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A recent paper by the Minneapolis Federal Reserve has gotten a lot of attention.  The paper is titled Facts and Myths About the Financial Crisis of 2008 and it argues there was in fact no credit crisis.  Several people have used this paper to argue that Wall Street overstated the severity of the credit crisis in order to get a bail-out they didn’t need.  What these commentators have failed to heed is this paper was widely criticized within the financial community, even drawing a rare rebuke from a sister Federal Reserve Bank.  In short, to argue there was no credit crisis -- to say we were "punked by wall street" – flies in the face of every available fact on the crisis.

First, let’s provide some background for this debate.  As of this writing 311 lenders have "imploded.  The XLFs – the ETF that tracks the financial sector – is down almost 70% from a high in the summer of 2007.  Total credit losses at the world’s financial institutions have totaled 1 trillion dollars:

The gauge is down 46 percent in 2008 as credit losses and writedowns at the world’s largest banks surpassed $1 trillion and the U.S., Europe and Japan entered the first simultaneous recessions since World War II.

In other words, the financial sector’s economic position is terrible at best.  

But the evidence runs deeper.  About every six weeks the Federal Reserve issues a paper titled "The Beige Book.  This is a book complied from anecdotal evidence from the Federal Reserve Districts on the general economic environment.  Every Beige book issued in 2008 has indicated credit conditions were tightening and loan demand was decreasing.  

January 16, 2008:

Reports from banks and other financial institutions noted further declines in residential real estate lending, and lending to the commercial real estate sector was generally described as mixed. Some Districts reported lower consumer loan volumes, whereas the volume of commercial and industrial lending varied. Most Districts cited tighter credit standards.


March 4, 2008:

Most Districts reporting on banking cite tight or tightening credit standards and stable or weaker loan demand.

April 16, 2008:

Financial institutions in many Districts indicated some deceleration in consumer loan demand, tightening in lending standards, and deterioration in asset quality

June 11, 2008:

Lending activity also varied across Districts and market segments, though tighter credit standards were reported for most loan categories.

July 23, 2008

In banking, loan growth was generally reported to be restrained, with residential real estate lending and consumer lending showing more weakness than commercial lending.

September 3, 2008

Most Districts reported easing loan demand, especially for residential mortgages and consumer loans; lending to businesses was mixed.

October 15, 2008:

Credit conditions were characterized as being tight across the twelve Districts, with several reporting reduced credit availability for both financial and nonfinancial institutions

December 3, 2008:

Lending contracted, with many Districts reporting reductions in residential, commercial and industrial lending and tightening lending standards.

In addition to the Beige Book, the Federal Reserve issues a Senior Loan Officer Survey every three months.  These reports stated the following:

January 2008:

In the January survey, domestic and foreign institutions reported having tightened their lending standards and terms for a broad range of loan types over the past three months. Demand for bank loans reportedly had weakened, on net, for both businesses and households over the same period.

April 2008:

Compared with the January survey, the net fractions of banks that tightened lending standards increased significantly for consumer and commercial and industrial (C&I) loans. Demand for bank loans from both businesses and households reportedly weakened further, on net, over the past three months, although by less than had been the case over the previous survey period.

July 2008:

In the current survey, large net fractions of domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months. In particular, the net fractions of banks that had tightened credit standards on consumer loans increased notably relative to the April survey.

October 2008:

In the current survey, large net fractions of domestic institutions reported having continued to tighten their lending standards and terms on all major loan categories over the previous three months. The net percentages of respondents that reported tightening standards increased relative to the July survey for both C&I and commercial real estate loans, as did the fractions reporting tightening for all price and nonprice terms on C&I loans.

Finally, there is the quarterly banking profile from the FDIC.  Here is the summary from the most recent report:

Troubled assets continued to mount at insured commercial banks and savings institutions in the third quarter of 2008, placing a growing burden on industry earnings. Expenses for credit losses topped $50 billion for a second consecutive quarter, absorbing one-third of the industry's net operating revenue (net interest income plus total noninterest income). Third quarter net income totaled $1.7 billion, a decline of $27.0 billion (94.0 percent) from the third quarter of 2007. The industry's quarterly return on assets (ROA) fell to 0.05 percent, compared to 0.92 percent a year earlier. This is the second-lowest quarterly ROA reported by the industry in the past 18 years. Evidence of a deteriorating operating environment was widespread. A majority of institutions (58.4 percent) reported year-over-year declines in quarterly net income, and an even larger proportion (64.0 percent) had lower quarterly ROAs. The erosion in profitability has thus far been greater for larger institutions. The median ROA at institutions with assets greater than $1 billion has fallen from 1.03 percent to 0.56 percent since the third quarter of 2007, while at community banks (institutions with assets less than $1 billion) the median ROA has declined from 0.97 percent to 0.72 percent. Almost one in every four institutions (24.1 percent) reported a net loss for the quarter, the highest percentage in any quarter since the fourth quarter of 1990, and the highest percentage in a third quarter in the 24 years that all insured institutions have reported quarterly earnings.

Before we even get to the Minneapolis Federal Reserve Report we’ve clearly established the following.  

1.) There have been over 300 failures of various lenders
2.) The financial industry has taken over $1 trillion in losses since the start of this crisis
3.) Financial stocks are down almost 70% since the summer of 2007 making it nearly impossible for institutions to raise additional capital in the equity market.
4.) Each Beige Book issued in 2008 indicated a troubled credit market
5.) Every loan officer survey issued in 2008 indicated tightening credit standards and decreasing loan demands
6.) The FDIC’s latest Quarterly banking profile showed massive losses for the US banking industry along wither serious deterioration in asset quality.

In the face of the preceding facts the Minneapolis Fed argues "here we examine three claims about the way the financial crisis is affecting the economy as a while and argue that all three claims are a myth."  Their first claim is because there was no decrease in outstanding credit the claims of a credit crunch are overblown: "These figures show that their claim, that banks have essentially stopped lending to non-bank entities is false, at least as of October 15."  Unfortunately this argument runs in the face of economic history.  Here is a chart of total US bank credit outstanding:


What does this chart tell us?  There are two important facts.

1.) The latest recession is the only recession where total credit outstanding has leveled off for an extended period.  (The first recession in the 1980s saw a contraction but only after total credit increased).   While it didn't decrease it also didn't increase.  Compare this to the previous 6 recessions when lending increased at least slightly throughout the recession.  In other words, the leveling off of credit creation is a story in and of itself.

2.) In order for the US economy to grow it must have a continual supply of new credit.  A leveling off is just as hazardous as a decline.  

And that is what happened during most of 2008.  The graphs contained within the Minneapolis Federal Reserve report show a clear leveling off of total outstanding credit for most of 2008.  Again - this is the only recession in the last 40 years where this has happened.

And Professor Mark Thoma who runs the blog Economists View offers this rebuttal:

Here is every loan series the Federal Reserve Band of St. Louis finds it worthwhile to report in FRED (the title of the section is "Banking: Loans"). These are all percentage changes in quantities (expressed in billions of dollars) from a year earlier, not prices:






Professor Thoma concludes:

I realize that growth rates are still positive and relatively high in some cases -- even real estate loan growth remains above previous troughs -- and that can be interpreted as lack of evidence of a big problem. But I thought the claim was there is no evidence of a fall off in loan activity. The graphs above show there has been an impact, it's not negative yet, but there has been a sharp downturn. It also suggests that if the downturn follows previous patterns - and hopefully Fed intervention or private sector adjustment will prevent that (see the hopeful signs at the end of some of the series above) - but if it does repeat the pattern, we still have a long way to go before things turn around.

And then there is this rebuttal from Tyler Cowan:

First of all, some of the conclusions drawn are simply false. While rates on the highest quality non-financial commercial paper have behaved fairly well in recent weeks, rates for lower quality stuff have soared. The spread between the two, actually, is one of Calculated Risk's credit market indicators.

The failure to distinguish between the two types of paper is indicative of the broader, unwarranted credulity of the authors. For instance, many of the series they present actually show an unusual spike in bank lending during the crisis period. Are we to understand that for most banks, conditions actually improved, suddenly, sharply, and atypically while the rest of the financial world went to hell? Well, we might do that. Or we might suspect that the increase in bank lending was itself a product of tight credit conditions elsewhere—that borrowers were falling back onto lines of credit they normally wouldn't use thanks to the severity of lending conditions.

And all of this occurs before we get to a rare rebuttal from a sister Federal Reserve Bank.  The Bank of Boston issued a paper titled Looking Behind the Aggregates, a Reply to Facts and Myths About the Financial Crisis of 2008.  This paper notes the large spikes in several key short-term rates:




And then there is the large drop-off in non-investment grade commercial paper issuance:


Finally, there is the Treasury market.  On Friday I wrote the following on my blog:

What the Minneapolis Fed report fails to take into account is inflation in one reason for investors to purchase Treasury bonds. Another is safety. Because US Treasury bonds are considered the safest in the world people buying them at a high rate means Treasuries are yielding an incredibly low rate right now. Some T-Bills have recently been issued at 0% interest! That in and of itself tells us the level of concern is abnormally high and a credit crunch is indeed going on - people don't want any return; they simply want their money back!

In short, inflation expectations are one reason why people buy Treasury bonds. But another very important reason is safety. And investors are clearly concerned mostly with safety right now if they don't even want a return on their investment.

In short – we were not "hoodwinked" by Wall Street.  There was and is a serious problem with the financial system that needed fixing in a serious and immediate way.  To argue differently flies in the face of all available facts.

Originally posted to bonddad on Sat Dec 20, 2008 at 06:52 AM PST.

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Comment Preferences

  •  Who gains (42+ / 0-)

    by promoting a "there was no crisis" propaganda?

    Not the financial community, they're getting billions in taxpayer money.


    Nothing can now be believed which is seen in a newspaper. Truth itself becomes suspicious by being put into that polluted vehicle. Thomas Jefferson 6/11/1807

    by Patriot4peace on Sat Dec 20, 2008 at 06:55:32 AM PST

  •  Maybe Minneapolis didn't want to go 'all-in' (1+ / 0-)
    Recommended by:

    with the latest rate cut.

    •  The reasons for writing it are irrelvant (43+ / 0-)

      The bottom line is the report is wrong.

      When another Federal Reserve Bank jumps into the debate and says "I disagree" you know there's a fundamental issue. It's akin to when the Supreme Court of the US rebukes a state Supreme Court in a ruling.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Sat Dec 20, 2008 at 07:03:28 AM PST

      [ Parent ]

      •  unanswered questions include (14+ / 0-)
        1. why did the banks stop lending?  One can understand tightening up on real estate loans in a bubble, but why "freeze up" all credit?
        1. if the "credit freeze" was the problem then why did the bailout money go to Wall Street rather than to the banks (specifically for the purpose of making those "economically necessary" loans)?
        1. how was money given to Morgan, and Goldman and AIG and CITI ever expected to "trickle down" to the loan desk at my local bank or credit union?

        I agree that there was/is a "crisis" . . . but the crisis that I see is Bernie Madoff writ large, across the whole face of Wall Street.  And I don't see why we bail them out while letting the rest of America go unemployed and fail . . .

        •  My understanding is (21+ / 0-)

          that banks stopped lending primarily to other banks because they could not be sure that the recipient bank was not basically insolvent due to essentially worthless debt on their books. The mortgage-backed security crisis was essentially the collapse of a vast Ponzi scheme. Madoff ought to be asking, "why pick on me?" How come the CEO's of Wachovia or WaMu aren't in cuffs?

          •  Banks aren't lending because holding cash is good (3+ / 0-)

            When the economy finishes bottoming out banks are going to want to invest trillions in all those bargain basement stocks that are going for a fraction of their real worth.

            Banks investing in real estate isn't out of the question. Loans right now are going for as low as 4.25%. Why get stick with foreclosures if you can loan people money to refinance their mortgages?

            I think the bottom being established is what we are seeing right now, at its extreme somewhere around 8500 on the Dow. For Oil I don't expect to see it break into the $20 a barrel range even though ETF's in oil are bumping on $32 already.

            In a month when Obama is actually inaugurated we should begin to see things rise pretty fast. With oil going back up and the amount of meney we have thrown at the problem we could see the market going up at a rate of 500 points a quarter for the next two years.

            Live Free or Die --- Investigate, Impeach, Incarcerate

            by rktect on Sat Dec 20, 2008 at 10:13:31 AM PST

            [ Parent ]

            •  Well, holding cash is good (2+ / 0-)
              Recommended by:
              davidincleveland, Jbeaudill

              but why is that so? It's really that assets have been way over-valued. I think that the Dow will fall much lower after the new year. I think 8500 has been the bottom until large retailers start folding. You can smell the desperation in the shopping malls today. Many retailers are waiting until the Xmas season is over until they fold. But I expect a wave of Chapter 11's in Q1 of 2009. Then we shall see whether 8500 is the bottom. I suspect it may be more like 7000 or worse.

