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OPINION

Against the tide: From villains to saviours: the big bank scam

The big banks’ Mlec fund might well unblock the present credit log jam. But there’s no escaping the fact that global liquidity has contracted and capital is being repriced upwards.

The plan of the big US money centre banks

to set up a fund to buy mortgage-backed

securities from hedge funds and bank conduits

aims to relieve the log jam in credit markets.

But it is also a scam to get the banks out of a

mess of their own creation.

 

It might work and free up credit markets.

But it won’t reverse the contraction of global

liquidity and the rising cost of capital in the

longer term. We are set for slower liquidity

growth, providing little room for further asset

price inflation (whether in equities, emerging

markets or commodities).

“Put more than one capitalist in a room and

what you get is not competition, but conspiracy

to defraud the public” – to paraphrase Adam

Smith. The latest attempt by the world’s mega

banks is a neat example of such a situation.

The very villains who created the mess have

now turned saints who want to save the

world from a folly that is of their own making.

They are putting together a $75 billion fund,

the Orwellian-sounding master (!) liquidity

enhancement conduit, or Mlec.

Mlec might relieve the log jam of lousy bank

assets in special purpose vehicles and the overleveraged

state of the asset-backed commercial

paper market. But the real purpose is to save

the skins of the very idiots who, together with

irresponsible central bankers, danced the

wild fandango and now hope to live to dance

another day.

In

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