You don’t have to understand much about all this to find the top of today’s New York Times homepage terrifying (and if you do understand much, it’s probably worse):
After Frantic Day, Wall St. Banks Falter
Lehman Will File Bankruptcy; Merrill to Be Sold
U.S. Futures Contracts Fall With the Dollar
Big Insurer Seeks Cash as Portfolio Plummets
News Analysis: Jittery Road Ahead
Stunning Fall for Main Street’s Brokerage Firm
Nation’s Financial Industry Gripped by Fear
Purchase of Merrill Fulfills Quest for a Bank
Banks Fear Next Move by Shorts
This weekend Nouriel Roubini, writing before the Lehman bankruptcy but expecting it, warned:
… What we are facing now if the beginning of the unraveling and collapse of the entire shadow financial system, a system of institutions (broker dealers, hedge funds, private equity funds, SIVs, conduits, etc.) that look like banks (as they borrow short, are highly leveraged and lend and invest long and in illiquid ways) and thus are highly vulnerable to bank like runs; but unlike banks they are not properly regulated and supervised, they don’t have access to deposit insurance and don’t have access to the lender of last resort support of the central bank (with now only a small group of them having access to the limited and conditional and thus fragile support of the Fed). So no wonder that this shadow banking system is now collapsing. The entire conduits/SIV system has already collapsed with the roll-off of their ABCP financing; next is the collapse of the broker dealers (Bear, Lehman and soon enough the other ones) that rely mostly on unstable overnight repos and other very short term funding for their financing; next will be hundreds of poorly managed hedge funds that will face a tsunami of redemptions; and finally runs on money market funds that are not supported by a large financial institutions or other smaller member of the shadow banking system as well as highly leveraged and distressed private equity funds cannot be ruled out either.
This is indeed the most severe financial crisis since the Great Depression and occurring at a time when the US is falling in a now severe consumer led recession. The vicious interaction between a systemic financial and banking crisis and a severe economic contraction will get much worse before there is any bottom to it. We are only in the third inning of a nine innings economic and financial crisis. And the only light at the end of the tunnel is the one of the incoming train wreck.
All I know to add is the headline.
CNBC says AIG is seeking 40billion loan from federal government. AIG is on credit watch.
so much for any kind of retirement.
It just doesn’t pay to work hard, save money for investments and maintain good credit. I’m going to cancel my insurance, stop paying my mortgage, wait out the next hurricane on the beach and just wait for my government handouts to roll in. I think that would be more profitable for me.
Was just watching a wise old Wall Street bird tell the CNBC crew that, whether they like regulation or not, the financial system can’t survive without it. “You play without rules, you get into deep trouble,” he said.
This has been coming since Reagan. Can’t say we haven’t tried the Republican way. Look where it’s got us.
3rd inning with 6 innings left to play?-God help us all is right.
Nobody was whining when the markets were going up. And on average guess what the markets have done? I bought into a pullback in 1977 when the Dow 30 average was in the 700s. Where is the Dow now at the end of the world as we know it? Even discounted for inflation it looks like a long term bull market to me.
Yeah, we’re sunk. Our retirement is shot. Let’s all jump from a tall building.
You first.
I’m inclined to see it substantially the way Willie sees it: there are going to be a lot of bargain basement deals open to the prudent investor.
Osama bin Laden sought to do damage to the United States of America by the physical destruction of the World Trade Center. A day or so later, President Bush fashioned his first response to the assault. He told us to go out and continue shopping. And shop we did. We have been shopping in spades. Seems bin Laden is still winning.
http://www.house.gov/paul/congrec/congrec2008/cr070908h.htm
http://www.house.gov/paul/congrec/congrec2008/cr091008h.htm
We went shopping allright, Steve (at #8), but none of us compared with W’s drunken sailor spending, and that’s what caused this depression. How many of us knew the status of Lehman or Merrill or AIG before they fell? How many more are sitting on similar bad news, trying to find a buyer? We don’t know now, but soon we will. Remember the surplus?
The financial statement shenanigans and mismanagment (and outright fraud) of Freddie and Fannie pre-dated the Bush administration. We are finally paying for it now. Any suggesting otherwise are being disingenuous. There is plenty of blame here if one wants to play the blame game. And the national media which has been glossing over this rumbling volcano for many years really should share in the blame as well.
While all the emphasis was placed upon Enron and Worldcom a few years ago, little was said about the looming Freddie and Fannie crises — which should have been apparent to anyone paying attention — and from a size standpoint, made the Enron and Worldcom scandals pale in comparison. It was just a matter of time. We are now reaping what we sowed years ago.
