Isn’t anybody ever going to admit that those in charge of confronting this now global economic crisis don’t have a clue. Henry Paulson now has again changed his mind on how to use his massive $700 billion slush fund (see http://www.nytimes.com/2008/11/13/business/economy/13bailout.html?hp.) It galled us all weeks ago to have watched how quickly the Congress, the talking heads on the tube, the Presidential candidates all capitulated and lined up behind such as a breathtakingly and appalling large figure. Think back in the past over all the ugly animal noises that emanated from both house of Congress over proposals to spend “paltry” little sums like $25B or so on spending packages that would given money to pre-schools programs or veterans or aspiring college students or whatever. And if and when any of these were finally grudgingly passed, they were immediately vetoed by his imminence ,“The Bush”, whining that we can’t afford it. Think how we once agonized over the costly Iraqi debacle running up some $ 2B a month and maybe hitting a trillion $ eventually. And now suddenly they turn around and almost instantly come up with 700 fucking billion dollars (and more) to bail out a bunch of greedy bankers (an maybe more for inept automakers)! And from where?
Somewhere in implementing the gargantuan exercise of shoveling money at the ailing financial sector by buying up the toxic debt someone realized that, ‘Hey this sucks!’ We are buying bad debt at some arbitrary price to try to stop a free fall in the value of the debt instruments when the source of the problem is somewhere else - the debt instruments are linked to mortgages on plummeting home prices.
As we now know the banks blew it big time and loaned into a classic bubble economy that fucking popped (which for years was predicted to happen.) Now the taxpayers have to bail them out. At this point the problem is the banks, big and small, don’t trust each other because they confidentially know how bad things are in their own bank. So we a get a monumental credit freeze which leads to equity sell offs in stock markets worldwide, which of course feeds on itself and thus this downward spiral. Ah yes, everything is interconnected. Once stock prices start to collapse traders get caught short and have to cash in their positions in other markets, like commodities and so commodities join equity stocks in the commode. At least oil prices also took a nosedive, so we won’t have that source of cost-push inflation - at least for a while.
Economists liked to talk about the “wealth effect”, the idea that with rising home values and juicy 401K people felt ‘fat and sassy’ and spent not unlike drunk sailors, foolishly draining equity out of the (inflated) home value and running up their credit cards (that carry usurious interest rates) to buy goods and services they could have maybe done without. But we now have the reverse of the “wealth effect”. People who have not even yet been directly impacted in terms of their day-to-day disposable income (they still have jobs) now suddenly feel a hell of a lot poorer – and they are! So they buy less stuff that they don’t really need, and aggregate demand falls, manufacturers cut back production due to rising inventories and lo and behold: layoffs. Now real cuts in disposable income start to occur with another round of reduced spending – and so it goes. So many feedback loops in a capitalist economy, loops within loops and they are all connected.
So after realizing maybe exchanging good money for garbage wasn't such a hot idea Paulson and the boyz upped and gave money to all the big banks whether they needed or not (they couldn’t give it only to the ones that really needed it and point out the real losers or they would have triggered a run on those outfits.) The idea was 're-capitalizing' the banks would free things up and lending would be forthwith. But greed has no limits. The banks just chuckled and used the money to do what they pleased. You see the real problem for the banks is their stock price are in the toilet. They want them back up there where they think they belongs. They (the bankers) personal fortunes depend on it. With this meltdown the really, really rich are now only really rich, and they don’t like it. In other words the bankers (and corporate ownership class in general) generally don’t give a rats ass about the about aggregate economy as a whole. It’s their particular firm (and personal fortune) that matters. Of course they must realize on another level that we all they we all sink or swim together. We are are naturally conditioned to look out for numro uno first, then secondly maybe the entire edifice.
Since the big bankers are such self-serving pricks (which Paulson should have known as he one of them), he is now redirecting his slush fund in other direction maybe even to the actual borrowers. Maybe they should have thought of that sooner. Whatever they are doing , it doesn’t seem to have lessened the pessimism as the Dow fell like a rock again today - over 400.
Somewhere in implementing the gargantuan exercise of shoveling money at the ailing financial sector by buying up the toxic debt someone realized that, ‘Hey this sucks!’ We are buying bad debt at some arbitrary price to try to stop a free fall in the value of the debt instruments when the source of the problem is somewhere else - the debt instruments are linked to mortgages on plummeting home prices.
As we now know the banks blew it big time and loaned into a classic bubble economy that fucking popped (which for years was predicted to happen.) Now the taxpayers have to bail them out. At this point the problem is the banks, big and small, don’t trust each other because they confidentially know how bad things are in their own bank. So we a get a monumental credit freeze which leads to equity sell offs in stock markets worldwide, which of course feeds on itself and thus this downward spiral. Ah yes, everything is interconnected. Once stock prices start to collapse traders get caught short and have to cash in their positions in other markets, like commodities and so commodities join equity stocks in the commode. At least oil prices also took a nosedive, so we won’t have that source of cost-push inflation - at least for a while.
Economists liked to talk about the “wealth effect”, the idea that with rising home values and juicy 401K people felt ‘fat and sassy’ and spent not unlike drunk sailors, foolishly draining equity out of the (inflated) home value and running up their credit cards (that carry usurious interest rates) to buy goods and services they could have maybe done without. But we now have the reverse of the “wealth effect”. People who have not even yet been directly impacted in terms of their day-to-day disposable income (they still have jobs) now suddenly feel a hell of a lot poorer – and they are! So they buy less stuff that they don’t really need, and aggregate demand falls, manufacturers cut back production due to rising inventories and lo and behold: layoffs. Now real cuts in disposable income start to occur with another round of reduced spending – and so it goes. So many feedback loops in a capitalist economy, loops within loops and they are all connected.
So after realizing maybe exchanging good money for garbage wasn't such a hot idea Paulson and the boyz upped and gave money to all the big banks whether they needed or not (they couldn’t give it only to the ones that really needed it and point out the real losers or they would have triggered a run on those outfits.) The idea was 're-capitalizing' the banks would free things up and lending would be forthwith. But greed has no limits. The banks just chuckled and used the money to do what they pleased. You see the real problem for the banks is their stock price are in the toilet. They want them back up there where they think they belongs. They (the bankers) personal fortunes depend on it. With this meltdown the really, really rich are now only really rich, and they don’t like it. In other words the bankers (and corporate ownership class in general) generally don’t give a rats ass about the about aggregate economy as a whole. It’s their particular firm (and personal fortune) that matters. Of course they must realize on another level that we all they we all sink or swim together. We are are naturally conditioned to look out for numro uno first, then secondly maybe the entire edifice.
Since the big bankers are such self-serving pricks (which Paulson should have known as he one of them), he is now redirecting his slush fund in other direction maybe even to the actual borrowers. Maybe they should have thought of that sooner. Whatever they are doing , it doesn’t seem to have lessened the pessimism as the Dow fell like a rock again today - over 400.