            •  It's more complicated with banks (3+ / 0-)
              Recommended by:
              rktect, davidincleveland, Jbeaudill

              They can't buy stocks, generally, like other investors, particularly now that investment banks are gone, having opted to become National Banks, closely regulated by the Fed and FDIC, and they must comply with the deposit-taking orientation of other National Banks. And they are not like to loan money for stock purchases either because everyone in banking wants to know about exit strategies now -- collateral.

              Oil will not go up like before, nor other commodities, for a generation. Why? Because there no longer exists the excess liquidity to drive commodity prices up -- that's why the financiers are suddenly in a "liquidity crisis."  Get used to cheap oil. It will take more than Obama's election to concentrate that much purchacing power in the hands of few intermediaries again.  

              •  True Goldman Sachs and JPM changed their profiles (0+ / 0-)

                We are running out of oil. Despite the appearance of their being more production than demand at the moment, the fact is the Saudis haven't been able to meet their production quotas for years.

                High oil prices will last about a decade until the transition to methane hydrates is completed. The first production of methane hydrates will come on line in 2009 but it will take about a decade before it replaces oil completely.

                Then energy will be cheap for about another century which is enough time to develop alternative energy if we recognize that needs to be a priority abd this will be our last chance.

                The drawback from transitioning to running on gas, fuel cells, HO, photovoltaics, batteries biofuels and other alternatives is that there really won't be one centralized standardization to make fueling up as easy as it is now.

                Many other banks still invest in stocks

                The following are some of the different types of banks. Many of these are involved in international banking and investments that are not entirely governed by the same regulations US banks are.

                Central banks set policy and supervise
                Advising banks handle letters of credit
                Commercial banks deal with deposits and loans
                Community development banks spur economic development
                Custodian banks hold the assets that back ADR's and IRA's
                Depository banks provide stock transfer services
                Investment banks raise money through issuing and selling securities
                Industrial banks issue consumer credit
                Islamic banking functions under sharia law which prohibits the charging of fees for the renting of money
                Merchant banks handle private equity banking
                Mutual banks invest in stocks, bonds, mortgages loans and securities
                Mutual savings banks don't issue stock
                National banks are synonomous with Central banks
                Offshore banks are associated with tax evasion and money laudering
                Private banks are not incorporated
                Savings banks are retail banks
                Sparkasse are German universal banks
                Swiss banks specialize in secrecy.

                Live Free or Die --- Investigate, Impeach, Incarcerate

                by rktect on Sun Dec 21, 2008 at 12:40:45 PM PST

                [ Parent ]

          •  Eventually, derivatives will have to be flushed.. (3+ / 0-)

            from the system (what the financial types like to call "deleveraging").  It's just a matter of time...[tick * tick * tick *]

        •  My unanswered question: (6+ / 0-)

          What is the point of buying T-bills at 0% interest?  Why not just keep the cash in a mattress and save yourself the transaction costs?

          Somebody wise please give me the answer.  It is keeping me up nights worrying about it.

          The sleep of reason brings forth monsters. --Goya

          by MadScientist on Sat Dec 20, 2008 at 09:11:09 AM PST

          [ Parent ]

        •  My understanding: (11+ / 0-)
          1. What banks that are still solvent can't be sure which other ones are, because (like Japan in the '90s) the insolvent ones are being allowed to pretend that everything is fine, so they don't dare even loan to each other. That's what happens when a broad category of assets suddenly declines in value, in this case an inverted pyramid of derivatives (such as credit default swaps) that was built upon much smaller debt markets (most notably home mortgages). The riskiness of those derivatives was severely understated; and certainty has great worth, so their value was severely overstated; which means the assets of those institutions holding the derivatives were severely overstated, so they really have negative net worth. And, that is something that won't change any time soon, since the existence of evidence of possibility of decline will make permanent the re-evaluation of the risk (and therefore value) of those derivatives, even once the real estate market itself recovers.
          1. Those insolvent banks would be liquidated in a well-regulated economy, with the government taking over the personnel and physical assets of as many as were needed to keep the economy going. Instead, the wealthy and well-connected few who caused the problem in the first place managed to successfully stampede a whole bunch of sheeple into throwing good money after bad and saving the reckless gamblers' sorry asses with public money. That's corporatism: privatizing the profits and externalizing the expenses.
          1. It wasn't.

          I want to live in a civilization.

          by SciVo on Sat Dec 20, 2008 at 09:46:20 AM PST

          [ Parent ]

          •  Who can argue with this post? Well put. (1+ / 0-)
            Recommended by:

            Plain as the nose on Paulson's face.

            Yet we are led to believe that this is too complicated for mere mortals and we must be in denial to questions of severity.

            I fart in bondad's general direction.

            "Things will start to slide In all directions." - Leonard Cohen

            by wobbledon on Sat Dec 20, 2008 at 11:50:47 AM PST

            [ Parent ]

          •  Let the banks set up subsidiaries (1+ / 0-)
            Recommended by:

            with a clean balance sheet, say Citibank 2 and Bank of Wasilla 2.

            Stamp the paperwork with 2s and put up small signs at each location.

            Citibank 2

            Bank ofWasilla
            Bank of Wasilla 2

        •  Lack of capital (3+ / 0-)

          The big banks stopped lending in September because the collapse of the derivatives market created such large losses that they no longer had capital.  A bank is allowed to lend out some multiple of its capital; its loan money comes from deposits and capital, and the capital is supposed to be adequate to cover losses.  In good times, of course, it can make good returns on a modest amount of capital because it leverages deposits to make loans.  But in bad times the capital goes away and it is forbidden to make new loans.

          Smaller (community) banks continued to make loans precisely because they had not been playing in the derivatives market.  Their money came from depositors. Big banks borrowed money from each other, and when they started tanking, and some could no longer make loans, the pain spread rapidly.

          Europeans had experience with this, and proposed "direct capital injection".  Paulson didn't want to do this, but Congress insisted on giving  him the option, and eventually was forced to follow their lead, and that's the only thing that did any good.

      •  It's just a working paper (5+ / 0-)

        It's not the Minneapolis Fed saying "I disagree."  It's an internal discussion document that raises relavent questions when a bunch of very wealthy people in Manhattan, may of whom have proven to be suckers themselves, ask for a trillion dollars of other people's money to protect their entitlements to trade (as Sen calls it).  

        The important question which they bring up is this: "How do we really know that the rest of the economy is so dependent upon the financial sector, whose only real job is to be an intermediary for lending between owners of real things like labor and capital?"  Why can't we just let the intermediaries take the hit for making dumb decisions and let new intermediaries arise?  The answers to these questions are not easy ones for people who believe in the premises of the market-economy framework.

        What Wall Street is requesting a  redistribution of wealth to them because they "promise" to help re-store a market for US homes. Is this really a good idea?  (I happen to think it may be, but my mind is far from made up.)

        •  The problem is that they are essentially... (4+ / 0-)

          trying to shore up a failed system.  Some of them may actually believe that they are forestalling catastrophe and be working toward that end (Bernanke?) but others (Paulson?) are probably just trying to hold things together long enough for them and their cronies to get out with as much money as possible before all of Wall Street gets hollowed out.  The main question is:  Do we really need Wall Street financiers?  What do they do for the real economy?  Can it be done some other way that can be better regulated and is not so obviously open to corruption (Bernard Madoff must be the envy of any Mafia don)?

          •  People with capital (2+ / 0-)
            Recommended by:
            Jbeaudill, Wings Like Eagles

            that is, people with things that are valuable to others, might not need Wall Street, but they will need a set of financial intermediaries of some kind, and, like most industries, agglomeration tends to concetrate things geographically.  The more relevent question is whether we -- that polity which makes up the Unites States, need to be the center of world capitalism.  I think we do, though not everyone in our country does.  

            Regulation -- political imposition of someone else's goals -- is not an answer:  Good regulation is, but what makes for good regulation is a contested question because it's almost always about who gets what.

            •  A lose-lose proposition. (1+ / 0-)
              Recommended by:
              Wings Like Eagles

              On one had we need financial intermediaries without regulation and on the other hand when we have financial intermediaries without regulation the financial intermediaries will almost certainly collapse - leaving everyone else with the choice of either letting this necessary institution fail or throwing great deals of wealth into the framework, which could well be a work in vain.

              The argument is a lose-lose proposition for everyone except the peddlers of this supposed 'necessary instution'. I don't buy it.

              They don't pay me enough to save, and they don't pay me enough to spend. So let 'em bail their own asses out and stop blaming me. -Joy Busey

              by James Kresnik on Sat Dec 20, 2008 at 03:18:46 PM PST

              [ Parent ]

        •  I would add to that... (4+ / 0-)

          The only thing that will "re-store" the housing market is that values find a bottom.  Then work from there.

          Any artificial attempt to prop the market will only distort values and waste the fortunes of generations of taxpayers.

          Providing the credit through Federal intervention like during the creation of the FHA in the 1930's would be a start.  But using a failed Wall St. model for the self-servicing demands from those who brought us this breakdown is the definition of insanity.

          "Things will start to slide In all directions." - Leonard Cohen

          by wobbledon on Sat Dec 20, 2008 at 12:00:06 PM PST

          [ Parent ]

      •  Do we need to wait until all the bailout money (4+ / 0-)

        is gone before we get our torches and sharpen our pitch forks?

        Giving more money to the scammers will end with the same result.

        When it all falls apart AGAIN we need to insure those responsible end up with ZERO assets and are forced into the poverty they apparently think we deserve in order for a recovery to take place.

  •  You triiiied to warn us (13+ / 0-)

    Unless I've got you confused with someone else, I recall you predicting this general picture at least as far back as late spring.

    No way, no how, no Palin. (or McCain)

    by Ericwmr on Sat Dec 20, 2008 at 07:01:50 AM PST

  •  Eventually, after all else fails, the banks will (5+ / 0-)

    be forced by the invisible God of the Market to write down all of their assets to market value - not book value.  

    Until then there will be nothing but pain.

  •  switched 401K to bonds (10+ / 0-)

    and cds. and who knows if they are safe. it ain't over either. we still have the commercial real estate crisis and the credit card crisis to get through. good luck folks. thanks bonddad, as always.

    "It is not time to ShutTFU, it is time to SpeakTFU." -words in action

    by UTvoter on Sat Dec 20, 2008 at 07:05:26 AM PST

  •  We still got punked (41+ / 0-)

    I agree that there has been a credit crisis from what I've been reading since this summer. However, they still punked us. The fact that CEO's are walking off with huge bonuses after taking TARP money, the fact that the allocation and accounting for TARP money is not being strictly overseen, these facts make me go hmmmmmmm. These facts make me pissed off as hell.

    There has been a real crisis, just as Katrina was a real crisis, but the government response has been equally irresponsible if not criminally negligent in effect.

    Take the Kama Sutra. How many people died from the Kama Sutra as opposed to the bible. Who wins? FZ

    by cosmic debris on Sat Dec 20, 2008 at 07:07:02 AM PST

    •  the crisis is real, the response is punked chumps (7+ / 0-)

      Barnacle Brains CEO's blame production line for failure.

      by 88kathy on Sat Dec 20, 2008 at 07:24:58 AM PST

      [ Parent ]

    •  It appears that (5+ / 0-)

      the Minneapolis paper is asking for a reiteration of the root cause of the financial crisis, because they don't believe what we've been told.

      Like you're pointing out - they agree shit's happening, but not agreeing semantically on the cause.

      The first sentence of the paper:

      The United States is indisputably undergoing a financial crisis and is perhaps headed for a deep recession.

      They aren't disputing that there is in fact a financial crisis. They are suggesting that there is a different root cause than what we've been told.

      •  That's known as journalism. (4+ / 0-)

        Asking the questions everyone else has blindly accepted through ignorance of financial matters as a matter of course.

        And having bondad, who I feel is vastly over rated for these diaries, come out and claim that folks don't understand how real this crisis is insulting to say the least.

        Maybe it isn't as real as Katrina in that Katrina involved reality through nature and this crisis was conjured up through greed beyond historical imagination in the abstract financial world.

        But, still bondad, you got punked, we got punked for shitting our diapers on cue.

        •  Well, I don't know if bondad is purposefully (3+ / 0-)
          Recommended by:
          wobbledon, James Kresnik, priceman

          misleading. There might just be a genuine difference in opinion. I wouldn't go as far as to suggest anything insidious is going on. It is very wrong to imply that the Minneapolis Fed is denying that there is a financial crisis, however. Only thing they're saying is that if the crisis is not occurring for the reasons people like Paulsen are stating, then a government bailout may not be necessary.

          As a completely unrelated example: Many scientists disagree on the mechanisms for how evolution occurs. 99% of them believe that evolution is occurring, though.

          •  That makes it very clear. (4+ / 0-)

            The Minneapolis Fed is not denying a crisis.  They want a reiteration of the causes, which to me is rational.
            We don't see too much rational 'hey wait a minute"'s.

            Too often here especially in the opinion of the diarist, is that this kind of talk is somehow a sort of denial.

