Friedman is Right!

Who would have thunk it?

“I wish people would stop saying that this is a crisis of confidence,” said Steven Eisman, a portfolio manager and banking expert at FrontPoint Partners. “The loss of confidence is just a symptom of bad credit and over-leverage. The banks are not lending because they know their balance sheets are loaded with future losses and they don’t have enough capital. The TARP gave them preferred equity, which is nothing more than a bridge loan. We need the government to force the banks to write down all their bad assets now and then recapitalize themselves, preferably with private capital. Those banks that cannot raise sufficient capital should be seized and their deposits sold off.”

For too long the government has been taking the banks at their own words, which is one reason we keep getting surprised with demands for more bailout cash. The Treasury needs to be doing its own brutal, burn-down analysis of every major bank’s balance sheet — and then acting accordingly.

In recent years, “whenever other countries — Russia, Thailand, Indonesia, South Korea or Mexico — got themselves into an economic crisis, we lectured them about how they had to adopt ‘shock therapy,’ ” said Moisés Naím, editor of Foreign Policy magazine. “But now that we are the ones in crisis and in need of shock therapy, everyone is preaching gradualism.”

A stimulus package that does not also unclog the arteries of our banking system will never stimulate sufficiently. Mr. Obama should take the pain early, blame it all on George Bush and then reap the benefits down the road. Postpone the pain, postpone the recovery.

It is time to put an end to the “Big Swindle” and make the Banks come clean. The American taxpayer and our economy deserve no less. This is one disaster that we cannot buy our way out of.

The Credit Card is Maxed Out Folks and it is Time to Pay the Piper.