The rescue pattern and its failure

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Today the German government rescued a large commercial real estate company that could not get short-term loans to finance its long-term holdings. Ordinarily, it would simply go bankrupt.

Rescues are now happening all over Europe, as in the U.S. Governments are taking over assets and major companies. This is the pattern. Bankruptcy courts and procedures have been bypassed. Taxpayers are made into involuntary financiers of companies that are corpses.

Creditors of these failed companies are being paid off so that they also do not fail. The governments are trying to maintain their values too rather than let them decline. This is an attempt to prevent systemic deflation. This policy will fail. The values they are trying to hold up run into multi-trillions. The deflation will win.

7:54 am on October 6, 2008