Just some quick links for Friday.
Nouriel Roubini talks about the generalized run on the financial system, as maturity matching is "turned off", the quantity of money is shrinking, and long term debt is valued at its true, stable, market price (which is much lower than the term transformed unstable market price). Many smart economists, such as Megan McArdle, think term transformation is a good idea. I think it is the Shiva that will, ultimately, unseat the current global financial system. Borrowing short to lend long is inherently unstable.
For more thoughts on the instability of term transformation, I point you to this grim post by Mencius Moldbug on why term transformation is bad, and where this generalized run will end up. To those who don't think FDIC insured banking is equivelent to holding deposits in a vault, and borrowing directly from the Government, I refer you to Recent Events.
And finally, one possible end game which is so ludicrous and mad, that I shall say no more about it here, nor ever refer to, or link to it again.
- Housekeeping note
My ancient custom Blogger template stopped being compatible with the system sometime in late '06, so archives and permalinks stopped working. Also the email list has been defunct for a while, and needs to move entirely to an RSS system. I'm working to move all posts over to a new system while not losing anything. Fingers crossed.
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