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Looming Financial Crisis?

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museum in time, tiger in space

00:23 / 08.09.08

The U.S government has just basically nationalised the two biggest mortgage providers in the country. There's more analysis here.
It's going to cost the government tens (or possibly hundreds) of billions of dollars. If this happened in the UK in the run-up to a general election, it would almost certainly have some kind of political impact - do you think the same is true for the States?

01:48 / 08.09.08

I think most of my countrymen know that the banking system has been fucked for a while, and the details of this latest fuckedness aren't quite palpable or real or distinct from the general background noise.

I don't understand exactly what has happened, other than that the country's debt seems to have hit a similar abyss to my own - a vast yawning hole into which the absent virtual money is now tumbling headlong. After a certain point, it's all red ink.

On the other hand, lately, I've been noticing something... there are a lot more of the contemporary equivalent of sandwich-board men out on the sidewalks. People in costumes, holding signs advertising businesses. That's pretty palpable.

08:59 / 08.09.08

There are a couple of fairly good rundowns of the Fannie Mae and Freddie Mac debacle here and here.
One apparent problem was that once the Treasury announced that they had a plan for a bailout (just in case, right?), investors got scared and dumped stock, lowering their worth and making it impossible for the companies to raise capital. That, along with some shady bookkeeping and their inability to find any other sources of capital made this inevitable.

museum in time, tiger in space

05:06 / 09.09.08

Well, Palin certainly doesn't seem to know what's going on; she appears to believe that Fannie and Freddy were funded by the tax-payer in some way and are now being privatised, which is pretty much the opposite of what's actually happening.

19:30 / 15.09.08

Lehman Brothers and Merrill Lynch.

The financial commentator dude on NPR this morning, when asked, "So, do you remember seeing a day this bad?" replied "Well, I was born after 1929... so no."

Closed for Business Time

19:49 / 15.09.08

All of a sudden I'm thinking of erecting a shrine to N. N. Taleb (of "Black Swan" fame) and Warren Buffett, who've both been on the record for a long time saying that the financial markets are castles built on sand.

So, AIG and their lot next? When's the next Euro/UK financial institution gonna implode?

20:52 / 16.09.08

Two from Financial Times:

Russia halts trading:

Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.

...

Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbnes. No one knows where this could stop”.

and

Lehman employees told to "move on":

The mantra of Lehman Brothers was to pay its staff in stock – some 30 per cent of the bank’s equity was held by employees and many bonuses were paid in shares. Now those holdings are all but worthless.

Some staff were also told not to expect a paycheck at the end of the month and that they might even be liable for expenses on their corporate credit cards.

In Lehman’s London office, the bridgehead for the Wall Street firm’s international expansion, many were evidently determined to minimise their status as creditors to the firm.

“Some have more than £100 on their pre-pay canteen cards, [so] they’re buying hundreds of bars of chocolate, bags of roasted coffee and anything that’s non-perishable,” said one employee.

I'm not even close to fathoming what this AIG whale is doing so close to the beach.

21:22 / 16.09.08

On the other hand, this is just funny.

August 30, 2007 - Jeb Bush was named "private equity financial advisor" to Lehman.

It only took 12 months....

01:28 / 17.09.08

Looks like the US gov intervened Tuesday after hours with AIG, loaning them $85 billion and taking an 80% ownership stake in the company. Crazy times indeed... especially following the recent events with Fannie and Freddie.

After reading a bit of Stirling Newberry's commentary on the markets, I'm feeling less than hopeful too.

I'm only have a general interest and mild understanding of how the world market operates, but the current geopolitical situation and market outlook have me nervous. Compounding problems such as these are harbingers of national conflicts.

08:48 / 22.09.08

I find this opinion piece, by Paul Krugman, a rather good criticism of Henry Paulson's rescue plan. Krugmans four-step analysis aligns with my own views and thoughts, and I tend to agree that a "clean" plan seems like a bad idea, but are there other aspects to be considered here? I can clearly see the cons of the rescue plan, as it is proposed, but what would be the pros?

15:39 / 29.09.08

The Subprime Primer. Stick figures in a slide show.

18:11 / 29.09.08

Michael Moore calls for aid. Seems like a consistent allegation, and the fact that encouraged his readers to make the difference is very great.

18:39 / 29.09.08

So, the bailout didn't pass Congress - largely because of the Republicans. I've heard speculation they were trying to wash their hands of a bad deal and set the Dems up for the fall, but I don't know.

When I read things like this Talking Points Memo post, I'm encouraged that most other folks - even economists and experts in the field - don't know what's going on either.

He does link to Krugman (as above) and to Nouriel Roubini's blog as a good place for information and interpretation on all this stuff.

19:59 / 29.09.08

This morning the BBC's financial editor suggested that a number of Republicans in marginal seats have been under pressure from their middle class constituents to reject the deal. If true, I can't help worrying that economic policy in the US is being dictated by a group of people who are, in my experience, (behold, a generalisation!) astonishingly bad at imagining a world where things aren't quite so comfortable. The BBC's vox pops were worryingly full of folk who seemed to have missed the point that all this might have horrible consequences for them.

