Friday, February 13, 2009

Not your ordinary, run-of-the-mill recession

"This is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression." - Barack Obama

"The big problem is Geithner is acting as if the crisis we are facing is a crisis of liquidity when, in fact, it's a crisis of insolvency." - Arianna Huffington

"Much of Wall Street is effectively insolvent. It's not that these banks lack cash or capital -- it's just that they're never going to meet all their financial liabilities -- i.e. repay their debts. Ever." - Ann Pettifor

But Arianna it is not only the banks. The banks failed because cheap and easily available credit spread the insolvency around. But the money to finance the credit came from the Chinese who loaned us the money to buy all of those consumer goods their factories were building. The question is not who is to blame, it is what is to blame. What is to blame is an untenable economic situation that was allowed to develop and run away. What is to blame is a lack of vision, a lack of common sense. We should not continue to let this happen. If the banks are allowed to fail, all of those bad debts are going to come to place somewhere. The economy is going to take a hit that would almost certainly throw us headlong into depression. There is something to be said for not facing up to a problem, when the consequences of facing up will be a reck. Sometimes it is better to isolate problems to sick institutions like banks, rather thn to let them loose to create havoc for society.

Consider the Japanese Banking crisis of the late 1990's. From 1994 to 2003, 180 Japanese banks failed. Total cost of the credit losses: $950 billion, and the Japanses bubble might have been small compared to the what we face.
What would a depression look like?

5 comments:

Charles Barton said...
This comment has been removed by the author.
David Walters said...

I oppose Free Trade but it's simply ridiculous to accuse the Chinese of it. The manipulates the dollar as much if not more so than the Chinese do theirs. The US sells tons of stuff to the PRC...like nuclear power plants. But US also engages in one of the biggest violations of Free Trade as well: agricultural subsidies and application of *forced* bilaterial free trade agreements that are often one way with nations.

Read: "Confessions of the an Economic Hit Man" to see how the US does what it does: push other countries around.

The Chinese actually do what other nations should do: function in the economic self-interest of their citizens.

David

Anonymous said...

Caveat emptor is Latin for "Let the buyer beware".


Over the period of the last quarter century, les a faire Capitalism has become corrupt. Fraud and deceit had become the basis of good business and financial practice. The major tool of the purveyors of this fraud is called collateralized mortgage obligations (CMOs). Over 60 trillion dollars of these” financial instruments” were sold around the world to buyers who did not know what they were; they only knew they had a triple A rating.

When the housing bubble ended, the holders of CMOs realized they had been scammed and lost faith in the existing capitalist infrastructure. No one would trust Wall Street with their money and they all went into US treasury bonds. Thus, world capitalism had died when moral hazard was imposed on those trusting, gullible and greedy investors all around the world.

It became apparent that all other national economies were just hand maidens to the US economic system. A world depression will exist until a new economic system is formed to replace Wall Street. What that system will be no one knows, but it will be a very long time before the world grows to trust this new system with their money. From the way it is now going, it might be socialism under the direction of the US government but only time will tell.

David rejoice!


Axil

Anonymous said...

If the US gov would just get out of the way and let the banks fail we would eventually get out of this problem.

Wait, bank shareholder have been wiped out pretty much. So why is old bank management still there? I would like to see shareholder suites going after the bonuses paid the last 5-10 yrs.

You can't have healthy capitalism if the gov takes away the downside risk. Or worse, pressures banks to loan money to people who can't afford to pay it back.

Anonymous said...

February 13, 2009 12:32 PM

was charlesH

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