With the banking system insolvent, the credit system can arise on its own if lenders can make arrangements to lend directly to borrowers while bypassing banks. Buffett was able to lend directly to GE and Goldman Sachs at a rate of 10% + warrants, which approximates a 15% penalty rate. (I thank Phil O’Connor for pointing this out to me.) There is vast wealth locked up that is afraid to lend except at high rates. In the 19th century panics, commercial paper and other short-term rates would sometimes go to 60% or higher in a spike. That brings out the … Continue reading Massive deregulation will help