Whose Insured Deposits Will Be Plundered Next?

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According to Zero Hedge, it could be Spain:

 Spain, it would appear, has changed constitutional rules to enable a so-called ‘moderate’ levy on deposits.

New legislation in New Zealand suggests that depositor funds could be used to bail out banks there, too.

Far more worrying for American and British depositors though is this paragraph Golem XIV brings up from a joint Bank of England and FDIC paper from 2012 which points to the possibility of using deposit insurance funds to bail out illiquid banks:

The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors.

Of course, if deposit insurance money is used as a resolution tool to bail out a bank which then goes on to fail anyway (as we have already seen multiple times since 2008 — a bank receives a large liquidity injection, and goes onto fail anyway) depositors could end up moneyless.

As Golem XIV notes:

The new system makes the Deposit Guarantee fund available for use as bail out money.

The rationale is that if using your deposit guarantee fund for propping up the bank ‘saves’ the bank from collapse then you wouldn’t need that deposit guarantee would you? This overlooks the one lesson we have all learned from the bank bail outs of the last 5 years, that the bail outs are never, ever, ever, a one off. The first one fails to save the bank as does the second and third and and and.

So if I have read the above correctly – the new system raids the Deposit Protection scheme, gives it to the bank instead of you  and when that fails to save the bank…then what? The bank fails again and there is no money left in the Deposit Guarantee scheme.

Now, in the case of this kind of scenario actually happening, it seems probable that governments and central banks would try to replenish the deposit insurance fund. Whether the fund would be replenished to its full extent, or whether insured depositors would suffer an effective haircut remains to be seen.

These kinds of policy suggestions coming from governments and central banks are extremely worrying for depositors, because it implies that what is happening to Cypriot depositors and Cypriot banks could be forced onto British and American depositors. In a worst-case-scenario, criminally minded bankers (of which there seem to be many) could even use this provision to intentionally run off with deposits.

We know that the TBTF banking sector (or G-SIFI’s — global systemically important financial institutions — as they are now known) remains fragile, over-connected and dependent on insider advantages. That means that over the next few years, it remains possible that there could be another severe banking crisis in Britain or America or both.

Just what in the world do financial regulators think they are doing even implying that depositor guarantee funds could be used to bail out banks under such an eventuality? Such a recommendation — and the attendant possibility of insured depositor haircuts — could severely impact confidence in the banking sector, just as it has done in Cyprus. The possibility that insurance money may go down the toilet to bail out illiquid banks will make some uneasy to invest their money in the banks. If a severe banking crisis looms, it could lead to bank runs, just as is happening in Cyprus. The trend, if events in Cyprus and Europe continue to escalate, and if other jurisdictions do not take steps to protect depositors from banker greed, is toward depositors losing faith in the banking system, and seeking other stores of purchasing power — mattress stuffing, bitcoin, tangibles.

Essentially, if there is to be any confidence in the banking system, the possibility of depleting liquidity insurance funds to bail out banks needs to be taken off the table completely. The possibility of insured depositor haircuts needs to be taken off the table completely. If banks need bailing out, the money must not come from insured depositors, or funds designed to compensate insured depositors. If banks fail, the losers should be the uninsured creditors.

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Save Our Bonuses!

With the British economy in a worse depression than the 1930s , bank lending to businesses severely depressed, and unemployment still high, a sane finance minister’s main concern might be resuscitating growth.

Prime Minister David Cameron And Chancellor George Osborne Ahead Of A Critical Week At The Leveson Inquiry

George Osborne’s main concern, however, are the poor suffering bankers:

Chancellor George Osborne flies to Brussels later determined to water down the European Parliament’s proposals to curb bankers’ bonuses.

But EU finance minsters in the Economic and Financial Affairs Council (Ecofin) are expected to approve last week’s proposals.

They include limiting bonuses to 100% of a banker’s annual salary, or to 200% if shareholders approve.

The City of London fears the rules will drive away talent and restrict growth.

Mayor of London Boris Johnson has dismissed the idea as “self-defeating”. London is the EU’s largest financial centre.

On Monday, a spokesman for Prime Minister David Cameron said: “We continue to have real concerns on the proposals. We are in discussions with other member states.”

