financial collapse

A crisis of political legitimacy

Discussing Matt Taibbi's masterful expression of outrage, in Rolling Stone last month, over the series of crisis spawned by Goldman Sachs and the domination of the United States by "gangster economics," Robert Johnson, Director in the Economic Policy Initiative of the Roosevelt Institute, writes that

Taibbi’s rage is filling an emotional void. It is a reaction to what is missing after this profound speculative episode that the IMF suggests will cost over $4 trillion in losses on balance sheets and untold trillions in lost output. It is fury over a crisis that is, by any measure, the most profoundly damaging episode since the 1930s.

Johnson notes the

Galbraith writes "No Return to Normal"

No Return to Normal: Why the economic crisis, and its solution, are bigger than you think, by James K. Galbraith

Galbraith conducts an introductory inquiry into the basic assumptions behind the economic policy responses of Team Obama, and warns that they fail to come to grips with the severity of the liquidity trap the entire world has now fallen into.

The deepest belief of the modern economist is that the economy is a self-stabilizing system. This means that, even if nothing is done, normal rates of employment and production will someday return. Practically all modern economists believe this. . . The difference between conservatives and liberals is over whether policy can usefully speed things up.

Bank stock crash now deeper than Dot-Com crash

Just to put the current crisis in perspective.

The CHART OF THE DAY shows the 84 percent decline in the Standard & Poor’s 500 Financials Index from its high in February 2007. It retreated as subprime-mortgage defaults sparked a worldwide credit freeze that saddled banks including Citigroup Inc. and Bank of America Corp. with $1.2 trillion of losses.

The S&P 500 Information Technology Index tumbled 83 percent from its peak in March 2000 to its trough in October 2002 as investors concluded prices that had climbed eightfold in five years weren’t supported by profits at companies such as Inc. and Cisco Systems Inc.

Roubini and Taleb tell CNBC Geithner will fail

CNBC has a ten-minute interview with Nouriel Roubini and Nasem Taleb in which Taleb said Geithner is "that class of people who have failed, and they're going to fail again."

The entire interview is an interesting example of how insane media people are. They kept trying to get Roubini and Taleb to provide investment recommendations, to which Roubini and Taleb all but said "You stupid horses asses, the world economy is collapsing! There's no investment that's safe right now, and there won't be any safe investments until the whole rotten system is replaced!"

One of the CNBC idiots even said that since such horrible bears as Roubini and Taleb have achieved "rock star status" it's a sure sign that the bottom has been reached. Honest! (I wish I could make this crap up, and make a living writing best-selling novels.)

Measure Geithner's proposal tomorrow against this: Bury the dead

Tomorrow, Treasury Secretary Geithner is scheduled to unveil his proposals for dealing with the financial crises. I will be measuring the proposals against the solution outlined by Ian Walsh on Friday: How to Perform Triage on the Banks and Stop the Bleeding

Not only is the financial situation  getting worse, but a lot of securities either really have no market (they're hardly ever sold) or the market price is actually below their probable long term value.  If the government is going to take over banks, or insure the securities, or set up a bad bank, they need to know whether they're solvent and how risky the securities they hold are—how likely they are to go bad in the future.  Once they know that, they know how much to pay, which banks to take over and which banks can be saved.

James Lieber in Village Voice is a MUST read

What Cooked the World's Economy? It wasn't your overdue mortgage.

By James Lieber

Lieber asks all the hard questions - you know, the ones the answers to which are really, really embarassing. For example, where exactly has the $7 or $8 trillion from the Fed gone to?

In mid-September, when it was on the ropes, AIG received an astonishing $85 billion emergency line of credit from the Fed. Soon, that was supplemented by another $67 billion. Much of that money, to use the government's euphemism, has already been "drawn down." Shamefully, neither Washington nor AIG will explain where the billions went. But the answer is increasingly clear: It went to counterparties who bought derivatives from Cassano's shop in London.

More Davos: My dog ate the financial system

Slate's Daniel Gross reports from Davos:

By Daniel Gross

Posted Thursday, Jan. 29, 2009, at 12:23 PM ET

Ordinarily, Davos is a Great Men kind of place, as the motto of this year's gathering implies: "Shaping the post-crisis world." The people who show up here—political leaders, scientists, entrepreneurs, musicians, and, above all, businesspeople—have all shown an ability to impose themselves on history. Otherwise, they wouldn't be invited. And yet in the many discussions held here about the recent global financial debacle, the question of human agency is shunted to the side.