Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Outstanding Analysis by Anatole KaletskyFrom today's Times. Here's a nugget:"The answer, to return to my medical analogy, is that the world was suddenly hit by a second, more dangerous disease in mid-September that was quite distinct from the chronic, but manageable, illness from which it had been suffering for the previous year. Correctly diagnosing these two separate ailments is absolutely crucial because they require different, and to some extent contradictory, cures." For the record, I don't agree that the problems were quite as separate (or as manageable) as Kaletsky makes out before September, but they certainly have become so, and Kaletsky is right on target in pointing to the added complexity that now characterizes the situation. -Larry Peterson From The Times November 13, 2008 Anatole Kaletsky It's an emergency. Long-term cures must wait The world economy is suffering from two quite separate problems. Unfortunately they need contradictory solutions Unemployment is soaring. Property and share prices are collapsing. Gordon Brown's borrowing plans are accused of driving Britain towards bankruptcy. Mervyn King, the Governor of the Bank of England, says that it is impossible to predict when the recession will be over and is pilloried for "losing touch with reality". What is to be done? When a patient is seriously sick--as the British and world economies clearly are at present--it is wise to make a careful diagnosis before prescribing the cure. The first step in this, as the Bank of England prepares for its next interest-rate cut and Mr Brown flies off to Washington for the global economic summit this weekend, is to decide who is qualified to make the diagnosis and who isn't. Should we disqualify all those who failed to foresee the gravity of this crisis--a group that includes Mr King, Mr Brown, Alistair Darling, Alan Greenspan and almost every leading economist and financier in the world with the partial exceptions of Warren Buffett and George Soros? Speaking as a junior member of this confederacy of dunces, my answer is, not surprisingly, an emphatic "no". The reason for continuing to take seriously the views of the many so-called experts wrong-footed by this crisis is, however, more complex, and more enlightening, than the self-justification offered yesterday by Mr King. The Governor excused the Bank's past misjudgments on the grounds that economic performance is inherently unpredictable and "the world changed completely" in mid-September after the Lehman Brothers collapse. This is perfectly true, but not very helpful. The question raised by Mr King's refrain that "the world changed in September" is why this happened and whether this sudden transformation was inevitable. Read the rest of the article Labels: Anatole Kaletsky, bailout, financial crisis, The Times Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Kaletsky: Transition to Begin ImmediatelyAnatole Kaletsky makes some very strong, but interesting claims. A must read:November 3, 2008 Change of guard could administer adrenalin shot Anatole Kaletsky The TImes Although President Bush will officially remain in office until January 20, there is a widespread recognition in Washington that the three-month power vacuum envisaged by the constitution will be unacceptable in the present financial crisis. If Mr Obama is elected, therefore, he will name a new Treasury Secretary almost immediately--the leading contenders being Tim Geithner, the New York Fed President; Larry Summers, President Clinton's last Treasury Secretary, and Paul Volcker, who chaired the Fed from 1980 to 1987. Offices have already been set aside for the new Secretary's team in the Treasury building in Washington and they should start shadowing their Bush counterparts before the end of this week. Read the rest of the article Labels: Anatole Kaletsky, Barack Obama, financial crisis, financial crisis bailout, george bush, Henry Paulson, Presidential transition, Treasury Department Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Humble Pie Chart This is from a fantastic and hilarious site, Bubblewrapped, that we just discovered. It bills itself as offering "Financial tools, objective analysis and mixed metaphors to help you stay afloat in the crash." Besides Greenspan, this "humble pie chart" mostly skewers journalists from the British business press, including, alas, Anatole Kaletsky (sorry, Larry...). Alan Greenspan Chairman of the US Federal Reserve, 1987-2006; knighted by the Queen in 2002 for his "contribution to global economic stability" Before 2003 "What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so. We think it would be a mistake [to more deeply regulate the contracts]." 2004 "Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient." 2007 "I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk … But I believed then, as now, that the benefits of broadened home ownership are worth the risk." "It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade. The worst have failed; investors no longer fund them and are not likely to in the future." After 2008 US Congress hearing, 23 October 2008 REPRESENTATIVE HENRY WAXMAN: [Mr Greenspan, you said:] "I do have an ideology. My judgment is that free, competitive markets are by far the unrivaled way to organize economies. We've tried regulation. None meaningfully worked." That was your quote. You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price. Do you feel that your ideology pushed you to make decisions that you wish you had not made? GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to – to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact. WAXMAN: You found a flaw in the reality … GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working? GREENSPAN: That is … precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well. Check