But Mr Osborne’s bargaining power may be weakened further by Switzerland’s recent decision to cap bonuses paid to bankers and give shareholders binding powers over executive pay.

Now, I couldn’t care less about bonuses or pay in a free industry where success and failure are determined meritocratically. It is none of my business. If a successful business wants to pay its employees bonuses, then that is that business’s prerogative. If it wants to pay such huge bonuses that it puts itself out of business, then that is that business’s prerogative.

But the British financial sector is the diametrical opposite of a successful industry. It is a forlorn bowlegged blithering misshapen mess. The banks were bailed out by the taxpayer. They do not exist on the merits of their own behaviour. Two of the biggest are still owned by the taxpayer.  So I — as a taxpayer and as a British citizen — have an inherent personal interest in the behaviour of these banks and their employees.

In an ideal world, I would have let the banks go to the wall. The fact that the financial system is still on life support almost five years after the crisis began tells a great story. It’s not just that I don’t believe in bailing out failed and fragile corporations (although I do believe that this is immoral cronyism). The excessive interconnectivity built up over years prior to the crisis means that the pre-existing financial structure is extremely fragile. Sooner or later, without dismantling the fragilities (something that patently has not happened, as the global financial system today is as big and corrupt and interconnective as ever), the system will break again. (Obviously in a no-bank-bailout world, other action would have been required. Once the financial system had been allowed to fail, depositors would have to be bailed out, and a new financial system would have to be seeded and capitalised.)

But we do not live in an ideal world. We have inherited a broken system where the bankers (and not solely the ones whose banks are owned by the taxpayer — all banks benefit from the implicit liquidity guarantees of central banks) are living on taxpayer largesse. That gives the taxpayer the right to dictate terms to the banking sector.

Unfortunately, this measure (like many such measures dreamed up arbitrarily by bureaucrats) is rather pointless as it can be so very easily gamed by inflating salaries. And it will do nothing to address financial sustainability, as it does not address the problem that led to the 2008 liquidity panic — excessive balance sheet interconnectivity (much less the broader problems of moral hazard, ponzification, and the current weakened lending conditions).

But, if it is a step toward a Glass-Steagall-style separation of retail and investment banking — a solution which would actually address a real problem, and one advocated in the Vickers report — then perhaps that is a good thing. Certainly, it is not worth picking a fight over. The only priority Osborne should have right now is creating conditions in which the private sector can grow sustainably. Unlimiting the bonuses of the High Priests of High Finance has nothing whatever to do with that.

Horsemeat Economics

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The British (and now Europe-wide) scandal of corporations selling horse meat as beef is emblematic of many of the problems with big, unwieldy systems.

The similarity between horse meat and subprime has already been noted in a Financial Times editorial:

The food industry has long known that processed meat is susceptible to fraud. While it is relatively easy to verify whole cuts of meat taken from a carcass, this is not the case for the bits left behind. These are gathered up and shipped out to thousands of outlets for processing into lower-value products. In Britain, monitoring this industry is left to local authorities and the retailers themselves.

Yet this surveillance has become virtually impossible in the modern world of food production. Consumers want ever lower prices. But food margins are already wafer thin. The drive to cut costs has sent retailers scouting for cheaper suppliers in far-flung parts of the world. Supply chains have become vast and unwieldy. And internet tenders drive prices down even further.

This has brought big benefits to consumers who until recently enjoyed consistently falling prices. But in a disturbing parallel to the financial sector’s subprime crisis, the growing distance between supermarkets and their suppliers has also opened the door to fraud on a scale that as yet can only be guessed at. The meat used in these products now travels across multiple borders and through myriad companies. Regulators do not have the resources to keep up. Only those who buy the processed products and sell them under their own brands can apply the pressure that will limit chances for fraud.

Just as with subprime, complicated, impersonal systems have bred fraud. Once upon a time, banks were impelled to lend responsibly, because if they did not their balance sheets would become filled with trash, and they would face bankruptcy. Then they discovered that they could pull a ruse — lend irresponsibly, and pass off the risk to someone else. Purchasers of subprime mortgage-backed securities thought they were buying a AAA grade product, as that is what ratings agencies passed them off as being. But it turns out they were just buying unsustainable trash. It is, of course, possible that the subprime crisis could have been avoided had the price of oil and other commodities not risen so steeply and precipitously, squeezing consumers’ budgets.

