To find solutions to the current crisis you have to understand the causes and act on logic not panic.
I've written a lot about what a bad idea the so-called Stimulus Package and the trillions of dollars of spending which will follow it are. This has led some of those who are still lulled into complacency by the siren song of "hope and change" to complain that I'm offering complaints but no solutions. Some have even issued a childish "if you're so smart come up with a better idea" kind of challenge.…
Article comments
— go to most recent comments26 - Roger Nowosielski
I worked on Wall Street for ten years, Handy, STM,
Lehman, Bear Stearns, Smith Barney, Dean Witter - I can name another dozen - they all were institutions. Inviolable. Apart from the interconnectedness you're talking about - the very shock that something like that could happen transcends the imagination of anyone who wasn't intimately connected with the industry.
It was nothing short of a major earthquake.
27 - STM
Handy: "That's when the markets hit a death spiral and banks stopped lending to each other."
And the banks not lending to each other is now the key issue everywhere.
The longer that goes on, the more danger we're in terms of full meltdown.
I'm with handy. The bailouts may well have had a result in slowing or perhaps stopping altogether a the full death spiral that is in danger of wiping out the global economy.
Stimulus packages, meanwhile, have already been used elswhere around the world (including here, and remember the Obama administration came a bit later to the party) and seem to have had at least a damping effect, which is good.
Truth is, only time will tell.
Just letting banks fail, though, in this current environment ... not a good look.
28 - Roger Nowosielski
Especially, STM, that they're not doing their proper function now. Something's got to be done about that.
29 - Clavos
Just letting banks fail, though, in this current environment ... not a good look.
Neither is taking on more indebtedness to solve a problem brought on by indebtedness...
30 - Roger Nowosielski
Bernanke staves the disaster by talking down the nationalization of banks. The Dow refuses to plunge (for now).
market action today.
31 - Baronius
I agree with much of the original article. There were underlying problems in the credit market, so it's tough to say exactly what triggered the crisis. But I think it wasn't so much the Lehman collapse as Bernanke's and Paulson's response. Remember that they were crazily optimistic, interventionist, free-marketeers, and predictors of doom, all within a week. And the AIG failure had two additional features: first, it made it look like the credit crisis had moved beyond the banks, and second, it introduced the phrase "too big to fail". By implication, there were going to be a lot more, smaller failures, and the market responded to that information. Also, the phrase made the giants look more precarious, not less so, because of what the government would do to prevent them from failing. The funny thing is, the Fed and Treasury managed to make every worst fear come true.
32 - Roger Nowosielski
Fair.
33 - handyguy
Baronius, your entire #31 is speculative.
Bernanke and Paulson [and Geithner and Obama] are not just some anonymous managers brought in to try something and see if maybe it works. They have major resumes, in academia [Bernanke], business [Paulson] and government [Geithner].
This doesn't make them automatically right. It does make me pause before giving them bad evaluations reflexively.
It is possible that no one would have been able to prevent [or cause] this crisis through individual decisions or actions.
And TARP itself was Bernanke saying, We've got to stop dealing with this crisis by crisis and try a more holistic approach. The clumsiness of TARP was in its public relations. I'm not convinced it was or is a bad idea.
Obama, whose authority comes from his stellar ability to synthesize and communicate ideas [and not, as has been noted about a billion times, from his resume], may be far better able to explain what the government is doing and why. Paulson, Bernanke and Geithner are not very good at public speaking, or at inspiring people.
34 - Roger Nowosielski
Handy, I'm sorry to interject, but you're being speculative, too.
35 - handyguy
STM: Just letting banks fail, though, in this current environment ... not a good look.
Clavos: Neither is taking on more indebtedness to solve a problem brought on by indebtedness...
A pretty glib assessment of a vast and complex issue.
The size of the problem was a result of speculation [motivated by greed], not specifically indebtedness. If the problem were only about 7% of mortgages being risky, it wouldn't be a cataclysm. Wall St took the bad mortgages and multiplied their effect by a factor of gazillions.
