An interview in Bloomberg
shows why the bailouts won't work:
As details of Treasury Secretary Henry Paulson's plan to
revive the U.S. financial system by pumping as much as $700 billion
into the markets emerged Sept. 19, bond investor Michael Cheah was
reminded of Japan.
When that country's real estate bubble burst, leaving a trail of bad
real estate loans, officials flooded
the economy with cash only to see banks hoard the money instead of
lending it out. The result has been a series of recessions
and persistent deflation for more than a decade.
"Although the government tried to debase the yen by printing a lot
of government bonds, the economy went into a standstill,'' said Cheah,
an official at the Monetary Authority of Singapore from 1991 to 1999
who manages $2 billion at AIG SunAmerica Asset Management in Jersey
City, New Jersey. "The banks used
the money to buy safety. I see a repeat happening here. The banks
will use it to buy Treasuries.''
We already know that Wall Street firms have used fed cash to speculate
or to buy failing competitors. As the economic crash gets worse, they
may just park it in treasuries to try to save their own hides.
Either way, they probably won't use it to keep the system from freezing
up and "liquid" or to extend credit to consumers or businesses.