"Free-fall"

The September bank almost-collapse came and went, so we continue to suppose that the threat of a 1929-style bank run has been averted. But have we really lept successfully over the yawning crevasse? Or is a pre-Depression monetary implosion still an active danger? Growth in the U.S. was down 3.8% for the last quarter of 2008, which as economists never tire of telling us is a total disaster. Given the steadily increasing workforce, even a figure around zero is bad news.

But that’s nothing compared to the -6.0% collapse in the Eurozone including a -8.0% implosion for Germany, a -12% bellyflopper in Japan or the -20% tanking in Korea. ‘Doctor Doom’ Roubini now says the global economy is ‘in free fall as the contraction of consumption, capital spending, residential investment, production, employment, exports and imports is accelerating rather than decelerating’.

The timidity of the Obama Administration’s response and its conservative intuition is disappointing given that time may be short. There is more than ample political cover for the federal government to put Bank of America and Citigroup out of their misery as the FDIC does with increasing regularity when it discovers local ‘thrifts’ are insolvent. Republican objections are mere static at this point, and the temporary nationalization would attract broad support as a show of determination to clean out the fetid stables at a blow and get the financial system back on its feet.

Instead, we get Friedmanite bleating from Geithner and the White House press office about the sanctity of the ‘private sector’, a definition of which would be interesting to hear these days given the Federal Reserve’s rapid expansion into a financial supernova.

It sure looks to this lay observer that nationalization will happen anyway, probably when the final investor abandonment means there’s no residual share value left to wipe out. Would be a shame to see the new team look as hapless and reactive as the one’s we kicked out.

Meanwhile, the streets of New York are displaying a curious phenomenon: as the WaMu and Wachovia branches close down and disappear, previously unheard-of banks with names like Smithfield and TA or something (their logo is indecipherable) are popping up. They sound like mom-and-pop operations from remote Appalachian outposts. As the giants crumble into dust, these modest but solvent operations may be moving into prime deposit-capturing territory and changing the face of our erstwhile dominant and domineering industry.