23:01 / 29.09.08

Well, I think that the politicians are responding to phone calls from constituents overwhelmingly against the bailout, probably for the reasons that they are either:

a. angry that big fancy-pants Wall Street firms are being bailed out after they made a big mess of it

or

b. the government is proposing meddling in the free market like a bunch of commies, basically turning a huge chunk of the market into a government enterprise.

Rush Limbaugh calls it the country being stolen by a political party for its own political purposes, which is precisely what's happening here. As though it's only the democrats that are trying to make this happen.
Those simplistic views, while they may have truths embedded in them (except Limbaugh's crap), are not going to do anyone any good. I don't understand it all, either, but I know it's not either/or a or b. People are going to call up and bitch because they don't like it, but they don't know what else to do. I mean, no one really does.
Many of the republicans who voted against it are in contested elections next month, but a large percentage of democrats voted against it as well; mostly because they felt it was helping out struggling business and not struggling families. So the most conservative and most liberal members sank it for different reasons. It appears that it's just going to be more unfortunate in the long run because something has to be passed, and soon; and it's really not going to be more than minutely different than it is now when it does. Making this mostly an exercise in wanking through a crisis.
The long-term implications on global trust in the American juggernaut economy are probably going to change the game when this is all done. Of course, when this is all done, there may be no more juggernaut.

09:03 / 30.09.08

But of course both points a and b, in many instances, rest on folk not understanding that this situation could well effect them horribly. And it’s all very well to be a self-reliant Libertarian, but even people of that bent should have the good sense to be worried about their pension schemes. Is the American media failing people here?

On the wanking: yup, it’s looking that way.

ONLY NICE THINGS

09:28 / 30.09.08

Well, some species of the bailout will happen anyway. It may happen later, it may have different conditions - some of the complaints about the plan as Paulson presented it are absolutely justifiable: it was three pages long and it stipulated a frankly ludicrous absence of oversight, given the role of Paulson and Bernanke in creating this mess to start with - it may involve less cash or greater collateral ownership. The balance is whether the wealth wiped out by further instability is justified by the changes to those conditions, which is a difficult one, and whether it has a greater or lesser chance of failure.

I think a lot of the voting was ideological - Democrats incensed at Paulson apparently seeking to protect the jobs of his banking friends at the expense of the public purse, Republicans incensed at the apparent abandoning of the free market and the effective nationalisation of private debt - but I am really loving the idea that the Republicans who voted against did so in a fit of pique at Pelosi mentioning that all this happened because of the ineffectual and incompetent Bush administration, thus showing their President to be so ineffectual and incompetent that he couldn't even get his party's congressional representatives to vote for his favoured plan. Genius!

But it's not all about the US, of course. One of Iceland's three largest banks has just been effectively nationalised, as a knock-on from the collapse into administration of one of Iceland's largest equity investors - which holds a 39% stake in Baugur, Iceland's most recognisable international business. One may wish in the not too distant future to tool on down to Woolworths for some crazy bargains.

10:41 / 30.09.08

Just out of curiosity, does Woolworth's even exist anymore? I haven't seen one in ages.

ONLY NICE THINGS

10:46 / 30.09.08

Not in the US - it changed its focus to athletic wear and changed its name to Foot Locker. There are various Woolworths brands in Europe (UK, Germany and Cyprus), each owned by an individual spin-off of the original US Woolworth company but now separate.

trouble at bill

13:04 / 30.09.08

In the UK at least it is said to be ailing more than most (which is saying something, I suppose) and there have been various talks with Iceland about a takeover but yep, it's still here.

15:35 / 30.09.08

to the original question ``are we facing financial melt down ?`` i certainly hope so ,,, we need to reinvent the concept of money ,and (at least) jail the bankers.
without this opportunity, society may never the chance to `put the boot into these bastards` who severely fuck up all our lives, with their wars for the sake of war, Bush, Rumsfeld, Cheney, Rove and the rest of that despicable crew, lets not forget that `slattern` condelleza rice, should be put on trial for crimes against humanity,,, i cant beleive that i and the rest of the world are aware of our plight and feel so powerless to do anything about it,,,
neo conservatives dont frighten me , but they are very dangerous,,,,let wall street burn.

15:47 / 30.09.08

"and (at least) jail the bankers"

Is that everyone that works in a bank?

17:09 / 30.09.08

So, the bailout didn't pass Congress - largely because of the Republicans. I've heard speculation they were trying to wash their hands of a bad deal and set the Dems up for the fall, but I don't know.

I believe that the Republicans who are pro-free-market Friedmanites are the ones who voted it down, along with the Democrats who don't want to save the bastards who encouraged the bubble in the first place. The bailout wouldn't adhere to the strict free-market policies, which they believe will find it's own level if all government interference is removed.

They don't acknowledge the impact of greed and shady business deals: That doesn't seem to factor into their model of a pure laissez-faire system.

