economic situation is dire

[DeepDish]

I should have been more presice: When I say everyone, I do not mean everyone in the world. I actually meant people in the western world, and mainly middle class people who are not debt free.

So seeing as you're against government debt, and against personal debt, can I therefore draw the conclusion that you think it's best that the private sector is in deficit?

We are in difficult times now when both the private and public sector has too much debt. Normally, when the private sector is deleveraging, the public sector increases debt and make sure stability is kept in the economy. But the debt levels are now at a too high level, so it seems that the system is on the verge of a collapse.

The main problem for the US and euro econonomy now is that trend growth is lower (you can see that by graphing twelve quarter average US nominal GDP year over year from 1950 to now) and the volatility is higher, meaning we get more frequent recessions.

I think a Reinhart and Rogoff quote is spot on:

But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

They are of the opinion that the longer we wait and try to avoid the pain, the worse it will be.

They have done research of 250 financial crisises in 66 countries and it is an interesting read. Their book is called "This time its different" (world's most expensive sentence).

[snowychap]

Well, I think your premise is a bit off, as the wages have not had a terrible development when you look at the numbers the last years.

You think my premise is a bit off?

How has unemployment in Latvia gone since Q1 2002 (where you began your table)?

Looking at the data, I fear you have been a tad selective in what you have sent our way.

[DeepDish]

In the last 100 years, I would say it was not based on production in the years leading to WW2, but in the timeframe 1950 to mid 1980 it was very much based on production. Then all western countries liberalised the debt markets, and the economies started growing fast due to people and companies taking on more debt and thereby increasing asset prices.

So, even in your narrow timeframe (the last 100 years), it has not been so for about 30 of them.

Not so sure of that 30 years even, btw.

Since we all know that the monetary systems (in the US) changed in 1933 and then 1971, I would think that it is difficult to compare the situation with stability in debt levels in the times before the ending of the gold standard with the unstanble levels in the years after the ending of the gold standard.

But if you wish to know: The debt levels were stable and low all years from 1800 (except one peak in 1860) until WW1, then stabilized again until ending of gold standard, and then peaked in WW2.

So there was low and stabile debt in a much larger time frame that you suggest. And I know it would help me in this debate, but I would not use those numbers, as they are not comparable, as we have had two different money systems.

Why 1980 is so important is that it is when the money printing through debt accelerated. Reasons were long term consequenses of the ending of Bretton Woods system, liberalisation of debt markets, and then Clinton and Greenspan put the icing on the cake with ending the Glass Steagall act and rescue of LTCM.

[DeepDish]

Well, I think your premise is a bit off, as the wages have not had a terrible development when you look at the numbers the last years.

You think my premise is a bit off?

How has unemployment in Latvia gone since Q1 2002 (where you began your table)?

Looking at the data, I fear you have been a tad selective in what you have sent our way.

That is why I gave you a link to the site where you can use other data for yourself to see the numbers.

[DeepDish]

Well, I think your premise is a bit off, as the wages have not had a terrible development when you look at the numbers the last years.

How has unemployment in Latvia gone since Q1 2002 (where you began your table)?

Here are the unemployment numbers

Now let's compare with Spain:

Spain unemployment in the same period

But now I gotta sleep. Have to make sure I can work a bit tomorrow, so I can pay down on some more of my debt and free myself from slavery

[snowychap]

That is why I gave you a link to the site where you can use other data for yourself to see the numbers.

Is it? Or is it that representing things in a particular way then fits with the argument that you are making?

You have given a link to the Latvian unemployment rate (that, for info, was just above 5% in Q1 2008 and is now still above 14% in Q1 2012 according to that graph) and then to Spanish unemployment which also accelerated around the same time (from a higher level of about 7.5% in Q1 2008 to about 24% in Q1 2012).

But again, what are the contexts of these numbers? What are the respective GDPs? What are their trade numbers? With whom are they trading? What are Spain's wage numbers?

What are the profits in Latvia and Spain respectively? What are the exec pay remunerations? What are the housing market figures? Who owned/pwns government debt? Who owned/owns private debt?

Yadda, yadda, yadda.

[blandy]

Can someone help me? -it's being said a lot, in some of peter's links and elsewhere that essentially when the government sector runs a deficit, the non-government sector runs a surplus of equivalent size.