            Bankers themselves are beginning to ask tough questions that Congress is too think to even contemplate as they scurry off from the responsibilities of oversight.

    •  Right (2+ / 0-)
      Recommended by:
      cosmic debris, weebo

      The title of the diary confused me.  It's not an either-or.  The crisis itself was brought about by a massive punking of the "little people" by the Wall Street crowd.  The "solution" punked what little was left to punk.

  •  What's going on (4+ / 0-)

    Was pretty much predicted,  almost exactly,, as soon as the loonies started talking so called 'free market' and 'trickle down' raygunomics!!

    "How anyone can say that torture keeps Americans safe is beyond me -- unless you don't count American soldiers as Americans."

    by jimstaro on Sat Dec 20, 2008 at 07:07:25 AM PST

  •  Looks like the Minneapolis Federal Reserve (3+ / 0-)

    has more than a few Bush II loyalists imagining a parallel financial universe. . .where Republican apologists have a leg to stand on, that and keeps dinosaurs for pets.

    Habeas Corpus:See Hamilton quoting Blackstone in The Federalist Papers, number 84.

    by Ignacio Magaloni on Sat Dec 20, 2008 at 07:08:23 AM PST

    •  full disclosure (5+ / 0-)

      I'm a Minneapolis Fed employee, albiet nowhere near this sort of stuff.

      That being said, if you think the people writing this stuff are "Bush loyalists", you have no idea what you're talking about.  And as long as you're digging yourself a hole, keep in mind that a: Bush said there WAS a credit crisis, and b: a Minneapolis Fed economist was recently awarded a Nobel prize for his work.  Whether or not they were RIGHT this time is out of my department and my pay grade, but writing them off as "Bush loyalists" is just stupid.

      Liberals are afraid of guns, have no willpower, want to lose, and coerce our views on those who have guns, willpower, and want to win. Got it.

      by Orbital Mind Control Lasers on Sat Dec 20, 2008 at 08:02:28 AM PST

      [ Parent ]

      •  Back It Up (0+ / 0-)

        Even if Bush did say there's a credit crisis, he's just doing his part creating it and using it to rip us off. The Minneapolis Fed is doing its part by denying it.

        On what authority can you assure us that the people at the Minneapolis Fed are not working according to the Bush agenda? What "pay grade" and department do you work in where you can make such assurances?

        "When the going gets weird, the weird turn pro." - HST

        by DocGonzo on Sat Dec 20, 2008 at 08:52:05 AM PST

        [ Parent ]

        •  Give it a freakin' break (1+ / 0-)
          Recommended by:

          He has to prove nothing but your obvious ignorance.
          The 12 regionals, as the fed banks are known, are completely independent from the administration.  If you know anything about how the Federal Reserve system works, which I doubt, you'd know they represent the banking interests in that region - i.e. They elect their president from among the bankers.

          On top of that there is presently a whole lot of tension going on about how Bernanke is restructuring the power center of the FED and remodeling it more and more with the sweeping powers of a traditional central bank. (i.e. the Chancellor of the Exchecker in England).

          So the lame duck administration does not by any means have any leverage or influence with the regionals.

          You simply don't know much about this situation.

          •  Freak Yourself (2+ / 0-)
            Recommended by:
            James Kresnik, weebo

            The banking interests in the region are, like in every region, busy sucking up $TRILLIONS in handouts from the government after making $TRILLIONS in unsustainable business. Bush just handed another $350B to these banks while a "lame duck", and is working hard to get Congress to release the other $350B in his last weeks. You just admitted yourself that Bernanke is making it more centralized, which gives Bush even more power over it.

            So don't you go shooting off your mouth like you know what you're talking about and I don't. You can disagree with me. But you've got zero standing to talk like a punk at me. Especially when you're totally wrong. You freak.

            "When the going gets weird, the weird turn pro." - HST

            by DocGonzo on Sat Dec 20, 2008 at 09:37:29 AM PST

            [ Parent ]

            •  Watch yourself the next time you prance (0+ / 0-)

              around demanding someone proves the obvious to any here informed about this financial fiasco.
              You still have yet to back up your own claim that banking interests in the Minneapolis area are somehow aligned with Bush while at the same time actually undermining the administrations arguments.
              Pure contradiction and ignorance.

              •  Blah Blah Blah (0+ / 0-)

                I'm arguing facts and logic, which already addressed specifically what you continue to merely assert.

                You are asserting on baseless authority.

                You better watch your self. I'm not bothering to watch you anymore.

                Goodbye, and good riddance. Jerk.

                "When the going gets weird, the weird turn pro." - HST

                by DocGonzo on Sat Dec 20, 2008 at 09:46:43 AM PST

                [ Parent ]

                •  Here's a fact about current Fed policy: (2+ / 0-)
                  Recommended by:
                  sayitaintso, Jbeaudill

                  The bailout money has been used to undermine regional banking through merger.
                  The regionals know this and are beginning to speak against it.

                  National City Bank of Cleveland was "rescued" through an aggressive mandated merger with PNC of Pittsburgh despite having a better Tier 1 capital ratio and plenty of funding to get through it's bad debt.
                  It was approved despite a protest through the Federal Reserve of Cleveland and the community by the FOMC and board of governors in Washington this past Tuesday.

                  I read the report the Federal Reserve sent to me after commenting on the merger and the bottom line in the report on why they approved was they were willing to look the other way in their standard assessments of the concentration of banking monopolies especially in the Pittsburgh area because they tweaked their own figures of what role "thrift institutions" had on their own weighted index of depository concentration.  They simply fixed the facts to policy, just like with the Downing Street Memo.

                  The Board of Governors are aligned with Bernanke and the regionals sense a coup.

                  And they realize that the Fed is intent on raiding their banks' deposits to save Citigroup, Morgan Stanley, BoA, and all the other giants too big to fail.

                  So look for a lot more regional Presidents to speak out against this so called bailout to undermine the survival of diversified banking.

                  Do you have at least any anecdotal examples to make your flimsy case of fact and logic?

        •  If Fed Board members wanted to get rich... (2+ / 0-)
          Recommended by:
          Jbeaudill, wobbledon

          They'd all be in the private sector, making FAR more money than they do as public servants.

          Does EVERYTHING have to be a conservative conspiracy?  Is it not possible that the Fed simply screwed up and missed the danger to the system?  That's what they've been talking about, and I see no reason to disbelieve them.

          As for backing it up... have you actually READ the document you're using to claim the Minneapolis Fed is political?  Are you qualified to understand it?  Do you have a degree in economics?  An academic/research background?  Do you have access to the raw data?

          Or are you jumping to an easy political conclusion?

          Liberals are afraid of guns, have no willpower, want to lose, and coerce our views on those who have guns, willpower, and want to win. Got it.

          by Orbital Mind Control Lasers on Sat Dec 20, 2008 at 11:34:42 AM PST

          [ Parent ]

      •  I happen (2+ / 0-)
        Recommended by:
        Jbeaudill, wobbledon

        to believe you completely.  I think the whole bushite minion crowd  that appears to prevalent is actually quite small relative to the rest of the federal government.  I've read that many employees have been totally demoralized by these past 8 years.

        Job one for this administration back in 2000 was politicize the justice department, once that is put in a straight jacket...everything else becomes easy.

        After 8 years of darkness, a great nation chose to reapply power to the beacon of light America stands for.

        by FreeTradeIsYourEpitaph on Sat Dec 20, 2008 at 09:15:21 AM PST

        [ Parent ]

      •  Bush worked hard to 'make this happen' (9+ / 0-)

        John Amato of Crooks and Liars spells it out:


        Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

              The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers. In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative.

        This is so indicative of what really happened.  Overturing a law that protected the American people that was in place for 140 years.  Between this kind of blatant 'setting the predator wolves free' and the Phil Gramm deregulation of the speculators for the oil companies, and the deregulation of the sub-prime loans, and as the front page of Huffington Post adds: The SEC watched porn and ran businesses while Wall Street 'raped' the Amercican consumer, please don't tell me we didn't get punked.  What we got was 'fucked' and we got fucked on purpose.  It wasn't enough for Bush and Co. to make billions and steal billions for the Military Industrial Complex and their friends associated with the two wars, Bush/Gramm/Wall Street had to come after their very own 'country people' and bring down the nation.  There's an old saying: You don't shit where you eat.  My only hope that is left for this country is that President Obama will demand justice, and throw these criminals in jail, so that this never happens again.

        "Government is the entertainment division of the military industrial complex." --The late Frank Zappa

        by Badabing on Sat Dec 20, 2008 at 09:25:25 AM PST

        [ Parent ]

  •  Wall Street has shown us analysts get it wrong (7+ / 0-)

    all the time. What is really dangerous is when the experts indulge in group think. During the real estate bubble no one who had the ear of the Financial Manderins said the emperor has no clothes.


    by Lefty Coaster on Sat Dec 20, 2008 at 07:08:59 AM PST

  •  Kind of depends on how you define "crisis" (27+ / 0-)

    Here's what you seem to establish without question:

    1. There have been substantial losses on bad loans
    1. Total credit has contracted
    1. Lending standards have tightened.

    I'm not sure that I'd call that a crisis. From at least 2002-3 until 2007, there was clearly too much credit and lending standards were too loose. I don't believe that anyone would question that. The inevitable result was substantial losses on bad loans.

    I guess the crux of the argument that it was/is a "crisis" has to do with this statement:

    In order for the US economy to grow it must have a continual supply of new credit.  A leveling off is just as hazardous as a decline.  

    To me that indicates a structural problem, and not a crisis. The implication is that anything hat would impede the expansion of an already-unsustainable supply of credit is a "crisis".

    For me, I don't consider the contraction of credit in and of itself to be a "crisis". It only become a crisis if we allow it to affect people's ability to get the things that they need, i.e. food, shelter, education, heath care and meaningful work. Yes, all of those things are directly affected by "credit" but they don't have to be.

    If the government committed to finding ways to ensure that everyone has access to those things without an ever-expanding supply of credit, then the "credit crisis" would matter only to those financial institutions who derive their profits from the issuance of that expanding supply of credit. For the rest of us, credit is just a means to end, that end being food, shelter, education, health care and meaningful work.

  •  Some Folks Have Been Taking About a Jubilee (12+ / 0-)

    Is this practical with debt and leverage so entwined into the economy nowadays?

    The Financial Times link says that at this point, there are four ways out other than jubilee:

    "outright default, restructuring (for instance, bankruptcy), inflation, or conversion."

    •  At least a Student Loan Jubilee... (4+ / 0-)

      ...there are so many people in debt slavery now, in this country, thanks to onerous student loan debt. It's an insidious tax on youth just getting into the workforce and those who went back to school to re-skill.

      If you want to attach strings, two years of public service in exchange for wiping ones student loan slate clean should be fine. The public service would also serve as a great way of jump-starting the resumes of the graduating students.

      America: Too big to fail. New New Deal NOW.

      by Pris from LA on Sat Dec 20, 2008 at 09:40:59 AM PST

      [ Parent ]

    •  Door Number 1 (1+ / 0-)
      Recommended by:

      Unless the government allows bad debt to default and forces financial institutions to mark their toxic off-balance-sheet assets to market, i.e. what they're REALLY worth, the solution will be the United States defaulting on its debt.

      Actions taken for all these bailouts and giveaways will only serve to prolong the pain and postpone the day of reckoning.  You cannot spend $110 every year if you only make $100 and expect to continue doing that forever.

      We're fucked and the "adults" we've elected so far show no signs of having the guts to do what's necessary, painful though it may be.  Their plan is to make it as painless as possible for as many people as possible.  That's not going to work.

  •  I would argue.... (15+ / 0-)

    ...that we were Punked and there IS a financial crisis.  The two are not mutually exclusive.

    But we were punked by politicians to raid the treasury to bail out companies who can't resist squandering their bailout on freaking BONUSES and shit.

    What the hell?

    You are entitled to express your opinion. But you are NOT entitled to agreement.

    by DawnG on Sat Dec 20, 2008 at 07:18:47 AM PST

    •  Yeah, we were definitely punked (2+ / 0-)
      Recommended by:
      DawnG, ggwoman55

      The crisis is direct result of that punking.

      The treasury raid is just the last money grab before the good times are over. Most of the theft was all the giant bonuses they raked in as they blew up the bubble.

      The Empire never ended.

      by thejeff on Sat Dec 20, 2008 at 07:27:26 AM PST

      [ Parent ]

  •  I suppose I feel a little better. But... (9+ / 0-)

    In a way, we were punked by Wall St... although, I guess to be fair, everyone on Wall St. was "punking" each other with the almost-a-Ponzi scheme called the credit default swap.

    Then there were the real Ponzi schemers like Madoff. (What a name... he "Madoff" with everyone else's money!)

    And while the US Government, I guess, had to staunch the flow of greenbacks with the taxpayer's money, it too has plenty of culpability - thanks to guys like Phill "Quit Yer Whinin' Gramm" who made sure no one was looking while his pals made out like bandits on the taxpayer's (considerable wad of) dimes.

