[current meltdown] target the real criminals in this

Oddson and Bush in accord - wonder what about

My question is about the CBI:

The Icelandic banks were highly leveraged and large relative to the domestic economy. So are those of the UK and Switzerland. None has been immune to the devastating effects of the crisis. And there may be significant contagion from Iceland to countries vulnerable to capital flow reversals.

Glitnir had to request a short-term loan from the Central Bank of Iceland, which refused. Rather than taking Glitnir into administration, the CBI enforced nationalisation on punitive terms.

Most eyes are on the over-leveraging and the stark greed in operation at High Street bank level. Few question the role of the CB in this. After all, the one who bails out is not the criminal, right?

This blog has always gone straight for the jugular, rather than for the bleeding hands. In the U.S., it aims straight for the heart of the Morgan empire. In other countries the very first question is about the CB or Reserve Bank. Regulators know full well what is going down at all stages, they conduct a hands-off approach in one sense but the bottom line is that they know what is happening and are interwoven with the whole banking system.

This over-leveraging, the hedge funds, the whole mismanagement – all that was known about in the interconnected banking world. I keep coming back to the FOMC report of October, 2006, [admittedly the last one I read in full], in which predictions were made for the future up to 2011. The Fed’s pronouncements and the data they utilize can have a profound effect, e.g. in this assessment by an analyst of that report in the context of mortgages:

However, by specifically naming the sector in their press release, the Fed may have just shifted undue focus to Housing … Housing data is notoriously misleading for one very simple reason -- it measures new contracts but does not account for actual closings …

The Fed's stance on housing is consistent with Bernanke's prior remarks that the housing slowdown will shave 1.00% off growth and markets were ready for that. What makes me uneasy, though, is that markets may be forced to use misleading housing data to reshape their expectations of inflation.

Sackerson writes:

If everyone can handle the the cash call when it comes, good; if not, maybe a domino effect - one failure unbalancing another in a chain reaction. In particular, will hedge funds, who tend to play with borrowed money, be able to honour their contracts, or will they be the weak link in the chain?

If this is even obvious to amateurs like myself, then why would it not have been obvious to Bernanke and Co., professionals in the sphere? We come back to the same old question – was the “hands-off” at significant moments a known-known and therefore deliberate or was it mere arrogant incompetence?

If it was deliberate incompetence, then the reason for it is social destabilization and there is a body of data which supports the contention that the phoenix from the ashes is a quiet scenario envisaged by a greater influence than just the FOMC and world CBs.

That's a path most don't wish to explore so they opt instead, to stumble about blindly like the rest of us.