But that seems like a basic thing being claimed as fact when it's totally untrue - we have had Government deficits, and private sector debts both increasing concurrently, and for a fair old period like, 8-10 years or more, haven't we? The internet rather seems to say so.

It isn't untrue, though.

This graph from the ONS (via Martin Wolf at the FT) shows the sectoral balances over the past 12 years or so:

Thanks for the info snowy. It illustrates my question totally.

The graph seems to show Gov't debt and household debt both going negative and staying negative for sustained period from 2002 to 2008.

Household debt creeping back up towards 0 and above since 2008 (while Gov't debt got bigger, as per pms's links) and then as Gov't cuts the level of debt, household surplus declining.

Corporate financial balances jumped between 2000 and 2001 and then sat at 4-6%.

It looks like Gov't and households "fed" corporate balances, to their cost during much of the graph's timeframe and that more recently Gov't has been feeding household balances while having no impact on corporate balances.

Is that how it should be? It doesn't seem like it ought to be that way?

Additionally, the level of Gov't debt which grew rapidly to almost 12% of GDP, couldn't carry on getting larger and larger, as that surely eventually leads to an Argentina scenario - the currency becoming massively devalued. If not immediately (because of the Euro mess) then at the point he Euro mess starts to ease - at that time we'd be in a real mess in the UK as we'd have a huge Gov't deficit, be printing money like billy-o and being dependent on imports would be rodgered - massive inflation and so on.

In dry numbers terms, currently the household and corporate sectors are "OK" and the Gov't not so. From that perspective, some adjustment from corporate to Gov't seems essential?

[peterms]

Steve Keen is a gobshite, peterms. He's embarrassing, and it's essentially no surprise that no economists take him seriously. You linked to a good video of Paul Krugman battling tools, so here's a link of Paul Krugman battling Steve Keen: http://krugman.blogs.nytimes.com/2012/04/02/oh-my-steve-keen-edition/.

Hardly battling, more like throwaway name-calling. Keen produces detailed, referenced arguments against Krugman's position, and Krugman responds, as Keen rightly points out in the piece linked within Krugman's comment, like this:

Krugman’s rejection of the proposition that banks can create money—in the sense that “their ability to create money is not constrained by the monetary base” as he puts it in an update—is also a vintage Ptolemain manoeuvre. A scientific response to this proposition would be to disprove it via empirical evidence. Krugman instead appeals to his own authority, relies on deductive logic—which I’ll return to shortly—and derides those who believe that banks and credit growth matter in macroeconomics as “Banking Mystics”.

(Your "gobshite" comment is also a little short on technical rebuttal)

You're right that the banking sector is not taught in most university courses. Most economics courses involve a downward line intersecting with an upward sloping line, and calling the intersection "the equilibrium". I teach this stuff to very smart university students and they struggle with that. Introducing banking/financial frictions/whatever would be like trying to teach calculus to four year olds.

It is taught at postgrad level though.

The point is not that the technical details of banking are not taught in depth, but rather that the models used in neoclassical economics do not recognise the role of credit creation by banks and the consequent impact on the economy. As Keen and others have pointed out, this growth of credit and private debt has been the overwhelmingly important factor in the economy in the last 10-20 years, and the main cause of the crash; yet the prevailing models don't recognise it. Krugman continues to assert that banks don't create money, but lend out deposits, despite people like Paul Tucker at the BofE, among many others, explaining that it may have worked this way some decades ago, but not these days. But again, Krugman simply asserts it, as though someone of his stature saying it is proof enough, where his critics actually address empirical evidence.

The consternation is because (contrary to popular belief) economists generally accept they can't predict anything. If we all knew with strong probability that the stock market would crash in 2013, it would crash tomorrow.

It's not that they don't predict it with unerring timing, it's that their models didn't predict it at all, while their critics not only predicted that it would happen, but explained the reasons why. Don't you think it necessary to explain why, if economists can't predict anything, people like Keen and others actually did? And that this might give their ideas just a little credence?

[TheDon]

In dry numbers terms, currently the household and corporate sectors are "OK" and the Gov't not so. From that perspective, some adjustment from corporate to Gov't seems essential?

It depends how you define OK.

If the government level needs to come up, then by definition the household and corporate sectors are not OK.