    So, while I do understand what you're saying, and agree in part, I also think that, yes Santa, there still was a whole lot of "punking" going on.

    This ain't no party. This ain't no disco. This ain't no foolin' around!

    by Snud on Sat Dec 20, 2008 at 07:26:04 AM PST

    •  Exactly - it's the derivatives stupid! (3+ / 0-)
      Recommended by:
      Jbeaudill, Randtntx, Publius2008

      The real "punking" was what caused the crisis and how big the problem really is.

      What had to be saved at all costs was not housing or the dollar but the financial derivatives industry; and the precipice from which it had to be saved was an "event of default" that could have collapsed a quadrillion dollar derivatives bubble, a collapse that could take the entire global banking system down with it.

      Ellen Hodgson Brown tries to expalin the real ponzi scheme Credit Default Swaps:

      It's the derivatives stupid.

      •  Well then let's send this to the Minneapolis (1+ / 0-)
        Recommended by:
        James Kresnik

        Fed if they want answers.

        It is all about Swaps and Derivatives.

        Call a holiday on that market and let the billionaires whine all the way to Dubai and this crisis is over.

        The pieces will be on the floor that will suddenly exist to begin a fresh new start and maybe a new economic model altogether.

        "Things will start to slide In all directions." - Leonard Cohen

        by wobbledon on Sat Dec 20, 2008 at 11:30:14 AM PST

        [ Parent ]

  •  The biggest Ponzi scheme ever (35+ / 0-)

    We did get punked just not in the way people think.

    How do you transfer the income of the consumers that make up 70% of the economy into the pockets of the top 2% without social unrest and a collapse of consumption that would quickly destroy the economy?

    Replace income growth with credit growth and convince everyone that you can borrow your way to wealth. That way the victims of the biggest theft in history will be able to maintain the illusion of maintaining their living standard and won't realize they have been robbed. We don't need those factories we can get rich by speculating on assets like housing, oil futures and equities with borrowed money. Workers and savers are suckers. That is until the pyramid scheme collapses and suddenly everyone realizes that living within their means will mean the end of what they thought was the American way of life and the means to earn an income has been packed up and shipped out of the country.

    The financial crisis is not only real it's worse then people can imagine. Madoff's 5- billion scam is small potatoes compared to the $60 Trillion Ponzi scheme perpertrated by Wall Street with the help of thier Republican flunkies.

    •  Madoff's 50 billion dollar scam.....and counting. (2+ / 0-)
      Recommended by:
      cotterperson, In her own Voice
    •  our money became their money (4+ / 0-)

      which they then lent back to us, at interest, further enriching them.  And when that wasn't enough for them they manufactured more with their phony "derivatives", and lent that "phony money" to us too (for real interest).

      And now that the phony money is exposed we're expected to bail them out by taking on more debt (through the government) which we will still have to pay off (with interest).

      Ever wonder who's running things ? ? ?

      •  that (2+ / 0-)
        Recommended by:
        Jbeaudill, weebo

        is why they were called moneychangers in days of old.  Before the old days, they were called goldsmiths.

        They 'made' risk-free profits creating a mixed bag, a junk drawer if you will, of investment thingies: mortgages, pension funds, tiddly winks, and sold them off to investors as 'distributed risk' thingies and pocketed the profits and unloading the risk...however counterparty risk came back to haunt them.

        After 8 years of darkness, a great nation chose to reapply power to the beacon of light America stands for.

        by FreeTradeIsYourEpitaph on Sat Dec 20, 2008 at 09:20:45 AM PST

        [ Parent ]

    •  Oh, I wouldn't pin all the blame (5+ / 0-)

      on the repubs for this.  

      Sure, they are responsible for the lion's share, but they were ably assisted by many Democrats, some of whom are currently advising the incoming administration.  The DC Democrats are most definitely up to their eyeballs in helping to create this mess.

      As such, I really don't have much hope they will get us out of it, or worse, are even willing to (see the lack of oversight for the white collar financial sector and the microscopic oversight for the blue collar-heavy car industry) do much more than prolong things until the final collapse. This is deliberate on the part of the Democrats, most of whom are wholly corporate-owned.  No public servant can be that incompetent. After 8+ years (I'd even go back to the Reagan years for the start of this) of rolling over I'm inclined to believe the actions are deliberate and not just some bad mistake.  They may not have known the end game, but most of them happily perpetuated bad policies instead of fighting against them.

      You don't reach out to shun it.-landrew

      by mentaldebris on Sat Dec 20, 2008 at 09:28:37 AM PST

      [ Parent ]

      •  The Republican Revolution (4+ / 0-)

        It started with Reagan and Clinton and the DLC Democrats went along with the Republican "new economy" initiative because New Deal Democrats and things like unions were obsolete and we needed to adapt to the new "reality" being created by the big money behind the Republican resurgence and all the foundations, think tanks and the media echo chamber they had bought and paid for to make it all possible.

        Now many economists and former Clinton associates having seen the results of deregulation, to much leverage and exotic credit instruments have had a change of heart. Some people do learn from their mistakes and I doubt even Bill himself with the hindsight of recent events would have done things the same.

  •  As the bail out rises from millions to billions (3+ / 0-)
    Recommended by:
    Timaeus, Jbeaudill, Neon Mama trillions?
    how long til the dollar becomes monopoly money?

    Spending to stimulate the economy with money we don't have seems like more of the same delusion that got us into this mess.

  •  I still think we got scammed (8+ / 0-)

    Not so much by the financial institutions, which are, after all, only acting like the profit-maximizing entities that they are; but by the Treasury Secretary who put no strings on the handouts.

    But let's also face it, we've been getting scammed for years by the Fed, by the SEC, and by other regulatory agencies who kept pushing "feel good" messages while a lot of malfeasance was going on.

    Not to mention the way speculators have been allowed to drive the oil and other natural resource markets.

    In short, we've been screwed by our failure to regulate.

    "Getting elected is the only true moral imperative that politicians believe in." -- Anon

    by zackamac on Sat Dec 20, 2008 at 07:37:54 AM PST

  •  On the other hand, we are still waiting for (5+ / 0-)

    the reforms that will prevent a recurrence.  I guess our politicians would like to do some fund-raising before they get around to this assignment.

  •  This Is What I Think (3+ / 0-)

    I think that we have not been hoodwinked.  There is a credit crisis and it is impacting "Main Street".  I think the problem is that those entrusted with the response to the crisis have handled it so poorly and with no respect to getting everyday people on board, that the perception of Wall Street (already bad) has worsened and people are not inclined to believe anything coming from the financial sector now.

    I.e. there is also a PR crisis.  And it is real and also having an impact on the economy.

    Been wiretapped lately?

    by m00nchild on Sat Dec 20, 2008 at 07:40:10 AM PST

    •  Unfortunately (6+ / 0-)

      the mess is actually so big and so messy that there actually is no easy (or even a moderately difficult) way out. It's just that no one has to guts to say it. Link

      Looking back, we now see just how big a proportion of US growth since 2001 was financed by mortgage equity withdrawals. Without that as a means of financing consumption, the economy would barely have grown at 1 per cent a year under President George W. Bush. Looking forward, we see just how hard it will be to stabilise property prices and the prices of the securities based on them. Already, at the end of September, one in 10 American home owners with a mortgage was either at least a month in arrears or in foreclosure. One in five mortgages exceeds the value of the home it was used to purchase.

      I can live with doubt and uncertainty and not knowing. I think it is much more interesting to live not knowing than to have answers that might be wrong- Feynman

      by taonow on Sat Dec 20, 2008 at 07:44:27 AM PST

      [ Parent ]

      •  I agree (0+ / 0-)

        there actually is no easy (or even a moderately difficult) way out. It's just that no one has to guts to say it.

        A PR problem again.

        Been wiretapped lately?

        by m00nchild on Sat Dec 20, 2008 at 07:45:58 AM PST

        [ Parent ]

        •  To simply pay the excess interest (0+ / 0-)

          on two million California mortgages underwater by $200,000 each at an interest rate of 6% would cost $24 billion a year.

          Over a decade, this would cost $240 billion if inflation doesn't reduce the amounts underwater.

          If the government paid 60% of the interest on the amount underwater, then it would be $14.4 billion/year.

          If the government paid 60% of the interest on the amount underwater on twenty million 6% mortgages underwater by $20,000 each, it would cost $14.4 billion/year.

          If the government paid 60% of the interest on the amount underwater on ten million 6% mortgages underwater by $50,000 each, it would cost $18 billion/year.

          To pay at 60% on thirty-two million such underwater mortgages would cost $46.8 billion per year.

      •  Greenspan and Bush cheered as the American (5+ / 0-)

        consumer kept on spending.

        Despite burdensome foreign wars and a general federal government spendathon, "stimulated" in part by feeding the richest of the rich with even more unneeded tax benefits, the average American consumer consumer kept spending.  We spent, and we spent. We bought tanks for personal cars.

        Bush proclaimed us a the "Home Owner Society." And for many their homes became their own private banks, a cheaper way to borrow money than using their credit cards (which were maxxed out anyway).

        Rapacious mortgage brokers were giving away housing. Clever MBA's were devising every more complicated Ponzi schemes with mortgage backed securities and and derivates based on hem. The credit rating agencies gave away AAA ratings for a fee.

        It was WONDERFUL!

        And then the bubble burst, as it inevitably must do.

        Bush's great achievement (in his view), 7 years of economic and jobs growth. Oooops, half of it given back in the 8th year, and a lot more pain to come.

        "Getting elected is the only true moral imperative that politicians believe in." -- Anon

        by zackamac on Sat Dec 20, 2008 at 08:36:18 AM PST

        [ Parent ]

      •  Pork recipes will work well for banker flesh. (3+ / 0-)
        Recommended by:
        FishBiscuit, saildude, weebo

        My intention is to round up fatcat corporatists, investors and bankers for my herd of meat after the collapse.

    •  You're entitled to your opinion (0+ / 0-)

      But it's wrong.

  •  Excellent article (15+ / 0-)

    Excellent article by Niall Ferguson

    We are living through the painful end of an age of leverage which saw total private and public debt in the US rise from about 155 per cent of gross domestic product in the early 1980s to something like 342 per cent by the middle of this year.

    With average household debt rising from about 75 per cent of annual disposable income in 1990 to very nearly 130 per cent on the eve of the crisis, a large proportion of American families are submerging under the weight of their accumulated borrowings.

    The financial sector’s debts grew even faster as banks sought to bolster their returns on equity by "levering up". According to one recent estimate, the total leverage ratios (on- and off-book assets and exposure divided by tangible equity) for the two biggest US banks were 88:1 for Citibank and 134:1 for Bank of America. The bursting of the property bubble caused such ratios, which were already too high on the eve of the crisis, to explode as off-balance-sheet commitments and pre-arranged credit lines came home to roost. Only by borrowing from the Federal Reserve on an unprecedented scale have the banks been able to stay in business.

    In other words "A" financial crisis was bound to happen, the only question was when.

    Of course it still remains for the "powers to be" to admit that this whole mess was caused by too much debt and that trying to get people to borrow more with even cheaper money is NOT going to work.

    I can live with doubt and uncertainty and not knowing. I think it is much more interesting to live not knowing than to have answers that might be wrong- Feynman

    by taonow on Sat Dec 20, 2008 at 07:40:19 AM PST

  •  Hmm... Treasury Secretary Paulson comes (7+ / 0-)

    out for the rest of the ponzi money and bondad puts out a new diary just in time for Panic™v.2.

    "The credit markets are FROZEN!, I tell you, FROZEN! Now give me the rest of your life savings, your children's college tuitions, retirement, and your healthcare!"

    You are totally wrong bondad with all the other enablers to this scheme.  It's far too late to prevent the fallout of the de-leveraging.  The financial markets got their bailout, it didn't work and nothing else should go down this black hole from the taxpayers.

    Let banks fail like they did in 1992, let the system breakdown and restructure just like the auto companies will have to do, and finally let's get to the bottom without vastly overextending our future to artificially inflate the bank accounts of our "Bonus" suits on Wall St.

    •  Let 'em burn - we don't need big banks (11+ / 0-)

      Shirah points out in a rescued dairy, Bank smart - Bank local, and provides a great link to a story in the Washington Monthly which reports:

      One reason community banks are doing so well right now is simply that they never became too clever for their own good. When other lenders, including underregulated giants like Ameriquest and Countrywide, started peddling ugly subprime mortgages, community banks stayed away. Banking regulations prevented them from taking on the kind of debt ratios assumed by their competitors, and ties to their customers and community ensured that predatory loans were out of the question. Broadway Federal, for its part, got out of single-family mortgages when they stopped making sense. "A borrower comes and asks, ‘Do you do interest-only, no-down-payment, option ARMs?’ " recalls Hudson, with a chuckle. "No!" The bank focused instead on expanding its reach to niche borrowers, such as local churches. . . .

