Monday, March 24, 2008

Lions and Tigers and Bear Stearns
or "oh christ it's another soapbox post - there he goes again"

I really wasnt going to post on this subject - it's extremely complicated and nuanced and involves a lot of very very interrelated problems that dont make for good fodder for off the cuff arm-chair analysis by bloggers who spend their days reading and grumbling and not much else... but, well, Hillary did something today that got me started.

So before i go off, i'm going to go back... and read the earlier NYTimes link or at least this one for chrissakes. Now - housing prices had no business rising the way they did. For a visual representation, there's the rollercoaster... or to see it in a slightly more terrifying format there's the NYTimes graph... so it was pretty obvious to anyone with half a freakin brain that a correction of SOME sort was due.

So many of the big boys on wall st hedged themselves a bit - through insurance for the most part, through complex shemes using the housing bond AAA paper as collateral on currency and commodity deals (on the assumption that as housing values dropped there'd be a move by liquidity into other places driving those values up). Some of that worked - and thus my banks are still viable (even if they did have to go snake some large piles of cash from overseas to cover their losses) - but the insurance angle pretty much was bound to fail. Insurance, or reinsurance (when the insurers insure themselves against large collections), is great for providing stability to the market so money stays fluid (we dont have the sorts of problems the world had for so long on the gold standard anylonger - but that's in large part because of all these overly complex financial instruments - and our willingness to believe in the value of currency). The insurance was going to fail - hard... so a couple weeks back the fed intervened with $200b. They're trying to keep the pump primed so to speak - so the money supply doesnt constrict (the same problem we're about to face with the thermohaline circulation and global warming, only - just like in this instance - we only seem capable of acting after the fact).

So finally they went in and offered to take on all the crap Bear Stearns had been floating... because god help us if the markets suddenly start looking at AAA paper and thinking its not worth wiping your ass with (like the dollar for example). Now a lot of people left of center see this and think 'hundreds of billions of dollars going into this... hundreds of billions of dollars going into the war... and we're doing it all on credit' and wonder how it is we can do that but not help the little guy to make his house payment). It's a good question. Can we afford a 3-4 trillion dollar war on credit? Propping up the markets with the action on Bear may slow the dominoes but we arent at the point where we've seen past the tip of this iceberg yet... and honestly - fixing the problem with the credit market will be much more effective at fending off the real problems with this economic collapse than helping Mary make her house payment.

But today - Hillary asked Bush to appoint a committee with Greenspan and Volker to sort out the mess so the homeowner can get help with their house payments. Why not toss Phil Gramm into the mix while you're at it... they're all responsible for encouraging this shit to go down. Either she's an idiot - or she's playing politics with something that we really cant afford to play these fucking games with. (Not to mention that a year ago - Obama proposed a summit to Bernacke on the subject of impending foreclosure problems associated with predatory lending practices... but, of course, he wanted to involve lenders, consumer advocates, and govt regulators - and he wanted to do it a year ago before there was a big tight election in play and the big boys on wall st were still playing the game heavily)...

This is going to be very bad... but the economy is still 11 trillion dollars. Even if we're all a lot poorer than we are now by the end of it - it probably wont be so bad that we end up looking like mexico... just a lot more like mexico than we're all used to.

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