Tuesday, September 30, 2008

Enough with the metaphors

Megan cries uncle wrt to the metaphors swirling around the massive (and necessary) de-leveraging underway in the US. The reports on NPR this morning were excruciating, with "liquidity" "greasing the wheels" so the "cogs of business" did not "seize up". I would love for someone, anyone, to show me a cog that needs greasing. Even terms like "liquidity" and "solvency" are very hard to understand, and are used in a variety of different ways, most of which, I am sure, are wrong.

I'm going to try this rule -- any discussion of the liquidity crises needs to include an example balance sheet, so you can actually point to numbers changing. John Hussman shows how it is done here explaining why the Treasury must overpay for assets under TARP for it to do any good. While TARP 2 was more dishonest than TARP 1, TARP 1 was dishonest in that Paulson did not state plainly that his goal was to give banks money. Which he must do, and it must be, if they are insolvent. winterspeak reader Ironman created a web page for you to monkey with balance sheets of your own -- which is pretty cool -- over here. Thanks!


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