      Today, with the world’s system of anonymous high finance in crisis, small-scale community banks, thrifts, and credit unions—all regarded until recently as vestigial players in a new world of global consumer finance—are setting an important example. If federal policies were in place to provide proper support to small-scale financial institutions, Washington could do a lot to alleviate the country’s most serious economic problems: its lack of savings, its runaway consumer debt, its dwindling supplies of social capital, and its vulnerability to financial contagion brought on by Wall Street excess. By encouraging thrift, responsibility, and a sense of community, small-scale financial institutions could play a leading role in helping us dig out of this financial meltdown—and in helping to fend off the next one.

      The Washington Monthly article is sub-headlined,

      While the behemoths of Wall Street stumble and fall, humble local banks are doing just fine,  thank you. Their surprising resilience holds a key lesson for twenty-first-century global finance.

      Well, it’s no surprise to me. All anyone had to do is read the reports put out by the staff of the regulatory agencies – something you would think is what economics and business correspondents and financial regulators are supposed to be doing. But, no, they don’t. So here’s the relevant parts of my diaries again:

      . . . creating, selling, and trading financial derivatives is entirely the province of the small number of investment and commercial banks that have hundreds of billions of dollars in assets. In other words, the big Wall Street banks. Take a look at this graph from the Third Quarter 2007 Report on Bank Derivatives Activities by the Office of the Comptroller of the Currency

      Look at that bottom line that stays flat no matter how much derivatives increases. That’s the amount held by end-users. End-users ?! So it’s the banks that are holding most of the derivatives. Now, this is just commercial banks, and does not include derivatives activities of investment banks.

      According to the Federal Reserve Board’s Report on the Condition of the U.S. Banking Industry: Second Quarter, 2006
      derivatives holdings of the 50 largest bank holding companies as of the second quarter of 2006 totaled $ 117,631 billion, or $117.6 trillion.

      Derivatives holdings of all other reporting bank holding companies in the United States was $88 billion.

      In fact, only five commercial mega-banks - J.P. Morgan Chase, HSBC, Citibank, Bank of America, and Wachovia – account for well over 90 percent of derivatives activities by  commercial banks. Here’s a graph from the OCC report:


      So come the next "too big to fail" crises, I think it would actually be better to let the institution involved fail. And let it take the rest of the big Wall Street players with it. As far as the real economy would be concerned, good bye and good riddance. We can let the big Wall Street players collapse into the ruin they so richly deserve (pun intended) while insulating the rest of the financial system and the real economy. . . .

      Yes, I will make the idea explicit here: the goal in the next crisis point of the financial collapse should be to ruthlessly euthanize the biggest institutions on Wall Street. These big commercial and investment banks are NOT providing any net value to the economy – they are actually sucking value out.

      That was me writing Tue Apr 22, 2008 after the Bare Sterns collapse and repeating myself on Wed Sep 17, 2008, the week the Wall Street investment bank model vanished forever. And here's economist Randy Wray writing on TPMCafe two days ago:

      Finally, there has long been a doctrine of "too big to fail", which counseled that we can let small banks fail but we must always bail out the big ones. This current crisis has revealed such policy to be nonsense. I advocate a "too big to save" doctrine: the big Wall Street banks serve almost no public purpose. Let them fail. Save the small and medium sized banks that actually lend to firms and households.

      A conservative is a scab for the oligarchy.

      by NBBooks on Sat Dec 20, 2008 at 08:06:01 AM PST

      [ Parent ]

      •  And, going back to the FDIC report linked to by (6+ / 0-)


        The erosion in profitability has thus far been greater for larger institutions. The median ROA at institutions with assets greater than $1 billion has fallen from 1.03 percent to 0.56 percent since the third quarter of 2007, while at community banks (institutions with assets less than $1 billion) the median ROA has declined from 0.97 percent to 0.72 percent.

        I think the country is effin' insane. A mere 25 or so very, very large companies are being allowed to bring the whole economy to its knees.

        I say, kill them off. No more Bank of America. No more Goldman Sachs. No more Morgan Chase. Etc., etc.
        Most of their "profits" came from trading for their own accounts - speculating - anyway, so they were not as important a factor in local and regional banking and lending as appears just by looking at how stupendously big they are.

        What local and regional banking and lending activities the big boys are involved in should be seized and turned over to the local and community banks. End of problem.

        A conservative is a scab for the oligarchy.

        by NBBooks on Sat Dec 20, 2008 at 08:13:32 AM PST

        [ Parent ]

        •  And go to TABLE V-A. Loan Performance, All FDIC-I (3+ / 0-)
          Recommended by:
          Jesterfox, priceman, ggwoman55

          TABLE V-A. Loan Performance, All FDIC-Insured Institutions and look at "Percent of Loans 30-89 Days Past Due" and "Percent of Loans Noncurrent**" and compare the performance of "International Banks" with "All Other >$1 Billion"

          Honestly, just kill the big Wall Street firms. Put them out of our misery.

          A conservative is a scab for the oligarchy.

          by NBBooks on Sat Dec 20, 2008 at 08:20:09 AM PST

          [ Parent ]

          •  Just asking (2+ / 0-)
            Recommended by:
            Neon Mama, weebo

            because I know squat about banking and high finance. Could all this catastrophe with the banks and auto industry needing rescue, could this be a set up for Obama to fail with his campaign promises?

            Bush said yesterday that he didn't want to leave Obama a crises, but what if that is exactly what they want to leave him?

            •  I don't think so (0+ / 0-)

              I think the financial oligarchy and especially the leaders of the GOP and the wrong-wing would have much preferred that this all blow up after the election, to make it easier to blame it all on Obama, or whoever took over after Bush.

              And I think they knew what was coming - I think that's why so many Rethuglican Senators and Reps have resigned the past two years. They don't want to be in DC when the food riots begin.

              But there are some, like Michael Ruppert, the former LA cop who found his girlfriend working for the CIA smuggling drugs into New Orleans, which led him on a long, twisted path to writing CROSSING THE RUBICON: The Decline of the American Empire at the End of the Age of Oil, who believe that the U.S. economy is being deliberately disintegrated as a way of destroying demand for limited resources. Ruppert's site is here: Bring some tinfoil, but don't discount everything, either. Btw, Cheney is the most sinister man in the Americas, according to Ruppert. That I'm more than willing to believe.    

              A conservative is a scab for the oligarchy.

              by NBBooks on Sat Dec 20, 2008 at 08:54:39 AM PST

              [ Parent ]

            •  Come on. Are you being serious? (2+ / 0-)
              Recommended by:
              Neon Mama, weebo

              8 years of the Bush criminals looting this country and you have to ask this?

              Right before your eyes, and the eyes of every American who cares to look, they are stealing every last bit of the wealth of this country for the next 2 or 3 generations.

      •  Now that's a common sense diary. (2+ / 0-)
        Recommended by:
        Jesterfox, ggwoman55

        "Too big to save."
        Thanks NB for the sanity.
        The rest I read around our "Panic" is reconstituted drivel from Treasury and Wall St online publications.

      •  Everyone wants to talk about "credit" (4+ / 0-)
        Recommended by:
        opinionated, NBBooks, Neon Mama, ggwoman55

        But no one can seem to face the word "swap".
        This is not a credit crisis, it's a "swap" crisis.  A gambling addiction gone haywire and your husband wants the rest of the house note on his last big play.

        Look at NB's charts.  Right there.


      •  What's a derivitive? (0+ / 0-)

        What does this mean to me, the complete idiot?

        I understand the "too big to fail" argument as our meager investments down here on Oak Street will be flushed down the toilet along with those failures. Is that what you economists see?

        The "too big to save" argument just went zooming over my head. Big banks serve no purpose? What does that mean?

        I had my mortgage with Wells Fargo. I never had a moments trouble with them.

        •  Big banks serve no purpose (2+ / 0-)
          Recommended by:
          Jbeaudill, priceman

          or to be more accurate, no socially useful purpose.

          What banks are supposed to do is aggregate savings together, then lend out those savings as loans to generate new economic activity.

          For example, 100 people come in and deposit $2,000 each in Bank Abba. Now Bank Abba can turn around and lend $200,000 out to other people.

          But wait - in actuality Bank Abba can lend out a lot more than $200,000; it can lend out some regulated multiple of $200,000. This is fractional reserve banking. But let's keep it simple for now.

          So, you come in and borrow $100,000 from bank Abba to build a house. This is all very good. You get a new house, Bank Abba makes some interest on lending to you, some truck drivers get jobs delivering material to your home construction site, some other guys in Oregon get jobs growing and cutting down trees and turning them into lumber, and so forth and so on.

          Now, say, some other shcmutz comes in and borrows $100,000 from Bank Abba to place a bet. Let's call him Paul Henryson. He's got a bookie named Saxby Goldman. Paul goes to Saxby and says, "I want to bet that Batbird's new house goes up in value 50% in two years." Saxby counts up the dough, and says, "OK, if Batbird's new house goes up in value 50% in two years, I'll give you back $150,000 in two years. And if the house doesn't go up in value 50% in two years, you only get $50,000 back."

          Now, which $100,000 loan did a greater public service for the national economy?

          A conservative is a scab for the oligarchy.

          by NBBooks on Sat Dec 20, 2008 at 10:16:10 AM PST

          [ Parent ]

    •  Do I smell a run on the banks? n/t (0+ / 0-)

      In youth we learn, in age we understand.

      by Jbeaudill on Sat Dec 20, 2008 at 12:39:45 PM PST

      [ Parent ]

  •  The Obama team knows that we are (0+ / 0-)

    on the verge of the next Great Depression and that is why Biden went on TV and said that we about to go over a cliff.

    "Because we won...we have to win." Obama - 6/6/08. WELL WE DID IT!!! 11/4/08

    by Drdemocrat on Sat Dec 20, 2008 at 07:43:26 AM PST

  •  false choice (17+ / 0-)
    1. there is a catastrophic system failure on wall street, and across the global finance sector
    1. the bailout was indeed a punking of historic proportions
    1. the system itself amounted to an unprecedented punking of the entire economy, both in boomtimes and in the bust.
    1. the people who set this up, profited from it, and failed to prevent the collapse are by and large doing the best of everyone in this economy. while the system fails, they still make out like bandits.

    that this did astonishing and real damage to the economy does not negate the fact that we were punked. if anything, it makes it all the more infuriating.

    surf putah, your friendly neighborhood central valley samizdat

    by wu ming on Sat Dec 20, 2008 at 07:48:25 AM PST

  •  Inflation is needed to salvage SS (2+ / 0-)
    Recommended by:
    Jbeaudill, divineorder

    As I've argued on BD's columns before, inflation is the only viable fix the the SS morass.  The $50T future cost of this Madoff scheme can only be brought to a cripplingly managable status by slashing that cost through significant inflation.

    And so it starts.  This isn't neccessarly a bad thing.  The SS IOU's are owned by we the people, there is no "trust fund", just IOU's we've written to ourselves.  How do we plan on paying them off?  We could print more money and use it, which is the basis of inflation.

    I've long said that as the boomers retire, park benches and newspapers will be at a premium.

    A good reason to bailout the newspapers.


    Some writers have so confounded society with government, as to leave little or no distinction between them - T Paine

    by breezeview on Sat Dec 20, 2008 at 07:48:47 AM PST

    •  The foreign credit could be cut off (0+ / 0-)

      if there is inflation.

      Dear Secretary Paulson:

         Bank of China no interested in 3% bonds when consumer inflation 10%.

         Bank of China want cut of American tax revenue/income instead.

         For $200 billion loan, want annually for thirty years an amount equal to the sum of:

      1. one percent of all American government revenue and all health care charges
      1. X% of federal retiree income (taxed and untaxed)
      1. Y% of other government retiree income (taxed and untaxed)
      1. Z% of all utility [electric, phone, internet service, Direct TV, cable, etc. ]charges
      1. such other amounts needed to fully capture attempted American diversions from the obligation
      1. reasonable attorneys and accounting fees we reasonably think are needed to get American payments sought

                 Mr. Kang, loan clerk

  •  We WERE Punked (12+ / 0-) that the proposed solution was never properly designed to address the credit problem. But it WAS designed to let a bunch of fatcats capitalize on the fear of the crisis and do a reverse bank-robbery. Sort of like invading Iraq to deal with al Qaeda.

    How we know Daffy Duck is Republican: "It's mine, understand? Mine, all mine! Get back down there! Down down down! Go go go! Mine mine mine! Mwahahaha!" --BiPM

    by rhetoricus on Sat Dec 20, 2008 at 07:50:42 AM PST

  •  Seems to me we just are throwing (8+ / 0-)

    more money away. In the end we are still going to have the problem/crisis. I really don't see how throwing money at this problem helps, except for the guy taking a big bonus.

