EconoMonitor

Nouriel Roubini's Global EconoMonitor

Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs

It is now clear that the US financial system – and now even the system of financing of the corporate sector – is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly but at this point we have reached the final 12th step of my February paper on “The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster” (Step 9 or the collapse of the major broker dealers has already widely occurred).

Yesterday Thursday a senior market practitioner in a major financial institution wrote to me the following:

Situation Report: So far as I can tell by working the telephones this morning:

  • LIBOR bid only, no offer.
  • Commercial paper market shut down, little trading and no issuance.
  • Corporations have no access to long or short term credit markets — hence they face massive rollover problems.
  • Brokers are increasingly not dealing with each other.
  • Even the inter-bank market is ceasing up.

This cannot continue for more than a few days. This is the economic equivalent to cardiac arrest. Then we debated what is necessary to restart the system.

I believe that the government will do another Hail Mary pass, with massive guarantees to the short-term commercial credit system and wide open short-term lending by the Fed (2 or 3 times expansion of the Fed balance sheet). If done on a sufficient scale this action will probably work for a while. But none of these financial measures affects the accelerating recession — which will in turn place more pressure on the financial sector.

Another senior professional in a major global financial institution wrote to me:

Today, in our trading room, I could see the manifestations of a lending freeze, and the funding hiatus for banks and companies, with libor bid only, the commercial paper market closed in effect, and a scramble for cash – really really scary.

Do you think this is treatable without a) a massive coordinated liquidity boost and easing of monetary policy and b) widespread nationalisation of some banks, gtess to others AND a good bank/bad bank policy where some get wiped along with their investors? The Treasury Tarp plan is an irrelevance if we are at a major funding crisis.

And to confirm the near systemic collapse of the system of financing of both financial firms and corporate firms Warren Buffett declared yesterday, as reported by Bloomberg:

the U.S. economy is “flat on the floor” after a cardiac arrest as companies struggle to secure funding and unemployment increases.

“In my adult lifetime I don’t think I’ve ever seen people as fearful, economically, as they are now,” Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. “The economy is going to be getting worse for a while.’ …The credit freeze is “sucking blood” from the U.S. economy, Buffett said.

We are indeed at the cardiac arrest stage and at risk of the mother of all bank and non-ban runs as:

The run on the shadow banking system is accelerating as: even the surviving major broker dealers (Morgan Stanley and Goldman Sachs) are under severe pressure (Morgan losing over a third of its hedge funds clients); the run on hedge funds is accelerating via massive redemptions and a roll-off of their overnight repo lines; the money market funds are experiencing further withdrawals in spite of government blanket guarantee.

A silent run on the commercial banks is underway. In Q2 of 2008 the FDIC reported $4462bn insured domestic deposits out of $7036bn total domestic deposits; thus, only 63% of domestic deposits are insured. Thus $ 2574bn of deposits were not insured. Given the risk that many banks – small, regional and national – may go bust (as even large ones such as WaMu and Wachovia went recently bust) there is now a silent run on parts of the banking system. Deposit insurance formally covers only deposits up to $100000. Thus any individual, small or large business and/or foreign investor or financial institution with more than $100000 in a FDIC insured bank is now legitimately concerned about the safety of its deposits. Even if as likely the deposit insurance limit will be temporarily raised to $250000 by Congress there will still be a whopping $1.9 trillion of uninsured deposits (or 73% of total deposits); thus, a huge mass of uninsured deposits will remain at risk as even small businesses have usually more than $250K of cash while medium sized and large firms as well as any domestic and foreign financial institution or investor with exposure to US banks has average exposure in the millions of dollars. Particularly at risk are the cross border mostly short term interbank lines of US banks with their foreign counterparties that are estimated to be close to $800 billion.

A run on the short term liabilities of the corporate sector is also underway as the commercial paper market has effectively shut down with little trading and no issuance or rollover of such debt while corporations have no access to long or short term credit markets and they are therefore facing massive rollover problems (over $500 billion of rollover of maturing debts in the next 12 months). Indeed, the market for commercial paper plummeted $94.9 billion to $1.6 trillion for the week ended Oct. 1 (and down over $200 billion in the last three weeks). Especially banks and insurers were unable to find buyers for the short-term debt: financial paper accounted for most of the decline, plunging $64.9 billion, or 8.7 percent in the last week; but now even non-financial corporations are also experiencing a severe roll-off in the CP market. Discount rates for investment-grade non-financial commercial paper spiked to 599bp for 60 day maturities. More companies are borrowing against or tapping their revolving credit lines. This is largely due to the dislocation caused in the money markets by the failure of Lehman and the subsequent withdrawals from money market funds, which are some of the biggest providers of liquidity in the short term funding/commercial paper. Even the largest corporations are at severe stress: AT&T last week was forced to rely on overnight funding for its treasury operations, as lenders were unwilling to provide more long term financing due to fears in money market funds over investor redemption. The CEO said “It’s loosened up a bit, but it’s day-to-day right now. I mean literally it’s day-to-day in terms of what our access to the capital markets looks like,’’ Things are much worse for non-investment grade corporations and for small and medium sized businesses. As reported today by Bloomberg: Almost 100 U.S. corporate treasurers gathered for an emergency conference call yesterday to warn each other that banks are using any excuse to charge more to renew lines of credit. “Capital is fleeing to safety,” said Edward E. Liebert, treasurer of Rohm & Haas Co., who took part in the 90-minute call organized by the National Association of Corporate Treasurers. “Interbank lending is not free-flowing any more,” said Liebert, 56, chairman of the Reston, Virginia-based trade group. One bank charged a participant in the call 80 basis points to renew a routine $25 million credit line, according to Liebert, who wouldn’t identify the speaker or the company. Rohm & Haas, based in Philadelphia and rated BBB by Standard & Poor’s, is paying 8 basis points for a $750 million revolving line of credit provided by 13 banks, the treasurer said. A basis point is 0.01 percentage point. As the U.S. House of Representatives prepares to vote on a $700 billion bailout bill passed by the Senate, global credit markets are being squeezed by banks afraid to lend to each other and to even some investment-grade corporate clients. Treasurers are struggling to keep credit lines open so they can pay employees, fund pension benefits and purchase raw materials. “The banks are really starting to play hardball,” said Jeff Wallace, managing partner at Greenwich Treasury Advisors, a financial consultant in Boulder, Colorado. “They don’t want to give out any more money to people because they don’t have enough capital”. Banks are demanding renegotiation of interest charges or lending terms when “routine” amendments are requested on lines of credit, said Thomas C. Deas Jr., treasurer of Philadelphia- based FMC Corp. and an association board member.

The money markets and interbank markets have shut down as – despite the Senate passing the bail-out bill – yesterday USD Overnight Libor was still at 268bp after reaching an all-time high of 6.88%; the USD 3m Libor-OIS spread widened to record 270 basis points; EUR 3m LIBOR-OIS spread is at record 130bp; the TED spread is at record 360bps (TED was 11bps one month ago); Money and credit markets are dysfunctional also in emerging markets ; and agency bond spreads are also at highs again.

So we are now facing:

– a silent run on the huge mass of uninsured deposits of the banking system and even a run on some insured deposits are small depositors are scared;

– a run on most of the shadow banking system: over 300 non bank mortgage lenders are now bust; the SIVs and conduits are now all bust; the five major brokers dealers are now bust (Bear and Lehman) or still under severe stress even after they have been converted into banks (Merrill, Morgan, Goldman); a run on money market funds restrained only by a blanket government guarantee; a serious run on hedge funds; a looming refinancing crisis for private equity firms and LBOs);

– a run on the short term liabilities of the corporate sector as the commercial paper market has totally frozen (and experiencing a roll-off) while access to medium terms and long term financings for corporations is frozen at a time when hundreds of billions of dollars of maturing debts need to be rolled over;

– a total seizure of the interbank and money markets.

This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains shut down the risk of an economic collapse similar to the Great Depression becomes highly likely.

So what needs to be done? Even several hundreds of billion dollars in emergency liquidity support to the financial system by the Fed and other central banks in the last week alone have not been enough to stop the seizure of liquidity in interbank markets and the shut down of financing for the corporate sector as counterparty risk is now extreme (no one trusts any more in this crisis of confidence even the most reputable and trustworthy financial and corporate counterparties).