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But sooner or later, the banks’ irresponsibility would have come home to roost, and the ruse would have collapsed. If it hadn’t been ballooning commodities prices, it would have been something else.

Similarly, in an equally sprawling and disconnected system — the global food supply chain — anonymity has bred irresponsibility once again. Retailers claim to have been misled. Meat processors and food manufacturers claim to have been misled too. But somewhere along the line, someone is lying. Someone, at some point decided that horse was a cheaper alternative to beef, someone tested it for taste, to affirm that it would be taken as an acceptable substitute. And someone decided that horse would enter the food chain, and that consumers could be fooled into thinking that it was beef. Would that be possible with a local butcher? Would it be possible for unwanted substances to penetrate the food chain if the supply chain was much shorter?

Maybe, but there are strong disincentives. With a shorter supply chain, it is not so easy to pass off the blame to someone else. If a local British butcher decides to substitute horse for beef, it would be more easily discoverable than if a sprawling multinational — whose abattoirs are located in Romania or Cyprus, but its customers in Britain, Spain, France and Italy — decided to do so. British abattoir workers would know, and might dissent. Butchers would be able to tell the difference, and most would have a serious problem with deceiving customers who they see face to face. A supermarket that sells meals packaged in plastic containers by other companies, has no such problem with deception. Customers don’t ever get to meet the person who butchered or cooked or shipped their ready meal. This provides a barrier of anonymity. There is no immediate embarrassment in deception carried out at distance. Simply, anonymity makes deception easier, and big, complex systems create anonymity.

In 2010, The Telegraph reported on some empirical research supporting this idea:

There is a growing body of research to support the logically obvious idea that humans become increasingly dishonest as cheating becomes easier:

From finding a £50 note on the floor to being accidentally given the answers to test questions, even normally honest people can suddenly become dishonest, it found.

But they will only cheat if it does not involve any work, said the academic study for the journal Psychological and Personality Science.

In an experiment on 84 students, researchers set up a trial involving a maths test on a computer, without telling them the reasons why they were doing it.

Half the students were warned the system was not working properly. If they pressed the space bar on the keyboard the answers would come up.

The other half were told that if they did not press the enter key immediately after seeing the question, then the answer would come up.

Overall, few cheated at all. But those who did not have to press a key to cheat were almost TEN times as likely to do so, said the researchers from the University of Toronto.

They said it was because pressing a key was like ‘intentionally’ trying to cheat while those who didn’t acted as if they were cheating by accident, so they did not feel they were making an immoral choice.

In a second test, the volunteers were tested on their willingness to help a fellow student with a disability complete an exam paper.

Half were told the way to volunteer was to follow an online link, the other half simply had to click ‘yes’ or ‘no’ on the screen.

Those who had to follow the link were five times less likely to volunteer to help, because it was easier for them to get out of it than the others who had a clear choice to make.

Study author Rimma Teper said: “People are more likely to cheat and make immoral decisions when their transgressions don’t involve an explicit action.”

I am coming to believe very strongly that as this century continues, and as systemic interconnectivity and complexity increases, we will see many more horse meat and subprime style scandals exploiting the anonymity of big systems.

Meanwhile, those who do not wish to be exposed to such counterparty risk will avoid such complexity like the plague.

Of Wages and Robots

There is a popular meme going around, popularised by the likes of Tyler CowenPaul Krugman and Noah Smith that suggests that recent falls in worker compensation as a percentage of GDP is mostly due to the so-called “rise of the robots”:

For most of modern history, two-thirds of the income of most rich nations has gone to pay salaries and wages for people who work, while one-third has gone to pay dividends, capital gains, interest, rent, etc. to the people who own capital. This two-thirds/one-third division was so stable that people began to believe it would last forever. But in the past ten years, something has changed. Labor’s share of income has steadily declined, falling by several percentage points since 2000. It now sits at around 60% or lower. The fall of labor income, and the rise of capital income, has contributed to America’s growing inequality.