Corporate needs to come down a long way for the Government to be able to move up to pre-08 levels. But as the graph shows austerity has a far bigger effect on household than on corporate.

[DeepDish]

That is why I gave you a link to the site where you can use other data for yourself to see the numbers.

Is it? Or is it that representing things in a particular way then fits with the argument that you are making?

First of all, I just googles wages in Latvia to see if I could find any numbers, and the link was the first one with historical data I found.

Secondly, yes it fits my argument.

I claim that the quick austerity measures in Latvia is one of the reasons that the situation there is improving a lot, while the situation in Spain and Greece gets worse every day, due to the fact that they did not do any meaningful cutbacks when the problems arrived.

First I used the development in unemployment numbers as one of the "proofs". As you have seen, the unemployment in Latvia has gone from +20% in 2010 to 14% now. At the same time, unemployment in Spain is still on the rise.

Then you said that there was no problem in reducing unemployment if the wages were slashed. I used Google to see what the numbers were, and found that wages are lower now than at the peak, but they are back at the level in second quarter of 2008.

The reason I looked at unemployment numbers and wages is that I though those two gave a good indication of how an economy is performing and how wealth is developing in the country.

I can answer your other questions, but it will take time, as I must search for the information.

[blandy]

In dry numbers terms, currently the household and corporate sectors are "OK" and the Gov't not so. From that perspective, some adjustment from corporate to Gov't seems essential?

It depends how you define OK.

If the government level needs to come up, then by definition the household and corporate sectors are not OK.

Corporate needs to come down a long way for the Government to be able to move up to pre-08 levels. But as the graph shows austerity has a far bigger effect on household than on corporate.

It doesn't show that to me, though. I confess to not understanding to any deep level, but surely the graph indicated that both Gov't and household debt was below the 0 line concurrently, and along the same pattern, for an extended period, while corporate was above the line - so during that period of 6 years, it was in effect, as I said, corporate being fed by the combo of household and Gov't debts.

It's got out of kilter with the previous decades pattern in the past couple of years, when corporate surplus has remained broadly at the same level and household debt went away (as people paid off loans) while the Gov't was still massively "in the red" but to a decreasing degree.

People like us pay off debt when we think things are "bad".

Gov't is adjusting the level of it's indebtedness because it was becoming out of pattern - it was rocketing downwards when the other sectors were not "rocketing" in the other direction.

All that's history, and may be irrelevant to the future, but nevertheless had the pattern of Gov't debt continued (which everyone agrees it could not be left to have done) then we'd have ended up worse off than where we are now. The only argument seems to be about the rate of reduction of Gov't debt - is it too fast, basically.

[DeepDish]

[What are the respective GDPs?

Spain GDP per capita:

2001: 14400 USD

2003: 15000 USD

2005: 15400 USD

2007: 16100 USD

2008: 16300 USD

2011: 15500

Table of GDP per capita in Spain

Latvia GDP per capita:

2001: 3300 USD

2003: 3800 USD

2005: 4500 USD

2007: 5700 USD

2008: 6300 USD

2011: 5000

What are their trade numbers?

The balance of trade numbers are a bit difficult to compare, as they are not indexed, and the Latvian numbers are in LVL while the Spain numbers are in euro.

I have therefore looked at Current account to GDP.

Latvia

Spain

With whom are they trading?

Latvia:

Main export partners

Russia 15.2%

Lithuania 15.2%

Estonia 12.6%

Germany 8.2%

Sweden 5.9%

Poland 4.7%

(2010)

Main import partners

Lithuania 16.3%

Germany 11.4%

Russia 10%

Poland 7.5%

Estonia 7%

Finland 4.8%

(2010)

Spain:

Main export partners:

France 18.7%

Germany 10.7%

Portugal 9.1%

Italy 9%

UK 6.3%

(2010)

Main import partners:

Germany 12.6%

France 11.5%

Italy 7.3%

China 6.8%

Netherlands 5.6%

UK 4.9%

(2010)

But I think that those numbers are not as important as the unemployment and wage numbers.

And it is very nice to see that the fine Latvian people are improving their life, and that the financial crisis is over there.

[TheDon]

In dry numbers terms, currently the household and corporate sectors are "OK" and the Gov't not so. From that perspective, some adjustment from corporate to Gov't seems essential?

It depends how you define OK.

