Posted inPolitics: National

The house of cards falls down

When experts and commentators talk about the "crisis of confidence" or "crisis of trust" in the markets, it can be read in different ways. One: it’s a nice way of saying, a la Phil Gramm, the recession is in our heads and if we just had some confidence happy days could return. Two, confidence and trust in the system have collapsed for reasons, including bankers not lending because they know companies will fail, and people in general no longer trusting the economic "House that Ronald Reagan (and Phil Gramm) Built."

It is most decidedly the latter. If nothing else, the Great Disruption we are now experiencing should discredit the "free market" theories that led us to this pass. We shall see. When the Depression hit, the world was awash with alternatives to capitalism, most of them bad, but also with an engaged electorate and a middle class that read. Now we have video games and social networking sites. The igno-geeks must be truly baffled as their future vanishes, even though they kill at Grand Theft Auto version whatever.

Where’s Cheney? As I write, George W. Bush is preparing to make another pitiful "statement" as markets plummet around the world. The veep is nowhere to be seen, running things as he did in Iraq. Perhaps he is preparing his defense fund, or place in a country with no extradition agreement. Meanwhile, Paulson and Bernanke are in change. Yet they represent the wisdom of the old order that is in crisis. They can’t fully comprehend what is happening, for it so goes against all their learned learning, all their orthodoxies. The Age of Greenspan is over.

8
Posted inPolitics: National

The mess we’re in

The FDIC, one of those "liberal" "socialist" things foisted on free-market America by Franklin Roosevelt, had to step in Friday to avoid a major bank run. More failures are expected and — dirty little secret — only about $2.5 trillion of the $7 trillion deposited in U.S. banks are actually federally insured.

Seven trillion sounds like a lot. But Americans are in hock to $12 trillion in mortgage debt as housing prices have collapsed, the last big factory of America (making houses) has all but shut down, and foreclosures are reaching records. The Iraq war will cost another $3 trillion. The U.S. national debt is $10 trillion (nearly double from 2001). That ought to tell you something about the mess we’re in.

What’s being little reported about the seizure of IndyMac "Bank" is that the institution is a bastard child of Countrywide, Angelo Mozilo’s death star of subprime calamity (now a boulder around the neck of Bank of America). IndyMac was spun off because it was collatoralizing mortgages too big to be sold to Fannie Mae and Freddie Mac, now on federal life support. The bubble was so huge, fed by so much fraud and bad policy, that the barons had to find "innovative" ways to keep it going.  And all that time, the regulators waved it on. This is the mess we’re in.

4
Posted inUncategorized

Wishful-thinking stimulus

There’s a great deal of silliness and sophistry about the economy at this dangerous moment, but why should it be different from anything else in American life?

Washington debates a “stimulus” package of tax cuts and newspapers write headlines to tell “average readers” (whatever the hell that means) that the feds will put hundreds of dollars in their pockets. Wall Street does a dead-cat bounce and commentators who were darkly warning of recession are now talking about a miraculous comeback. In the New York Times, the normally sensible David Leonhardt was saddled with a headline that emblemized the silliness: “Worries That the Good Times Were Mostly a Mirage.”

In reality, the economy risks finally tipping over from a series of imbalances and forces long in the making. The Fed is very limited in its ability to right the ship. And any “stimulus” risks making things worse, aside from extending unemployment benefits, which is somehow anathema to “conservatives.”

No Comments