Thus, emergency times where we are at risk of a systemic meltdown require emergency measures. These include the following six ideas:

– A temporary six-month blanket guarantee on all US deposits (not just those below $250k) combined with a rapid triage between insolvent banks that should be quickly closed and distressed but solvent – conditional on liquidity and capital injections – banks that should be rescued. To stop the silent run on the banking system you do need now such blanket guarantee on all (insured and uninsured) deposit regardless of their size. To minimize lender moral hazard from such action the blanket guarantee needs to be followed by a very rapid triage and shut-down of insolvent institutions to prevent such institutions from gambling for redemption, i.e. acquiring more deposits and making even more risky loans. To limit such moral hazard distortions one can also limit the extended guarantee only to current deposits: i.e. any new deposit above a $100k limit will not be insured. Of course all the currently uninsured deposits of such insolvent institutions will need to be made whole once such banks are shut down (otherwise the run on uninsured deposits would continue and accelerate). Once the rotten apples (insolvent banks) that are infecting the good apples (the solvent banks) are eliminated the blanket guarantee will be lifted as the uninsured depositors of surviving banks can be assured that the remaining banks (the good apples) will not go bust. Currently the silent run is triggered by investors and depositors not knowing which banks will go bust and which will survive as the bad apples are mixed in the same dark basket together with the good apples. The extra fiscal cost of bailing out the uninsured depositors of failed banks can be addressed with FDIC recapitalization or an increase in deposit insurance premia or by whacking further unsecured creditors of failed banks (as the government should have first claim on the remaining assets of failed banks if uninsured depositors are made whole in such banks). Anything short of this blanket guarantee cum triage will not be enough as the silent run on the banks will soon become a roaring tsunami of an open run. Solution a la Korea 1997 – where the cross border interbank run was solved via a bail-in rather than a bailout of the foreign cross border interbank creditors of Korean banks via an effectively forced conversion of short term interbank lines into one to three years claims guaranteed by the Korean government – would be too risky as such effective capital controls and coercive stretching of maturities of cross border interbank lines would dramatically scare foreign investors placing funds in US banks.

– Extension of the emergency liquidity support of the Fed (both TSLF and PDCF) to a broader range of institutions in the shadow banking system, especially those directly providing credit to the corporate sector. The TSLF and PDCF are already available to some non banks (the broker dealers that are primary dealers of the Fed). But two of such broker dealers are gone (Bear and Lehman) and the other three are under stress. Goldman Sachs, Morgan Stanley, the other primary dealers and the banks that have access to the TSLF and PDCF (and discount window) have massively used these facilities in the last few weeks; but they are hoarding such liquidity and not relending it to other banks, to the thousands of the other members of the shadow banking system and to the corp
orate sector as they need such liquidity and don’t trust any counterparty. Thus the transmission mechanism of credit policy (the non-traditional Fed liquidity lines) is completely shut down now. Thus, on an emergency basis the TSLF and PDCF need to be extended to other non-bank financial institutions, especially those directly providing credit to the corporate sector such as non-bank finance companies and leasing companies. To ensure that this liquidity support is effective the Fed may require the borrowing institutions to maintain their level of exposure to the corporate sector (avoid the roll off of commercial paper, of short term credits to corporate and alike). A similar requirement may need to be imposed on all other financial institutions (banks and non bank primary dealers) that are now shutting down or rolling off their exposure to the corporate sector. Of course a crucial triage of the corporate sector is also necessary: those firms that would have ended up into Chapter 11 or 7 even under less extreme financial conditions should not be rescued and thus allowed to go into bankruptcy court.

– Some members of the shadow banking system will not receive such liquidity support of the Fed (hedge funds and private equity funds) as – fairly or unfairly – there is no political sympathy for such institutions. This means that the demise of hundreds – and possibly thousands – of hedge funds will occur as redemptions and roll off of overnight repo financing for leveraged investments will cause a massive liquidity – and thus solvency – crisis for such institutions. If hundreds of smaller hedge funds collapse the systemic consequences would be limited (even if in the aggregate hedge funds provide significant financing to the corporate sector). If larger and systemically important hedge funds were at risk of failing the Fed will have to engineer a massive private sector bail-in of such hedge funds (a larger scale rescue a la LTCM) where the prime brokers of such funds are forced to maintain repo exposure to such funds rather than be allowed to shut off such exposure. This is a radical suggestion but the alternative of a Fed liquidity bailout of systemically important hedge fund is not politically feasible given the little sympathy that such funds enjoy in Congress. The refinancing crisis of private equity firms and their LBOs is a longer fuse run as covenant-lite clause and PIK toggles will postpone such financing crisis but make the harder the fall as zombie corporations that postpone restructuring will have a bigger collapse once the financing crisis eventually occurs. But since many of these LBOs should have never occurred in the first place any financing crisis for such buy-outs should be dealt with in bankruptcy court; no public funds should be used to rescue such LBOs and the reckless private equity firms that designed such schemes.

– Direct lending to the business sector from the Fed via extension of the PDCF and TSLF to the non financial corporate sector. This could include Fed purchases of commercial paper from corporations and other forms of financing of the short term liabilities of the Administration to small businesses secured in appropriate ways. Given the collapse of the corporate CP market and the banking system reluctance to provide loans to the corporate sector (credits lines are being shut down) the only alternative to the Fed becoming directly the biggest emergency bank for the corporate sector would be to force the banking system to maintain its exposure to the corporate sector, possibly in exchange for further Fed provision of liquidity to the banking system. The former option may be better than the latter to deal with the looming illiquidity of the corporate sector.

– Have a coordinated 100bps reduction in policy rates by all major advanced economies central bank and, possibly, even some emerging market economies central banks. While this policy rates may not directly resolve the insolvency issues in financial markets and in the corporate sector it may ease liquidity pressures and it would signal that global policy makers are serious about addressing together this most extreme liquidity and financial crisis. Also, some of the radical policy actions that have been suggested here for the US will most likely need to be undertaken also by European policy makers as the liquidity and credit crisis is now becoming global.

Radically redesign the Treasury TARP rescue plan – possibly after its necessary approval today – to make it effective, efficient and fair. This implies that in addition to a more limited government purchase of toxic assets, you need: a) an emergency triage between insolvent and illiquid and undercapitalized but solvent banks should be made; b) a sharp reduction of the mortgage debt burden of the insolvent household sector; c) and a recapitalization of solvent banks to be done via public injection of preferred shares and matching contributions by current shareholders of the banks. Financial markets have already voted no to this plan (that is flawed in its current form) yesterday when after its passage in the Senate US and global equity markets plunged another 4% while money markets and credit markets seized up even further.

The suggested policy actions are extreme and radical but the times and conditions in financial markets and the corporate sector are also extreme. Thus, to avoid another Great Depression radical and unorthodox policy action needs to be taken now both in the US and in other advanced economies as the credit crisis and liquidity crisis is now becoming virulent even in Europe and other advanced economies. This credit crisis is both a crisis of confidence and illiquidity and a crisis of credit and solvency. But while the insolvent institutions should go bust we have now reached a point where many financial institutions and now non financial firms may become insolvent because of pure illiquidity; and this would lead to an extremely severe economic contraction similar to an economic depression rather than a mild recession. At this point the US, the advanced economies (and now likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on. What radical policy action can only do is preventing what will now be an ugly and nasty two-year recession and financial crisis from turning into a systemic meltdown and a decade long economic depression. The financial and economic conditions are extreme; thus extreme policy action is needed now to save the global economy from an ugly depression.

500 Responses to “Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs”

JGUOctober 3rd, 2008 at 9:49 am

You finally realized that the recession won’t be as short as 18 months you claimed. The difference between US now and Japan then is Americans don’t save while Japanese save a lot. Deflation to Japanese people are not necessarily very bad because everything is cheaper, but it is devastating to the Americans because they have too much debt burden. I say we can’t avoid a great depression no matter what the government will do.

MichelOctober 3rd, 2008 at 10:31 am

We must not have read the same articles.To me (reading the blog for 10 days) dr Roubini’s articles ever suggested that we were going for a decade recession problem unless clever and early decisions were made.What I understand as of today article si that the ‘early’ objective has been mistaken.

JGUOctober 3rd, 2008 at 11:09 am

The good professor said we wouldn’t be like Japan. That’s the only different opinion he and I have in terms of the prediction (we have vast differences on how to solve the problem), I think the recession will be L shaped, the professor believes it’ll be U shaped (or W). Let’s see how it’s going to unfold, I’m pessimistic.

JGUOctober 3rd, 2008 at 11:13 am

If the government can do right things in a hurry to clean up the mess, we won’t have the mess in the first place. So, putting on hope that the government can solve the problem in a hurry is not realistic, you can take time to prevent it from happening, but you can’t solve something that big in a hurry, that’s my firm belief.

terryBOctober 3rd, 2008 at 9:00 pm

I think you’re missing some of what the prof’s been saying all along. Many times he’s said that what steps are taken and how quickly they’re implemented would determine whether the imminent recession would be L or U shaped.

Wolf in the WildsOctober 3rd, 2008 at 5:54 am

From HK, I can concur with what the good Doctor is saying. The market conditions today is as bad as I have ever seen it ( and this includes the Asian Crisis in 1997). It appears we have had capitulation in all asset classes and the only reason the credit market has not crashed is because there are no bids to hit. The deleveraging process has begun in earnest and I sincerely doubt US$700b will be able to stop it. In fact, it might actually make it worse as the market devours the amount in a day. We should see massive amounts of selling from money managers, hedge funds and bank desks alike. The liquidation of Lehman’s portfolio definitely has a impact on this. If I am not mistaken, we probably had a massive shock to USD M3 supply this week. The lack available funding sems to indicate that the impact of the massively declining money multipier is finally hitting home. I will certainly be watching tonight to see if the horrendous bailout bill gets passed and see the market reaction into it.I am afraid we may have passed the tipping point and no amount of injections will be able to stop the deleveraging. I am not looking forward to the weekend.

