Circling the economic drain

Roubini: And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown...

This is not fully appreciated by those -- nearly everyone -- whose attention was focused on THE ONE last week.

Roubini's spot-on analysis is sobering enough. What keeps me up at night are the unknown unknowns in this very fragile situation.

Have a nice day!

Paulson is going to inject money into the consumer credit markets so consumers can spend money they don't have, on things they don't need.

Paulson is trying to keep interbank lending and the commercial paper market from seizing up. Nobody thinks we can stop a nasty consumer-led recession from taking place. Nobody.

there are millions who have saddled themselves with credit card debt.

Guilty as charged. (Pun intended.)

On an earlier thread Karth said 401k's are "wastepaper."

Advice, anyone: I've got around $50K in my 401k and around $9,000 in credit-card debt. Should I cash out on the retirement plan (I'd get around half after taxes and penalties, I think?) to pay off my debt ... and squirrel the rest under the mattress?

Pyrrho @ 11:10 AM writes:

" "Paulson is going to inject money into the consumer credit markets so consumers can spend money they don't have, on things they don't need.

Paulson is trying to keep interbank lending and the commercial paper market from seizing up. Nobody thinks we can stop a nasty consumer-led recession from taking place. Nobody."

The item that still concerns me about Mr. Paulson's recent course-correction is this: the process of locating, identifying and neutralizing the hard-to-value subprime mortgages that have been scattered about the banks' portfolios still does not seem to have begun. First question: is this process still even a concern of the Treasury "Money Lords" ? Second, does anyone have even a vague idea of how long this process will take once it has begun ? Successfully dealing with those bad assets seems to me to be the main part of getting interbank lending and commercial-paper lending resumed and getting out of this recession. From the looks of things, it's going to be 2-4 years before this is done--which means 2-4 years of economic bad roads ahead. Fun.

Any answers, people ? I'd love to hear them, whatever they are.

Your servant,

Lord Karth

Successfully dealing with those bad assets seems to me to be the main part of getting interbank lending and commercial-paper lending resumed and getting out of this recession.

I'd like to think that the Fed, Treasury, FDIC, etc., are secretly doing this behind-the-scenes while nobody's paying attention. Alas, I don't think this administration (or its successor) is/will be that clever. Until financials write down bad assets to realistic values - and either recapitalize or liquidate as necessary - interbank lending & the commercial paper market will remain either frozen or perpetually dependent upon government intervention.

As for how to fix it: 1) have FDIC examine financial institutions' books, valuing assets based on realistic assumptions regarding housing deflation, future unemployment, etc.; 2) recapitalize the stronger institutions, preferably via debt-for-equity swaps; and 3) liquidate the weaker ones. With the restoration of markets' confidence in financial institutions' solvency will come a revival of the interbank & commercial paper markets.

a nasty consumer-led recession

"Consumer led recession" can be descriptive as well as prescriptive. Perhaps some out there use such a phrase as Bush II exhorted Americans to shop in response to 9/11. But for others, such as myself, calling this a "consumer led recession" simply corresponds to the reality that a major cause of this recession is a non-trivial decrease in consumer spending.

Re: #3 - why is common-sense *thrift* treated as a bad thing?