It's been mentioned that we have bigger problems than lipstick, pigs, or even Bridges to Nowhere. I will just say that I am not accustomed to the New York Times using language as strong as this in its hard news stories:
In one the most extraordinary days in Wall Street’s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.
The dramatic turn of events was prompted by the cataclysm of losses that has shaken the American financial industry over the last 14 months.
The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.
In addition, NYU Stern School of Business economist Nouriel Roubini is a bit freaked:
If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system.
Time to party like it's 1929. Anyone know the Charleston?
Taegan Goddard asks for guidance from our presidential candidates; I wish that guidance from our current president would be meaningful, if offered.
frankskeffington says
…advocating bailouts for Wall Street folks…but ya, from bailing out Bear Streans, to Freddie and Fannie Mac and now more firms, we hopefully won’t be partying like 1929.
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p>The cornerstone of modern liberalism (TR and FDR on forward) is government acting to dull the sharp edges of capitialism. Today, we think of boom/bust cycles in terms of strong growth, curbed by a recession in which the ecomncy shrinks by a few points.
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p>But maybe the house historian can given us an idea of the boom/depressions that wreaked capitialist system in the US during the 19th Century.
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p>Without active and aggressive government intervention I fear that we are fucked. Many of us have already seen our retirement funds lose 20% in the last couple of years, coupled with a bigger devalution in our homes…and we’re the lucky ones with retirement funds and ample home equity!
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p>Right know Wall Street has a cold and many Americans have pneumonia. If we have a financial meltdown, then Wall Street has pneumonia and the rest of us…start painting sign boards saying “Will Work for Food”.
bob-neer says
The basic problem in 1929, in my view (and there are others) is that the complexity of the financial system outripped the authority of the regulators. Without limits, the system overreached, as “free markets” tend to do, and came close to collapse. Improved regulation (for example, the FDIC and SEC) created a foundation for recovery and expansion.
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p>In the present case, the financial system has been transformed by worldwide peace among major economies, improved communications and expanded trade. But the regulatory framework is largely unchanged: it is based on national regulators, while the capital markets are global. It remains to be seen whether the Republican administration is capable of fashioning a response. Since the administration has self-consciously pursued unilateral policies on matters from the Kyoto Treaty to the invasion of Iraq, I am skeptical if they can fashion an effective response to a problem that is essentially multi-lateral.
mcrd says
by outside political forces to “lay off” certain enterprises namely real estate/mortgage investment. I have heard specific names in congress bandied about, but choose to remain silent until the facts come out.
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p>This financial crisis is at the tipping point. If it goes south, then we all are in for a tough several years—property taxes will be the least of your worries (incidentally—I have just learned my property taxes in SE Mass are going up $500. Just nudging 5K and I live in a modest home.)
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p>There are big problems in River City!
petr says
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p>I think I agree. I’m not entirely sure what you are saying, so I have to qualify my agreement… I think the time for active and aggressive government intervention was some several years, and many ignored or stricken, regulations ago… I think the damage has been done and the only thing the gov can do now is react. But a stronger SEC and less Republican ideas about banking deregulation throughout the 1990’s and 2000’s would have prevented the pain that is coming…
sabutai says
They’re in trouble now? This looks worse by the hour.
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p>I may be transferring much of my savings to an account at the First National Bank of My Mattress at this rate.
centralmassdad says
under such circumstances
bluefolkie says
Despite some pretty worrisome developments, I’m not sure it’s time to hit the panic button. There are still a lot of ways the great unraveling of the financial houses can play out. Hank Paulson is one of the more capable Bush appointees. He won’t be able to make the problems go away, but he may be able to slow the decline and make it more orderly. That said, this is a big weekend and not a good one.
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p>On the negative side are three factors. One, the more I look at Wall Street, the more convinced I am that it is run by a bunch of “frat boys” who are not really too bright (no offense intented to greeks-I’m stereotyping intentionally). Two is the 24/7 business media, where the markets are viewed as a sporting event, complete with play by play and color commentators. CNBC is not really the friend of the average investor in times like these. Third is the emergence of the hedge fund universe-they are a wild card in all of this.
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p>By the way, Nouriel Roubini is always a bit freaked. I’m not saying he’s wrong, but his reaction is not new.
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p>There’s a very high stakes poker game in progress. Unfortunately, all of us with 401ks are providing the chips. I’m hopeful that the government can smooth some of the rough edges, by regulating some market practices, such as short selling, that can make the downward spiral worse. I’m hoping there’s some leadership in the government and on Wall Street to facilitate the purchase or restructuring of some of the more troubled players.
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p>Finally, to fix this problem long term, we are going to need to create opportunities for consumers to renegotiate their debts–mortgages, car loans, and credit card. This won’t be easy, but bottoming out the debt spiral so that consumers and lenders share losses in an orderly way will help stabilize the deleveraging that’s now in progress.
swamp-yank says
With presidential candidates hawking their leadership abilities I find it just plain ROFL that neither led us from this financial situation. Certainly there was plenty of warning. The present administration seems to do what most administrations do; making a bad situation worse.