In past times, technological change always augmented the abilities of human beings. A worker with a machine saw was much more productive than a worker with a hand saw. The fears of “Luddites,” who tried to prevent the spread of technology out of fear of losing their jobs, proved unfounded. But that was then, and this is now. Recent technological advances in the area of computers and automation have begun to do some higher cognitive tasks – think of robots building cars, stocking groceries, doing your taxes.

Once human cognition is replaced, what else have we got? For the ultimate extreme example, imagine a robot that costs $5 to manufacture and can do everything you do, only better. You would be as obsolete as a horse.

Now, humans will never be completely replaced, like horses were. Horses have no property rights or reproductive rights, nor the intelligence to enter into contracts. There will always be something for humans to do for money. But it is quite possible that workers’ share of what society produces will continue to go down and down, as our economy becomes more and more capital-intensive.

So, does the rise of the robots really explain the stagnation of wages?

This is the picture for American workers, representing wages and salaries as a percentage of GDP:

WASCURGDP

It is certainly true that wages have fallen as a percentage of economic activity (and that corporate profits as a percentage of economic activity have risen — a favourite topic of mine).

But there are two variables to wages as a percentage of GDP. Nominal wages have actually risen, and continued to rise on a moderately steep trajectory:

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And average wages continue to climb nominally, too. What has actually happened to the wages-to-GDP ratio, is not that America’s wage bill has really fallen, but that wages have just not risen as fast as other sectors of GDP (rents, interest payments, capital gains, dividends, etc). It is not as if wages are collapsing as robots and automation (as well as other factors like job migration to the Far East) ravage the American workforce.

It is more accurate to say that there has been an outgrowth in economic activity that is not yielding wages beginning around the turn of the millennium, and coinciding with the new post-Gramm-Leach-Bliley landscape of mass financialisation and the derivatives and shadow banking megabubbles, as well the multi-trillion dollar military-industrial complex spending spree that coincided with the advent of the War on Terror. Perhaps, if we want to look at why the overwhelming majority of the new economic activity is not trickling down into wages, we should look less at robots, and more at the financial and regulatory landscape where Wall Street megabanks pay million-dollar fines for billion-dollar crimes? Perhaps we should look at a monetary policy that dumps new money solely into the financial sector and which has been shown empirically to enrich the richest few far faster than everyone else?

But let’s focus specifically on jobs. The problem with the view that this is mostly a technology shock is summed up beautifully in this tweet I received from Saifedean Ammous:

The Luddite notion that technology might render humans obsolete is as old as the wheel. And again and again, humans have found new ways to employ themselves in spite of the new technology making old professions obsolete. Agriculture was once the overwhelming mainstay of US employment. It is no more:

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This did not lead to a permanent depression and permanent and massive unemployment. True, it led to a difficult transition period, the Great Depression in the 1930s (similar in many ways, as Joe Stiglitz has pointed out, to the present day). But eventually (after a long and difficult depression) humans retrained and re-employed themselves in new avenues.

It is certainly possible that we are in a similar transition period today — manufacturing has largely been shipped overseas, and service jobs are being eliminated by improvements in efficiency and greater automation. Indeed, it may prove to be an even more difficult transition than that of the 1930s. Employment remains far below its pre-crisis peak:

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But that doesn’t mean that human beings (and their labour) are being rendered obsolete — they just need to find new employment niches in the economic landscape. As an early example, millions of people have begun to make a living online — creating content, writing code, building platforms, endorsing and advertising products, etc. As the information universe continues to grow and develop, such employment and business opportunities will probably continue to flower — just as new work opportunities (thankfully) replaced mass agriculture. Humans still have a vast array of useful attributes that cannot be automated — creativity, lateral thinking & innovation, interpersonal communication, opinions, emotions, and so on. Noah Smith’s example of a robot that “can do everything you can do” won’t exist in the foreseeable future (let alone at a cost of $5) — and any society that could master the level of technology necessary to produce such a thing would probably not need to work (at least in the sense we use the word today) at all. Until then, luckily, finding new niches is something that humans have proven very, very good at.

Bernanke’s Jobs Estimate

Ben Bernanke at Jackson Hole:

If we are willing to take as a working assumption that the effects of easier financial conditions on the economy are similar to those observed historically, then econometric models can be used to estimate the effects of LSAPs on the economy. Model simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy. For example, a study using the Board’s FRB/US model of the economy found that, as of 2012, the first two rounds of large scale asset purchases may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred.