By the way, Paul Krugman noted on Sunday that 14 US banks have already failed in 2009 alone. They were taken over by the FDIC because they couldn't cover their depositors' accounts. His point was that nationalizing [temporarily] the big banks is different only in terms of scale.
36 - handyguy
You may be right, Roger, but my speculations led to open-ended conclusions: I admitted I don't know whether Tarp worked.
Dave and Baronius don't bother with the maybe's and I'm-not-sure's.
37 - Roger Nowosielski
I agree, Handy. My honest opinion is - no one really knows what program will work and to what extent, and to presume otherwise is foolhardy.
I just hope that we'll pull out.
38 - Baronius
Handy, I did bother with an "I think". The truth is, I'm not sure at what step Bernanke and Paulson messed up, but I don't see how you can look back over their management of the crisis without cringing.
I think they messed up at every step. I said it at the time, and there hasn't been anything to make me change my mind. Take one simple moment, when the Fed set the interest rate at 0%. That's not exactly what happened, but that's what it looked like. That in itself sent a panic through the markets. (Note to hostage-takers: never kill your last hostage, because it means you've got no more bargaining power.)
One other point which might not persuade you, but I think it's telling. Paulson changed course a few times on the TARP, so even he didn't think he was doing the right thing.
39 - Cindy
I've already taken my small savings out of the bank. FDIC shmeFDIC.
40 - Roger Nowosielski
Taking the interest rate down to zero certainly didn't sit well with the investors, to say nothing of buttressing a sense of confidence.
41 - Baronius
It also informed the banks that they weren't supposed to lend money for profit any more.
42 - Roger Nowosielski
That was kind of self-defeating, I'd say.
43 - handyguy
You guys are talking nonsense. The 'zero' interest rate is for banks lending their reserves to each other, not for making profits on normal loans! I'm sure you must know this.
And yes, Paulson was probably very ambivalent about TARP. As are you and as am I. But the policy and the changes actually were coming from Bernanke: he had to convince Paulson to do a bailout, and then he convinced him to change from "buying toxic assets" to just infusing capital by buying shares in the banks.
Oh, just watch the darn PBS show already! It helped me understand the sequence of events much more clearly.
44 - Baronius
Yikes, Handy, one of us is off his game tonight. This is the third comment of mine that you've felt the need to correct, when I think the originals stand on their own.
I said that the interest rate wasn't actually set to 0%, but that's the way it was interpreted. The market responds to signals. Also, the FRB had pretty much run out of moves by that point. So I'm departing the boards for the evening, because this is unproductive.
45 - Hope and Change?
"just watch the darn PBS show already!"
Duhhhhh...I saw it on PBS between "Sesame Street" and "Johnny Has Two Moms"...duh...so it must be true!
H&C says..."Question Authority"
46 - handyguy
Well, sweetheart, no one expects you to watch it, of course. It's written way over your head. But that needn't stop you from making uninformed comments about something you'll never see.
"Question Ignorance"
47 - Clavos
A pretty glib assessment of a vast and complex issue.
Perhaps.
But Obama is incontrovertibly taking US much further into debt than it ever has been before -- debt that will arguably lead to hyperinflation a year or two from now -- after the government discovers that the "stimulus" wasn't, and it scrambles to meet its debt service by printing.
48 - handyguy
There are certainly risks to the president's policy. And risks if we let Citibank and General Motors go under, which is the course you prefer, if I read your comments on here over the last few months accurately.
I'm glad I don't have to make these decisions. I am being completely honest, no spin, when I say I trust the man who is making them. Let's hear what he has to say tonight.
49 - Arch Conservative
"Paulson, Bernanke and Geithner are not very good at public speaking, or at inspiring people."
Yeah and if it weren't for teleprompters and the mainstream media King Barry wouldn't be either.
So his plan is to claim he inherited the largest deficit ever, add over a trillion dollars to it in his first two months in office, then claim he will be able to cut it in half in four years?
C'mon if you believe that your way past drinking the koolaid. You have a koolaid iv jammed write into your aorta.
