Here's a trip down memory lane. On March 13, 2007-- just a hair over two years ago-- the Dow Jones Industrial Average closed at 12,318. Yesterday, the Dow closed at 7395. (Please click, 'read more')
"So far, the financial news of the crisis in the mortgage industry ... is reporting a thicket of economists gathered around the explosion of the subprime mortgage market like chemistry students around a shattered beaker. ... They say, as they did in the New York Times on Sunday, that this is the "free" market at work. ... Lenders gone wild deformed this “free” market. Miami-Dade county and much of the South Florida landscape has morphed from farmland and wetlands to suburban sprawl, nightmarish traffic congestion, and polluted waterways on the backs of subprime mortgages, credit derivatives, and increasingly—consumers persuaded to use their homes as piggy banks for consumption out of line with disposable income...
... Get out of the way, is what the nation’s largest financial institutions said to citizens who objected to the radical transformation of their neighborhoods into sprawl or anyone with the temerity to suggest tight regulation of the multi-trillion dollar market for financial derivatives tied to home mortgages.
Developers in Miami-Dade County offered local legislators insider-deal pricing on homes, undeterred by law enforcement or ethics, creating a halo effect around the bubble. “I do think the unwind is just starting. The moment of truth is not yet here,” said a real estate professional to Gretchen Morganstern on the front page of the Sunday New York Times.
That moment will come when it becomes clear when consumers who spent far more than is reasonable on housing or housing-related lines of credit realize that their most important asset will not be rising in value and if it has to be sold, will be sold at a loss. When that happens, all the lenders who commandeered Miami legislatures through their proxies--lobbyists and production home builders—will slink into the shadows, waiting for taxpayer bailouts and the chance to do it all over again."
The next excerpt is dated August 23, 2007, when the Dow closed at 13,325:
"A thousand and one bearish pundits have thrown their lances at the staggering bull market. The bull rises to shake them off, nostrils flaring. The infusion of hundreds of billions by the world’s central banks lubricates its joints. This is what taxpayers must want, for the world central banks to be commanding liquidity and the printing presses forward, faster, harder. It is a great bull that can summon such resources.
But is there a plan? Is there an end in sight? ... So far, candidates for president are reluctant to engage in addressing the deep stresses underlying the world’s largest economy, transformed by the force of globalization, and how these reflect in housing markets under sharp duress. Here is the simple version: as jobs and manufacturing poured from the American heartland to low-labor cost nations like the tide ebbing at the Bay of Fundy... the US economy became increasingly reliant on growth generated by housing and construction: a stool built on two legs.
Keeping the two-legged stool balanced was the genius of Republican gains in Congress and control of the White House: the growth machine provided political contributions through the funnel of construction and development, primed by historic low interest rates and marginal, ineffective supervision of lending practices and financial derivatives. That the two-legged stool has been sold as stable is no less remarkable than the conversion of an ordinary mortgage by Wall Street bankers and fresh-faced MBA graduates into structured financial derivatives worth ten or a hundred times the original value.
The deacons of Wall Street argue that derivatives like mortgage backed securities or CDO's are critical to the smooth functioning of the global economy, by dispersing risk. This is only true if risk is clearly priced. But today the pricing of risk in financial derivatives is the realm of computer geeks, tied to reality by the thinnest threads of trust.
... Today the reading public is only getting half the story as world-wide financial markets pulse with uncertainty. True, no one became king, recently, by arguing as prince that something is rotten in the heart of Denmark. But incipient anger is rising in America, and such a prince may yet become president."
6 comments:
Are you trying to point out the fact that the freefall coincides with Democratic control of congress?
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Comrad Gimleteye, what do you suggest? Price Controls, Interest rate Caps, Living Wage for everynone (or better yet why stop at living wage when a millionaire wage for everyone $1,000 an hour for flipping burgers is so much better), a bailout for everyone (or better yet an executive position at AIG for everyone), a Financial Commisar or Fuhrer to keep all those pesky folks on Wall Steet in order,.
Please don't just shine the light on your percieved evils of capitalism, show us the way to the socialist utopia comrad. The readers of the Eye seek your guidance.
Arise ye workers [starvelings] from your slumbers
Arise ye prisoners of want
For reason in revolt now thunders
And at last ends the age of cant.
Away with all your superstitions
Servile masses arise, arise
We'll change henceforth [forthwith] the old tradition [conditions]
And spurn the dust to win the prize.
Gimleteye writes:
Shipwrecking the US economy took a lot more time than the recent shifts in congressional majorities. IMHO, we are way past the point of throwing around canards about the risks of communism/leninism/marxism/socialism. Amazing, isn't it? All government hands are on deck--from China, to Russia, Europe and the US-- to prevent the world economy from slipping into a Depression. If you believe Bernanke on 60 Minutes, the risk is too little intervention by governments: that's the lesson he takes from the Great Depression. Anyhow, we're still waiting to hear into whose pockets those hundreds of billions are flowing. We are all strangers to this brave, new world. But how we got here, to the brink, is no surprise.
To argue that the Depression or its duration was due to too little government intervention is to be oblivious too history. Both Hoover and FDR exhausted every letter in the alphabet making up government agencies.
In a free market there will be both unsustainables euphoria and downturns, both are excacerbated by government interference, but too understand that you must look beyond todays news and recent history or history tainted by political leanings and look just at facts.
There where boom/bust prior to the existence of FED (created specifically for the purpose on controlling these fluctuations) and the thousands of financial regulations that exist today but the recoveriy times where shorter and the effects to the general economy where not as marked.
The alternative too boom/bust of free markets is a stable barely survivable miserry, which we are headed too at light speed.
The credulity on both sides (DEM, REP, Con, LIB) never ceases to amaze me.
"Little progress can be made by merely attempting to repress what is evil. Our great hope lies in developing what is good."
" The man who builds a factory builds a temple, that the man who works there worships there, and to each is due, not scorn and blame, but reverence and praise."
"Ultimately property rights and personal rights are the same thing."
Gimleteye writes:
For historical detail on the regulatory events, revisions and lapses leading to the financial market collapse, this is an interesting perspective:
http://www.multinationalmonitor.org/mm2009/012009/weissman.html
What it omits is the way local government processes, promoted by insider lobbyists and special interests, matched up to the failure of financial markets.
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