@ MKL
Great comment. Until the Wall Streeters have confidence, public will not. Only problem is that their fear and confidence levels are constantly overblown. Their confidence level has skyrocketed of late but as you have mentioned, the unknowns still remain to be known.

Only time will tell.

Simultaneously, “confidence” is often seen as a state of mind. It is said that confidence breeds confidence. It is said “act with confidence and you will feel confident.” This of course is on an interpersonal level, but is now being extrapolated onto a whole financial system. (Or should I say exTARPolated?)

Genuine confidence comes from knowing, from certainty. Genuine banking confidence, and trust, comes from knowing that if you make one hundred loans under certain conditions (% down, dependable income, mortgage being certain percent of said income, etc) that MOST people will pay those mortgages reliably. Some will default because they’re bums. Some will default through no fault of being a bum, but of some bum thing happening to them from which they will recover. Most will make their payments. This is the banks’ income.

When you start to get clever, and want to beat the system by a little bit, prove you’re a little smarter, then you start to hedge your bets.

In this situation, ACTING confident might intend to breed confidence, but it does nothing for the NOT KNOWING. And there is too much NOT KNOWN at this point.

It was telling to have the paterfamilias of the banking system come out and made speeches to instill confidence in their publics. On the one hand, it WAS reassuring to be reassured. On another hand it is not.

They are the ones who KNOW the unknowns they will never reveal. They are also the ones who know how much they DO NOT KNOW. Like Godfathers, they also know that the public does not really WANT to know all that goes on behind closed doors. AIG had to reveal counterparties. UBS had to obey swiss law and NOT reveal clientele, and now swiss law has been bent and UBS has to reveal clientele, as will probably now other swiss banks.

Do those dons really now know what will happen to the money that is no longer safe in swiss privacy? Because that money will find a way to hide itself. Just as simplefolk have long hidden money in mattresses or in coffee cans buried in the backyard, more sophisticated folks with access to more sophisticated means have needed more sophisticated means of coffering their cash. As do corporations, and whole countries.

Someone will protect it, for the right price. Who? Of those who have been protecting (and hedging and growing these huge coffers) who will be able to keep on doing it? Of the handshaking backroom relationships where one knows vaguely at least what the other is doing, which relationships will be honored? Which don will be the next to fall? Who trusts whom? About what?

James Cayne (Bear Sterns), Richard Fuld (Lehman), down they went in shame. Who did Vikram Pandit replace? Pandit is doing his best to maintain favor, comply with those who seem to be the powers-that-be. John Thain is surely out of favor in the public eye. Who would dare risk their p.r. by supporting him? Did the CEO of Wells Fargo just call the stress test and the TARP asinine? How long will he be in favor if that’s how he intends to show how well he can play with this group?

There is too much uncertainty. But what is certain right now is that some group intends to safeguard the means of keeping money flowing. It will be somewhat related to how things worked before. It will be somewhat new. Eventually it will settle into a familiar, somewhat predictable “way that it works”. It will be known. Not the details, but the dependability of the system will be known.

Until then, until the dons have confidence, the public cannot.

Richard Beddard’s last blog post..Saving capitalism from the capitalists