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p>McSame is calling this a strong economy. What will Obama tell us. The world is waiting.
mcrd says
Frat boys is an apt descriptor. There is blood on many hands. The laissez faire attitude of congress, poltical/financial qid pro quo with ranking congressional
oversight committee chairmen. The left and certain congressmen and senators demanding that EVERYONE in USA is entitled to a mortgage despite inability or unwiilingness to repay. Americans who have difficulty understanding comic books complaining that that they didn’t understand the terms of theor mortgage and understand what a “balloon” was.
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p>The perfect storm has come together. Don’t panic? We are beyond that now. I’m just a little guy and I have lost 25% of what I had invested. Oh well—it’s just paper. Looks like I may have to go back to work.
sabutai says
The laissez-faire attitude of Congress is the fault of the left? Do you even know what those words mean?
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p>And what is this “may have to go back to work”? For months know you’ve been telling us that you work some 60 hours a week in two jobs that make you expert in the topic being discussed, whatever it happens to be.
mcrd says
Ahhhhhhhh Does a democrat majority and Nancy Pelosi and Harry Reid mean anything to you? Democratic committee chairman?
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p>I’m not implying that Hastert ( whom I understand is allegedly up to his ears in unethical financial arrangements) et al are not equally or partially culpable, but the democtartic party has had its hand on the throttle for two years now ( explaining the 16% approval rating)
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p>The point being is that Congress has brought this plague down on us with the: “Every American is entitled to be a homeowner” crap. That was throwing blood in the water for these investment giants as they always “assumed” that the US Treasury would back up Fannie Mae and Freddie Mac ( and it has to a degree) but the remainder of the sharks out there got caught in the tsunami of mortgage holders unable to pay their mortgages for a variety of reasons ( IMHO mostly ignorance and slick salesmen)
centralmassdad says
hoyapaul says
What MCRD is probably referring to is the criticism from Democrats and public interest groups of the practice of mortgage-lender redlining, in which mortgage companies pretty plainly discriminated against minorities based not upon income and other sensible factors, but upon the rest of the neighborhood in which they lived.
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p>This has nothing to do with the current crisis. The many bad mortgages were made with an eye towards short-term gains, not because anyone was pressuring them to make the loans. Saying that you can’t discriminate against all black or Latino persons in the market is not equivalent to demanding that lenders lend to those who clearly cannot afford it. That was a decision (and a poor decision) made by the lenders, encouraged by hopes of short-term profits made possible by the repeal of the Glass-Steagall Act and the lack of regulatory oversight.
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p>Of course, if MCRD isn’t talking about redlining, then I don’t know what the hell he’s talking about. It sure wasn’t “the left” who took the lead in eliminating key regulations in the mortgage industry.
mcrd says
In 1999 I was denied a loan from a bank that I had been doing business with for many years, ” Because I didn’t make enough money.” So I went to a shark, got the money, fixed up the house and sold it three years later. Then the real estate collapse came six months later.
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p>Congress coming down on lenders re redlining had no other consequence than to enable the lenders to give congress what they wanted and avoid the bad ink in the papers. Everyone was writing bad paper because that was the politically correct thing to do. You reap what you have sown.
hoyapaul says
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p>If this is the standard Republican analysis of why lenders made the loans they’ve made over the past few years, then it’s a great reason to conclude that Republicans cannot be trusted to oversee the economy.
john-beresford-tipton says
Amid all the finger pointing there will be no discussion of resolution by either presidential candidate. While there were plenty of warnings both parties continued to dance. Who ignored the warnings? If we follow the money we find a bi-partisan effort to ruin. Oh, were it only the Republicans! Lots of money dealt out to the dancers and now the taxpayer is given to pay the piper. Why does this sound so familiar?
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p>I’ll wager we hear more intense “lipstick on pig” oratory to divert the public from this financial disaster. How much more of this type of government will the people stand? Little wonder the government has that contigency planned.
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p>Do you think anyone listens to that warning either? Our children are to live in a dystopian world.
gary says
Futures are down 300, which probably means the DJIA will close tomorrow, slightly up.
johnk says
thanks for the um, update?
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p>Can’t ask for a better economy, McCain should start campaigning with Bush a tour the country talking about how he’s going to continue Bush’s economic policies.
gary says
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p>You’re…um…welcome (why does anyone do … um … that anyway?)
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p>I know this. I take the WSJ after every large market shaking ‘meltdown’ and toss in atop a shelf near my desk. I have ’87, ’01…– a pretty large stack. The one thing the issues have in common is the random ‘gloom and doomer’ who explains why this particular gloom and doom is different. 6 months or so later, it’s no different.
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p>Politicians are just spinning what buys the votes.