Everyone knows that we are currently in the midst of the worst financial crisis since The Great Depression, and people are still very concerned about their IRA funds and whatnot. I’m in a position where I have no savings accounts to panic about, and I’m the type of person who actually enjoys disastrous events (in a good way…I’m a horror fiction writer, after all) so the past few months have been a major roller coaster ride for me. It’s settling down, however – we’re clearly in the throes of a deep recession, and the current Bear Market will take years to play out, but I sense that the most dangerous part of this current crisis has already passed.
In particular, I’m looking at the timeline of events (on the Wikipedia article linked above) and the events from Sept. 29th to Oct. 16th seem totally outside the normal course of events – entire banking systems were restructured (or even nationalized), Iceland is fucked, and during that time I witnessed many economic experts either “scratching their heads” over the dramatic changes in the stock market, while others were saying, “Be Afraid. Be VERY Afraid.” I’m also certain that a huge factor in this global uncertainty was the mere fact that we didn’t know, at the time, who the new U.S. President would be – which has been decided by now, obviously.
(There’s also metaphysical factors in play, up to and including Biblical Prophecy – esp. Revelation chapter 13 – but I’m willing to stick with physical reality for now, as pertains to this discussion.)
So, I call upon all economic experts, as well as people who have been watching the news closely since this crisis began…how close did we come to losing everything? Are we safe now, or do you feel the worst is yet to come?
It is not over. Much blood loss is still to occur. The home prices have not stabilized. The foreclosures still have a long way to go. They have not bottomed out yet. The swaps have not been fixed.
The bailout failed. Banking institutions were supposed to relax the grip on money and start lending again.They have kept the money and justify it by saying they are more stable ,so that is good. Some have used the money for new acquisitions and will give bonuses to their execs. As usual they believed the bankers would do the right thing. They have proved over and over that they will not. They have to be forced and regulated into proper behavior.
KGS - you might be interested in a couple of recent episodes of This American Life - Oct. 6th, 2008 was “Another Frightening Show About the Economy”, and there was a first “Frightening Show About the Economy” sometime in September. It’s astonishing to hear about financial (mal)practices that you wouldn’t believe are legal.
Yeah, there’s a horror novel or two just in the real life stories of what has happened to people to whom the worst case scenario came true, let alone letting your imagination wander over what else could have gone wrong. And it ain’t over yet, not by a long road - watch what has started happening to organizations that depend on philanthropic donation over the rest of the year…
Otherwise, I believe you… Why haven’t new regulations been proposed for the derivatives markets? These swaps are the worst thing to happen to the economy in decades. I would think that at the least there would be calls for transparency, so that people would know exactly how committed these organizations were and what kind of potential risk they were carrying (of course, this kind of information being available might crash the whole system). Or how about regulations requiring the amount (or some percentage) of the credit default swaps being held in escrow before the deal is made? Make it more like a standard insurance policy. Is anybody talking about this or making moves in this direction?
Paulson when he was at Goldman argued for a relaxing of the margins. They went from 14 to 1 ,to 40 to 1. Now the thief is our savior. He should be chased down the street by a mob.
Damn, I can’t access that website (it says I need to accept cookies, which I do, so I don’t know what it is bitching about). I’ll try later on my desktop machine, I usually have no problems there.
Reading that wiki article linked to above, I feel a tremendous unease with the future. This thing is far from over but I have no inkling at how bad it is going to get. My only hope is that Obama will be willing to take the really unpopular steps needed to fix this (even though I don’t know what these steps are, but I am sure they will piss off a lot of people).
http://www.usatoday.com/news/washington/2008-11-06-lobbying_N.htm Heres what else your tax money is doing. The banks treat your bailout money like it is theirs and continue the practices that got us in the hole we are in.
The pricks should be spending their ill gotten millions an defense lawyers.
Thanks for the heads-up. I couldn’t find any TV listings for that show, however…is it on YouTube?
No kidding!! I’ve already written an outline for an apocalyptic novel based on recent events – there’s no actual storyline or characters yet, but the basic plot includes The Rapture, the Christian Tribulation, the Great Dragon of the Sea Who Shall Bring Forth The Beast, M-Theory & Time Travel via wormholes…all from a unquie perspective. I’m going to set it aside and let it simmer for awhile, that’s how the alchemy of creative writing works. You never know where the next summer blockbuster will come from.
It’s not over yet. Second, much larger wave of prime mortgages due to hit, plus there is a whack of bad sub-prime mortgages that haven’t matured yet. Since the $700 billion bailout was used on gold-plating the executive washrooms instead of actually fixing things, I don’t know what is going to happen when these second waves come crashing in, but it isn’t going to be good.
My investment retirement income isn’t going back into the stock market for many years to come (although I might buy some cheap stock now and sell it before things tank again in a year or two).
