OK, look, we're all having a fine time ripping each other over Obama's pastor, but I gotta say, all that is meaningless compared to the kind of trouble we might be in now. Here's the latest:
Bear Stearns Cos. reached an agreement to sell itself to J.P. Morgan Chase & Co., as worries grew that failing to find a buyer for the beleaguered investment bank could cause the crisis of confidence gripping Wall Street to worsen.The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies' boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday's close, Bear Stearns's stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.
Lottery winners are often worth more than $236 million. That was BEAR FREAKING STEARNS that just went belly up! Poof, just like that. Who's next?
From the NYT tonight:
In a third move aimed at helping banks and thrifts, the Fed also lowered the rate for borrowing from its so-called discount window by a quarter of a percentage point, to 3.25 percent.The moves amounted to a sweeping and apparently unprecedented attempt by the Federal Reserve to rescue the nation’s financial markets [Emphasis mine -- RD] from what officials feared could be a chain reaction of defaults.
On Lehrer Friday night, Jane Bryant Quinn pointed out that only a month ago, Bear Stearns said it was flush with cash, no problem. And now it's dead. She also said we are in the worst fiscal crisis since the Great Depression:
JUDY WOODRUFF: Jane Bryant Quinn, as somebody who studies consumer and consumer behavior, what do you look for next?JANE BRYANT QUINN: I am looking for, I'm afraid, not a very comfortable time for consumers. I expect that some of them are going to have to start saving more money, which they haven't done in the past because they've always had easy credit, they've always been able to spend, and now they're not going to be able to get as much credit. They're not going to be able to borrow against their homes because of the decline in the equity of their homes.
And so this is going to -- they're facing a retrenchment, because they're spending more on their gas, they're spending more for food, and their incomes are not going up, and they're going to lose some jobs. So we're looking at a classic recession, and consumers are going to have to retrench.
And, you know, Judy, over the long run -- if you look at where America is in the world, relatively speaking, we are getting poorer, because we've been a debtor nation for so long. And the dollar going down means that internationally we are getting to be a poorer country, and we are not doing as well as we did in the past.
This is going to be a hard thing for Americans to face.
When a financial institution like Bear Stearns can fall apart in a matter of days, nothing is solid.
Add to Del.icio.us
Add to Technorati
Add to Digg
Add to Newsvine
Subscribe
pyrrho
Deflation and inflation are directly related to money supply, and money supply in the form of credit is being rapidly destroyed. Even if the Fed were to "print money", it could not replace the trillions of dollars that have been, are being, and will be destroyed in the credit market meltdown.
I don't know why you stopped there, but I'll continue, even though I don't have a degree in economics: The ability of economy to operate is directly related to the money supply also. As it contracts, as less money is chasing the same amount of stuff, we will start having deflation, and then we will start having less production of stuff. (Exactly like the Depression.) Printing more money would be somewhat useful, but only until loans start happening again.
But that's not what's going to cause a recession. What's going to cause a recession is the fact we're already in one, and we've been hiding that fact for quite some time by rising house prices and stupid home loans. Wages haven't gone up, prices for everything have, including houses...but a chart explains this better:
2000: Income 2000 a month, food 500 a month, 200,000 house at 500 a month
2008: Income 2100 a month, food 700 a month, 350,000 house at 2500 a month (Although it's the same house, and the payments will leap to 1000 a month at any time.)
I have no sympathy for these banks that are collapsing. They were part and parcel of the attempt to hide the fact that wages were increasing less than inflation, and per capita asset (minus house inflation) were constantly shrinking. They probably didn't realize what was going on, but the Bush Administration appears to have deliberately let them run around with no oversight like a bunch of lunatics, because it made the economy out to be much better than it is.
Simon, you're correct. We need to make sure we don't make the same mistakes that we made trying to recover from the Depression.
1. The Smooot-Hawley tarrif of 1930, which snuffed out global trade at the time the economy needed it most.
I honestly don't know much about this, but I think it's a mistake to generalize there. Tariffs then were to protect American companies from international ones, but what they would do now, and why I think we need them now, is to protect Americans from 'American companies' using labor outside this country, which is the last thing we need in a recession.
2. The inability of both the Hoover and Roosevelt Administrations to recognize the problem of deflation. Hoover actually spent three years fretting about inflation, the opposite of the problem facing the country.
Neither of those is actually the problem, but yes, they got it backwards. The problem is the lack of money, of which deflation is a sign. We need to 'undo' this credit crunch, probably by printing more money. Which will also undo deflation, but the real point is that the money supply and the economy tend to match, so if we let the money supply shrink, the economy will blithely follow.
3. The ideological assumption by both Hoover and Roosevelt that the economy could be managed and directed by "experts." Hoover the Wonder Boy Engineer harangued businesses to keep wages artificially high and encouraged states to fund massive public works projects. FDR created the disastrous National Recovery Administration, which prolonged and deepened the Depression by trying to regulate prices and wages. Both Hoover and FDR pursued balanced Federal budgets regardless of cost. Roosevelt insanely pushed for tax increases in the bleakest years of the Depression (1937-1938).
Wage and price controls are, indeed, very stupid.
And a recession is the stupidest time to have a balanced budget, which is why out-of-control Bush spending has really hurt us, because we may not have a lot of choice there.
But you're wrong about the public works thing. Public works is what actually ended the Depression, although we like to refer to these public works as 'World War II'. It's just we were willing to finance it with debt (aka, war bonds) and drafted labor, instead of with a balanced budget, which didn't have any money.
Guys, we are not in a recession, that's what the media wants you to believe. For a recession to occur, there has to be two consecutive quarters of negative growth, and there hasn't been one yet. However, there is very slow growth, i.e, housing market, monetizing money,risiong gas prices and so forth but our system is beyond going through another depression. If anything, it's like the 1970's but not the great depression or events leading up to it.
Also, our unemployment rate is 5% compared to the 20's rate of 23%! That is a helluva a lot more people out of the job market. The dow jones plummetted 90 pts, nearly 75% of its original value.
The more you believe this bad news, the more you are apt to made bad choices and perpetuate the myth. So..before you jump to conclusions, think critically and do some research. :)
the 2nd usa depression will teach people to save and i will buy their stuff for pennies on the dollar or amero
People are just too greedy. The unions go on strike wanting more money, and in return, they will have to fire people and raise their prices for services.(Verizon etc.)Lower mortgages and prices, and everyone makes out. The govt. doesn't get it. Raising taxes and prices puts the American people more and more into trouble and debt.The media has to chill. Just the other day they say the Dow plummets 29 points! Gimme a break, they don't care about anything but ratings. I don't watch the news anymore.
Post a Comment
Are you aware of our Rules of Conduct?