out the rest of the site. Labels: Alan Greenspan, Anatole Kaletsky, Bubblewrapped, financial crisis, The Fed Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Singing for Our SalvationThis posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.One of the reasons Mozart's Requiem is the sublime work it is is that the end of the "Kyrie" (or, "Lord Have Mercy") expresses such a powerful entreaty that it seems that a superhuman mercy will surely take pity on the petitioners. But the "Dies Irae" ("Day of Wrath") immediately following is so savage, and impresses on us the majesty of superhuman justice so effectively that the former is reduced to a pathetic display of pride that should, and must, be punished accordingly. It seems like the global economy is getting to this part of the record. At 12.15 PM Eastern time, US and European equity markets are still in positive territory--only just--despite large gains earlier in the morning. The rally has been powered by the Federal Reserve's .5 % rate cut yesterday, the likelihood that the Bank of Japan will cut by a quarter-point (to .25%), and a flurry of bottom-fishing among investors. The Japanese cut is noteworthy not only because Japanaese rates are already so low: instead, the recent Yen strength that developed out of the unwinding of carry trades (a lot carried out by hedge funds cashing out to fund huge redemptions in other trades) promises to choke off Japan's all-important export sector, and that will, in turn, affect Japanese shares, which will hammer the Japanese banks that hold a lot of the shares, thereby making the banks vulnerable to a global bank crunch that only weeks ago Japan's banks were thought to be immune from (remember the Japanese bank, Mitsubishi UFJ, buying a stake in Morgan Stanley a few weeks ago?). Well, the Fed move and hopes for a Japanese one (done by a Bank of Japan that is as spooked by deflation--it's dealt with nearly 2 decades of it-- as the European Central Bank is by inflation) to follow promised to reverse this unwinding, and investors have responded accordingly. Also, Federal Reserve has teamed up with the IMF to offer swap lines to some important emerging economies. And though this does not, as yet, address the really huge problems in places like Ukraine and Pakistan, which are enduring intense crises, but do not have the dollars to deal with them, it shows global authorities are at least not going to sit back and wait for something really bad to happen before doing something. And that has added to the return of confidence, if you can call it that. Until now. Today, US GDP figures for the third-quarter came in, and there was a decline of .3%. In addition, bad news about pension underfunding of major US companies and a potential $8 billion charge to hospitals as a result of bad derivatives trading has spoiled the party. But the gloom goes further than this. Ultimately, it is another breakout of extreme pessimism that keeps resurfacing and is founded on the thought that despite all the extraordinary measures--and that's putting it mildly--that authorities worldwide, sometimes even, unusually, working in relative concert, have initiated, the blow to corporate profits (especially for US multinationals as long as the dollars remains a haven of saferty) of the slowdown we're facing now, which is characterized by long wage-and savings poor consumers abruptly cut off from all credit and continuing to face high, if levelling prices, will be particularly severe, especially given the wildly optimistic forecasts of profitablility that held only months ago. Not to mention the wave of deleveraging that is sapping the world of capital, and will continue to do so for a while, at an advanced rate. And this already dire situation is only to be exacerbated by the fact that banks will be cutting back lending even more to shore up their books for the end of the year, and the retail sector will be in for a very, very black Christmas. A true double-whammy here. Anatole Kaletsky of The Times had a interesting piece in the paper today, in which he mused over the steps that absolutely need to be taken if really, really serious pain is to be spared the US, and the world. His list of proposals includes: "emergency economic measures, which should be quickly implemented. Such measures could include a six-month moratorium on home foreclosures; a compulsory programme for reducing unsustainable mortgage debts; an urgent review of international monetary relations to protect emerging markets from the financial meltdown; and emergency tax cuts to support consumption, paid for by long-term revenues from a large-scale energy or carbon tax." So far, so good, and, from the point of view of a leftist (unlike the mainstream Kaletsky), a mere beginning. But the politically keen Kaletsky also notes that this stage of the crisis could exert so much of an adverse impact on the economy that the constitutional provisions regarding transfer of power between the incoming Obama (if it's McCain, by some miracle of American stupidity or fraud, we can just forget about it) may make even bold initiatives taken in the first hundred days rather moot in effect. He's hopeful that American politicians will be up to the challenge of speeding up the transition somehow to do something before the nominal transfer of power, something actively involving the presiodent-elect and the incoming administration. I think he's right. But I also believe, rather than sitting around waiting for the politicians, we must get out and agitate, and try like hell to force them, for once, to respond, now, to our concerns. Rather than chanting Kyries under our breath, we need to be chanting slogans, loudly and in unison, on the streets. Now. Labels: Anatole Kaletsky, financial crisis, financial crisis bailout, Larry Peterson Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
