Monday, March 17, 2008

Market Meltdown, or, The Fed Is Even Crazier

I feel the need to rant.

What in the name of sweet benevolent JESUS ON A BICYCLE does the Federal Reserve think it's doing?

Unless you live in a cave and read papyrus manuscripts by candlelight, you know that over the weekend, investment banking house Bear Sterns collapsed under the weight of its illiquid mortgage-backed securities positions and was kindly "rescued" by JP Morgan Chase, who bought it for $2 a share. (Do not weep for JP Morgan Chase. This amounts to less than the market value of the Bear Sterns headquarters building, which they now own.)

This was a straight run on the bank: Bear Sterns' customers started pulling out funds, and the firm couldn't unwind their positions fast enough to get the cash to cover.
It's probably a good thing that the Fed brokered the deal; if Bear Sterns had been allowed to go entirely Tango Uniform, a lot of their counterparties would have followed them down.

It's also more or less understandable, I suppose, that JP Morgan Chase didn't want Bear Sterns' portfolio of mortgage-backed dreck. They wouldn't be able to sell it either.

I do NOT find it understandable that the Federal Reserve chose to say, in effect, "Oh, don't worry about all those nasty subprime-based securities; we'll take them off your hands." The Fed is taking on thirty BILLION dollars worth of Bear Sterns' bum portfolios!! Bear Sterns (obviously) didn't understand them; what makes the Fed think it understands them?? Do they actually think they can hold this stuff long enough for it to be worth something?

Everyone is saying, Oh, the Fed has Saved The Day! It looks to me as if the Fed has just added a gratuitous $30 billion to the Federal debt that is already coming out of my personal taxpaying pockets, and I don't appreciate it at all. Especially in light of the fact that the Fed seems to be hell-bent on lowering interest rates again, just as soon as they can. With everybody underwater in debt, making it easier to borrow is not going to help. And I don't see any of this helping the financial markets, because they're all afraid to borrow from each other because they don't understand their mortgage-backed securities either. I explained this back in September, in Too Smart For Their Own Good, and frankly, I'd rather have been wrong. I wish I'd been exaggerating. But I wasn't.

Paul Krugman is saying on that he thinks the economy will be in the tank at least until 2010. I'm just wondering how much of my retirement money will be left when it's over.


  1. A number of disturbing trends have been unfolding over the last three decades, if not longer.

    If you look at the history of the American economy in the 20th Century, along with the history of taxation, government spending, and so forth, you see a steady decline in accountability in nearly every sphere.

    Right now, we have the conjunction of several problems, all occurring more or less at the same time:

    Devaluation of the dollar.

    Colossal imbalance of (trade) payments.

    Collapse of the capital markets tied to the value of real estate, which finally burst its bubble.

    Rapid decline of real tax revenues, as a result of continuing shrinkage of corporate and high-end tax obligations (a trend that has been more or less continuous for 40 years).

    Growing real unemployment and marked decline of middle class jobs and incomes (accompanied by two worker households). This wholesale loss has been largely facilitated by legislation and regulation deliberately designed to move jobs and investment money AWAY from America

    Growing inflation. (It now takes two wage earners to earn the comfort and security it once took only one to earn.)

    Rising energy prices--petroleum, natural gas, and the hidden costs of nuclear and coal.

    Rapid population increases, uncontrolled and restlessly shifting around the continents.

    Rising unfunded liabilities in health care, pensions, a new generation of disabled vets, etc.

    Runaway national debt over the last 7 years of the Bush Administration, burying the predicted "surpluses" that were supposed to get us out of the woods starting in the late 1990's. With accompanying budgetary failures of individual states, counties, cities and districts.

    In short, America went, in just two short generations, from being the unquestioned wealthiest and best-heeled nation in history, to the status of a deep debtor nation, whose paper is now held by oil rich middle eastern nations and Japan and China.

    Nearly every part of our society is on the verge of compromise, if not collapse: Schools, hospitals, police, welfare, the transportation infrastructure, etc.

    The new wave of "globalism" threatens to drain the last vestiges of prosperity from the North American Continent, and yet it has not brought widespread prosperity to the rest of the world.

    The Republican Neo-Conservative (with its agenda of exploitation and unfettered capital movement) has done much to hasten these disturbing trends, and America needs to wake up to this fact.

    How pathetic the so-called "Red States'" preoccupations with abortion, homosexuality, and ethical "behavior" (or as Robert Dole used to put it "Val-yooz") now seem, when considered beside these steeply declining economic trends!

    We may be poor, and stupid, and sick, and homeless, but we can still go to church and pray!

    As the signs those homeless folks hold up on the median strips keep insisting:

    "God Bless!"

  2. Anonymous7:43 PM

    LBJ attempted to make the civil body politic and the commonweal the essential denominators of this society. Yes, he was tied to KBR, he was a knee-jerk Texas anti-communist, he did militarily undermine democracy in the Dominican Republic, and he was up to his ass in inconsequential-for-the-public-wellbeing corruption, but he was also a to-the-bone-marrow New Dealer, and Andy Stern notwithstanding, the New Deal is the most important, and most positive thing to come along for this grand experiment in the common good.

    Jimmy Carter, a good and intelligent man, was also a naval officer with a limited grasp of the largest issues concerning both our domestic affairs and the geopolitics of the purported "arc of instability." Thus did he endorse deregulation, the mujahadeen (sp?) in Afghanistan, and the Carter Doctrine for the Persian Gulf. He and Brezinski are both older and much wiser than when he was president, but now their insights fall on deaf ears.

    This downward spiral started with Nixon, and the only administration to briefly, but not systemically, counter it was the Clinton administration, as witnessed by the easy with which Team Bush overthrew everything Clinton did - and Americans went along with Bush's very large nails in the coffin.

    We have labored under two idiotic myths: the Republicans are stronger on national defense and the Republicans are better for the economy. Both are demonstrably wrong (MSNBC disproved the myth regarding the Republicans and the economy when their analysis revealed that the stock market fared better under Democrats than Republicans, if I remember correctly). Actually, neither party was all that bright in relation to communism and real threats to global security, but Democrats have included far more people speaking honestly and insightfully regarding those issues that have Republicans, I think primarily because Democrats are generally more predisposed to facts, intellectual honesty, and rationality over ideology. Unfortunately, voters often trend just the opposite.

    The greatest failings of Democrats come when they think and behave like quasi-Republicans. Republicans greatest achievements come when, like Jim Jeffords and Chuck Hagel, they defy the party line in favor of actualities.

    For anyone still believes the Republicans are better for the economy, or that the Republican security agenda has made either America or the world in general safer, what drugs are you on, and can I have some, please?

    Anonymous David

  3. Anonymous7:49 PM

    I see four effing typos: easy instead of ease; MSNBC should be CNBC; and the apostrophe is missing from the possessive use of Republicans; and who is missing after anyone in the final paragraph.


    Anonymous David

  4. Anonymous David, I agree that saying MSNBC when you meant CNBC is confusing, but everything else was fairly obvious from context; and if a few typos in a blog comment are the worst thing that happened to you all week, you're in great shape.