Having a seemingly uncontrollable market crash may also shock everyone into being so afraid that they beg the government to "do whatever it takes to fix it"! (Make the terrorists go away...)

Both parties will point fingers at their opposites, but nobody will give honest reasons why: I believe that they are both complicit in not talking about what they don't want the genpop to know: that the entire world's economic system is a soap bubble, but it's being used to enslave pretty much everyone.

If the people doth protest too much, well, there's a few thousand troops back from "basic training" in Iraq going on duty tomorrow morning to act as "crowd control". Timing's uncanny, dontcha think?

Damn you Grant for posting that M.A.D. video! I am trying to get everybody I know to to watch it...

18:49 / 30.09.08

(I'm pretty sure the BBC stated unequivocally that the bulk of the dissenting Republicans hail from marginal seats, so ideology or no ideology, looks like wobbly seats were a factor)

19:07 / 30.09.08

Yeah, the noisiest bits of the public are all against giving any money to the institutions, and it's five weeks before the election.

ONLY NICE THINGS

19:13 / 30.09.08

If I ask why threads about American politics turn into showcases for language which shows that avowed liberals have disquieting issues about women, have I answered my own question?

ONLY NICE THINGS

21:36 / 30.09.08

They don't acknowledge the impact of greed and shady business deals: That doesn't seem to factor into their model of a pure laissez-faire system.

Oh, I wouldn't go that far. Paulson might be said to have ackowledged them specifically when he stipulated in the proposal that the activities of the Treasury Secretary would not be subject to oversight or subsequent review.

00:22 / 01.10.08

some of the complaints about the plan as Paulson presented it are absolutely justifiable: it was three pages long and it stipulated a frankly ludicrous absence of oversight
That was also what seemed so frightening about it, beyond the insane concentration of power, that it was put forward in that state as viable, that things were so dire that we needed to make Paulson the economy czar without question, right now.

10:47 / 01.10.08

A banker's letter to Congress.

Summary: "Don't make us pay for those fools on Wall Street. No bailout."

11:40 / 01.10.08

Summary: "Don't make us pay for those fools on Wall Street. No bailout."

Easy for him to say - you can almost smell the smugness - but good points.
I don't understand this bit in the comments section though

"Bailout of Goldman Sachs and Morgan Stanley.
Amen.
And people say we're not a fascist system."

What am I missing?

trouble at bill

14:20 / 01.10.08

I don't get that either. In fact I don't get a lot of that, because I know little of economics. So can I just ask, is it really possible to discern clear cause and effect in this or any economic case? Or is it as difficult as it is in any other open system and is what we have here really a case of people blaming their enemies for a problem no one truly understands?

If the people doth protest too much, well, there's a few thousand troops back from "basic training" in Iraq going on duty tomorrow morning to act as "crowd control". Timing's uncanny, dontcha think?

Hmm... it deserves it's own thread if it's what you think it is - which unless I'm mistaken seems to amount to America stealthily declaring permanent martial law?

15:55 / 01.10.08

Hmm... it deserves it's own thread if it's what you think it is - which unless I'm mistaken seems to amount to America stealthily declaring permanent martial law?

I seem to recall reading of a specific military unit being recalled from Iraq and stationed in the U.S. with this express purpose. It was described as "disaster relief."

Army Combat Brigade to take on first-of-its-kind homeland security detail

08:49 / 02.10.08

In this Radio 4 show, Justin Webb, the BBC's North America editor, gives a less than flattering view of the (mainstream) American media's failure to communicate the issues around the bail out in anything like sensible terms.

You know, the BBC has let us down a bit over the years, but it's at times like this when I wish every country in the world had an equivalent organisation

08:55 / 02.10.08

because something has to be passed, and soon

I keep hearing this, and I keep wondering; why, exactly? This whole mess is wrapped up in so many dividends and securities that I'm not sure even the guys selling and buying them understand the whole thing entirely, and our 'flawed, but necessary' solution is to throw fake money at fake money?

There are two issues I think are important which don't really seem to be being addressed by the media in any sort of real way:

1. After this $700 billion is spent paying off the CEO's, buying up all this bad mortgage debt, and throwing some undefined amount of liquidity back onto the market (that is, if the banks even become willing to really start loaning all that much again; and really, wasn't loaning out all kinds of money what started this problem?)... what's going to happen when the housing market, in all likelihood, drops another 10, 15, 20 percent? Are we going to pass another supplemental bill for another 300 billion to cover the bad loans and defaults that result from that?

2. The only way that this plan will work is if the housing market recovers within a reasonable amount of time; otherwise, this debt is just going to be sitting on the government's books like a big cancerous lump instead of on these mortgage companies' books. That's not going to magically make delinquent loan payoffs good again.

10:22 / 02.10.08

I'm assuming there are clever answers to those questions (in the show linked to above Justin Webb suggests that in actuality $700b figure is some sort of upper limit and that considerably less money will likely be thrown at the problem) but I sure as shit don't have them.

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