Bernanke’s estimate of two million jobs created as a result of his policy appears to be a stitched-together estimate based on two research papers: Fuhrer which estimated a gain of 700,000 jobs from QE1, and Chung et al which estimated 1,800,000 jobs.

The methodology here is interesting, to say the least. From the (unfortunately titled) Fuhrer paper:

Given the range of estimated effects on real spending (GDP), the translation to employment effects is accomplished by use of an Okun’s Law relationship that links GDP growth and changes in the unemployment rate. The typical relationship expressed in quarterly changes is summarized as: Change in unemployment = -0.125 (GDP growth – potential GDP growth).

GDP growth for one-quarter that exceeds potential GDP growth by 1 percentage point results in a one-eighth (0.125) percentage point decline in the unemployment rate. Equivalently, quarterly growth in GDP that exceeds potential growth by 1 percentage point for a year typically lowers the unemployment rate by about one-half percentage point.

Combining this simple Okun’s Law with the estimated effects on GDP discussed in the preceding section implies a decline in the unemployment rate of 30-45 basis points over the 2-year period it takes for the spending rate change to feed through the economy. With the U.S. labor force currently at just over 150 million people, this translates to an increase of about 700,000 jobs, a figure quoted by Boston Fed President Eric Rosengren in his speech of November 17, 2010.

The number of layers of uncertainty is problematic. First we have uncertainty over the level of GDP growth provoked by QE. Second we have uncertainty as to the reliability of the measure and concept of potential GDP growth. And third we have uncertainty as to the extent of the relationship between GDP growth, potential GDP growth and unemployment in this specific case.

Essentially, the equation assumes that because GDP growth has historically resulted in job growth, we should assume it will do so in the future. But this is a very different economy to the one we had fifty years ago. Today it’s possible for the financial sector to generate profits (and thus, GDP) by passing liquidity around the financial sector. And today, any American demand boom will create jobs in China and Mexico (etc), because that’s where the industrial and manufacturing jobs have been shipped to.

So Bernanke’s figure is a guess based on a guess based on a guess based on old data. Maybe 2 million. Maybe, maybe, maybe, maybe.

How do we know that after a big, painful bust that after a short burst of deflationary pain that job growth wouldn’t have come roaring back? After all that happened multiple times in the 19th century.

Hank Paulson might claim that he saved the world from a thousand year nuclear winter by bailing out his former employer Goldman at par on its credit default swaps. You can claim anything about what might have happened otherwise. Maybe, maybe, maybe. Such claims are junk science because they are unfalsifiable.

Yet the reality is very clear — either people have jobs or they don’t. That’s what the regime will be judged on.

The present policy of tripling the monetary base via monetary easing hasn’t solved the jobs problem, because we’re still in the woods. Trillions of easing — which we can say quite confidently has enriched the financial sector far more than any other sector of the economy — and yet we still have a jobs depression (of course, financial sector profits have come roaring back). This is the prime age employment-population ratio:

Quantitative easing hasn’t been about jobs. If this was about jobs or stimulating demand, Bernanke would have aimed the helicopter drops at the wider public, as many economists have suggested. This policy of dropping cash directly to the banks is bailing out a dangerous and morally-hazardous financial sector and too-big-to-fail megabanks that remain dangerously overleveraged and under-capitalised, needing endless new liquidity just to keep past debts serviceable. There has been plenty of cash helicopter-dropped onto Wall Street, but nobody on Wall Street has gone to jail for causing the 2008 crisis. Criminal banksters get the huge liquidity injections they want, and the rest get less than crumbs.

What Would Jesus Do?

When it comes to money-changers, I think most readers will agree that Jesus had the right idea — he threw them out of the temple.

And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the money changers, and the seats of them that sold doves.

— Matthew 21:12

President Obama likes to invoke Jesus when he claims that he wants to tax the rich.

From CNN:

President Obama offered a new line of reasoning for hiking taxes on the rich on Thursday, saying at the National Prayer Breakfast that his policy proposals are shaped by his religious beliefs.

Obama said that as a person who has been “extraordinarily blessed,” he is willing to give up some of the tax breaks he enjoys because doing so makes economic, and religious sense.

