Some economic crisis links (10.9.2008)

After another day of instability and having to confront the failure of the morning's coordinated interest rate cuts, the Treasury Department is now contemplating acquiring an ownership stakes in some American banks, according to a New York Times report.

Wall Street remains volatile, according to reports (this, this and this)

If there are no atheists in foxholes, it seems there are no market fundamentalists during an economic crisis!

The New York Times reconsiders Alan Greenspan's tenure with the aid of our recent and bitter experiences. The article concentrates on derivatives, of which Greenspan was a consistent champion.

The International Monetary Fund believes (and this and this) the world economic system is moving towards a recession.

Writing for CounterPunch, Robert Bryce asks

given the myriad warnings that came via Enron — and the years-long neglect of any meaningful efforts to have serious policing of Wall Street — why are we surprised to find out that the financial engineers have robbed us blind? The warnings from the Enron meltdown could scarcely have been more clear. Indeed, two key lessons were obvious: financial regulators needed lots more funding, personnel and support; and derivatives markets that operate without proper regulatory oversight and reporting pave the way for financial engineers to privatize profits and socialize costs.

Update (10.9.2008)

The Dow plunged late in the day, according to the New York Times.

The sell-off suggests investors are pricing in a much deeper recession than the markets had previously thought was likely. New data released on Thursday also showed that retail investors were withdrawing tens of billions of dollars from stock mutual funds — a sign that the panic on Wall Street was spreading [emphasis added].


In spite of the central bank moves this week, which have included a flood of liquidity into the markets, the strains in the credit market showed little sign of easing.

John Jansen (via Naked Capitalism) writes

I have said this before and risk redundancy but more and more it seems likely that the resolution of this crisis will be an historic financial calamity. Each and every step which central banks and regulators have taken to resolve the crisis has been met with failure. In the beginning, the steps would produce some brief stability. In the last several days, the US Congress (belatedly) passed a bailout bill, the Federal Reserve has guaranteed commercial paper and in unprecedented coordination central banks around the globe slash base lending rates. Listen to the markets respond.

The market scoffs as Libor rises, stocks plummet and IBM is forced to pay usurious rates to borrow. There is no stability and no hiatus from the pain. It continues unabated in spite of the best efforts of dedicated people to solve it.

We are in the midst of an unfolding debacle. It is happening about us. I am not sure how or when it ends, but the end, when it arrives, will radically alter the way we live for a long time.

Whoever wins the US election and takes office in January will need prayers and divine intervention [emphasis added].

Beliefs which characterize the Hobbesian state of nature have emerged, according to a Wall Street Journal report

Peter Cardillo, chief market economist at Avalon Partners, hoped that the 9000 level would hold as a low for the Dow, signaling the crisis of confidence had run its course. Instead, it now appears the bloodletting could continue for days longer, at least.

"It's getting to a point where it's every man for himself," said Mr. Cardillo. "When fear reaches that level, you're getting close to a bottom. But we're clearly not there quite yet."

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