The latest gallup poll shows that King Barry's approval rating has fallen below 60%. Apparently more and more Americans every day are realizing just how full of shit he is. Those that aren't outwardly acknowledging it are still in denial only because they're ravaged with despair stemming from the current state of our economy and are looking for something, anything, to latch onto for respite, even a silver tongued jackass with a penchant for socialism.
50 - Arch Conservative
I'm watching Bobby Jindals response speech right now.
I was watching it on MSNBC when it began and when Jindal walked out you could hear Chris Matthews on the mic say "oh my god."
I guess Matthews isn't happy with Olbermann being the biggest joke in the industry.
When you have Racheal Maddow calling you out on shit you know you're a loser.
Fuckin amateur hour at MSNBC.
51 - Silas Kain
C'mon, Arch. Give the man a modicum of respect. He's doing his best under the worst of political conditions. If the Obama Administration succeeds, the members of Congress win but ultimately the rank and file American emerges victorious. If Obama fails, he'll be ousted from office, the rank and file American loses and sitting GOP members of Congress win. So no matter what, the Far Right is going to win. So, Arch, if it is your desire to perpetuate the cause of the Far Right, feel free. You have nothing to lose.
52 - handyguy
As opposed to the slick and sophisticated coverage here on Blogcritics....
Thank you, Archie for your, um, er, words of wisdom.
53 - handyguy
The Obama speech tonight was completely successful at what it was intended to do, and the last 15 minutes or so were downright phenomenal. Our GOP friends were not likely to have a great time tonight anyway, so I wouldn't expect them to be falling over themselves to praise the president. It was all designed to be a inspirational love fest with Congressional Dems, and I imagine many viewers at home were favorably impressed as well.
The Jindal speech was well done too, except for the weird Katrina anecdote. As David Gergen just pointed out on CNN, 175 billion dollars of federal aid was involved. We're glad there are helpful volunteers in Louisiana, but the parallel to the economic crisis isn't entirely clear.
54 - Maurice
Dave - this is not your best work. I want to summarize your 3 points:
1) natural cyclic forces in the economy which caused a slowing of the sustained and robust economic...
Nothing natural about the market decline after 9/11. Or the expense of the war.
2) Second, there was over-extension of credit in the real estate market
Which I would argue spilled over into all areas of credit and is the main culprit.
3) Third was excessive government spending of deficit funds...
I have a hard time believing this was a major contributor to the money meltdown.
The main problem we have right now is lack of confidence. People are not buying things because they have no confidence in our economy. Hell, they have no confidence they will have a job tomorrow. Here once again are my three solutions for restoring confidence in our currency and economy:
1) Borrowers must participate in the loan. In other words you must put money down. This ensures the borrower is more likely to consider his own ability to repay.
2) Our state and federal governments have been unfriendly to manufacturing. We must attract manufacturing jobs for 2 reasons. Number one not everyone is cut out to go to college. Number two we need to build our own stuff so we are not beholden to other nations.
3) We must fix our SEC laws. Right now the stock market is built on speculation and emotion. This is wrong. When you buy stock it should be because you believe in the company and you want it to succeed. Profiting at the demise of a company is harmful to our business base.
55 - Dr Dreadful
I may be way off beam here - just an ever so slight vibe I'm picking up - but I'm getting the impression Archie wasn't altogether happy with Mr Obama's speech tonight.
56 - Dr Dreadful
One bit did make me chuckle - when he talked about America as the country where the automobile was invented.
The descendants of a certain Herr Benz might have something to say about that...
57 - Hope and Change?
The Obama speech tonight was completely disaster and accomplished nothing. The last 15 minutes or so were downright pathetic. Our DEM friends are so out of touch Barry could have farted and they would have fallen over themselves to praise his stench. It was all designed to for him to read his lines like Queen Nancy Pelosi told him to. The Congressional Dems being so out of touch with Americans loved it, and I am sure many viewers at home either fell asleep or were shit their pants.
The Jindal speech was well done too, especially for the poignant Katrina anecdote. As he pointed out that we must abandon the entitlement mentality and be responsible for our own future. Anyone who has trouble seeing the parallel to the economic crisis is either stupid or lying.