GuestOctober 3rd, 2008 at 10:48 am

WolfIts been good talking to you over the years. I hope thus discussion blog will survive in the future. But I am not confident of that. I was expecting that any real economic crisis in America would not materialize until after Bush and Paulson were gone from Washington. But frankly, things are deteriorating much faster than anyone could have believed. If we experience a crash in America, say a prayer for us. Who knows what kinds of emergency measures will be unleashed by the powers running this country at the current time.PeteCA

AnonymousOctober 5th, 2008 at 8:50 am

Everyone is just missing the point that we are in the verge of a third world war, as the economic depression approaches and threaten from a potentially nuclear Iran increases, populist actions will appeal more and more to the american public (and to the public in other countries, including China, India and Russia), and Pakistan decents in a failed state situation. The risk of a major war conflict is the risk now, given the increased political risk, economic risk, depression is a given variable.

LellisOctober 3rd, 2008 at 6:18 am

Where are oil countries, China’s and other EM reserves? In US titles mostly. What will the US and other govnments do with that money if their systems are melting down? Expect some major countries defaults and a dramatic slow down in EM economies. Financing to these countries has already disappeared as the non controlled exchange rates show (see Brazilian Real for example).Oil prices will melt below $30 as will other commodities, and putting your money under the matress will not help either as even the most secure countries will face a fast deterioration in public safety. It just looks darker and darker.

Amar HarolikarOctober 3rd, 2008 at 6:23 am

Beautifully put professor.No doubt that, bailout package or not, US will face a recession and there would be significant impact on financial markets across the world, accompanied with a global slowdown.As somebody rightly said ‘ The package is by Wall Street bankers for Wall Street bankers for problems initially created by Wall Street bankers’..!Amar Harolikarhttp://taxationindia.blogspot.com/

Amar HarolikarOctober 3rd, 2008 at 6:28 am

In a NutshellAt best we are looking at a global slowdown and a severe impact to the financial systems of countries – impact varying from country to countryAt worst we are looking at a Global recession accompanied with a complete meltdown of major financial systems across the globeThe slide also continues for the Indian economy, where I am from.Key Factors : Indian LandscapeGDP Growth : 5% or lower levels over next two years from the 9% plus in the past year.Slowdown across all sectorsFactor price correction as the cycle progresses : salaries , land prices, interest rates will come down as the economy recalibiratesIndian Stock Market outlookOver next 9-12 months, downslide will continue. 70% chance of a 12K breach.(The markets was at 21K around beginning of the year..!)If 12K breached, then another 70% chance of a sub 10K Sensex levels.Slowdown of global and Indian economy remains the key driver.On the upside , my estimates suggest that Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016Amar Harolikarhttp://taxationindia.blogspot.com/

MissIndiaOctober 3rd, 2008 at 6:50 am

@AmarI guess you are thinking of predicting an upside to Indian markets is a little bit of wishful thinking. Moreover I don’t know how have you quoted these numbers, when your own predictions are that GDP is likely to slowdown; In this environment Indian companies which have borrowed rather aggressively will go Belly up and beg from central banks for an economic package. (this is based on current environment continuing. Already property developers who had inflated property markets through the roof are bleeding. Companies and Banks who have pursued aggressively are shunned by companies. ICICI Bank, Tata group are few to name. IT stock are being hammered and there is a concern in Indian IT industry that massive layoffs are around the corner. So all in all I don’t agree with your analysis that there is an upside in short term. When you can predict clearly how markets are going to perform for next 12 months it is ironic that you could quote some arbitrary number for 5 to 8 years.

Amar HarolikarOctober 3rd, 2008 at 8:54 am

Bear phase will last for next 12 to 18 months would be the bear phase. That’s the time i estimate will take for the cycle to turn for India.Estimates based on prior economic cycles and market reaction therto.Cycles simply play themselves out. What goes will come down and what goes down will go up.Applies to the US as well as Indian markets.Next 12 to 18 months are great buying opportunity, across the world.

villagerOctober 3rd, 2008 at 9:58 am

If comparison is made with what London Banker outlines as the Treasury plan and what Dr. Roubini outlines as the problem/situation, it leaves me wondering what will be the Treasury behavior. Dr. Roubini’s description requires the Treasury to respond differently from what the underlying politics in London Banker’s outline suggests.Speculation suggests to me that another Government/Treasury panic will ensue in about 2 weeks. What happens then? Does the President/Executive ask for special powers … it is a time of emergency.

PhilWOctober 3rd, 2008 at 2:14 pm

Recalling Mandelson is beyond panic.I hear he will be going round the City with a cart calling “Bring out your dead”.

MedicOctober 3rd, 2008 at 6:52 am

The only thing I can hope for at this point is that we will learn something from our concentration of wealth and our unmitigated greed. Societies were not meant to function long when the largest numbers of people cannot live without extending themselves beyond their means.In a crisis, I was always told to try and do the best I could with what I had available – to try and achieve the most for as many as possible. I think a little idealism may be in order to get us through this.My sincere gratitude to all who have contributed here and taught me so much. Thank you for getting me out in front of the curve.

jomosOctober 3rd, 2008 at 6:57 am

The enactment of the Federal Reserve ActAfter months of hearings, amendments, and debates the Federal Reserve Act passed Congress on a Sunday two days before Christmas when most of Congress was on vacation. Years later, regarding the bill he signed into law, Wilson said, “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world.”

AnonymousOctober 3rd, 2008 at 2:05 pm

Abolish the Fed Reserve…. Which would probably require bloodshed and insight all kinds of clandestine operations working to stop it.

MissIndiaOctober 3rd, 2008 at 7:32 am

Watch outOne of my old friends working as commercial manager in a Large shipping company in Hong Kong just mentioned that Baltic freight index has plunged from $92000 in June to 17000.

ManOctober 3rd, 2008 at 7:55 am

If you want to live in a fools world, please watch CNBC, listen to idiots and also try and believe in them.

GuestOctober 3rd, 2008 at 3:49 pm

i happy you reply, all banks have acces to hugh funding from the Central banks. We have a mayor bill to pass. Paulson comes with 3 pages (okay i like simplicity also) which should solve the problem. Than all banks stop lending ! Realize its a dollar problem so to organize a stop in dollar lending can be done via the big banks in new york, 1 phone call away from hank. I owned a small company and work with one of the biggest in the world. When trouble was there, they manipulated it in thier favour.

AnonymousOctober 3rd, 2008 at 7:49 am

Dr. Roubini,Aren’t the swaps at the heart of the problem? As they are essentially insurance policies, shouldn’t they be rescinded in a “force majure”? Just unwind the contracts; that would relieve a lot of the financial pressure on the banks.

furiouscalvesOctober 3rd, 2008 at 9:25 am

that what i thought. the money just doesn’t exist right? maybe someone can tell us what will happen with that much money being destroyed.

GuestOctober 3rd, 2008 at 11:12 am

seems to me to also be a necessary precondition for the triage the prof. is suggesting – how can you establish the solvency and credit worthiness of counter parties without sorting out these OTC, unregulated, contracts with a nominal value of 60+ trillion dollars?

devils advocateOctober 3rd, 2008 at 7:56 am

how is psychology a factor?trust is the foundation for every business relationshipif LIBOR = trust between lenders, then LIBOR = ZERO TRUSTcan govt guarantees cannot rebuild trustbut only lead to a reluctant web of suspicious wary lending relationshipswith only a small? -tiny? amount of lending???

GuestOctober 3rd, 2008 at 8:13 am

18 months ago A friend commented that it was a good time to get into gold. I jokingly replied that I was into canned food and ammunition (I was already into gold) I sold the gold and am thinking shit… if only I was into canned food and ammo!

OuterBeltwayOctober 3rd, 2008 at 8:20 am

Key points:* Paulson plan doesn’t affect corporate short term borrowing.* Lack of wealth creation in the real economy will continue to exert decisive downward pressure on fin sectorThe Paulson plan should be junked. Put the money to work fixing the household income statement:1. Reduce costs. Start with the mortgage payment.2. Increase income. Invest every last dime into sunrise industry job creation. Examples:— * Solarize every house in the nation. Put the construction industry back to work on retrofits— * Telework. Most oil is used in transport.— * Crash program to build elec cars & battery technology. Re-tool and re-start auto industry from ground up. BK and replace mgmt.It makes sense for the U.S. to borrow in order to invest in the sunrise industries. It makes no sense to borrow to extend the life of a dead business (IB) for another three months.Remember: when the great trees of the forest crash to the ground, new trees can finally rise. Let’s start planting the next generation of trees.

standbyOctober 4th, 2008 at 1:39 am

great idea! don’t forget. Let the ravage hurricane sticken homes left alone (don’t rebuild). am tired of spending tax money and rebuliding only to rebuild after two to three years. have those population move to the glut of homes here in the west. should help solve some of the housing poblem. plant sugar cane in those ravage homes instead so we can convert them into ethanol for fuel. We need the next BIG IDEA to jump start this awful economy.