If the government level needs to come up, then by definition the household and corporate sectors are not OK.

Corporate needs to come down a long way for the Government to be able to move up to pre-08 levels. But as the graph shows austerity has a far bigger effect on household than on corporate.

It doesn't show that to me, though. I confess to not understanding to any deep level, but surely the graph indicated that both Gov't and household debt was below the 0 line concurrently, and along the same pattern, for an extended period, while corporate was above the line - so during that period of 6 years, it was in effect, as I said, corporate being fed by the combo of household and Gov't debts.

Look at the end of the graph though.

We've been cutting the deficit, but it hasn't came at the expense of corporate, it's came at the expense of households.

This is the problem, we need to get corporations to spend instead of saving their surplus. If we don't the corporates horde the money and everything else suffers.

This is a good article that explains the chart, and it's implications.

[DeepDish]

In dry numbers terms, currently the household and corporate sectors are "OK" and the Gov't not so. From that perspective, some adjustment from corporate to Gov't seems essential?

It depends how you define OK.

If the government level needs to come up, then by definition the household and corporate sectors are not OK.

Corporate needs to come down a long way for the Government to be able to move up to pre-08 levels. But as the graph shows austerity has a far bigger effect on household than on corporate.

It doesn't show that to me, though. I confess to not understanding to any deep level, but surely the graph indicated that both Gov't and household debt was below the 0 line concurrently, and along the same pattern, for an extended period, while corporate was above the line - so during that period of 6 years, it was in effect, as I said, corporate being fed by the combo of household and Gov't debts.

Look at the end of the graph though.

We've been cutting the deficit, but it hasn't came at the expense of corporate, it's came at the expense of households.

This is the problem, we need to get corporations to spend instead of saving their surplus. If we don't the corporates horde the money and everything else suffers.

This is a good article that explains the chart, and it's implications.

The problem is that the corporations are preparing for worse times and will not start spending this year or next year.

As much as I hate suggesting it, the solution is to increase corporate taxes for a few years, so that imbalances can be straightened out. But the problem with that, is that we can not trust the politicians to use the increased tax income to pay down debt, they will probably do something stupid with the money so they get elected again

[snowychap]

But I think that those numbers are not as important as the unemployment and wage numbers.

Why not? They begin to put actions in to context.

The point about the GDP was to compare the relative sizes of the economies.

The trade numbers and trading partners were to compare how and where those two economies operate as per the following comment in this article:

What's more, the recoveries should be seen in the context of their previous collapse. Both economies are growing fast but neither has got back up to pre-crisis levels.

What recoveries they have enjoyed, many economists put down to geography. Christensen said: "If you compare the Baltic states to Bulgaria, which has passed similar austerity measures and has not recovered in any way to the same degree, there is only one real difference and that is, who's your neighbour."

The Baltic states are near the wealthy Scandinavian countries, while Bulgaria sits next to Greece. Latvia does almost 70% of its foreign trade with the Nordics, Germany, Poland and Russia, which have all returned to growth. After a while, money flowing in from exports spilled over into its home market and Latvians started spending again. The Swedish central bank, one of the main central banks of the region, also moved quickly to deal with the financial crisis.

Christensen said: "I am quite sceptical about the idea that [the Baltics] can serve as some kind of model. Luck played quite a big role in this; the fact that these countries have a close financial connection to Scandinavia. You cannot choose not to have austerity, that has clearly been the credo the Baltic governments have lived off; but you need help from the export side or from the financial side, and there has been some of both."

[blandy]

Thanks for the link TheDon. Within it it says that if the government’s deficit is to be slashed, so must the corporate surplus. That seems inescapable and that a decline in the corporate surplus might itself lower investment, which would make things worse.

It also says that a structural deficit in the Gov't accounts implies a surplus in the private sector, and asks how is that private surplus going to disappear, which it needs to. It seems to be saying that to cut government deficit the private sector has to save less and spend more, and only the corporations can do that, now, and so the government policy is to demolish corporate profits.

That all makes sense, and aligns with corporate [was] being fed by the combo of household and Gov't debts and so now it needs to flip round.

So how does the country make corporations spend, when they are scared to invest, because prospects look bleak? Interest rates can't be cut, they're already nearly 0? Putting up taxes on business? wouldn't that discourage them from investing, starting up or coming here from abroad?

