Paul Krugman is right on bank nationalization and the Austrians don't get it

[Daal]

Quote from Cutten:

My view is that the losses cannot be covered. They are too big. The FDIC cannot afford to bail out the whole banking system.
The world will not end if C, or even the whole banking system, goes bust. Financial sectors have been wiped out before - US, Japan, UK etc. The 2-3 years of pain it would cause are far preferable to the multi-decade stagnation of the 1930s, or 1970s UK, or 1990s Japan.

FDIC got a $30b credit line with the treasury, I dont have any doubt at even slighly problem that line will be expanded to $100b or more. Plus the FDIC has a claim on the equity of the entire banking system($1.4T I belive) through their fees. Since the Treasury is providing equity for banks and the FDIC takes a bit of it out, the FDIC essentially is getting money from treasury up to unlimited amounts

And I would disagree with C and letting the system collapse producing a better end result. But more importantly, Geithner and Obama would disagree as well. The C bonds that I own are at 65c on the dollar and I'm still short the stock, if there is a debt to equity swap(which I can pull a Pimco and say no) I will get the new highly capitalized C and with less toxic assets, not the end of the world
A $2T in assets if they remove all unsecured debt($500b). This creates a bank with more than 4-1 TCE leverage, of course the ROE would be low though

My other point was that in these times you are not limited to the risk on your positions. There are numerous other risks - your broker going bust, your bank going bust, FDIC getting suspended and so on. Add to that punitive taxation on trading, capricious legislation, class war, capital controls, maybe even passport controls. Austrians, gold bugs, and the tin foil hat brigade are ironically far better prepared for these eventualities than those who mock them (which class of people mostly never saw this bust coming, by the way).

I agree totally with this point. The uncertainties are so high that I think liquidity is everything in this enviroment, which is why I believe guys like Soros and PTJ are much better models than people like Buffett since they can probably get 90%+ liquid in a week or less if it looks like a deep depression is coming, while buffett is stuck in illiquid stuff and if the ship goes down he will go with it