I suspect that there’s much yet to be played out. Just check the recent increase in the monetary base (granted, the link is to a goldbug, but his chart is direct from the St. Louis Fed), which could spell the beginning of massive inflation. While the subprime mortgages were the trigger, I suspect that it is the tremendous debt under which many citizens conduct their day-to-day lives that will ultimately be looked upon by historians as the main reason behind the turbulent economic times ahead.
The bank of england pulled us back from the brink. paulson gave away too much to the US banks.
however, be very clear that the credit markets and liquidity have unfroze. lend is not and wont for years and hopefully never go back to the loose credit of the past few years. we are back from the cliff for letters of credit not being honored - which would destroy international trade. creditworthy corporates can get loans but the requirements are much higher now.
biggest risk now are the calls for trade protectionism.
I think you nailed it in one. The “Credit Crunch” – that period of time when banks refused to loan money to each other – is the heartbeat of our Global Wealth Economy, and for the first two weeks of October, that heartbeat virtually stopped. If you think of the Dow Jones Industrial Average as an EKG graph, the period from Sept. 29th to mid-October shows a HUGE break in the rhythm, a sudden steep drop followed by enormous SPIKES both up and down, analogous to ventricular fibrillation. (The rhythm is steadier now…there’s still big movements, and the “patient” is still very unhealthy, but as long as the trend remains stable, we’ll eventually recover.)
At least…that’s how I read the charts & timeline of events. (And it matches the sensations I felt from the “metaphysical forces” I mentioned earlier…)
I suspect this won’t be a problem. This is just a guess, but I suspect the main topic of the upcoming G20 Summit on Nov. 15th will be to guide the U.S.A., the EU, and the rest of the world towards a one-world economy, and ultimately a one-world government. We cannot afford to remain isolated – the current financial crisis has proven that our Global Economy is already inter-dependent on all first-world nations, and we cannot reverse that fact.
I do not think they have unfroze. They seem to be a bit better ,but it is a work in progress. There has been a lot of complaining because the bailout money was being used for acquisitions and bonuses. That was not the idea behind it. But we trust the thieves ,so why would we ever regulate them. Some have just kept the money saying we should be pleased because they appear to be more solvent and stable now.
Gonzomax, there is a difference between frozen credit (banks refuse to lend to each other, letters of credit no honored, banks refusing a check from another bank, etc) and *tight *credit. In other words, frozen credit means the local, national and global economy grinds to a halt and becomes cash or barter only.
We are now in a period of extremely tight credit that hopefully will thaw a little to just tight credit. In other words, you won’t get a 10,000 dollar credit card mailed to your house anytime soon. Buying a car is going to require a strong credit score and 20% downpayment. Say goodbye to the past 5 years of easy easy easy easy money.
Actually, for a much closer analogy of EKG/credit markets, you might want to check out something called the TED spread, which is " the difference between the interest rates on interbank loans and short-term U.S. government debt." The average spread is 30 basis points: during the recent crisis, it shot up to 465 basis points. One usually staid newsletter I received at the time was going Librarian-poo over this: the credit markets were almost literally screaming.
That’s just it; the US is not isolated. For example, Canada has the stablest banking system in the world (yes, that’s right - the world, including Switzerland, et al), and we have been rocked by the US turmoil in a time when our economy has been thriving and our unemployment and inflation have been very low. I await the outcome of the G20 summit eagerly; I hope we find a solution that fixes each country taking the hits for things we have no say in. In other, plainer words, I hope the global community prevents the US from doing this to the rest of us again.
Housing prices still have another 15% to fall (in real terms) if they are to reach the long-term average. And they may overshoot.
Too many commentators (and banks, apparently) are asking to “Stabilize housing prices”, which suggests some level of denial. So, no, I doubt whether we’ve seen the end of the financial crisis (which started in Aug 2007, btw).
I’m am optimist though. I think that housing prices will drop by 15% or so over the next year and that 2010 will be a year of recovery. The third Bush recession will be worse than the previous 2, but milder than the 1980-1982 double-dip recession.
That’s the optimistic scenario. The pessimistic one involves the worst recession since the end of WWII and 5-10 years of slow growth, but nothing like the Great Depression.
I would wager that the reality will be a lot closer to the optimistic scenario than the pessimistic one.
--------- How close did we come to losing everything?
Close. If Bernanke didn’t persuade GWBush that he was a modest down-home kind of guy (a persona he dropped after he became Fed Chairman) and if the administration didn’t compromise during negotiations preceding Paulson’s appointment to the Treasury, we would have been in a world of trouble. Brrrrrrr. As it is, we have competent people in these 2 key positions, and the Obama administration will be bringing in even heavier intellectual artillery and business acumen.
But we still would have not had a Great Depression.
