Greenspan: Once in a Century Financial Crisis

[Guest Conway]

http://www.breitbart.com/article.php?id=08...;show_article=1

Interesting article. Though we have not yet technically met the definition of a recession, it seems obvious to me that, for the past 24 months, we have been inching toward it through the housing crisis and the subsequent and/or pending failure of a number of large investment banks and insurance companies.

The commercial banking sector seems to be less affected than it was in the crisis of 89-92 of the Great Depression for that matter. The number of banks that have failed in the last 12 months is only a small fraction of those that failed in '92.

The collapse of Lehman and its expected Bankruptcy; the pending purchase of Merrill by Bank of America; and the potential failure of AIG marks a significant threat to the real estate driven economy that has driven New York City for the last 12 years.

[TotallyOz]

It is a very interesting article. Where the world was once dependent on the American Economy and the USA was King, we are now in a world where we are dependent on a world economy but the powers that be have yet to figure how to deal with this and to manipulate the world. The power is switching to other places and I feel America needs to learn to face this and find a way to enhance our economy while interacting with others well. So far IMHO the isolationism that we have had for the last many years has only hurt us and perhaps endangered our own reputation in the world to come that will not easily be overcome.

[Guest Conway]

It is a very interesting article. Where the world was once dependent on the American Economy and the USA was King, we are now in a world where we are dependent on a world economy but the powers that be have yet to figure how to deal with this and to manipulate the world. The power is switching to other places and I feel America needs to learn to face this and find a way to enhance our economy while interacting with others well. So far IMHO the isolationism that we have had for the last many years has only hurt us and perhaps endangered our own reputation in the world to come that will not easily be overcome.

Sadly, our day as a leader of the world economy has passed. Today, the Chinese and Russians, as our largest creditors are poised to take our place on the world stage. I agree that we need to transform ourselves diplomatically. The cowboy foreign policy of the Bush Administration has harmed our reputation among our international friends.

While I am certain that we can mend our fences with the world, I am not certain that any American politician has the spine to deal with our debt problem with a combination of both tax increases and budget cutting.

[TampaYankee]

Sadly, our day as a leader of the world economy has passed. Today, the Chinese and Russians, as our largest creditors are poised to take our place on the world stage.

China is a waking giant for sure as is India.

Russia, I'm not so sure about. I've heard knowledgable people describe Russia as a Third World Country sitting on an ocean of oil and natural gas. Oh yeah, with nukes. Still cannot feed itself or manufacture for its own needs. Shrinking population. Corruption seems endemic even on a personal level. If this is true then Russia presents little eoconomic threat. What they do have is a choke hold on Euro energy needs. That is one more reason to pursue alternative energy sources.

[AdamSmith]

Stepped onto the porch to pick up this a.m.'s Wall Street Journal and found the most alarming-looking front page since 9/12/01. Running full page width across the top:

Crisis on Wall Street as Lehman Totters, Merrill is Sold, AIG Seeks to Raise Cash

http://online.wsj.com/public/us

[Guest Conway]

The Wall Street Journal ran an article in yesterday's edition that depicts how close we really were to a systematic collapse of our financial system earlier this week, the results of which would have been devastating to the economy and to the ability of regular folks like you and me to get our hands on some cash due to liquidity and credit issues.

In my opinion, this crisis is teaching us that our investment banking system needs to be regulated much like our commercial banking system is.

As may of you can imagine, from a philosophical and political standpoint, I'm not a fan of government intervention in business. However, it is obvious that imprudent investing and pure greed among a small percentage of traders and bankers on Wall Street brought us to this crisis. I'm appalled to read the criticism of traders of the SEC's and Treasury's limitation on short selling of financial institutions.

I certainly hope that Republican and Democratic leadership in Congress can put politics behind themselves in the coming weeks to give Treasury officials the latitude they need to solve this crisis free of the usual political nonsense that rules the day to day governance of our country.

Perhaps in the process, we can restore our faith in the ability of government to solve a real crisis.

http://online.wsj.com/article/SB122186563104158747.html

[TotallyOz]

A 700 Billion dollar bailout. What the fuck have we allowed to happen? Anyway to get the USA back on the right footing?

21st Century Socialism? See this great Interview!

http://www.pbs.org/moyers/journal/09192008/watch.html

http://www.pbs.org/moyers/journal/09192008/watch2.html

[Guest Conway]

The accountability for this debacle falls to a number of places.

Contrary to the idea put forth by Gretchen Morgenson that this is an issue of big bad corporate America sticking it to unsophisticated homeowners simply isn't true. I work in the lending industry a pretty high level and i can say without hesitation that ground zero for this problem is not folks who bought homes to live in. But, with those who bought homes as investment vehicles.

This is like a pyramid scheme where because of the "Flip This House Phenomenon" that was taking place in this country, the supply of new housing simply exceeded demand. The availability of easy mortgage money, funded largely by private equity only fueled the problem.

When you add commissioned brokers to the equation, not only do you have excess supply and easy financing. But, you also have an element of potential application fraud on far too many deals.

The crooked brokers are the only ones here who have gotten away with robbery. He got paid and has no retribution from the current market.

You see, the homeowner can't pay for his house.

The stockholders of the mortgage companies and banks that have gone under have lost their investments. Those who invested in financial companies that are still afloat have lost a substantial percentage of their investment. For instance, a Citibank share holder who bought in September 2003 now has an investment that is worth 44% of what he paid for it, The shareholders are clearly losers, too. A similar investment in WAMU is worth 11% of what the investor paid for it in 2003. So, the equity holders in these companies that supposedly robbed the markets blind haven't gained from it. An investment in Indymac is worth nothing today. The same goes for Freddy and Fanny.

The problem here originated with the mortgage market. But, it has grown to a substantially more problematic lack of liquidity in the marketplace. As mutual funds that invested in housing stocks, like AIG and Fanny/Freddy, began to see their pershare value drop below $1 per share, the sensed that there would be a run on their funds. Thus, they pulled mass amounts of money out of the market and held it in anticipation of those claims. With that money out of the marketplace, the cost of what credit was available began to skyrocket. A crisis was developing in that there wasn't enough money supply to meet the daily credit demands of the US and world economies.

To make matters even more troubling, a number of large companies, like GM drew huge amounts down off of their credit lines last week because they were concerned that there wouldn't be liquidity in the marketplace in the coming days to meet their operating demand for that money. In other words, the market panicked. Creating yet greater demand for the limited dollars that were available to fund the credit needs of businesses.

If a business can't borrower, it can't make its payroll. If it can't make its payroll, there is no more business to operate. In turn, if its customers can't pay it nor can they meet their payroll, It creates a wicked cycle that could lead to mass unemployment, homelessness and hunger throughout our society.

That's the potential crisis that drove the treasury to make the decision that it did last week. In my opinion, Paulson and Bernanke are a good combination of a solid former Wall Street Executive who has led one of the most consistently profitable banks on the street and an economic intellect who has made a name for himself in analyzing the causes and effects of the great depression. They have every reason, free of political motivation to make this work.

[BiBottomBoy]

Don't you think that changing the system from a situation where banks held the paper on mortgages - and were therefore inclined to make sure they made solid mortgages - to a system w here they could sell the mortgages after they made them, had a lot to do with this meltdown?

I know that I would have no problem lending a bum on the street $50 if I knew I could sell that debt to someone else for $60 and let them try to collect.

[Guest Conway]

I completely agree. Not much about this crisis makes me laugh. But, this sub prime primer did:

http://docs.google.com/TeamPresent?docid=d...=true&pli=1

[BiBottomBoy]

Nice to be on the same page.