NOW the economy isn't doing so well - Hmmmmm...
Hey Folks -
For years as regular people faced more and more difficulty, the Ginks in government and media have seen, heard, and spoken no evil about the blessed Market economy. Everything was coming up rosey!!
Lost a good job? No problem; take a bad job; lots of them around. Can't earn a living on the new job? No problem; get two new jobs - or maybe three (make George W. proud - see 1:18 into the trailer for Sicko at: http://www.youtube.com/watch?v=joaAfBr9tAE ).
Thousands laid off at this plant and that plant; no problem; it's good for Wall Street; stocks "appreciate" that; brokers and shareholders and CEO's cheer !!! Your job is "outsourced" overseas? That's good for America; it's fast track "free trade"; the government encourages it with tax breaks and free seminars; you lose your job but adjust; get educated for a new job, and when that gets exported, get educated again.
Getting foreclosed on your home? Evicted? Well, that's the way it goes. You made the choice; you should have read the fine print (or at least have had your legal department look it over). Our President "feels sorry" for you, but he isn't going to have the government bail you out; that's socialism.
No health care since you lost your good job and started your bad job? No problem; just go to the emergency room (pay no attention to those liars in Sicko). Besides that, most health problems result from personal choices. If you don't have insurance, don't choose to get sick.
Lost your pension? No problem; you can always greet at Wal-Mart. Besides, we have every intention of continuing the shrinking of Social(ism) Security; you'd better get rich or get used to it (and in America everyone can get rich).
Well, for a long time we've been told how good the economy is, how the labor market looked good. No problem; hey!! no problem.
Until NOW.
What's the difference? The Ginks are starting to have problems. And THAT's different!!!!
Paul Krugman lays out pretty well what the situation is, the situation caused by greedy jerks who abused the American people to make ever more bucks until the center could not hold for them either.
In a future posting I'll discuss how the government and media treat these folks.
- Uke Man
August 10, 2007
Very Scary Things
By PAUL KRUGMAN
(a ukethanks to Phyll)
In September 1998, the collapse of Long Term Capital Management, a giant hedge fund, led to a meltdown in the financial markets similar, in some ways, to what’s happening now. During the crisis in ’98, I attended a closed-door briefing given by a senior Federal Reserve official, who laid out the grim state of the markets. “What can we do about it?” asked one participant. “Pray,” replied the Fed official.
Our prayers were answered. The Fed coordinated a rescue for L.T.C.M., while Robert Rubin, the Treasury secretary at the time, and Alan Greenspan, who was the Fed chairman, assured investors that everything would be all right. And the panic subsided.
Yesterday, President Bush, showing off his M.B.A. vocabulary, similarly tried to reassure the markets. But Mr. Bush is, let’s say, a bit lacking in credibility. On the other hand, it’s not clear that anyone could do the trick: right now we’re suffering from a serious shortage of saviors. And that’s too bad, because we might need one.
What’s been happening in financial markets over the past few days is something that truly scares monetary economists: liquidity has dried up. That is, markets in stuff that is normally traded all the time — in particular, financial instruments backed by home mortgages — have shut down because there are no buyers.
This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.
The origins of the current crunch lie in the financial follies of the last few years, which in retrospect were as irrational as the dot-com mania. The housing bubble was only part of it; across the board, people began acting as if risk had disappeared.
Everyone knows now about the explosion in subprime loans, which allowed people without the usual financial qualifications to buy houses, and the eagerness with which investors bought securities backed by these loans. But investors also snapped up high-yield corporate debt, a k a junk bonds, driving the spread between junk bond yields and U.S. Treasuries down to record lows.
Then reality hit — not all at once, but in a series of blows. First, the housing bubble popped. Then subprime melted down. Then there was a surge in investor nervousness about junk bonds: two months ago the yield on corporate bonds rated B was only 2.45 percent higher than that on government bonds; now the spread is well over 4 percent.
Investors were rattled recently when the subprime meltdown caused the collapse of two hedge funds operated by Bear Stearns, the investment bank. Since then, markets have been manic-depressive, with triple-digit gains or losses in the Dow Jones industrial average — the rule rather than the exception for the past two weeks.
But yesterday’s announcement by BNP Paribas, a large French bank, that it was suspending the operations of three of its own funds was, if anything, the most ominous news yet. The suspension was necessary, the bank said, because of “the complete evaporation of liquidity in certain market segments” — that is, there are no buyers.
When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C — and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.
And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.
The Fed normally responds to economic problems by cutting interest rates — and as of yesterday morning the futures markets put the probability of a rate cut by the Fed before the end of next month at almost 100 percent. It can also lend money to banks that are short of cash: yesterday the European Central Bank, the Fed’s trans-Atlantic counterpart, lent banks $130 billion, saying that it would provide unlimited cash if necessary, and the Fed pumped in $24 billion.
But when liquidity dries up, the normal tools of policy lose much of their effectiveness. Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans. Ensuring that banks have plenty of cash doesn’t do much if the cash stays in the banks’ vaults.
There are other, more exotic things the Fed and, more important, the executive branch of the U.S. government could do to contain the crisis if the standard policies don’t work. But for a variety of reasons, not least the current administration’s record of incompetence, we’d really rather not go there.