ThirdworldOctober 3rd, 2008 at 8:21 am

Query for everybodyI have heard that many people in US are hoarding cash, is it true? Also I have heard that people are buying Gold, but there are no physical gold coins available in US, Is this true as well?Can somebody revert on these queries that they are indeed True/False

GuestOctober 3rd, 2008 at 9:42 am

Nobody has cash in the USA. They are broke. A few mental paranoid gun toting survivalists have gold coins but basically they will shoot you on the spot once they find out you are from the 3rd world. Why do you ask?

The JokerOctober 3rd, 2008 at 11:04 am

LOL that’s a funny comment. Im from the UK and we too are in a bad situation! I watched a documentary the other night about extreme right wing racist loons, building self sufficient little communities in the sticks. Tons of food, tons of ammunition! They have total contempt for the Federal Governemnt, dont pay tax, insurance etc. After the news conference our pathetic excuse of a Prime Minister (Gordon Brown) has just given I’m beginning to realise that these people aren’t as paranoid/crazy as I assumed. Our government is essentially putting together an Economic War Cabinet. They seem to be preparing for Financial Armageddon. The world will never be the same again.Be scared very scared!

OuterBeltwayOctober 3rd, 2008 at 11:41 am

I’m not afraid. I am thinking and cooperating and preparing. Cool headed pencil-and-list preparation.No one can say “boo” about your phoning your neighbor, and saying “hey, come on over for a beer, let’s talk about how we can cooperate if banks/local businesses go bust”.For example.Fear is not helpful. Thinking and action are helpful.

PhilWOctober 3rd, 2008 at 2:47 pm

Well said OB.We need co-operation and community building. We need to make sure farms keep functioning, local businesses, local power generation.Do you have local currencies like we have in places in UK?For God’s sake lets junk the shotgun and siege mentality. What would we be surviving for? Hank Paulson and the 7th cavalry to ride over the hill?

AnonymousOctober 3rd, 2008 at 10:23 am

Some people are buying gold but it does not appear to be “main stream” yet. Most of the people I talk to have not turned that corner. With gold and silver prices dropping, I think some people think that won’t solve anything….and maybe it won’t.That said, just try to find gold or silver in any volume. Right now, APMEX (I have no financial affiliation with these guys) has American Silver Eagles, but they sold over 13,000 coins between yesterday and today according to the “# available” counter I have been tracking. Just two weeks ago, the premium for Eagles was $3 and for Canadian Silver Maple Leafs was $2.50. Both are now $5/oz.The US Mint has stopped producing gold coins (I believe it is a blanket halt in all gold coin production…need to confirm) due to lack of coin blanks. Silver coins from the US Mint are heavily delayed and I believe they may have stopped or delayed production for the time being (again, this was true a few weeks ago….need to confirm if it is still true). My dealers say they are not getting any more silver/gold from US Mint and do not have a time horizon for when they may get more in the future.Gold coins are pretty much sold out in 1oz sizes and when they come in they are gone within days.Local coin shops near me sell at even higher premiums and frankly have nothing in any volume.I do hold a bit of gold and silver as a hedge against the goings on in Washington…I also have a little stash of cash just in case, but I am also an anomaly because the only debt I carry is my mortgage and I was conservative in that one as well.And for the record, I am not a gun toting survivalist 🙂 (I do not even own a gun) Not all Americans are fat, world-ignorant and debt-laden!

AnonymousOctober 5th, 2008 at 8:01 am

I can only speak for myself – Two week ago I began drawing cash from various banks and now have 100k in various safety depostit boxes. I believe that money will be okay left in the bank and I believe that the currency will not collapse but I think that there may be limits on withdrawls if things go bad. Gold is not behaving as I would expect e.g. down $80 this past week suggesting deflation perhaps.

GuestOctober 5th, 2008 at 8:11 am

One more thing – most bank branches have limited quantities of cash on hand such that the most I could get at any one time was $10k – Once things go back to normal (assuming they do) it will be fun depositing $100k in cash. Of interest Dennis Gartman in an interview on Bloomberg last week indicated he was taking delivery of Gold – just in case —

AnonymousOctober 5th, 2008 at 1:13 pm

I’d seen someone’s comment recently on this site regarding the insecurity of safety deposit boxes, and that post patriot act, homeland security has authority to “secure” cash, gold, guns, more, if they feel they have cause. Just letting you know what I read.

AnonymousOctober 3rd, 2008 at 8:25 am

Average US citizen here. None of my friends are hoarding cash and few of them have even changed their 401k investments. Most have a long-term view and are not too concerned.My question. For those people, what can they do now? No one wants to sell at the “bottom”. What can they do in their life to survive or take advantage of this situation. They will not buy into the doom-and-gloom hype but are willing to make some changes.That, is where the average US citizen is….

GuestOctober 3rd, 2008 at 10:10 am

Enormous thanks to Nouriel and truth tellers. I am an average US citizen too but a saver, not a spender. Yes, actual cash for a couple of years, gold, rice, beans, canned food, cat food(!) – may buy a gun today although I am against guns. My husband thinks I am overreacting. I am a middle aged female. I sold all portfolio Monday AM of Bear Stearns announcement and only took a <5% loss (for what cash is worth!). BTW – my retail gold dealer has coins, but not small ones. Only one or two people in my close friends gets the magnitude. I hope all of this is overkill and I am overreacting, but I doubt it.Can anyone tell me why gold seems to be going down and not up? Is this a deflationary direction?

OuterBeltwayOctober 3rd, 2008 at 11:46 am

Deflation for a while as everyone sells assets. Bottom comes. Then the printing / fiscal stimulus kicks in, likely to be some inflation.Think “what will I produce to make an income when only the basic-needs businesses have any custom?”. What will you need to participate in an economy that only consists of “real” stuff?Get that pencil and list out. What resources do you have to trade or sell or re-purpose such that you could make a meaningful contribution to your local or regional economy?

GuestOctober 4th, 2008 at 1:55 am

What would Dr. Roubini say? I think deflation will be here before hyperinflation. About 6-12 months of deflation and then when we get a little stabilization, then hyperinflation will creap in. Lock in your long term mortgage. Save up and tear up all the credit cards. We are in for a rough ride.

GuestOctober 3rd, 2008 at 11:55 am

My take is, wait for Hedge funds to implode probably you can see uptick after that, but issue is how low other commodities go from here.

GuestOctober 5th, 2008 at 8:15 am

The Hedgies will start to implode W/O October 6 with the predictable impact on the equity markets – Black Monday unless the PPT can muster the resources to come to the rescue

jomosOctober 3rd, 2008 at 12:51 pm

Why is AU/AG going down ? Is it deflation ? Robert Pretcher book “Conquer the crash”,written in 2002 said this Grand supercycle top will be followed by a bigger deflationary depression than 1929-1939. All asset classes will tumble by as much as 90% with the exception on gold/silver (approx. 40%) and cash (T-bills US).Everybody takes losses the winner at the bottom (years away)will be those who’s losses are least. Than gold and silver will take off. If he’s wrong and hyperinflation occurs than gold and silver will be moving pretty fast to really high prices.

AnonymousOctober 3rd, 2008 at 8:32 am

Re: Cash and physical gold.I’m in Canada, a bit removed from the “heart” of the crisis. Yet, Ontario is heavily into the auto industry. I’m gradually moving my US cash into Canadian cash–but only to be able to purchase necessities in case the ATM’s etc. go down. I’m also going to buy a generator. It’ll be very cold here very soon–if the grid goes down for any reason. As for physical gold, a bar is not very tradeable, and who can buy it if no one has cash? Am I wrong?

OuterBeltwayOctober 3rd, 2008 at 9:42 am

I don’t worry about the grid going down, or about food supplies. There is plenty of food and coal, and enough fuel to power trains and trucks. Ontario has plenty of hydro power. Forget about the basics, guys, those are OK.You may need to re-learn the art of trading locally, and maybe even of producing something saleable in a real economy – locally.You may need to consider new ways to finance the local businesses your community depends upon should the traditional sources of equity or working capital dry up. You will definitely need to “re-purpose” existing commercial capacity into new endeavors as the increasing cost of capital and energy and materials causes many business models to fail.Think “cooperate locally”. How was it done in the past, what’s different today, what tools would we need that we don’t already have?

MandarinOctober 3rd, 2008 at 10:06 am

In mainland China the ATM’s are greeting attempted withdrawals from US banks with the message, “Transaction canceled. Consult your financial institution.” This when I tried to draw cash from a checking account with JP Morgan Chase. First time it has happened in three years.