    •  See, That's known as common sense. (0+ / 0-)

      Everyone knows that intuitively.
      But we've got a bunch of dudes running around with power points and charts to prove that WE HAVE TO DO SOMETHING!™ part II.
      Knowing full well, like Lucy™, the Democrats (that this site is so proud of dedicating itself to elect) will once again fall for it (or pretend to fall for it while accepting bribes on the side which now is not out of the question for the vast extent of the corruption being dredged up with Madoff).

  •  This is a great article (1+ / 0-)
    Recommended by:

    Although, I can't read those graphs, so maybe a link to a bigger version? Also, do we have access to the papers written by the Boston & Minneapolis banks?

  •  Re (7+ / 0-)

    There was and is a serious problem with the financial system that needed fixing in a serious and immediate way.

    How to go about "fixing" the situation is the question, though. I don't think that giving massive amounts of money to the Bush administration to shovel into the financial industry as they see fit is the right solution.

    I'd rather have taken the $700 billion and recapitalized seven new US banks with $100 billion apiece and given them a mandate to lend (conservatively) to deserving institutions and consumers. Then, you can let the existing banking system composed of people who made imprudent decisions die on the vine.

    Also, a massive amount of fraud investigation should be undertaken and those responsible for fraudulent transactions should be thrown in jail.

  •  Taxpayer dollars are being used... (10+ / 0-)

    ...for bonuses and dividends. Paulson won't tell us where 2$ trillion went. The promised accountability is zero.

    On all that and more we were indeed punked. The rest is made up of bait and switch.

    They're robbing the treasury and sending the value of the dollar plummeting. The very same people who got us here are in charge of the 'solution' and they have no problem in taking the rest of us down with them.

    So punked or not, what does it matter what you call it? Were fucked.

    The fact is that the average man's love of liberty is nine-tenths imaginary, exactly like his love of sense, justice and truth. - H.L. Mencken

    by two roads on Sat Dec 20, 2008 at 07:55:01 AM PST

  •  I'm not sure (5+ / 0-)
    Recommended by:
    opinionated, ctsteve, Jbeaudill, jamesia, weebo

    there is as much disagreement about whether there really is a financial crisis as there is about its root cause. It's somewhat strange to me that the MSM won't touch the notion that the Reagan years are in fact where the current crisis was hatched and that the effects we are suffering now can be directly traced to the policies of those years.

    Combine those policies with the level of reckless individual household spending, accumulation of debt by consumers and shady lending practices by the financial sector which occurred between that time and now and you've got a recipe for disaster that leaves a pretty clear smoke signature.



  •  I am not an economist (19+ / 0-)

    I didn't even sleep at a Holiday Inn.  But when I look at this a few points jump out at me.

    1.) There have been over 300 failures of various lenders
    2.) The financial industry has taken over $1 trillion in losses since the start of this crisis
    3.) Financial stocks are down almost 70% since the summer of 2007 making it nearly impossible for institutions to raise additional capital in the equity market.
    4.) Each Beige Book issued in 2008 indicated a troubled credit market
    5.) Every loan officer survey issued in 2008 indicated tightening credit standards and decreasing loan demands
    6.) The FDIC’s latest Quarterly banking profile showed massive losses for the US banking industry along wither serious deterioration in asset quality.

    What is the difference between a crisis and a reckoning?  It is the same argument that we are having over Detroit.  Losses in the 'Financial Industry' are huge, but maybe that is because the whole god damn thing has been a house of cards for years. Built on smoke and mirrors.  In that case, when the jig is finally up and the fact that the whole fucking thing is revealed as a ponzi scheme, it isn't the resulting re-balancing of the books that constitutes the crisis.  It was the decades long practices that caused the god damn thing to balloon into this hideous monster in the first place.  The same point holds when you start whining about stock losses or any of the other fallout.  You are talking about the fallout from having the scam revealed.  It is the basic scam that is the problem, not the inevitable crash that occurs when the scam is revealed.

  •  300 bank failures (0+ / 0-)

    how does this rate versus a normal year?  I understand that banks failures happen all the time, but how many failures have occurred over the past 10 years? Is it 25/year, or 299/year on average?

  •  I'm pretty damn smart and I've jumped through (3+ / 0-)
    Recommended by:
    Jbeaudill, Batbird, synductive99

    some educational hoops.  I do what I can to understand what happened to our economy without accepting all-encompassing who-to-blame answers.

    What I know is that about two years ago, the credit card people I dealt with were really aggressive about getting their money.  Don't tell me about the bankruptcy laws and all that; what stood out to me was how much they wanted any money I could send them.

    Somebody saw this coming.  Somebody saw early that it was time to get the money because there wasn't going to be a "return on investment."

    Bush described the 1990s boom, and its recession, using words that basically said investors were drunk (the recovering alcoholic President recognized the signs, hm?).  Seems like the Republican-controlled government hit the liquor store, big time.

    Public education is the most visible and comprehensive government program; it is being dismantled and sold for parts.

    by algebrateacher on Sat Dec 20, 2008 at 08:13:38 AM PST

  •  I would be curious for number crunchers (3+ / 0-)
    Recommended by:
    Jbeaudill, Neon Mama, weebo

    to tell us what fraction of the nation's wealth is bled off by 'The financial services industry'.  And what fraction of the nation's wealth is bled off by the 'insurance industry'.  And what that fraction might be reduced to if a sane pricing structure where imposed upon it.  As things stand, they appear to be the parasites that devoured the host.  I reference Krugman's last column for the figures regarding the ridiculous compensation that has become the norm in this 'industry'.

  •  New Treasury head honcho's take! (1+ / 0-)
    Recommended by:

    Secretary of fixing the unholy mess on Wall Street.  Upside of crisis is that real estate prices will have dropped in DC.

  •  Federal Reserve Emptied and CDSs Triggering (5+ / 0-)

    Through all of the hoopla, pork, grandstanding and dirty pool, I can see what the specific nature of the crisis is. I was helped largely by a front page DKos story explaining how the CDOs will be triggered by mortgage defaults. But here it is, and it's not really that complicated.

    The Federal Reserve went dry wholesaling loans to banks which retailed them to people who couldn't pay them back. Banks further sold many times more obligations in Credit Default Swaps which triggered when a loan defaulted. So when those loans eventually defaulted (usually an Adjustable Rate Mortgage that "reset" from a low introductory rate to a very high longterm rate), they triggered the CDSes, which pay out from the banks own cash. Banks therefore had less (or no) cash of their own to lend new borrowers, and the Federal Reserve was empty (the Treasury just recharged it with hundreds of $BILLIONS separate from other bailouts). The normal economy depends on most of the lending that's now stopped, even apart from the reckless lending stacked atop it that broke the banks, so that credit crunch is forcing other borrowers to default, and the ripple spreads everywhere.

    That's it. It's really not that complicated. Practically all the reporting on it makes it much more complicated, but it really isn't.

    What I want to know is why the Treasury is spending $TRILLIONS (Congress committed up to $12 TRILLION last month) buying these CDSes as "toxic assets". Buying the mortgages from which the CDSes are derived would be much cheaper. It would give the government control of keeping people in their houses while their financing is revised to something that doesn't kill the economy. And it would defuse the trigger of those CDSes, which would convert to lost bets against paid-off mortgages.

    I don't even know why any government intervention in the CDS payouts is necessary at all. Yes, banks would go bankrupt that took foolhardy risks selling so many CDSes against loans that predictably defaulted. But the recipients of CDS payouts would now have all their money to loan. Where those banks are lending banks, why bother protecting the ones that made the stupid bets, and block collection by the ones that made the sensible bets? The collecting banks will have all that money to lend, earned by the right decisions. They're the ones better qualified to continue making decisions as they relend that money.

    The only answer is "Shock Doctrine". Shock Doctrine requires a real crisis as bait, which we have here. And it requires panic amidst mass confusion to bait & switch the obviously huge response necessary for the real crisis, redirected to some other task that doesn't warrant the action, but which the rulers want. This crisis looks exactly like that.

    And like all the other Bush Era crises used to bait & switch under the Shock Doctrine, it doesn't just rob all the resources squandered on that redirected action. It also leaves the real crisis untended, its damage still wreaking.

    We can't afford that. Why are we doing it?

    "When the going gets weird, the weird turn pro." - HST

    by DocGonzo on Sat Dec 20, 2008 at 08:33:50 AM PST

    •  It is amazing but, I am not panicked. (1+ / 0-)
      Recommended by:

      Do you think there is something wrong with me..??  I don't feel worried yet..or perhaps I just don't know what worry feels like..but I find this a great opportunity to change the whole way finance is done in the world.  I find great opportunity to reorganize the economy into a more equitable situation..if we believe that work = real wealth...we have so much to do..and I don't personally need to buy a trinket from China..that doesn't satisfy my consumer needs..I am thrilled a new tool for work.

      •  Crisis = Danger Opportunity (3+ / 0-)
        Recommended by:
        Jbeaudill, trueblueliberal, RubyGal

        Worry and panic aren't approprate responses even to a crisis. Looking for opportunities to change is appropriate.

        But just make sure you're not just in denial of the severity of the crisis. Just because you're not affected today doesn't mean you won't be in dire straits a few months from now, when the damage ripples through the economy to you. Like when your state taxes go up 50%, or your state can't pay for salting/sanding the roads in February. Or when a corporation you depend on supporting your warranty, like your car or your hot water heater, is bankrupt and doesn't answer the phone. Or when your business hasn't enough customers, because too many of them are out of work. Or when China insists on the US dropping its already flimsy import controls, flooding the US with cheap but poisonous food, in return for buying more of the new Federal debt that's paying for all these bailouts.

        Even when that happens, you shouldn't merely worry or panic. You should join those looking for the inevitable opportunities to change positively. But if you're just in denial about the crisis because you can ignore its early effects, you're not going to be able to keep it together when the crisis comes down hard on you personally.

        "When the going gets weird, the weird turn pro." - HST

        by DocGonzo on Sat Dec 20, 2008 at 08:59:17 AM PST

        [ Parent ]

      •  I agree, but that's not what's happening (0+ / 0-)

        This is what the bailouts should have been used for, to get rid of the cancer and implement sustainable strategies that we know would have prevented this mess if we had them in place long ago. However, our bailout money is going to reward the crooks and liars and to perpetuate bad pactices instead of better ones. For one example, why are SRI funds being cut when they have proven that long-term sustainable investing is a sound proven method particularly throughout this entire crisis? It makes no sense and our window of opportunity for change is rapidly closing.

        "There are some things I don't understand. I don't understand how we ended up invading a country that had nothing to do with 9/11." - Next POTUS Obama

        by Cleopatra on Sat Dec 20, 2008 at 02:38:03 PM PST

        [ Parent ]

  •  But surely the massive gains (2+ / 0-)
    Recommended by:
    saildude, Cleopatra

    to the top 1/10 th of 1 percent will provide enough leverage for the trickle down theory to save us all. Just get Hollywood to stop hoarding its money, and all will be well.

  •  Can we point to any one mistake that (2+ / 0-)
    Recommended by:
    Jbeaudill, BlackBandFedora

    caused the whole financial sector to come tumbling down?  Is it the junk bonds from the 1980's?  Is it the leftovers from the S&L crisis..?  Is it the repeal of Glass/Stegal? Or is it all of it and why didn't we have better representation in WASHINGTON to prevent this from happening?

  •  I don't care what the theorists say (4+ / 0-)

    The economy is in the SHITTER and I know so because I am broke, my friends are broke, and life sucks right now.

    Bonddad, I always enjoy your posts but respectfully, I don't need a mess of charts to prove to me that no one has any money.

    "Mediocrity cannot know excellence." -- Sherlock Holmes

    by La Gitane on Sat Dec 20, 2008 at 08:56:39 AM PST

  •  There is truth to both positions. (0+ / 0-)

    The credit crisis is a myth to the extent it is speaking of the public, generally.

    The credit crisis existed and exists at big banks and other financial institutions that dabbled in derivatives.

    And it is true that the second crisis can effect the public world.

    But it can also be staunched if proper regulatory and accountability policies are implemented and enforced now.  

    But it can't wait and bail out and other fiscal schemes which amount to nothing more than feeding the endless vacuum that derivatives are will not cure the problem.

    Of the people, by the people, for the people.

    by Publius2008 on Sat Dec 20, 2008 at 09:01:26 AM PST

  •  you were punked (6+ / 0-)
    Recommended by:
    Pluto, Migeru, bigchin, jamesia, leonard145b, weebo

    There was a crisis and the bailout supporters were punked. There is a big difference between doing the right thing and getting punked, unfortunately bailout supporters were publicly punked as bad as any group since Iraq war supporters.

  •  Diary's facts argue against diary's point. (2+ / 0-)
    Recommended by:
    Jbeaudill, bigchin

    "Total credit losses at the world’s financial institutions have totaled 1 trillion dollars"

    If the diarist is correct, that is an insignificant amount in terms of the world economy of $70 trillion.

    US was totally hoodwinked by Wall Street or more correctly by the Wall Street/Bush admin.  A lot of phony money was created by the reselling of mortgages which made a $1M bad loan on a home into a $10M bad loan in the financial system.