So tonight King Barry did a his usual entertaining tap dance while reading the teleprompter but tomorrow we will go to work, the stock markets will sinl lower, our home values will decrease...because the policies and programs that the dems voted for have nothing to do with the words in his speech. The US economy will grow from Government investment in health care, energy and education? The problem is the only jobs that the bailout bill will create will be low paying home health care aides, gas station attendants, school aides and bullshit nonproductive jobs for federal and state employees.
So much for hope and change....
PS Can someone tell Barry that he won the election. Its time to stop taking and start doing!
58 - Hope and Change?
Mauruce..
"Right now the stock market is built on speculation and emotion. This is wrong. When you buy stock it should be because you believe in the company and you want it to succeed."
Um...er....because you believe in the company and you want it to succeed....is....um....ypu know....SPECULATION AND EMOTION!
59 - Clavos
H&C^
Your opinion is full of shit.
60 - El Bicho
Psst, Gonzo. That's your cue.
61 - Clavos
Just can't stick to it, huh?
62 - Dr Dreadful
What'd I miss?
63 - pablo
No mention of credit default swaps/derivatives Nalle? hehehehe, you go boy.
64 - Silas Kain
If Bobby Jindall is the new face of the Republican Party Democrats have nothing to worry about. He's as much a buffoon as the last GOP White House resident. Moderate Republicans unite " it's time to send the Ultra Right back to the wilderness.
65 - STM
Doc: "The descendants of a certain Herr Benz might have something to say about that..."
Didn't your other mob - the Frogs - invent that??
66 - STM
Dave: "2) Second, there was over-extension of credit in the real estate market".
Yes, that one is a bit of an under-assessment.
I suppose you could loosely describe it as that, but it wouldn't be the whole truth.
What is really was: Wall St packaging tranches of debt into derivatives (CDOs) and selling that to investors, which as handy points out, then became losses to investors who bought the pea-and-thimble trick that can now be counted in the squllions. Actually it was worth in the trillions, but you get my drift.
The result: Stage 1 in the Global Financial Meltdown, and the beginning of the end.
Not really just an over-extension of credit in the real estate market.
That was just the vehicle.
Oh, and as Pablo points out, the whole thing was made markedly worse by those other little saleable investment packages dreamt up by lunatics on Wall Street ... the Credit Default Swap, which ultimately became the most traded form of credit derivative in the world.
The suits on Wall St should carry all the blame for this crisis. They are the REAL culprits, because they created an ever-expanding market for mortgage brokers and sellers so they could sell these Collateralised Debt Obligations to investors, and encouraged them to bring as many borrowers to the table as possible, which of course resulted in a lowering of what until then had been pretty standard borrowing criteria.
Forget the American dream - they've created the American nightmare.
No matter how they might try to talk down their own roles in this, they did it for no other reason than to earn millions for themselves.
Don't tell me the folks at the top didn't understand the high risk involved. They didn't care as lonmg as they were lining their own pockets.
This crisis originated on Wall St - period. Why can't people get their heads around this one simple truth??
All the talking about other factors is a total nonsense. Global markets have always had blips and ups and downs caused by other factors and have weathered those storms. This is the Katrina-sized version and its epicentre is New York, not Washington.
The conditions we all face today and which have wiped gazillions off global markets are purely the result of Wall St's insanity.
Yes, and its greed.
And you thought junk bonds were bad?
67 - Ruvy
Don't take this personally, Dave. It's good to see that you've finally come round to seeing the world in a slightly more realistic light. But Stan Denham has a more balanced view of the whole thing. And he has been pushing that view for a while....
The crisis has been the bastard child of Wall Street bankers and financial manipulators, as have most financial crises in America for the last century or so.
Of course, folks like Paul and I, along with some of the writers here, like CR Sridhar, have seen the shit heading towards your fan for quite some time. Maybe reading the works of someone like George Engdahl would give you better vision in these things, Dave.
Now that is has finally splattered all over you, and you recognize it for the shit it really is, instead of brown colored flavor modules you've been calling it up until now, I'll be glad to sell you a towel so you can wipe yourself clean. It costs only 25 shekels. Cash up front - in Israeli money, please....