2centsOctober 3rd, 2008 at 8:44 am

Repost from previous thread.LOL! Want to see how a somewhat more free-market solution looks like? Looks at the Buffett vulture chewing shreds of GS and GE! And remember that the deal is based on the assumption that the taxpayer will suck a good chunk of the losses still hidden in the balance sheets of those firms. I can’t imagine what the deal would look like without that.Goldman Executives Restrained From Stock Sales in Buffett DealBy Christine Harper — Oct. 3 (Bloomberg) — Goldman Sachs Group Inc.’s top four executives agreed to hold on to 90 percent of the stock they own in the company as part of Goldman’s agreement to raise money from Warren Buffett’s Berkshire Hathaway Inc.http://www.bloomberg.com/apps/news?pid=20601087&sid=a1I3DK.6XgxY&refer=homeHide reply Reply to this comment By Alessandro – http://castellidicarte.blogspot.com/ on 2008-10-03 02:52:01@ AlessandroThis is quite amusing Buffett has given them golden handcuffs! He could probably get them to jump for $100 bills and catch them with their teeth too! How humiliating for the Goldman boys.Actually, this is important. Admittedly Buffett is known for seeking out companies with good management and foresight. However, with all due respect to Buffett I don’t think that is what he saw here. Indeed, he was probably quite amused at there foresight or lack thereof. Buffett knows however that it’s the connections and ties that these executives have which will give them a leg up on everyone else. How else to you ensure that your ticket is good other than to insure that the game’s major players stay in the game!Add this to the list of reasons to oppose the bailout!

GuestOctober 3rd, 2008 at 9:36 am

@Mother of God: Thanks for posting that, I had missed it. So they stand naked and exposed for who and what they are; they tried business as usual, then “bended-knee” pleading, now the usual Bushian “sky-is-falling” threats (this time AGAINST the populace). Classic dénouement in place: the Bull-y has cajoled, pleaded, threatened, and soon must be vanquished. So keep up the pressure, good folks of the USA! (BTW if this were really a crisis, why don’t we see suicides on Wall Street like in the Big One?)

Mother of GodOctober 3rd, 2008 at 10:13 am

Yr welcome, Guest. It certainly shows how incredibly desperate to pass this disgraceful legislation the leadership is, and to me, knowing what I know, it’s just further proof that passing this bill is absolutely vital to the concealment of reprehensible criminality that would finally dethrone the real perps.

caryOctober 3rd, 2008 at 8:48 am

Raising the fdic to 250k is a bait and switch. Most of the banks paying the highest savings rate are in the most trouble. So when one fails the gov pays us our money back and consumer will always approve of bailing out the fdic insured. This is the gov’s way of getting us to bail out the problem banks.

GuestOctober 3rd, 2008 at 9:58 am

Nope. Apparently a “cow patty with a marshmallow on top” is repulsive and not worth a vote, but a “cow patty with a marshmallow on top, sprinkled with sugar” is just what the American people need…

The JokerOctober 3rd, 2008 at 11:17 am

With reference to the $700b bailout plan. A knowledgeable man once said “You can’t polish a turd” then a wise man replied “that is true, if you sprinkle sugar on it however people will think it’s a dougnut.

GuestOctober 3rd, 2008 at 9:10 am

It seems to me prof that you want to blow up the bubble again.This would be an extreme mistake. The creditbubble must burst and only after that we may go forward. Consumtion that is boosted by easy credit not by higher productivity is bad, very bad and it has been going on for to long.I am very very sure your plan would leave us with hyperinflation. In a singel throw the US and a large extent of the European population will loose everything.Unfortunately a deflatory depression is our best option.Please reconsider

OuterBeltwayOctober 3rd, 2008 at 9:53 am

I’m not sure they do have the votes, and I’m going to act on that presumption.When this ill-informed, bought-and-paid for Congress has to be threatened with Martial Law in order for them to cave in, you know the proposed legislation is really, really bad.We are not buffaloes. We are not going willingly over the cliff in a stampede.We are going to think, develop rational plans, and act with appropriate vigor to solve our problems.No stampede. If we’ve got three days time to pressure Congress to accept a stupid idea, we’ve got the same three days to come up with a good idea. There are plenty to choose from.Demand functional government. Reject the stampede!Operate those phones, everyone. Fight! Fight! Fight!www.house.govwww.senate.gov

Mother of GodOctober 3rd, 2008 at 10:05 am

Excellent article, illuminates the bigger picture, I’m only providing snips, suggest reading the whole thing at the site linked…and Outer Beltway, I’m thinking you might especially be interested in this as you look for better models going forward toward justice.Will someone from South America adopt me pleaseIn Guatemala, the Eisenhower administration overcame the threat of democracy and independent development by violence. In Bolivia, it achieved much the same results by exploiting Bolivia’s economic dependence on the US, particularly for processing Bolivia’s tin exports. Latin America scholar Stephen Zunes points out that “At a critical point in the nation’s effort to become more self-sufficient [in the early 1950s], the U.S. government forced Bolivia to use its scarce capital not for its own development, but to compensate the former mine owners and repay its foreign debts.”The economic policies forced on Bolivia in those years were a precursor of the structural adjustment programs imposed on the continent thirty years later, under the terms of the neoliberal “Washington consensus,” which has generally had disastrous effects wherever its strictures have been observed. By now, the victims of neoliberal market fundamentalism are coming to include the rich countries, where the curse of financial liberalization is bringing about the worst financial crisis since the Great Depression of the 1930s and leading to massive state intervention in a desperate effort to rescue collapsing financial institutions.We should note that this is a regular feature of contemporary state capitalism, though the scale today is unprecedented. A study by two well-known international economists 15 years ago found that at least twenty companies in the top Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments “socialise their losses.” Such government intervention “has been the rule rather than the exception over the past two centuries,” they conclude from a detailed analysis. [Ruigrok and von Tulder]We might also take note of the striking similarity between the structural adjustment programs imposed on the weak by the International Monetary Fund, and the huge financial bailout that is on the front pages today in the North. The US executive-director of the IMF, adopt ing an image from the Mafia, described the institution as “the credit community’s enforcer.” Under the rules of the Western-run international economy, investors make loans to third world tyrannies, and since the loans carry considerable risk, make enormous profits. Suppose the borrower defaults. In a capitalist economy, the lenders would incur the loss. But really existing capitalism functions quite differently. If the borrowers cannot pay the debts, then the IMF steps in to guarantee that lenders and investors are protected. The debt is transferred to the poor population of the debtor country, who never borrowed the money in the first place and gained little if anything from it. That is called “structural adjustment.” And taxpayers in the rich country, who also gained nothing from the loans, sustain the IMF through their taxes. These doctrines do not derive from economic theory; they merely reflect the distribution of decision-making power.The designers of the international economy sternly demand that the poor accept market discipline, but they ensure that they themselves are protected from its ravages, a useful arrangement that goes back to the origins of modern industrial capitalism, and played a large role in dividing the world into rich and poor societies, the first and third worlds.This wonderful anti-market system designed by self-proclaimed market enthusiasts is now being implemented in the United States, to deal with the very ominous crisis of financial markets. In general, markets have well-known inefficiencies. One is that transactions do not take into account the effect on others who are not party to the transaction. These so-called “externalities” can be huge. That is particularly so in the case of financial institutions. Their task is to take risks, and if well-managed, to ensure that potential losses to themselves will be covered. To themselves. Under capitalist rules, it is not their business to consider the cost to others if their practices lead to financial crisis, as they regularly do. In economists’ terms, risk is underpriced, because systemic risk is not priced into decisions. That leads to repeated crisis, naturally. At that point, we turn to the IMF solution. The costs are transferred to the public, which had nothing to do with the risky choices but is now compelled to pay the costs – in the US, perhaps mounting to about $1 trillion right now. And of course the public has no voice in determining these outcomes, any more than poor peasants have a voice in being subjected to cruel structural adjustment programs.A basic principle of modern state capitalism is that cost and risk are socialized, while profit is privatized. That principle extends far beyond financial institutions. Much the same is true for the entire advanced economy, which relies extensively on the dynamic state sector for innovation, for basic research and development, for procurement when purchasers are unavailable, for direct bail-outs, and in numerous other ways. These mechanisms are the domestic counterpart of imperial and neocolonial hegemony, formalized in World Trade Organization rules and the misleadingly named “free trade agreements.”Financial liberalization has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy Free capital movement creates what some international economists have called a “virtual parliament” of investors and lenders, who can closely monitor government programs and “vote” against them if they are considered irrational: for the benefit of people, rather than concentrated private power.continued at the linkprint it off. give it to Americans who get their news from teevee.