Let’s hope, then, that this crisis blows over as quickly as that of 1998. But I wouldn’t count on it
For years as regular people faced more and more difficulty, the Ginks in government and media have seen, heard, and spoken no evil about the blessed Market economy. Everything was coming up rosey!!
Lost a good job? No problem; take a bad job; lots of them around. Can't earn a living on the new job? No problem; get two new jobs - or maybe three (make George W. proud - see 1:18 into the trailer for Sicko at: http://www.youtube.com/watch?v=joaAfBr9tAE ).
Thousands laid off at this plant and that plant; no problem; it's good for Wall Street; stocks "appreciate" that; brokers and shareholders and CEO's cheer !!! Your job is "outsourced" overseas? That's good for America; it's fast track "free trade"; the government encourages it with tax breaks and free seminars; you lose your job but adjust; get educated for a new job, and when that gets exported, get educated again.
Getting foreclosed on your home? Evicted? Well, that's the way it goes. You made the choice; you should have read the fine print (or at least have had your legal department look it over). Our President "feels sorry" for you, but he isn't going to have the government bail you out; that's socialism.
No health care since you lost your good job and started your bad job? No problem; just go to the emergency room (pay no attention to those liars in Sicko). Besides that, most health problems result from personal choices. If you don't have insurance, don't choose to get sick.
Lost your pension? No problem; you can always greet at Wal-Mart. Besides, we have every intention of continuing the shrinking of Social(ism) Security; you'd better get rich or get used to it (and in America everyone can get rich).
Well, for a long time we've been told how good the economy is, how the labor market looked good. No problem; hey!! no problem.
Until NOW.
What's the difference? The Ginks are starting to have problems. And THAT's different!!!!
Paul Krugman lays out pretty well what the situation is, the situation caused by greedy jerks who abused the American people to make ever more bucks until the center could not hold for them either.
In a future posting I'll discuss how the government and media treat these folks.
- Uke Man
August 10, 2007
Very Scary Things
By PAUL KRUGMAN
(a ukethanks to Phyll)
In September 1998, the collapse of Long Term Capital Management, a giant hedge fund, led to a meltdown in the financial markets similar, in some ways, to what’s happening now. During the crisis in ’98, I attended a closed-door briefing given by a senior Federal Reserve official, who laid out the grim state of the markets. “What can we do about it?” asked one participant. “Pray,” replied the Fed official.
Our prayers were answered. The Fed coordinated a rescue for L.T.C.M., while Robert Rubin, the Treasury secretary at the time, and Alan Greenspan, who was the Fed chairman, assured investors that everything would be all right. And the panic subsided.
Yesterday, President Bush, showing off his M.B.A. vocabulary, similarly tried to reassure the markets. But Mr. Bush is, let’s say, a bit lacking in credibility. On the other hand, it’s not clear that anyone could do the trick: right now we’re suffering from a serious shortage of saviors. And that’s too bad, because we might need one.
What’s been happening in financial markets over the past few days is something that truly scares monetary economists: liquidity has dried up. That is, markets in stuff that is normally traded all the time — in particular, financial instruments backed by home mortgages — have shut down because there are no buyers.
This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.
The origins of the current crunch lie in the financial follies of the last few years, which in retrospect were as irrational as the dot-com mania. The housing bubble was only part of it; across the board, people began acting as if risk had disappeared.
Everyone knows now about the explosion in subprime loans, which allowed people without the usual financial qualifications to buy houses, and the eagerness with which investors bought securities backed by these loans. But investors also snapped up high-yield corporate debt, a k a junk bonds, driving the spread between junk bond yields and U.S. Treasuries down to record lows.
Then reality hit — not all at once, but in a series of blows. First, the housing bubble popped. Then subprime melted down. Then there was a surge in investor nervousness about junk bonds: two months ago the yield on corporate bonds rated B was only 2.45 percent higher than that on government bonds; now the spread is well over 4 percent.
Investors were rattled recently when the subprime meltdown caused the collapse of two hedge funds operated by Bear Stearns, the investment bank. Since then, markets have been manic-depressive, with triple-digit gains or losses in the Dow Jones industrial average — the rule rather than the exception for the past two weeks.
But yesterday’s announcement by BNP Paribas, a large French bank, that it was suspending the operations of three of its own funds was, if anything, the most ominous news yet. The suspension was necessary, the bank said, because of “the complete evaporation of liquidity in certain market segments” — that is, there are no buyers.
When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C — and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.
And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.
The Fed normally responds to economic problems by cutting interest rates — and as of yesterday morning the futures markets put the probability of a rate cut by the Fed before the end of next month at almost 100 percent. It can also lend money to banks that are short of cash: yesterday the European Central Bank, the Fed’s trans-Atlantic counterpart, lent banks $130 billion, saying that it would provide unlimited cash if necessary, and the Fed pumped in $24 billion.
But when liquidity dries up, the normal tools of policy lose much of their effectiveness. Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans. Ensuring that banks have plenty of cash doesn’t do much if the cash stays in the banks’ vaults.
There are other, more exotic things the Fed and, more important, the executive branch of the U.S. government could do to contain the crisis if the standard policies don’t work. But for a variety of reasons, not least the current administration’s record of incompetence, we’d really rather not go there.
Let’s hope, then, that this crisis blows over as quickly as that of 1998. But I wouldn’t count on it
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