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Saturday 11 July 2009

Government Bets on Positive Spin to Save Failing Banks

Reading - Government Bets on Positive Spin to Save Failing Banks http://bit.ly/anSRO

Just when you thought the U.S. banking system had regained its footing, the reality is that a carefully woven federal-government PR campaign may actually be masking the next phase of the worst financial crisis since the Great Depression.

Indeed, it's what's just out of sight that has some analysts and economists scared to death.

To rebuild public confidence in America's ailing banks the government has greased the system's liquidity wheels, directly injected capital, backstopped and guaranteed loan facilities, lowered banks' cost of funds, changed accounting rules to make balance sheets look better, bestowed passing grades on high profile stress tests and then allowed the propped-up (but still not healthy) banks to pay back government loans.

Analysts and economists question whether this race to instill confidence will outpace rising unemployment and lagging economic data, or will trigger the next phase of the global financial crisis if shaky banks end up snapping borrower lifelines.

The big confidence game began with a single "relief" program. Now, many of the titanic banking system's torpedoed institutions are remaining afloat only because of some rescue programs developed by the U.S. Federal Reserve and U.S. Treasury Department. Deemed absolutely necessary to prevent total financial collapse at the time of their hasty implementation, the legacy of these programs will be their indiscriminate reinforcement of weak links in the banking system and the acceptance of moral hazard. The Trouble With TARP

The granddaddy of all these rescue plans - the Troubled Asset Relief Program, or TARP - is a $700 billion program that was originally designed on fewer than four pages, and that was sold to Congress as a plan to buy toxic assets from sick banks.

That never happened.

continue reading - http://www.globalresearch.ca/index.php?context=va&aid=14311

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