OuterBeltwayOctober 3rd, 2008 at 11:37 am

M.O.G.: caught the pass. I like to read Chomsky, as he’s definitely an irritant to the PTB. What he doesn’t do is to get beyond objectionism and into generation and implementation of new solutions. He’s the quintessential hippie on intellectual steroids.That said, he’s an eye-opener for those that only get their news from “teevee”, and he does a good job of providing a very convincingly supported alternative interpretation of the last 50 years of U.S. foreign policy. What’s truly remarkable is that he’s been able to stay at M.I.T. all this time.Please keep the flow of info on “other ways of designing an economy” going. Education and vigorous debate are the best antidotes to buffalo stampedes.

GuestOctober 3rd, 2008 at 10:07 am

hitchikers guide to the universe..dont panic… didnt these buggers learn anything from tv??..mrskeptical

OuterBeltwayOctober 3rd, 2008 at 10:08 am

There’s a deluge of calls coming into Congress. Here’s a notice posted on one Congressman’s website:

Due to technical problems today with the House of Representatives e-mail server, you may experience difficulty in contacting me by e-mail. House technicians are working to correct this situation, so please check back later. Thank you for your patience.

If e-mail doesn’t work, use the phones. We are not buffaloes. We are well-informed citizens that demand that our government be operated in a manner that advances the general public’s interest, and that our Congress be at least as well-informed as we are.That’s their job. Demand that they do it.www.senate.govwww.house.gov

GuestOctober 3rd, 2008 at 10:17 am

NourielI fear that if things unfold as mentioned, there will be some form of emergency and you may be put under house arrest or may be asked to restrain from writing provocative articles unless you toe administration line.Anyway this is my wild guess, but who would have thought we will be in for such bad time.Take care

OuterBeltwayOctober 3rd, 2008 at 10:54 am

Buffaloes are a fearful bunch, easily spooked.Humans have large brains, and have learned how to manage fear. This is what’s commonly called “courage”.Generate solutions, propagate good ideas, and keep putting one foot in front of the other.

GuestOctober 3rd, 2008 at 10:19 am

@ Mark (previous thread) “Americans’ lack of financial sophistication is a cause, not just a symptom, of the credit crunch, said James Bowers, managing director of the Center for Economic and Entrepreneurial Literacy, a nonprofit group in Washington. It may be a reason people are willing to take out loans for homes they can’t afford or add to credit card debt at adjustable rates.”I wouldn’t say Americans lack financial sophistication. Americans relied too long on what they still believed to be a somewhat honest system of banking, government and contract. This time-established belief allowed a cunning financial mob to rob them unawares. Americans, to their financial peril, relied on the House and the Senate and the President and the courts and the banks to protect and serve their interests as they were set up to do. This displaced faith in institutions and a bought-off government has resulted in a once-in-a-century rip-off that will reduce the people’s standard of living for a decade to come. And there will be no redress.I think Americans are much more “sophisticated” now.

OuterBeltwayOctober 3rd, 2008 at 11:03 am

Hey, I’m cranky too about getting ripped off. I take great comfort in the realization that there is redress.We start by rebuilding our financial relationships locally, with people from our community that we can trust.Then we gradually build an economy that uses inputs that cannot be centralized, like sunlight and recycled raw materials.At the governance level, we’ve got about two decades of work ahead of us. We start by getting people re-involved in public affairs, and maybe running for a local office. Bottom up.It’ll take five years to change your county, a decade to change your state, and two decades to change how the Federal government works.A mere blink of the eye. Think of it as a pit stop on the road to a great future.Lastly, don’t forget that most people are good, want to do good, want to help. That’s a very powerful asset. They just need more information.We can do that.

Mother of GodOctober 3rd, 2008 at 10:20 am

Info below is from Sam Pizzigati’s TOOMUCHonline.org (sign up for his Monday email updates and read his tremendous book “Greed and Good”) (buy the book or at least read it free online) (Sam Pizz is another True Hero of the people)Most recent IRS statistics available are for year 2004. As of then, combined wealth of the richest 47,000 Americans (top one-tenth of 1 percent) was $2.6 trillion. Minus 700 billion would leave them with average over 40 million each. (my own note: tremendous amounts of wealth are hidden and totally unrecorded, too, don’t forget that.)Here is Sam’s stat of the week:Over the past five years, the top executives at five of the financial giants at the center of Wall Street’s current meltdown took home $2.1 billion in compensation, calculates San Diego State economist David DeBoskey, a former corporate chief financial officer. Some 57 different individual executives shared in that pot, including Treasury Secretary Henry Paulson, who pocketed $82 million over three years as the CEO at Goldman Sachs. The most generous of the five high-finance giants: Lehman Brothers, with pay totaling $743 million for its top five officers from 2003 through 2007.

GuestOctober 3rd, 2008 at 10:28 am

Where is mammon? He is one of the most effective spokesmen for the principles and passion that made this country great. And he has been absent two days. It is spokesmen such as he that will take this country back. Perhaps he is out on the front somewhere.

AnonymousOctober 4th, 2008 at 7:39 pm

mammon is a biblical reference to the false god of riches, avarice and worldly gain. he’s being ironic.

GuestOctober 3rd, 2008 at 10:30 am

美 國 爆 發 金 融 海 嘯 後 樓 價 暴 瀉 , 最 近 一 間 屋 僅 以 1.75 美 元 ( 約 13 港 元 ) 成 交 , 竟 然 平 過 買 一 條 麵 包 。該 間 抵 到 爛 的 屋 位 於 密 歇 根 州 薩 吉 諾 , 被 地 產 投 資 公 司 放 上 ebay 拍 賣 , 經 過 8 次 競 投 , 被 一 名 住 在 芝 加 哥 的 女 士 , 以 1.75 元 美 金 投 到 。 不 過 前 業 主 仍 欠 政 府 稅 , 房 屋 亦 荒 廢 已 久 , 但 她 表 示 不 打 算 搬 入 去 居 住 , 而 是 會 轉 手 圖 利 。

GuestOctober 3rd, 2008 at 10:39 am

U.S. outbreak of the financial malfeasance in property prices after the tsunami, the latest a house only 1.75 U.S. dollars (about 13 Hong Kong dollar) contract, has had to buy a flat bread.The rotten to the arrival of the house is located in Saginaw, Michigan, real estate investment company has been placed on the ebay auction, bidding through 8, by a woman living in Chicago, to 1.75 yuan into U.S. dollars. But the former owners still owe the Government taxes, housing has been abandoned for a long time, but she did not intend to move into housing, but will resell it for gain.

ChuckDOctober 4th, 2008 at 9:14 pm

I think what they’re trying to say is that a house in Saginaw, Michigan, is up for auction on eBay, and the winning bid (of eight) was $1.75. The winner is an investor who does not intend to live in the house.Which, in fact, is all true. Just search Google with “eBay Saginaw Michigan” and you’re there.

villagerOctober 3rd, 2008 at 10:34 am

The Professor has now provided a heads-up that the meltdown is only days away, a worsening of the situation (a catastrophy) since Bernanke/Paulson approached the government two weeks ago. The Paulson/Government plan is not designed to deal with the new situation and will be ineffective and wasteful. The Professor has outlined what is required to respond to the situation. There is enough information in the Professor’s post to provide new messaging to Congress should anyone want to do so. Moreover, the information about what is needed to be done, arms us in advance with the information to rebut the next panicked response by government or others which will occur sometime soon.Maybe some of the media should be targetted with this information to try and deflect their bias?

GuestOctober 3rd, 2008 at 11:58 am

I agree. The most efficient way to do this is via a service.Businesswire.com, prnewswire.com, bloomberg.com is the blanket approach.A message targeting company exists to your hand selected (or subject selected) media based on their beat, pub, web, blog, etc. It costs money but it’s very fast – many major PR firms in the states use this. http://www.cision.com

GuestOctober 3rd, 2008 at 10:38 am

U.S. House Clears Way to Pass New $700 Billion Plan (Update1)By Laura Litvan and Brian FalerOct. 3 (Bloomberg) — The U.S. House of Representatives cleared the way to complete action on a Senate-passed $700 billion financial-market rescue package that was refashioned to entice enough votes for passage.By a vote of 223-205, the House prevented members from offering amendments that could snarl the proceedings. The tally signaled the plan has enough support to clear Congress and be sent to President George W. Bush to be signed into law.At least 15 House members said they will drop their opposition to the plan and support it. The measure failed by a dozen votes earlier this week. The House roll call was scheduled for early this afternoon.

Mother of GodOctober 3rd, 2008 at 10:47 am

kind people here yesterday informed me those squares are how a foreign language shows up. just copy and paste it into google translator, is what they said.

GuestOctober 3rd, 2008 at 10:43 am

Prof RoubiniI’m not sure I’ve ever taken the time to thank you for starting this blog … but now seems appropriate. Over the years you really challenged the Wall St “empire” on the subject of systemic risk. That is really your great contribution, I think. During the early years it seemed as if the issue was just “perma bulls” who would not listen. But as the layers of financial deception have been swept away – we have been able to see how widespread was the practise of ignoring risk in the pricing of important financial instruments. You’ve done a great job, I think!Today, we may be only a stones throw from the collapse of the US banking system. Quite likely, if that happens then the banking systems in the UK, Spain and possibly some other countries could quickly follow suit. If these events take place then Americans will receive a very painful wake up call about the real state of our economy. America itself is no longer “too big to fail”.PeteCA

Russian bearOctober 3rd, 2008 at 10:47 am

my son asked me why the bill is $700b, why not $700t?Anyway and anyhow it will be passed at no cost.

