It's an uphill slog for Ben Bernanke trying to coax people to trust the banks when the banks don't even trust each other - although it doesn't appear to have deterred him in the least from extending the hand for further lashings of corporate welfare.
It was fitting that the US central banker delivered his first public policy speech in the city of Charles Dickens last night as his message was ''More please, Sir''.
Fiscal stimulus alone would not be enough to deliver a lasting US recovery, said Bernanke at the London School of Economics. The Government may need to inject more capital into the banks. The sheer burden of distressed assets on their balance sheets made it hard for them to lend and raise new capital, the poor dears.
Once again, indefatigueably, the world's top central banker has skirted around the central issue: trust. It's gone. And chucking more money at Wall Street began to look desperate many long months ago.
Cost balloons
On Goldman Sachs reckonings, the cost of the 2008 credit crisis, or GFC (Global Financial Crisis) as is its moniker, is $US4.6 trillion, and counting.
It has even surpassed the aggregate cost of the Marshall Plan, the Louisiana Purchase, the Race to the Moon, the Savings and Loans crisis, the Korean War, the New Deal, the Invasion of Iraq, the Vietnam War and Nasa combined. And that's inflation adjusted.
The only event which even comes close in terms of cost, says Goldman, is World War II, which cost $US288 billion, or $US3.6 trillion in inflation-adjusted terms and that lasted three years and nine months (for the Americans at least).
Of course, these figures ignore the fact that markets and asset prices had sailed to insane highs in an orgy of leverage which had peaked in late 2007. They are coming off a high base in other words. Too high a base.
Actual corporate write-offs world-wide now top $US1 trillion, while $US926 billion has been raised world-wide of which $US555 billion has been raised in the US.
Governments have stood in the breach. Taxpayers have funded bail-outs. And taxes will rise. In the wake of the Great Depression, the top tax rate in the US rose from 25% to 79% during the 1930s.
Running out of ammo
In the come year alone the US budget deficit is expected to rise to $US1.5 trillion to $US2 trillion and Bernanke has already exhausted his armoury on the monetary front. Since September 2007 rates have been hammered from 5.25% down to nearly zero. No more room to move.
Rates in Europe are heading rapidly in the same direction. The UK conceded its worse December retail figures on record last night.
Bernanke may have to live up to his nickname, Helicopter Ben, by tossing crisp bills out of a chopper into town squares if he wants to fire up confidence again - because faith in the American financial system has fairly vanished.
And it was America, home of innovation and the free market, to which the rest of the world looked for confidence and leadership.
It is a horrible picture. Although equity prices, having dived more 40% last year, are surely closer to the bottom that the top, the economic fall-out would appear to have much further to go. That would suggest a period of capitulation now, stock markets in malaise.
Year of recrimination
If 2008 was truly the annus horribilis for world markets, 2009 is shaping as the year of recrimination. As falling economic growth makes life tougher for almost everybody, the blame will be liberally spread for corporate disasters.
A global glut of lawyers - they are already at plague proportions in Australia - will ensure a frenzy of corporate ambulance chasing. The cost will be immense.
Meanwhile, the regulators are bolting, sprightly, from the starting gates as the punters have gone, the betting slips flutter lonely in the breeze and horses are being cajoled into their floats for the trip home.
mwest@fairfax.com.au
BusinessDay