Of course, "Uncle Jay" Kamen, a Brooklyn boy like me, explains these things in a lot more entertaining way. The link in the previous sentence is from 22 September last, and explains how sound the American economy really is. This link is from Monday last, 23 February. If you watch closely, you'll see that even Uncle Jay is having a harder and harder time laughing his way out of the shit that the fine upstanding business leaders of the American "free market system" - and their pet poodles they call politicians - have all dug you into....
The poor guy is recycling his jokes - and he's not that old, either. In fact, he is two years younger than I am! But the bitter truth is so damned bitter that no amount of sugar is going to hide it.
Have fun boys and girls! And remember - a good kid is good news!
68 - Arch Conservative
"I may be way off beam here - just an ever so slight vibe I'm picking up - but I'm getting the impression Archie wasn't altogether happy with Mr Obama's speech tonight."
Hey he gives a good speech but beyond that I don't see anything at all in the man that shows that he isn't just trying to use his office as power grab for the federal government.
By the way..handy said Jindal's speech was good....
I don't know what he was watching but watching Jindal speak made me cringe. The GOP would have been better off if Sarah Palin had come out in a bra and thong and sang Don't Cha by the pussycat Dolls while Kanye West spanked her ass with an oversized paddle with a smiling King Barry's face on it.
If the GOP wants to win in 2012 after King Barry's leadership ravages the economy and our personal freedoms than they better look to the bullpen because Jindal, Huckabee, Romney, Sanford, etc.... aren't going to be able to pull it off.
What I'd like to see is a dual candidacy where Ron Paul would run the economy and author Mark Steyn takes care of foreign policy as those are the only two prominent individuals that seem to get it on those respective concerns.
69 - Doug Hunter
A portion of the crisis is confidence and having a great speechmaker like Obama is certainly a positive.
70 - Ruvy
What I'd like to see is a dual candidacy where Ron Paul would run the economy and author Mark Steyn takes care of foreign policy as those are the only two prominent individuals that seem to get it on those respective concerns.
I may be wrong on this, but I believe that Mark Steyn is a Canadian citizen. But, no matter! Mr. Obama has already established the precedent of foreign citizens running the country from the Executive Manse, so it is not a problem at all....
Nobody is interested in what Uncle Jay has to say?
Sob! Sniff!
My feelings are hurt!
71 - Hope and Change?
Well well...this mornings newspaper was a shock!! Two AP writers - Calvin Woodward and Jim Kuhnhenn actual analyzed what King Barry said last night compared to what is actual in his plan...amazing results...
1. King Barry says--
"We have launched a housing plan that will help responsible families..."
AP says - "If the administrtation has come up with such a plan to "help responsible families" it hasnt announced it and it isnt in any of the proposed programs."
2. King Barry says,
"We have already identifed $2 trillion in savings..."
AP Says - "10 year projections in government are common but dont mean much"
3. King Barry says.
"In this budget we will end education programs that dont work and end direct payments to large agribusinees that dont need them...."
AP says - "This budget doesnt do any of that it only suggest them"
4.King Barry says
"Over the nest 2 years this plan will create or save 3.5 million jobs."
AP says - "The ecnomist that Obama relied on for these figures report that they are with great uncertainty"
Well...wellll...a pretty speach...a nice suit...too many lies and half truths...so I guess this is what he means by hope and change...go figure our president just an empty suit...
PS King Barry stated last night the the "US invented the automobile..." correction we...um...er...you know.... WE DIDN'T...Germany did...
72 - Cindy
Ruvy,
Uncle Jay - lol!
You might like Dan(Miller)'s video on the subprime crisis.
Careful, it nearly killed me.
73 - Cindy
And the thing about that video. As funny as it is...it's true.
74 - Maurice
Hope and Change #58
I know. I even thought the same thing when I typed it. The distinction is our current SEC laws have turned stock trading into pure emotion. It is one thing to buy a stock because you believe in the product and management. It is another thing to buy that stock because you 'heard a rumor'.
Selling short should be illegal. Nobody should cheer and profit at the demise of industry.
75 - Roger Nowosielski
That video was first-class. Everyone should see it.