The Crisis Explained

In Chocolate Covered Cotton Billmon explains the extent of the financial crisis. Yikes.

Bottom line: great big chunks of Big Shitpile aren’t “impaired,” or “illiquid,” or “distressed,” they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored and a whole bunch of deceased LBOs can be raised from the tomb.

So what about the proposed solutions?

One of the things that creeps me out about the political system’s response to the crisis so far –€“ the insolvency of the banking system in particular –€“ are the increasingly desperate attempts to maintain a phony façade of free markets and private enterprise, in an economy now utterly dependent on the federal safety net. I totally expected that from Hank Paulson and the Cheney Administration, but is Obama’s financial team really pressed from exactly the same Wall Street mold?

LOTS to read there. Especially read the end and follow the link.

3 thoughts on “The Crisis Explained

  1. Excellent link. Excellent description of the banking/credit problem.
    He provides no suggestions or recommendations.
    And Krugman who came crying in the Wilderness for the President says in effect, ‘ I have no idea what is going to fix this problem.’ (‘Change’ NOT being the answer apparently)
    So where do Krugman and billmon take us? No where.
    1. Budget, Put 3 months cash in the bank
    2. Put 3 months living expense in bullion coins
    3. Put every discretionary dollar against debt reduction
    4. Put 60% of your investments in Treasuries, GNMAs, gold ETF. Leave 40% Utilities and the Eli Lillys, JNJs of the world
    5. Assist the local church and NGO shelter and food bank plan
    6. No need to yank money out of FDIC insured deposits, yet.
    7. Neighborhood watch.
    And hey, a 6 months supply of beans, rice, salt, sugar, butter, tea bags, and peanuts… how much could that cost?

  2. That’s high praise for this Mississippi economic emigrant.
    Amazingly we went into this crisis spending at twice the level of FDR as a % of GDP, 21%. That will spike to 29%. We’ve never been there before.
    “Roosevelt came late to some of the ideas of big public spending to stimulate the economy,” said John Halpin, a senior fellow at the Center for American Progress, a liberal think tank.
    The 1930s began with federal outlays representing just 3.4 percent of the nation’s economy as measured by the gross domestic product. Roosevelt’s efforts to fight the Depression with government spending caused outlays to rise to 10.3 percent of GDP by 1939 and to 12 percent by 1941 on the eve of U.S. involvement in World War II.
    By contrast, government spending was 21 percent of GDP last year. Obama’s economic recovery policies are expected to bring it up to 30 percent or more.
    “The New Deal by today’s standards involved a minuscule amount of spending,” said Allan J. Lichtman, a professor of political history at American University. He said Obama is more of a “big spender” than was Roosevelt.
    Isn’t it shocking how LITTLE of this context is provided by the MSM??

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