If the Gov't increases its spending, then the corporates are just going to get an even bigger surplus, the opposite of what is needed, surely.

Looks like a catch 22. More Gov't spending and debt - bad, or less Gov't spending and things are made worse for the people of the country.

The only thing fiscally, seems to be to encourage business to spend their surplus, but how do you do that?

[TheDon]

As much as I hate suggesting it, the solution is to increase corporate taxes for a few years, so that imbalances can be straightened out. But the problem with that, is that we can not trust the politicians to use the increased tax income to pay down debt, they will probably do something stupid with the money so they get elected again

No, the problem with that is overly taxing corporations doesn't lead to an increase in tax revenue, it leads to an increase in tax avoidance with companies moving offshore. It's hard for one country to increase taxation on corporations because it's so easy for them to up and move elsewhere, especially in heavily service based economies such as the UK.

[snowychap]

The problem is that the corporations are preparing for worse times and will not start spending this year or next year.

Would they start spending even if they didn't think that worse times were ahead?

One might read from the graph (where it shows that the corporate sector has been in surplus since well before any financial crisis or recession) that this is not a given.

Also the following graph (from this blog) may support that skepticism:

[TheDon]

The only thing fiscally, seems to be to encourage business to spend their surplus, but how do you do that?

Tax breaks on capex spending is probably about the only thing you could do, but the electorate isn't going to like that when everyone else seems to be getting hit harder.

The problem is companies never want to spend money, they only spend money when they absolutely have to.

With households tightening their purses, and government cutting spending on major projects, there's less demand, so less need for companies to invest in increasing supply, so they're simply going to sit on cash until there's an up tick in demand that necessitates spending.

Basically, we're in a wee bit of a pickle!

[Awol]

A slightly different view in the article below from the circular spending vs austerity debate, basically saying the problem is due to as yet undeclared losses in the banking sector, and their selfish efforts to maintain fantasy balance sheets that are in turn preventing a recovery.

UK and Europe languish in a 'zombie bank’ malaise

Britain and Europe are failing to tackle the problem of technically insolvent banks and are trying to buy time with QE, summits, and other can-kicking measures.

British banks are sitting on “£40bn of undeclared losses”. So says Pirc, the UK’s leading shareholder advisory group. What’s more, Pirc argues, the massive backlog of undisclosed bad debts is preventing our banking sector from making vital, growth-boosting loans to creditworthy businesses and households.

It doesn’t surprise me that some of the UK’s leading banks are technically insolvent. What does surprise me is that it’s taken until last week for a respected professional body such as Pirc to state the obvious.

It’s not that I don’t congratulate Pirc for what it has just said. A relatively small organisation, after all, is now openly defying what is probably the UK’s most powerful lobby. Yet Pirc, and others, should still have called the Western world’s banks on their vast, undeclared losses a very long time ago. Some of us have been banging on, for years, about banking black holes blocking an economic resurgence — ever since this ghastly crisis began, in fact, in mid-2007.

The biggest financial problem the West needs to solve isn’t low growth, or unemployment. Economic torpor, and the human tragedy of joblessness, are symptoms, not causes. The issue isn’t, as some would have it, that governments are “cutting spending too far and too fast”. Western governments are barely cutting, if at all.

The most significant financial problem we face, in the UK and Europe, is that our banking systems remain gridlocked, with banks doing everything possible to conceal tens of billions of sterling and euro losses.

All those non-performing loans, and toxic debts, many of them property-related, haven’t gone away. We don’t know their precise scale because the banks still won’t publish full sets of accounts, including their “off balance sheet vehicles”. And, disgracefully, governments and regulators have been too scared to force them.

A lack of knowledge about each others’ solvency makes banks reluctant to lend to each other. Investors, too, fret about recapitalising banks, or holding bank shares, as they don’t know what they’re buying. So interbank lending — the wholesale market for loans — remains extremely sluggish, causing a finance drought among solvent households and firms.

Investment then suffers, housing markets suffer and economic life stagnates. With the credit channel “blocked”, the wheels of Western finance have stopped turning, resulting in economic stasis. Forget “too far and too fast”. Forget “growth versus austerity” and all the other compartmentalised, tribal policy debates we hear being hashed-out on the airwaves. West European growth is so slow, with some countries re-entering recession, because insolvent banks, pretending they’re still viable, are hoarding cash in a desperate and cynical bid to survive when, by rights, they should crash and burn.

