Not So Silly After All

A few weeks back I wrote a post on the situation in the EU and how, for once in my life, I nailed it in terms of predictions. That is not why I am linking that post.

http://financialspiltmilk.blogspot.com/2010/04/tootin-my-own-horn.html

At the very end of the post I posited what I called a "silly" proposition of a worldwide declaration that all debt - both public and private - is cancelled. It is still obviously a silly idea, but perhaps not as silly as I thought at the time. Some folks are noting that the best way out of our debt doldrums may well be default. Wipe the slate clean and start over instead of years or decades of digging out. In the linked post the author notes, as many have of late, that jingle mail, bankruptcy and they like may not be the worst alternative. Now as an attorney I am certainly not advising anyone to do anything. You need some serious counsel before doing any of this as there are financial, credit and TAX consequences to some of them you may not expect. Nonetheless, the prospect of a few years of credit rating pain versus many years of suffering under massive debt is something that many folks I am sure are considering.

http://www.nakedcapitalism.com/2010/06/guest-post-default-please.html

And little did I know but Christian societies many centuries back had a debt Jubilee every 30 years, apparently doing what I suggested, erasing all debt. Now I still think the idea is a bit silly but I can guarantee you folks in the EU are starting to consider some silly alternatives.

Wait - All is Well on the Western Front

Before you run off and consider bankruptcy or jingle mail, think again. Analysts - 2000 of them in the aggregate - think we have some good times ahead. Indeed, they think the S&P will gain 27% over the next year. That is incredible!!! Now I define incredible as being something that is not credible, but you can reach your own conclusion.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aD8QSy9AdOtc&pos=10

And all this gain must be in part due to the financial institutions being more sound. Banks are, after all, more sound in terms capital, profit, reserves and everything else - right? Well, think again. It seems some of this may be accounting slight of hand, all signed off on by government powers that be.

http://www.nakedcapitalism.com/2010/05/economist-declares-mission-accomplished-on-repairing-bank-balance-sheets.html

If you do not believe accounting is hiding some weakness, consider the fact that we are up to 78 banks failing this year and being taken over by the FDIC, five last Friday alone.

http://www.calculatedriskblog.com/2010/05/bank-failure-78-sun-west-bank-las-vegas.html

And the FDIC list of problem banks is getting much worse rather quickly. It went from 737 to 762 in the past week. Go figure.

http://www.calculatedriskblog.com/2010/05/unofficial-problem-bank-list-increases.html

Disclosures: None.