GloomyOctober 3rd, 2008 at 10:47 am

ALTERNATIVE PLANJust stop fighting it and let it all go. Don’t waste your resources now. Save them for rebuilding.

Amnon PortugalyOctober 3rd, 2008 at 11:01 am

There’s one glaring weakness in Paulson’s Bailout Plan to save the U.S. financial system: It most probably won’t work as intended. It also could make things worse. The Plan is a bailout of reckless bankers, lenders and investors and provides little direct debt relief to corporate borrowers. This lending is the main purpose of the financial system, not interbank lending.By removing these troubled assets from the balance sheets of the financial institutions, the Plan MAY enable the banks to lend again without lingering doubts about their solvency and viability. However, the Paulsen Plan does not ENSURE that those banks and financial institutions that receive bailout aid will increase lending to Main Street.Banks must have BOTH the capability to lend and the willingness to lend. The Paulson plan is aimed at restoring the bank’s ability to lend, at a huge cost to the American taxpayers. However, even with a healthy balance sheet the banks will not lend because of lingering doubts about the solvency of their customers, their ability of paying the loan and the viability of the economy.As mentioned in the article, given the collapse of the corporate CP market and the banking system reluctance to provide loans to the corporate sector, the only alternative is direct lending to the business sector from the Fed.This could include:Fed purchases of commercial paper from corporations and other forms of financing by the Administration to small businesses secured in appropriate ways ( as proposed in the article)Use the first installment of the $350 Billion of the Paulson Plan and set up 10 banks in the US initially capitalized to the tune of $35 Billion each. Sell shares in these banks worth $35 Billion to private investors with warrants to buy out the government shares at say 5% interest on the original government investment.With 10:1 leverage, each of these new banks will have some $700 Billion lending capability or some $7 Trillion in total, ten times the Paulson Plan. These banks having clean balance sheets could easily, along with many sound existing banks, provide the credit the economy needs, even allowing or the failure of other banks with broken balance sheets.Amnon Portugaly

GuestOctober 3rd, 2008 at 11:10 am

Ok-I know the economic data was pretty bad this morning but the Wells deal told the world this paln was goin got pass…why isn’t the Dow up 500 points right now? Is this the best the market is going to do from the passage? Is the market going to see if spreads collapse on the deal before it starts to get giddy? This package won’t solve the recession nor the earnings whacks we are about to see…buckle up!

Truth08October 3rd, 2008 at 11:11 am

As painful as it may be, doesn’t it seem likes it time to move away from this credit expansion based economy? This system of artificially low interest rates resulting in malinvestment of capital can only result in situations like we find ourselves now. The scary thing is that instead of moving toward sound monetary and economic policy, we’re moving in the opposite direction toward state-controlled capitalism, which alternatively could be called socialism, communism, or fascism.The Truth Shall Set You Free

GuestOctober 3rd, 2008 at 11:12 am

Municipal Borrowers Locked Out of Bond Market for Third Week2008-10-03 11:23:19.670 GMTBy Jeremy R. CookeOct. 3 (Bloomberg) — U.S. states and municipalities wereall but shut out of the tax-exempt bond market for a third week,as borrowers managed to sell less than 15 percent of a typicalweek’s new fixed-rate issues, data compiled by Bloomberg show.New York City’s $300 million offering of state aid-backedbonds for public school improvements represented almost half theroughly $700 million of bonds sold so far this week. A weeklyindex of yields on long-term municipal securities due in 20years rose to 5.36 percent, the highest since late 2000, whilealmost $15 billion in planned issuance hung over the market,according to figures from the Bond Buyer.The credit-market turmoil that prompted U.S. officials toseek a $700 billion rescue plan has forced municipal issuers todelay borrowing, tap reserves or seek alternate financing at atime when a slowing economy has reduced local tax revenue.“This market has run into trouble again,” T.J. Marta, afixed-income strategist at RBC Capital Markets in New York, saidin a note to clients yesterday. “The most recent dislocationwill exacerbate the negative developments already taking placefor state and local government finances.”California Governor Arnold Schwarzenegger told the Bushadministration yesterday that his state may need an emergencyloan of as much as $7 billion from the federal government withinweeks if it can’t tap the credit market, the Los Angeles Timesreported. The warning comes after state Treasurer Bill Lockyerearlier this week said California may run out of cash at month-end if it is unable to sell billions in short-term debt.

GuestOctober 3rd, 2008 at 11:12 am

Economist Michael Hudson warned that our elected representatives are giving the financial sector “license to engage in predatory credit.”Dr. Hudson called the bailout “the largest and worst giveaway since a corrupt Congress gave land grants to the railroad barons a century and a half ago… It’s a giveaway—and a giveaway that will create a new plutocracy of billionaires.“It lets all billionaires who’ve leveraged their capital cash out, take their cash and move it all into euros and sterling, move it all abroad and collapse the dollar.”Congress, with its server systems shut down and its phones off the hook, is finalizing the “once-in-a-century rip-off” of the American people.Without a shot being fired. Surely, “democracy” is the opium of the people.

CLSOctober 3rd, 2008 at 11:16 am

Dr. Roubini -What is the likelihood of a plan such as what you have outlined being implemented?Could you speak to the inflationary/deflationary aspects of what is going on? I believe you said in one of your recent interviews that inflation would be the least of the Fed’s worries and that a lack of demand would cause deflation. What about all the money that will need to be printed to cover this financial crises. Won’t that lead to inflation?

GuestOctober 3rd, 2008 at 11:25 am

It is not going to end until tax payer hve forked out a couple of trillion $’s!!!“California’s top financial officialson Wednesday warned that the nation’s frozen credit market is threatening the state’s ability to doshort-term borrowing State Controller John Chiang said the constricted flow of credit presents”enormous challenges” for California as it seeks to borrow money to pay immediate expenses. Heprojected the Legislature’s record delay in approving a state budget means California will run outof cash toward the end of October.”

GuestOctober 3rd, 2008 at 11:28 am

Can you hear your masters? We have your children’s future here in this market, you know. We have your job. Your retirement. You doubt it?So you threatened a few House members who are up for re-election and have to face the voters. Are you under the mistaken impression that they represent you?Well, here’s a $1,000,000,000,000 jolt for you! Did you feel that? Not enough? You need a $1,000,000,000,000 more? How about your job? Close your ATM?Bow your head, you fool.

ptmOctober 3rd, 2008 at 11:29 am

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS, A L E R T, October 3, 2008 – M1 and M2 Annualized Surges of 800% and 200% Are Panic Distortions (Offset in M3)In last night’s (October 2nd) H.6 Money Stock Measures, seasonally-adjusted M2 — the currently official broad money measure — reportedly exploded in the week-ended September 22nd by $165.5 billion to $7,900.0 billion, an annualized growth rate of 200%. M1 rose at an annualized 800%, up $60.9 billion to $1,272.2 billion. Rather than signaling the onset of hyperinflation, though, these numbers make the case for ongoing reporting of M3 and show the benefit of being able to look at the broadest money measure.The period involved reflects the renewed investor panic in the ongoing systemic solvency crisis, but it does not yet reflect the impact of the heavy systemic liquefaction that the Federal Reserve and U.S. Treasury implemented to counter the unfolding run on the system. The broader M3 measure helps to explain what was happening, where the seasonally-adjusted non-M2 institutional money funds account plunged by $156.4 billion, to $2,098.2 billion, in the same period, with the funds apparently flowing into checking accounts (M1 [in M2]) and savings accounts (M2). Not considered yet, however, is what happened in the other non-M2 components of M3 (such as large time deposits), which will be indicated in Federal Reserve reporting at the close of business today.

GuestOctober 3rd, 2008 at 3:51 pm

Whlen the M3 comes in tonight, I hope you post it. It should give a clear picture of what’s happening — with your interpretation, I hope. Thanks. Quite an Alert.

AnonymousOctober 3rd, 2008 at 11:30 am

An other Idea… there are more or less 350 million americans, give each one 1 million to pay off his debts. and that should save us approx. 695b.The country is saved….

Mother of GodOctober 3rd, 2008 at 12:28 pm

OK, all you very bright and knowledgeable econ folks who post in here, explain to me why the above isn’t the very best solution that has been offered, period.I can’t think of any way this would NOT solve the entire mess, once the money left after we’re all debt-free started to percolate up, refreshing all levels of the economy, being spent and invested and saved.What am I missing? (And no, it wasn’t me who suggested it, though I’m wishing I had.)