    A 30% decline in real estate prices should not have produced a credit problem if the loans were good (20% down, some payment stream).

    Bottom line, history will show that had US simply covered the bad mortgages for 70% of value and done this early in the crisis, there would not have been a financial panic.  Companies that had gambled on the exotic bad paper would likely have gone bankrupt (as they should) but that would have been about it.

  •  "Troubled Assets?" (1+ / 0-)
    Recommended by:

    I hadn't even heard of the paper in question, nor imagined that there wasn't a real crisis but - It seems to me that between Cox' SEC's cozy non regulation regulation; and the bankers insatiable greed for new, complicated, financial "instruments"... They created the "troubled assets" themselves.

    Rewarding Wall Street with almost no strings attached makes Paulson either a crook or an idiot.

    If I rob a bank I go to prison. These people get a "bail-out" and a fat bonus.

    Fix the problem as best as it can be fixed but dammit. I want to see some accountability.

    I'm already against the NEXT war

    by SecondComing on Sat Dec 20, 2008 at 09:29:35 AM PST

  •  What the fuck is up with using the word 'punked'? (2+ / 0-)
    Recommended by:
    mikolo, weebo

    What does it describe?  On the show that gave the word its mainstream genesis (Aston Kutcher's piece of shit), the 'punking' was always a practical joke.  Everyone laughed and were friends at the end.  The 'victim' of the 'punking' always overreacted, and then forgave his friends for what transpired. Is that what we are describing?  

    Or do we mean old-school punking, where someone beats your sorry punk-ass down?  A sucker punch to the neck, a quick stomping, with no remorse from the aggressor and no revenge from the punk-ass victim?

    Because if it is the latter, I am not some punk-ass who takes getting knocked around.  I helped elect someone who better goddamned well regulate financial markets and banks.  If it is the former, are you really laughing along with the assholes who did this to your country?

    Or are you all using a really stupid and childish word with no set meaning when you are trying to discuss serious issues?  

  •  But we were still punked. (1+ / 0-)
    Recommended by:

    Because the measures taken have not been designed to solve the crisis.

    Democratic Administrations are what the forces of darkness use to catch their breath and consolidate their gains.

    by expatjourno on Sat Dec 20, 2008 at 09:41:52 AM PST

  •  Haven't read the relevant papers, but... (0+ / 0-)'s not a "credit crisis" in the sense of a liquidity crisis. Banks have plenty of cash to lend. The problem is a solvency crisis. They have no one to lend to (safely), because systemic leverage is too high and they can't be sure that even the most credit-worthy will be able to repay borrowed money. In that sense, it's a "credit crisis," but not in the most commonly understood meaning of the term.

    -7.75, -7.64 "When the intellectual history of this era is finally written, it will scarcely be believable." -- Noam Chomsky

    by scorponic on Sat Dec 20, 2008 at 09:57:32 AM PST

  •  A Contradiction here (1+ / 0-)
    Recommended by:

    Financial institutions in many Districts indicated some deceleration in consumer loan demand, tightening in lending standards, and deterioration in asset quality

    I would like to  see how they reconcile the statement of tightening lending standards and deceleration in consumer loan demand. It seems me to be an exercise in circular logic. If you tighten credit standards to the point where people who have money and don't need money are the only ones who qualify for loans then there would be a drop-off of consumer demand. Obviously those who even need it and qualify for it ( a rare combo indeed) would be reluctant to take on more debt if they didn't see a clear path to repayment. In short they are regulating themselves.

    I don't doubt there is a credit crisis. What I question is the approach in which the the Govt tried to alleviate it. Obviously one can't question too specifically something they can't see. We can only ask how 350 Billion dollars plus trillions in other GOVT loans, Investments  and credit Guarantees  have had no apparent affect on the credit markets.

    From that standpoint I do believe we are being punked.

    I have long questioned the role of the Credit Default Swaps which is an aggregate collection of bets on the failure of the debt out there and IF the continued existence of non interested parties betting on debt going bad would have Henry Paulson change his mind from buying  non performing assets to direct equity injections of taxpayer funds into banks to help those who bought Credit Default Swaps from firms that didn't have the capital to make good.

    Had he purchased the non performing assets aka mortgages and they didn't go into foreclosure, would that have slowed to trickle the outflow of funds paying off the bettors on the mortgages being foreclosed?

    I do believe the Credit Default Swaps have a huge bearing on this because I find it difficult to accept that trillions of dollars can be thrown at a credit crisis and not see one hint of the stress being relieved other than banks loaning to other banks at high rates instead of nosebleed rates to cover our fractional banking system.

    Of course I may not question it if Paulson was more transparent with the Taxpayer money and explained why he forcefully argued that funds would be used for purchasing non performing assets prior to bill signing, then shift 180 degrees after he got the check to start depositing billions into the richest institutions with virtually no oversight or anything like the conditions placed on the automakers who do depend on the banks making loans to their customer to buy their vehicles, which the banks apparently are not doing.

    Very few of GM , Ford and Chrysler's customers pay cash for new vehicles.

    I also find myself coming down on the punked side simply becuase Paulson was CEO of Goldman Sachs when they were a leader in selling mortgage backed securities while their trading desks were shorting them by buying Credit Default Swaps. One only has to look at the timing of his hire and when the  sub-prime loans were being bundled into securities in vast quantities.

    Can there be a credit crisis and us getting punked about how it's being handled? Hell yes!

    Support Col Hackworth's because tomorrow is just a promise, not a guarantee

    by Dburn on Sat Dec 20, 2008 at 09:59:53 AM PST

  •  In three words (1+ / 0-)
    Recommended by:

    An ineffective offensive.

  •  Some of the T bills were written against (0+ / 0-)

    negative numbers. I saw some reports showing 98.5% return for T bills in the short term.

    That's fear talking.

    2008, the Year the Republican Party dissolved into a little pond of goo

    by shpilk on Sat Dec 20, 2008 at 10:29:52 AM PST

  •  Not Punked on Crisis. Punked by Paulson ... (3+ / 0-)
    Recommended by:
    Migeru, Jbeaudill, dennisk

    on the "solution."

    And on "oversight."

    And on "bonuses."

    And on "mortgages."

  •  Are They A Part Of The BUSH Revisonist (0+ / 0-)

    history team?  Sounds like it.


    "The market is not self-correcting, it's self-serving."

    by Ronald Singleterry on Sat Dec 20, 2008 at 10:43:36 AM PST

  •  And we were punked 28 years ago. (3+ / 0-)
    Recommended by:
    Migeru, Jbeaudill, weebo

    It's called 'VooDoo' economics.

    The money that should have been obtained by taxing the rich was given back to the upper classes by Reagan's tax cuts, who created bubbles which have burst.

    The injection of capital did help some industries, it did help fuel the internet explosion, bio tech and medical advances.

    Too much of it was squandered in fraud after fraud, derivatives, credit swaps, corporate takeovers and what H. Ross Perot called the 'giant sucking sound' of American jobs flowing overseas.

    Reagan's injection of trillions into the wealthy class helped to fund terrorism and bedlam in the 3rd world and developing world by way of massive amounts of money going to the repressive oil countries where religious fanaticism flourished, and to places where weak governments were helpless to stop criminal gangs selling heroin and cocaine.

    The rampant expansion of production of luxury goods at the expense of care for roads, bridges, schools, hospitals in this country is just the local flavor what Reaganomics has accomplished.

    VooDoo economics has turned out to be a world wrecker.  

    I have a solution.

    Take the wealth out of the hands of the rich, and put it back into the hands of the government, where at least a shred of hope for some transparency and accountability for how the money is spent.

    Bring back Eisenhower's 91% tax rate on the top tiers, the 75% tax rate on the upper middle class.  

    I used to think it should be done gradually, but I'm quickly changing my mind. It needs to be brought back right Now.  

    2008, the Year the Republican Party dissolved into a little pond of goo

    by shpilk on Sat Dec 20, 2008 at 10:45:00 AM PST

    •  Hmmmm .. maybe then the ghost of George Harrison (0+ / 0-)

      Can once again write "Taxman"
      ("one for you, nineteen for me, cause I'm the taxman
      and you're working for no one but me")

      I think your concept is corret (top rates too low) but I don't think 91 and 75 are the answer.  Depending on your definition of "upper middle class" - 75% would be stifling...

      But ... moving the rates for 200K/250K (ind./couples) up a couple of points, and pushing the top rate for 500K+ folks even higher would not really hurt the taxed parties....

  •  While you are MOSTLY right, you leave much out.. (1+ / 0-)
    Recommended by:

    The 80,000 LB Monster in the room that no one
    is dealing with is all the completely worthless paper called CDS's.

    Not even HALF of this steaming crap has been written off or even written down yet.

    Credit is not flowing in hte US and elsewhere in the world for that matter, because NO ONE trusts the financial health of damn near all the companies
    providing credit.

    Consumers and businesses are sitting on their money
    because they are scared and trust nothing wall street is saying or doing.

    Until the bad paper is dealt with, and valued according to reality, the financial system of the world will suffer more downturns and losses.

    Bernanke and the Fed are out of options and are just praying for a bit of good luck.

    Paulson is a frigging tool, tossing money at his former buddies, buying up assets that are beyond worthless and trying to refloat the Titanic using
    a bucket and a piece of string.

    When there is accountability for where all the money he blew through went, and some SERIOUS
    new regulations are back in place to stop the
    grand Ponzi scheme that wall street has become, perhaps THEN people will put their money back into play.

    As things are right now, putting ones money in the treasury or under a mattress at home are about equally safe, and MUCH safer than letting ANY U.S.
    Financial company touch it.

    Wall street and the Supply side idiots of he GOP brought this mess upon us...

    There are ways to fix this problem, none of which involve TARP or Bernanke, nor Paulson.

    Perhaps in JANUARY after King George the Incompetent
    slinks out of Washington DC some good actions may
    be taken to start fixing the problem. But until then we can all just expect more bad news and nothing to be done, except more raiding of the Taxpayer money to prop up the current house of cards.

    Bonddad you are great at numbers and showing where we are, but not so good at explaining HOW we got here, nor providing any answers for the road ahead.

    Still I will always read ever post of yours, and I thank you for you efforts.

    Is the entire Republican party composed of relatives of Bagdhad Bob? - Catatonia

    by Nebraskablue on Sat Dec 20, 2008 at 10:59:17 AM PST

  •  Taxpayer money to pay wall street bonuses (5+ / 0-)

    and we were not punked?

    Sorry, bonddad, you are arguing apples and oranges.

    We were punked alright... by the DEMs who rushed to pass a bailout of their BAGMEN and the money that keeps them in office. (See:  Goldman Sachs donations to the Dems

    Ask Chuck Schumer:  A Champiojn of Wall Street Reaps Benefits

    Besides, the tightening of credit has nothing to do with the fact that nobody wants credit right now.  And apparently there's plenty of money for those who are credit worthy...

    I don't get this post at all.

    "History is a tragedy, not a melodrama." - I.F.Stone

    by bigchin on Sat Dec 20, 2008 at 11:10:45 AM PST

  •  This diary sounds like an apology for the (2+ / 0-)
    Recommended by:
    Pluto, weebo

    700 billion dollar bailout.

    If that be true, this diarist got punked.

  •  There is a crisis, but we were punked (4+ / 0-)
    Recommended by:
    Jbeaudill, dennisk, priceman, weebo

    Discussing these matters on European Tribune I argued that there is indeed a severe credit crisis

    I think it is really bad. Apart form trade finance, businesses are losing their revolving credit lines. It's as if your bank suddenly cancelled your overdraft facility. Small businesses are hit hardest because they have smaller income, retained earnings and cash reserves than large companies. People are having their salaries paid late because of this. Jerome has been complaining for a year that the syndication market in project finance is dead.
    The media focus on the real estate market and residential mortgages which are not so much of a problem even if the number of new ones plummets. What I mentioned in the previous paragraph is credit for productive investment, unlike residential mortgages.

    Now, that the credit crunch is real doesn't mean that the government interventions so far aren't a scam. They are giving the banks money by the boatload and the banks are still not lending. If the governments want lending to happen they should lend directly. Instead they are shoring up insolvent institutions and wondering why lending doesn't pick up again.

    And then I argued that we were indeed punked with the Paulson bailout

    Let's see...
    Why did Paulson hit the PanicButton™?

    He did so on Thursday, September 18. And he was woefully unprepared for it, as Krugman documented on his blog at the time.

    So, why the rush?

    Because on September 17 Morgan Stanley lost 25% of its stock value, and Goldman Sachs 15%, and both of them started to lose clients from their prime brokerage business. And Paulson is a Goldman Sachs man, first and foremost.

    What happened to MS and GS took Paulson by surprise. On Monday the 15th, he had presided over the takeover of Merrill Lynch by Bank of America and the bankruptcy of Lehman Brothers. Which was all fine and dandy since ML was the #3 and LB the #4 pure investment bank, leaving only MS and GS as the top two.