I understand the desire to promote home ownership for as many as possible. But, at what cost? We are about to find out.
The “Ownership Society” was a Bush plan and mantra, beginning–and ending badly–with George W. Bush.
And now a word from the McCain campaign: Obama unveiled a new television commercial called "Honor" that is intended to challenge McCain’s credibility by pointing to a series of editorials that have scolded Mr. McCain for recent statements and charges made against Mr. Obama.
"What happened to John McCain?" an announcer says at the beginning of the commercial. "It seems deception is all he’s got left."
Tucker Bounds, a spokesman for Mr. McCain, said the advertisement was inappropriate "as Americans face economic uncertainty."..Huh?
I guess he can’t campaign against McSame during natural disasters, financial meltdowns or days of the week beginning with S, M T, W, and F.
Oh, that cute li’l Bounds boy again, huh?
Um . . . picture what’d be happening to Social Security if Bush and McCain had gotten their way.
McCain still has a shot at it, Lotus.
Fannie Mae started as a “new deal” policy under FDR. Freddie came about later. The national media has been reluctant in the past to report negative things about these two govt. backed businesses (despite more than ample and numerous opportunities) because they provided home ownership opportunities to many who traditionally could not otherwise qualify for a mortgage.
It is not surprising that a lot of this has caught our US citizens off guard. What gets reported, or not, too often depends upon whose ox is being gored.
Just where do you suppose all that social security loot is now?
I have a question. If the Republicans had been successful in their attempts to privatize social security funds, what effect would that have had on this market and what affect would this market have had on social security?
“What gets reported, or not, too often depends upon whose ox is being gored.”
Heh, don’t it just.
Good question ducky-I’d be interested in hearing the answer to that as well.
These programs have certainly been around a long time, but the de-regulation was a Republican ideal, trumpeted at every election since I can remember. Without de-regulation, the “stated income” loans would never have been allowed to occur and thrive. It is no wonder we are in the mess we are in given the fact that under Bush’s Ownership Society policies someone could simply walk into a bank or mortgage broker and state they made $300k in yearly income when in fact they made nothing close to that amount. When the bubble burst, interest rates rose and the flipping was no longer profitable, ownership didn’t seem like such a grand deal.
ducky, I imagine that if Bush-McCain had had their way on privatizing SS, a whole lot more folks, feeling their way through the markets on their own, would be as broke as I am.
You know who saw deregulation through, right? Then-Sen. Phil Gramm, McCain’s big econo-guru who a few weeks ago said this was all in our heads, whiners that we are.
Wow. I just heard John McCain on “The News Hour,” and it means something more major than you might think that he doesn’t even know how to pronounce “Lehman”: big ol’ audible “Out to Lunch” sign.
Next time a conservative talks about dems being socialists-I’d suggest a good look in the mirror. Economist & NYT columnist Paul Krugman just termed the Fannie/Freddie bailout a “socialization of risks”.-Oh, and he also said he didn’t see an alternate plan at this point but socialist nevertheless.
Aside from snarky comments, of which I own a share, I’d be interested in hearing from those who may have some background information on this issue (the economy) and that of health care-two of my major concerns. Aside from partisan opinion (I have enough of my own in that respect), I’m looking for facts. Obama vs McCain is the perspective I’m looking for.
A few facts.
The Justice Dept. in 2003 found that Freddie had been cooking its books for years and levied very large fines. Not to be outdone, two separate federal reports (one in 04 and another in 06) found that Fannie had been cooking its books for years, misstating earnings by over 10 billion from 1998 through 2004 in order to allow certain bigwigs to rake in large bonuses.
So, who at Fannie benefitted from the cooked books, fraud and mismanagement? How about Chairman Franklin Raines, Bill Clinton’s OMB director, who received 52 million in bonuses. And Vice Chair Jamie Gorelick, Clinton’s deputy attorney general, who raked in 15 million in bonuses. Chairman and Chief Executive James A. Johnson (1.9 million).
Greenspan warned about the potential disaster in 2004. In response, ignoring the warning by Greenspan, HUD mandated that Fannie and Freddie had to start handing out mortgages to minority and moderate-income buyers. Creditworthiness was of little concern.
And on top of all of this, while on the verge of disaster, these two companies were doling out large charitable contributions (millions) to groups such as Jesse Jackson’s organizations and to urban/minority projects and grants (500 million). Over 200 million was spent on lobbying costs and campaign contributions.
What a mess our government created with these two dysfunctional companies that hold approx. half of the nation’s mortgages.
One question in this thread that no McCain/W defender has answered is this: would Social Security be better off if they had succeeded in privatizing it?