Legitimate demands for credit, not least from firms wanting to maintain or expand their operations, are then denied or granted only at ridiculous rates. The West isn’t recovering and unemployment is rising — and the heart of the problem is a group of opaque, moribund banks. This has long been obvious, to those with an open mind and even a modicum of economic expertise.

Attempts to keep zombie banks alive, extending the existence of commercially “dead” institutions, have seriously damaged state balance sheets. Some of the world’s “leading economies” are now keeping their debt markets afloat only by ordering central banks to issue electronic credits, then using them to buy sovereign paper.

For several decades, Western governments have borrowed and spent irresponsibly. Trying to clean up after the banks, though, has pushed otherwise still solvent nations to the brink of bankruptcy and beyond. And in western Europe, of course, this evil brew had been made even more ghastly by the policy incoherence, and conflicting incentives, imposed by the economic madness that is the euro.

Until now, the Western world’s response to “subprime” — a bank insolvency-led crisis — has been to follow the “Japanese model”. This amounts to covering up for the banks, allowing them to pretend they have assets they don’t, and don’t have losses they do, and then “praying for a miracle” that capital levels are somehow restored. History shows this model doesn’t work. It was only in 2010 that Japan’s GDP recovered to its 1991 pre-bust level.

The only way to smash this banking sector deadlock is by imposing the kind of “full disclosure” bank transparency that FDR’s administration employed to break America’s Great Depression in the mid-1930s, or that Sweden used to escape its early-1990s banking mess.

This involves forcing banks to recognise all their excess liabilities, pushing those beyond repair into administration, then supporting those worth saving so they can rebuild their capital levels — in large part from retained earnings and other forms of private finance.

Needless to say, Western banks don’t like the idea of “full disclosure”.

Under the Swedish model, a lot less money is available for bonus and executive pay. “Full disclosure” also makes banks face up to the implications of their deeply misguided previous investments, with some of them going bust. “Full disclosure”, moreover, could well expose some pretty serious financial fraud.

That’s why, ever since this crisis began, the ultra-transparency that’s needed — so markets can trade efficiently and the banking system can start oiling the wheels of the economy again, rather than seizing them up — has been the “third rail” of Western politics.

The banks whisper Armageddon will occur if they’re required to recognise their losses. While this might be true of executive remuneration, and the reputation of certain City grandees, it’s not true for the economy as a whole.

Fundamentally sound banks can still operate and extend loans even when they have negative book capital. But they need to retain earnings, and end bonuses and dividends, during the period their capital is rebuilt. So far, the raw power of the banking lobby, its attack-dog PR tactics and political donations, have kept demands for “full disclosure” at bay. Those of us who’ve made such calls have been consigned to the outer fringes of polite society — the same place we were banished for arguing that the euro could eventually break up.

Pirc analysed the 2011 accounts of the UK’s top five banks, then calculated expected debt write-offs in the coming years that aren’t yet set against profits. The banks retort that their accounts adhere to IFRS accounting regulations.

Such regulations, though, introduced in 2005 after a ferocious bank-led lobbying, are a major part of the problem. As Pirc says, IFRS accounting allows the banks to “mask the true position” by “including fictional assets and fictional profits”. As such, salaries and bonuses are then paid out on inflated numbers, when such earnings should actually be used to bolster capital.

By entering the fray, Pirc has made it respectable to talk about “full disclosure”. Other institutions will now hopefully acknowledge what is obvious and point the finger at our busted banks. Given the unhealthy closeness of the relationship between Western Europe’s politicians and “high finance”, I don’t expect such courage to be shown by our elected officials. So it falls to professional bodies, campaign groups, independent commentators and broader society to bang the drum.

The “full disclosure” debate has been rolling in the US, American banks having recognised their losses to a far greater extent than we’ve seen in Western Europe. That’s why the US recovery, while still uneven, has been far stronger.

Europe, meanwhile, the UK included, continues to languish in a “zombie bank” malaise, buying time with QE, summits, and endless can-kicking measures. How much longer can our leaders dodge the really tough decisions? As long as we keep letting them, I say.

If that's correct then it all comes back to the wrong moves being made in 2008 when the banks were bailed out instead of being allowed to go to the wall.