    So... For sure the Paulson plan was a scam. But that's neither here nor there regarding whether the credit crunch is real or not. It is real enough.

    And, yes, I am convinced the banks are actually insolvent regardless of what their balance sheets and the Fed's statistics say.

    Can the last politician to go through the revolving door please turn off the lights?

    by Migeru on Sat Dec 20, 2008 at 11:45:29 AM PST

    •  I agree, we were punked by Paulson. Yes, there (1+ / 0-)
      Recommended by:

      was a crisis of confidence and trust.  Pumping hundreds of billions of dollars without any strings or oversight was a last minute give away to financial services industry.  

      Take Back Our Money Month - local credit unions are the answer.

      RebelCapitalist - Financial Information for the Rest of Us.

      by dennisk on Sat Dec 20, 2008 at 11:52:23 AM PST

      [ Parent ]

      •  I mean, seriously, (1+ / 0-)
        Recommended by:

        How can Bonddad see the following and say we're not being punked? (admittedly, he couldn't have seen it before he wrote this diary, but you get my meaning...)

        Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200bn programme intended to support consumer credit.

        The Fed said on Friday it would offer low-cost three-year funding to any US company investing in securitised consumer loans under the Term Asset-backed Securities Loan Facility (TALF). This includes hedge funds, which have never been able to borrow from the US central bank before, although the Fed may not permit hedge funds to use offshore vehicles to conduct the transactions.


        The TALF is a key plank of the unorthodox strategy set out by the Fed last week as it cut interest rates virtually to zero. Washington insiders expect the programme will be dramatically expanded next year with further capital support from Treasury once the Obama administration takes office.

        It would be much better for the government to lend those $200bn directly to consumers, if what they want is to "support consumer credit". But lending to Hedge Funds?

        And note that the Fed will be lending to investors in securitised loans, not to originators of loans.

        So this just helps speculators and does nothing to encourage the origination of new loans (i.e., actual investment or consumption), except possibly indirectly by making it easier to securitise them.

        But we're where we are now because securitisation has been seen as a way for banks to take loans off their balance sheets so they can loan again once their fractional-reserve loan allowance is maxed out. And that failure of regulation at the core of the credit bubble (now big smoking crater) doesn't seem to be recognised or corrected by this new policy.

        This stuff makes me angry, and it's not even my tax dollars at stake (we have our own bozos in the EU getting ready to waste our tax dollars in similar ways).

        Can the last politician to go through the revolving door please turn off the lights?

        by Migeru on Sat Dec 20, 2008 at 03:06:16 PM PST

        [ Parent ]

  •  Take Back Our Money Month. (0+ / 0-)

    Let's hold those financial institution that received TARP money accountable.  If they don't want to disclose what they are doing with our money then if we have accounts at those institutions we should close them and open a similar account at a local credit union.

    Many credit unions offer many of the same services as a full service bank.

    RebelCapitalist - Financial Information for the Rest of Us.

    by dennisk on Sat Dec 20, 2008 at 11:56:05 AM PST

  •  I thought that the new meme about the markets (0+ / 0-)

    was that it was the guys in the SEC who were surfing the web for porn and running their side businesses while on the job?


    "Money, pardon the expression, is like manure. It's not worth a thing unless it's spread around, encouraging young things to grow. " Dolly Levi

    by Glinda on Sat Dec 20, 2008 at 11:59:30 AM PST

  •  NH unemployment rate is 4.1% (0+ / 0-)

    What I don't get is that the unemployment rate is only 6.5%.  The unemployment rate for college educated workers is 3%.  

    The layoffs get the headlines, but I just have had 2 friends leave unemployment for jobs in the past month.  

    I think so much of this "Great Depression" talk is stirred up by CEO's who don't want to claim responsibility for their company failings so they want to stir the negativity pot to make things seem worse than they are.

    My 2 cents, but I work at a prominent financial company that has said that they are not even discussing layoffs.

  •  Just for the record.... (0+ / 0-)

    I object to the use of the word "punk" as a slur.

    xox --Immigrant Punk

    PS: Prison rape isn't funny, either...

    "the people have the power to redeem the work of fools" --Patti Smith

    by Immigrant Punk on Sat Dec 20, 2008 at 12:11:02 PM PST

  •  Refinance attempt story (4+ / 0-)
    Recommended by:
    Mary Julia, mbzoltan, Jbeaudill, Pinecone

    Talked with a mortgage broker this week.

    I have solid credit score of 750. But since the value of the house is down, I can't refinance. Banks only want to make loans to people who are already have a ton of equity.

    Though we put down 20% five years ago in cash for a two-bedroom craftsman in a solid, working-class urban neighborhood, and paid the mortgage loyally, we can't take advantage of the new lower rates on a 30-year. I'm still above water, but not 20% like when we bought.

    So this crisis of credit is now starting to hit even those of us with nearly perfect credit ratings who are above water. Lower prime isn't helping folks who would be spending more out of pocket in the economy if we could only refinance.

    That seems like a bad sign. Some sort of downward spiral.

    "Be yourself; everyone else is already taken." - Oscar Wilde

    by greendem on Sat Dec 20, 2008 at 12:11:17 PM PST

  •  We sure as hell were punked by Wall Street (2+ / 0-)
    Recommended by:
    terafnord, Cleopatra

    Perhaps not in that there was/is a failure in financial markets.  But to say we weren't punked by Wall Street as the investment bankers splurge handing themselves seven and eight-digit "retention bonuses" straight out of the taxpayer cookie jar is to repeat, to multiply, to iterate fractally the punking.

    This sig line is in foreclosure. For details on acquiring a credit default swap on this sig line, contact H. Paulson, Dept of the Treasury, c/o Goldman, Sachs

    by ActivistGuy on Sat Dec 20, 2008 at 12:43:17 PM PST

  •  I disagree with the conclusion... (0+ / 0-)

    in this sense: yes, there is a financial crisis. No, giving money to bad banks is not the way to solve it.

    Bonddad, you are confusing the crisis with the proposed solution by the Treasury. There are more than one theories as to what solutions are best.

    I have seen few debate that there is no serious crisis.

    We need more substantive posts on alternative solutions to propping up bad banks.

  •  The economy is very sick. (0+ / 0-)

    Therefore, it must have Ebola.

    Voting changes things. That's why they don't allow it.

    by happymisanthropy on Sat Dec 20, 2008 at 01:27:05 PM PST

  •  ? (4+ / 0-)

    You start by claiming this:

    A recent paper by the Minneapolis Federal Reserve has gotten a lot of attention.  The paper is titled Facts and Myths About the Financial Crisis of 2008 and it argues there was in fact no credit crisis.

    From the paper this diary is about:

    5. Conclusion
    Our analysis has raised questions about the claims made for the mechanism whereby the financial crisis is affecting the overall economy. We emphasize that we do not dispute that the United States is undergoing a financial crisis and that the United States economy may currently be in a recession or may experience one in the near future, perhaps even a very  deep one. We do not dispute that spreads between safe securities and risky securities have increased.

    Our main point is that policymakers have not done the hard work of convincing the public- or even academic economists- of the precise nature of the market failure they see, of presenting hard evidence, not speculation, that differentiates their view of the data from other views, and the logic by which the particular intervention they are advocating will fix this market failures. We feel that a trillion dollar intervention warrants a bit more serious analysis than we have seen.

    Our analysis is based on publicly available data. Policymakers have access to other sources of data as well. Policymakers could well believe that bold action is necessary based on data that are different from that considered here. If so, responsible policymaking requires that they share both the data and the analysis that underlies the need for bold policy with the public.

    So your distinction is between the terms "financial crisis" and "credit crisis?"

    And what about this from the paper? This sounds entirely possibly wrt big corporations in America:

    These three facts suggest that the typical firm can finance its capital expenditures entirely from retained earnings.

    I wouldn't be so quick to dismiss the paper. I want to see policymakers do a lot more sharing of information as well. And I'm eternally skeptical of how dire the situation is for large corporations who've made so much money over the last two decades.

    If anything, this article would seem to be a great argument for a bailout of Main Street rather than Wall Street. I'm not sure it's an argument that nobody needs the upcoming $850 Billion... just not big corporations. I tend to agree that's likely true.

    •  My overarching opinion of the financial crisis (1+ / 0-)
      Recommended by:
      Betty Pinson

      is that it's an excuse for Baby Boomers who own companies to sell out to larger corporations... to permit consolidation of power and allow the top 1% to retire before Democrats start taxing their income.

      My opinion is that if we want to keep people employed, the best solution would be to set stringent anti-monopoly legislation that limits the size and market share of US companies.

      If there's no incentive to fuck over your own company and it's employees to pad your wallet and retire South of the equator... then we're already halfway to solving the problem.

      Corporate consolidation is the goal here for Republicans and Conservatives.

      For average Americans, it's our fundamental enemy.

    •  Did you read the response/criticism (0+ / 0-)

      of the paper by the Federal Reserve - Boston?  

  •  from a friend of a friend,at Deutsche (3+ / 0-)
    Recommended by:
    BigBite, Migeru, Jbeaudill

    who is a big banker at Deutsche.
    He broke it down like this ....
    (from September .... )

    He said... "Last week...the money stopped moving.  Usually by 10/11 in the morning billions are flowing through our accounts, and this is used to fund the day's transactions.  But last week.  nothing.  Zero.  Nadda.  Until about 4:30pm.  The banks agreed to keep their offices open for a few more hours into the evening to at least get some monies flowing.  Until one could trade, there were no funds."

    Then he added...

    "I never saw, or heard anything like it.  It was as if someone shut off the water main."

    it is stories like this, which, as I understand it, is still largely the state of affairs .... there is very little money flowing .... this is, not good ....

    ~we study the old to understand the new~from one thing know ten thousand~to see things truly one must see what is in the light and what lies hidden in shadow~

    by ArthurPoet on Sat Dec 20, 2008 at 01:39:21 PM PST

  •  There can be a real credit collapse... (5+ / 0-)

    and we still get hoodwinked.  It seems odd that we're giving $700 billion to the same greedy assholes who got us into this mess.  Why aren't we buying out these institutions, firing the management, including the elimination of bonuses and golden parachutes, hiring competent and ethical folks, and letting the institution buy itself back.  Isn't the concept of "criminal negligence" applicable?

    A million + dead in Iraq by our hand.

    by rubine on Sat Dec 20, 2008 at 01:48:31 PM PST

  •  Thank you, This Is Well Said (4+ / 0-)

    There are a lot of people taking advantage of the sense of crisis to put out information that pushes people's "suspicion" and "conspiracy" buttons.  I think your diary puts real information out there for people to chew on.  Hopefully, it will counter those desires to run with this to the conspiracy corner of the debate.

  •  We're being punked all the same! (1+ / 0-)
    Recommended by:

    There is a severe financial crisis And we are being punked: / US / Economy & Fed - Hedge funds gain access to $200bn Fed aid

    Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200bn programme intended to support consumer credit.

    The Fed said on Friday it would offer low-cost three-year funding to any US company investing in securitised consumer loans under the Term Asset-backed Securities Loan Facility (TALF). This includes hedge funds, which have never been able to borrow from the US central bank before, although the Fed may not permit hedge funds to use offshore vehicles to conduct the transactions.

    The asset-backed securities to be funded under the programme are pools of credit card receivables, automobile loans and student loans.

    The idea is to increase the supply of these loans and reduce borrowing rates by ensuring that the companies that make the loans can sell them on to investors who have guaranteed access to low-cost funding from the Fed.

    Making the scheme open to all US companies is a radical departure for the Fed, which normally supports financial market liquidity indirectly by ensuring banks have adequate liquidity to make loans to other investors.

    However, the liquidity the Fed is providing to banks is not flowing through to financial markets, because banks are balance-sheet constrained and risk-averse. So it is channelling funds directly to investors.

  •  I don't know much about economics (0+ / 0-)

    but this doesn't sound good:

    In order for the US economy to grow it must have a continual supply of new credit.

    What would happen if the credit were replaced by actual money? Or is that not possible?

    "ENOUGH!" - President-Elect Barack Obama

    by indiemcemopants on Sat Dec 20, 2008 at 04:15:28 PM PST

  •  I don't understand (0+ / 0-)

    is "credit" different from "debt"?  You've showed us graphs that national debt has been increasing at half a trillion dollars a year and personal debt at about a trillion a year over the last 8 years or so.  Looks like to me an element that got us where we are is Government and a large number of people living beyond their means.

  •  They couldn't privatize social security so (1+ / 0-)
    Recommended by:
    polar bear

    now they capitalize their highly leveraged bets with the 700 billion in bailout cash. Robber baron Republican capitalism just needs more to eat, they are always hungry for more.

    Love = Awareness of mutually beneficial exchange across semi-permeable boundaries. Political and economic systems either amplify or inhibit Love.

    by Bob Guyer on Sat Dec 20, 2008 at 05:00:03 PM PST

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