jumbos is leading to a new wave of refi's which will help cash flows for those creditworthy homeowners now holding jumbos at higher rates. the example given was someone now paying about 4700/mo whose payment would decrease by about $470/month. [every little bit helps.]

[donalds]

Re: Dehydrated Banks: Just Add Water

Fred, you state:

"You are correct that nationalization strictly speaking refers to the event of a private bank coming under direct ownership by a government entity. We are saying that if a private bank's assets are guaranteed or held by government the distinction between nationalization and dependency on government support is, from the standpoint of taxpayer liability, precious."

I agree with this. So, concluding from this, what EJ is referring to when he speaks of "nationalization" is not really nationalization, but instead he is referring to "taxpayer liability". So why call it nationalization when it is not?

Should he in the future run with this faulty notion of nationalization, then he is doing a disservice to his readers, for doing so is more than just a matter of semantics, but is to perpetuate a fallacy.

[jk]

Re: Dehydrated Banks: Just Add Water

Fred, you state:

"You are correct that nationalization strictly speaking refers to the event of a private bank coming under direct ownership by a government entity. We are saying that if a private bank's assets are guaranteed or held by government the distinction between nationalization and dependency on government support is, from the standpoint of taxpayer liability, precious."

I agree with this. So, concluding from this, what EJ is referring to when he speaks of "nationalization" is not really nationalization, but instead he is referring to "taxpayer liability". So why call it nationalization when it is not?

Should he in the future run with this faulty notion of nationalization, then he is doing a disservice to his readers, for doing so is more than just a matter of semantics, but is to perpetuate a fallacy.

specificity and clarity is always valuable. but part of what's going on is the masking of "reality" - the cpi does NOT measure inflation, real gdp is NOT real, and the relationship of government to the financial system will be couched in free-market language, while behind the scenes the fed et al provides life support. so, in a literal sense "nationalization" is incorrect, yet it captures some of the flavor of what's happening.

i used to have an interest in the soviet union, when there was a soviet union. academic analysts discussed a "circular flow of power," in which the central committee picked the politburo, and the politburo nominated new members to the central committee. it's the first thing i thought of when trying to conceptualize the relationship between the fire economy, its funding of both political parties, the appointments to the fed and treasury, and the interventions [or lack thereof] of the federal agencies - the fed, the treasury, the federal home loan banks, the sec, the futures board, etc. this is not to say that i think we live in a one party dictatorship; we don't. but we need a way to conceptualize what's happening, and i don't think we have a good analysis with a developed vocabulary to describe things precisely. thus, "nationalization," loosely used and acknowledged as loosely used, will do.

[donalds]

Re: Dehydrated Banks: Just Add Water

JK says:

"i think the take away here is that the banks are kept liquid and are helped enough to avoid having to sell paper into a no-bid market. this stretches out the process so that the paper can be held long enough to default [or not] over a prolonged period, instead of all being marked down at once."

Fine. No argument here. But this is NOT nationalization. So my argument holds.

Unless I'm mistaken, the entire iTulip thesis of reinflation and the infrastructure/alternative energy boom rests on government taxpayer subsidized fiscal injections (aside from, and presumably more significant than, Fed rate cutting and dollar weakening) which in more extreme cases might take the form of nationalization(?).

OK. No harm in promoting ideas and predictions. But . . . as I've said before, no analysis siting sources/studies/documentation/data to support the assertion of reflation leading to this boom have been provided. So far, it is only speculation. Being clever ain't good enough, for without empirical support, the thesis is grounded on ideas/predictions and nothing more.

Somewhere there must be a methodology from which the ideas/prediction is based, one which is supported by empirical analysis. If not, then no methodology exists and we're left with nothing short of pure, thin air, speculation.

[jk]

Re: Dehydrated Banks: Just Add Water

JK says:

"i think the take away here is that the banks are kept liquid and are helped enough to avoid having to sell paper into a no-bid market. this stretches out the process so that the paper can be held long enough to default [or not] over a prolonged period, instead of all being marked down at once."

Fine. No argument here. But this is NOT nationalization. So my argument holds.

Unless I'm mistaken, the entire iTulip thesis of reinflation and the infrastructure/alternative energy boom rests on government taxpayer subsidized fiscal injections (aside from, and presumably more significant than, Fed rate cutting and dollar weakening) which in more extreme cases might take the form of nationalization(?).

OK. No harm in promoting ideas and predictions. But . . . as I've said before, no analysis siting sources/studies/documentation/data to support the assertion of reflation leading to this boom have been provided. So far, it is only speculation. Being clever ain't good enough, for without empirical support, the thesis is grounded on ideas/predictions and nothing more.

Somewhere there must be a methodology from which the ideas/prediction is based, one which is supported by empirical analysis. If not, then no methodology exists and we're left with nothing short of pure, thin air, speculation.

do a search on bill's posts ["bill"] to find some material supporting the infrastructure hypothesis. but of course, you're correct that itulip is developing hypotheses which have yet to be proven. part of the purpose of these ongoing discussion is to monitor developments and share "sightings" that support or disconfirm our hypotheses.

[donalds]

Re: Dehydrated Banks: Just Add Water

Jk says:

"so, in a literal sense "nationalization" is incorrect, yet it captures some of the flavor of what's happening."

". . . we have a good analysis with a developed vocabulary to describe things precisely. thus, "nationalization," loosely used and acknowledged as loosely used, will do."

Lets see if I'm getting this. In order to capture "some of the flavor of what's happening", one has developed a precise vocabulary using a term loosely, meaning here using a term incorrectly. Doesn't sound very precise to me. I expect politicians to take license with such careless abandon, but I would not presume the same of iTulip. Should I from here on?

I don't mean here to be a trouble maker, and I very much appreciate iTulip's insights and historical breath, even where I disagree. My intent here is to prod, and in this discussion flesh out this notion of nationalization. In doing so, perhaps I have demonstrated obvious weakness in the analysis. Lesson: tighten up the terminology, or risk undercutting the basis for your assertions.

[Chief Tomahawk]

Re: Dehydrated Banks: Just Add Water

Thanks, Fred.