A worrisome little article

Crisis may make 1929 look a 'walk in the park'

Geez, what a headline! What do you think -- are they really freaking out, or just trying to scare the pants off all of us?

So as not to infringe on copyright, here are a few of this 3-page article's ...err ...high points:

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

...the crisis has moved beyond the collapse of mortgage securities, and is now eating into the bedrock of banking capital. "We must try to avoid the vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other," he says.

New York's Federal Reserve chief Tim Geithner echoed the words, warning of an "adverse self-reinforcing dynamic", banker-speak for a downward spiral.

In theory, Japan had ample ammo to fight a bust. Interest rates were 6 per cent in February 1990. In reality, the country was engulfed by the tsunami of debt deflation quicker than the bank dared to cut rates. In the end, rates fell to zero. Still it was not enough.

When a credit system implodes, it can feed on itself with lightning speed. Current rates in America (4.25 per cent), Britain (5.5 per cent), and the eurozone (4 per cent) have scope to fall a long way, but this may prove less of a panacea than often assumed. The risk is a Japanese denouement across the Anglo-Saxon world and half Europe.

"The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history," says Thomas Jordan, a Swiss central bank governor.

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red pill junkie's picture
Member since:
12 April 2007
Last activity:
12 hours 51 min

I hope you had a wonderful Xmas.

We've been hearing worrying stories down here in Mexico too, about an impending economic recession in the US that will affect us aswell.

Let's just hope those projections turn out to be too pessimistic.

Eventhough authorities here in Mexico have announced an increase in the price of gasoline for the next month :-(

-----
It's not the depth of the rabbit hole that bugs me...
It's all the rabbit SH*T you stumble over on your way down!!!

Red Pill Junkie

bladerunner's picture
Member since:
1 May 2004
Last activity:
38 weeks 2 days

This was in a UK paper, not an American. But I told my husband. They will keep this under some control till after the holidaze are over. Want people to shop! Every night the evening news give shopping tips, more like an add, then the news. And the IRS has stated it will be 7 weeks behind for tax refunds. Jeez glad I owe them money. When you do you never hear the end of it, till your paid up!

earthling's picture
Member since:
22 November 2004
Last activity:
6 weeks 1 day

On the other hand, it sounds a lot like some media are trying to talk the world into a recession. If people become pessimistic enough, then there will be a recession.

Typically, bad news on the economy hurts the incumbents in elections. But in the US, most incumbents (the president and pretty much everyone in congress) are seriously unpopular as it is. So who would benefit from this?

Or is it just part of the business model of most media, to spread fear and loathing?

----
If we don't succeed, we run the risk of failure.

(Bill Clinton, and perhaps others)

Kat's picture
Member since:
1 May 2004
Last activity:
10 weeks 3 days

Consider the source -- the UK's very conservative Telegraph, in an article that includes their usual bashing of British PM Gordon Brown.

Not saying Brown's perfect or anything, but ever since he became PM, the UK's conservative media have really been piling on. It reminds me a bit of the 'vast right-wing conspiracy', aka witch-hunt, against Bill Clinton. (Here's the condensed version, for anyone who was oblivious or swilling koolaid at the time.)

I just found an interesting related article in Jon Swift's Best Blog Posts of 2007:

No Rich People were harmed in making this recession.

"The other lesson here is that economics isn't what it thinks it is. It wants to be the physics of social sciences. Instead, it is the study of games. The key thing to remember is that games have players, and when players think they are going to be obliterated, they stop playing, or they stand around like victims at a massacre. Either way, something changes dramatically."

Kat

Kat's picture
Member since:
1 May 2004
Last activity:
10 weeks 3 days

Americans 'walk' from loans
Dec 23rd

"The Dow soared 200 points in a Christmas rush on Friday that belied emerging details that US banking, mortgage companies and credit rating faced collapse while the nation's mortgage insurance industry plunged into chaos.

"Nearly 180,000 US local councils were placed on credit watch, with the credit agency Fitch releasing another $US5.3 billion in credit downgrades involving 27 mortgage companies. The news emerged on Friday night, when the nation's newspapers, even if they were following the story, would miss it.

"That one company could downgrade 27 major financial institutions in one stroke is stunning, but it follows a swathe of credit downgrades that swept the US on Thursday and Friday.

"There has been a major falling out between mortgage insurers, credit rating companies, banks and mortgage institutions, which believed their loans were insured, only to be stunned to find themselves booted into the mire that is American banking.

"Chinese, Singaporean and Arab sovereign investment funds seem to offer the only salvation for the US banking system.

"The depth of the housing crisis was underscored by the head of one of America's largest banks, Bank of America, the straight-speaking Kenneth Lewis, who warned of a completely new attitude by Americans to their homes amid fears that as many as 20 million householders may "walk" from them, further deepening the crisis.

"Lewis' comments came as a new expression - "jingle mail" - referring to the growing trend where Americans mail the keys to their homes to the lenders before vacating, entered the US lexicon. Figures for November revealed more than 200,000 US homes were foreclosed, a 68% increase on November 2006."

And that's just half the first page of this three-page article.

Jeepers.

Now that I've read the rest of the article, make that...

Holy Shit!

The mortgage lenders thought they were being really smart to make all these liar's loans, and then take out a bunch of mortgage insurance on them.

The problem is, all those insurance companies were heavily investing their premiums in the very same risky mortgage paper created by the lenders.

Looks like those economists in the Telegram article really are worried. This is gonna play out as one very fast game of musical chairs, with a small fraction of the usual number of chairs. No wonder they have no idea who's gonna go bankrupt, or how fast.

Couldn't happen to a nicer group of greedy a**holes, as far as I'm concerned -- except for the inevitable blowback on all the rest of us.