“For me as a Christian, it also coincides with Jesus’s teaching that for unto whom much is given, much shall be required,” Obama said, quoting the Gospel of Luke.

Trouble is, Jesus didn’t stuff his (spiritual) administration with money-changers, like Obama has done  — over twenty of Obama’s appointees have direct ties to Goldman Sachs. Jesus wasn’t the candidate of choice of Wall Street, either — in 2008, Obama received more money Wall Street than any previous candidate in history.

Just as Jesus cast the usurious moneychangers out of the temple, so we should cast them off the teat of public support. We already know what the problem is — the great global intermeshed web of debt, derivatives and payments that, if disrupted by a default can lead to a catastrophic chain of default after default after default that not only turns the entire system illiquid, but panics markets, resulting in crashes. Too interconnected to fail, but so interconnected that one bank failure can cause vast damage elsewhere.

This is simply not in its current form a self-sustaining industry.

The sad thing is that banking is a critically important endeavour. It is very important that people with drive and ideas can get access to capital, to realise their dreams, create new products and new innovations. Right now, our financial house is built on the sand.

The Economist: “Be Afraid (Unless We Print a Lot More Money)”

While most readers of this blog will be convinced of (or at least open to) the idea that the global financial system is fundamentally broken, and either needs to fail or at the very least needs to undergo a radical transformationsome of us believe that the problem is basically a lack of demand, and that the entire solution lies in printing fuckloads of money, giving it to the people who brought us Solyndra, and hoping for the best.

From today’s issue of the Economist:

Lacking conviction and courage

In the aftermath of the Lehman crisis, policymakers broadly did the right thing. The result was not a rapid return to prosperity in the West, but after such a big balance-sheet recession that was never going to happen. Now, more often than not, policymakers seem to be getting it wrong. Their mistakes vary, but two sorts stand out. One is an overwhelming emphasis on short-term fiscal austerity over growth. Fixing that means different things in different places: Germany could loosen fiscal policy, while in Britain the reins should merely be tightened more slowly. But the collective obsession with short-term austerity across the rich world is hurting.

The second failure is one of honesty. Too many rich-world politicians have failed to tell voters the scale of the problem. In Germany, where the jobless rate is lower than in 2008, people tend to think the crisis is about lazy Greeks and Italians. Mrs Merkel needs to explain clearly that it also includes Germany’s own banks—and that Germany faces a choice between a costly solution and a ruinous one. In America the Republicans are guilty of outrageous obstructionism and misleading simplification, while Mr Obama has favoured class warfare over fiscal leadership. At a time of enormous problems, the politicians seem Lilliputian. That’s the real reason to be afraid.

The alternative view (as I have spelled out many times before) is that no amount of monetary policy without at the same time addressing the underlying real-world problems will solve the problems. Problems will just be kicked down the road, to re-emerge at a later date:

Those troubles are non-monetary — they are systemic and infrastructural: military overspending, political corruption, public indebtedness, withering infrastructure, oil dependence, deindustrialisation, the withered remains of multiple bubbles, bailout culture, the derivatives-industrial complex, and so forth. The real question is when will America tire of the slings and arrows of fortune? When will America take arms against her sea of troubles? And how long will she last on this mortal coil? To die? To sleep? For in that sleep of death what dreams may come…

Until we address the underlying problems, the market — in the long run — will keep crashing. And in the long run, we’re all dead. So that’s twice as bad. Junkiefication leads to junkification.

There was always the hope that kicking the can down the road might give us an opportunity to address those underlying problems. But it doesn’t seem like we have. Risk and leverage are greater than they were in 2008. Moral hazard is ready to rear its ugly head. The global trade structure is as fragile as ever. America is just as dependent on foreign energy and manufacturing. Deleveraging is proving costly and painful. Worst of all, many of the dangers inherent in the financial system have  now been transferred via bank bailouts to the sovereign level — like in Europe.

So no — the real reason to be afraid is not that policy-makers are not showing Bernanke’s famous Rooseveltian resolve. The real reason to be afraid is that what occurred after 2008 merely suppressed the symptoms of an underlying sickness.

They can’t. Only real reform — solving the underlying problems — can.