Mother of GodOctober 3rd, 2008 at 2:27 pm

Hey, I’m serious. Take these numbers down to where they work. Figure family size of 4. Now the 350 million American ‘units’ is 87,500,000. Give each family ‘unit’ $125,000.00Wouldn’t that pay off most family’s debts?Yr still under 11 trillion – am I right?Isn’t this less than what we’re gonna spend anyway, when the tab is added up?

GuestOctober 3rd, 2008 at 2:53 pm

debt cancellation is a better idea.but that isn’t discussed and for finance it is hidden through the fed/treasury laundering scheme.

Mother of GodOctober 3rd, 2008 at 3:02 pm

I KNOW the first math is wrong – but what about mine? Congress could just print the money, too, and give it out, no interest charged. THEN congress could re-coup the money by boosting taxes on the rich. Debt cancellation means those who aren’t in debt get nothing, but giving 125,000.00 to every family is fair – aint it? – and stimulates the economy?

GuestOctober 3rd, 2008 at 11:48 pm

At the macro level debt cancellation makes more sense. It can’t be paid by most people anyway so it is a drag. Taxing the rich is a good idea.Change the tax structure to favor production:http://www.michael-hudson.com/interviews/080909WorseningUSdebtcrisis.htmlDrastically reduce the military budget:http://www.thenation.com/doc/20081013/johnsonThe rich and powerful won’t like this though.Oh, and prepare for collapse:http://www.energybulletin.net/node/23259

GuestOctober 3rd, 2008 at 11:39 am

London BankerI have enjoyed all your posts over the years. I hope we will see many more. But the future is unclear here. Hopefully you were able to get all of your investments out of US asstes.Today, Friday (oct 3) things are quiet. Bush and Paulson want that bailout plan – and no-one is making waves until it gets passed. Leading economists and academicians have complained that this plan gives the Sec Of the Treasury poers that are unparalleled in our American democracy. It is a bad omen.I sense that somewhere in Washington DC the footsteps of minions are preparing to carry out new emergency orders. Whenever these orders take place, almost always it seems that the freedom of Americans is under assault.PeteCA

PhilTOctober 3rd, 2008 at 11:45 am

GREED FEEDS GREED

…Citi has substantial legal rights regarding Wachovia and this transaction,” the New York-based company said in a statement. “Wachovia’s agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia.”The Citigroup deal, which included assistance from the Federal Deposit Insurance Corp., would have pushed the New York- based lender to third place among U.S. bank networks, behind Bank of America Corp. and JPMorgan Chase & Co. The proposal didn’t include Wachovia’s brokerage and mutual-fund businesses.“Citigroup loses an attractive, accretive deal, complete with government assistance,” David Trone, an analyst with Fox- Pitt Kelton Cochran Caronia Waller in New York, wrote in a note today. “The deal was struck at the 11th hour and clearly had not been formally completed.”FDIC Review“The FDIC stands behind its previously announced agreement with Citigroup,” FDIC Chairman Sheila Bair said in a statement today. “The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest.”…

Entire Bloomberg Article => Citigroup Demands Wachovia, Wells Fargo Terminate Merger Deal

CaponeOctober 3rd, 2008 at 12:24 pm

Hello All, Did anyone else notice that the day the legislative branch told Wall Street and the financial establishment to take a hike with their miracle save the world bill the market was actually ALLOWED to go down more than ever ? Does anyone actually believe this was a coincidence ? Was that piece of news worse than say the Tuesday in the US after the “rogue trader” contributed to a 10% decline in Europe while the US was closed theMonday before or when gee Bear Sterns and or Lehman failed or any other number of the catastrophes which have occurred to date ? Maybe this bill should be called save the DOW day trading bill since they leveraged the daily movement of the DOW to pass 700 billion of legislation. Reactive. Coercive. Manipulative. Modern Day Fascism !

GuestOctober 3rd, 2008 at 1:20 pm

Hi Capone; long time no-read; Good to read you again; Hope you took some cash out of the bank today 😉

GuestOctober 3rd, 2008 at 1:48 pm

Hello, Capone. Good to hear from you. Yes, I noticed. IMO, the fact that this banking cabal would drive the markets down to get what they need is a show of just how desperate and deranged and ruthless they are. They couldn’t care less how many people they destroy in the process. Instead of looking at what the markets were going to do, they were looking at whether or not the bill would pass. Lawmakers in Congress were running up down the aisles yelling, The market is falling, while the vote was being taken.These people have the country by its throat. Their hold has to be broken.Putting Bernanke and Paulson and Cox and the Federal Home Loan Bank (mortgage fraud) as heads of the oversight committee is a clear sign none of them can let any of this toxic debt out of their hold. They can’t let anyone in that they can’t trust.This is the biggest and most ruthless transfer of wealth in history–taking from Americans and giving it to the investment bankers. Congress is helping to cover the fraud.Americans aren’t ready yet for a total police state.

GuestOctober 3rd, 2008 at 12:25 pm

Congress has teamed up with a mob of financial gangsters and handed them the nation’s purse, while they themselves are happy to feed and ride around in limousines and do nothing. What worthless level C sycophants.Americans are about to be submerged. Americans have been conquered. It’s the law of nature that the strong devour the weak. In some ways, humanity is no different from the animals and the insects in the jungle. The weak go to the wall. Those who will not struggle to survive, who chose the weak to lead, who will not compete with competitors, must go under. That is the way it is.If Goldman Sachs and the Fed and the international bankers hadn’t come to America another nation or army of usurpers would have arrived in due time to submerge us.Our leaders, weak and pettily corrupt, have failed the nation. They weren’t even smart enough to get a share of the deal.

OuterBeltwayOctober 3rd, 2008 at 12:35 pm

The $700B is already gone. They’ll be back before New Year’s for more. Maybe much sooner.Meantime, continue gathering information and doing your planning and legwork.The problem is much bigger than $700B. Where is the money going to come from to pay off the debt? When do we start rebuilding our economy?How much more U.S. debt will the world buy, especially if we can’t buy from them?No U.S. economy, no U.S. debt payoff.Remember to ridicule your Congressperson and Senator if they let you down. Take pains now to securely wrap the Albatross around their neck.

CaponeOctober 3rd, 2008 at 12:36 pm

1929 featured a similar belief the government could save the day. We are staring that historical comparison squarely in the eye right now. Pass the bill and crash on the news…

GuestOctober 3rd, 2008 at 12:37 pm

PPT is gonna hav eto get buys here cause if stocks close RED today WITH passage of the “rescue”, anarchy will take to the streets!!!!!

GuestOctober 3rd, 2008 at 12:58 pm

Uh, I don’t know if you noticed, but last night the effective FF rate was already down to .68!! They already cut and just have not told anyone…

GuestOctober 3rd, 2008 at 12:50 pm

WOW!!!!!!! DId you see that!!! Dow got down to +24 and jumped 90 points in the blink of an eye!!!!!! Now up 111. WOW!!!! PPT PPT PPT PPT PPT PPT PPT

GuestOctober 3rd, 2008 at 12:54 pm

1:50 p.m.Bernanke: Fed will work to put mortgage rescue plan in place1:50 p.m.Bernanke: Fed will use all powers to mitigate credit crunch1:50 p.m.Bernanke: House action a critical step to stabilize markets1:50 p.m.U.S. stocks shave gains after House approves bailout bill

GuestOctober 3rd, 2008 at 12:58 pm

1:57 p.m.Paulson declines to be specific on timing on action on banks1:57 p.m.Paulson declines to be speficic on timing on action on banks1:57 p.m.Paulson: First step is to line up advisers on bank rescue1:57 p.m.Paulson: Will have more to say on timing once bill is signed1:57 p.m.Paulson: ‘Once it is signed, we’ll get going’

HubbsOctober 3rd, 2008 at 1:00 pm

This whole things stinks of a lottery mentality. Most often the buyer of the lotto tickets is the one who can least afford them. But he at least dreams for a few days that when he hits the jackpot, all his troubles will disappear.Same here with this rescue plan. People and politicians think that now that it has passed, things will get better. But when the numbers are announced, the lottery sucker is poorer for it.

GuestOctober 3rd, 2008 at 1:01 pm

Ted Rate hit 3.88 a few mins ago… no relief yet – may be too soon, but if it keeps going up the next few days- be prepared for more bad news next tuesday….

hazletonOctober 3rd, 2008 at 1:01 pm

ProfessorThanks for your prescient ideas. My husband finally agreed to buying a safe. Most people are clueless.

Mother of GodOctober 3rd, 2008 at 1:12 pm

I have just had a sudden realization: I am seriously underwhiskeyed…and have been for far too long.

CaponeOctober 3rd, 2008 at 1:21 pm

Everyday I try to pray to God. Ben Bernanke and Hank Paulson are not gods. The US government is not god. Prices go up and they go down. Intervention in them is like playing god and this is not a good thing to do. When the people start to believe as they have that the government’s miracle bill will save their financial souls and it does not, we enter the darkest hours of history repeating itself…

CaponeOctober 4th, 2008 at 10:37 am

I have been “hiding” on the running trail – decided to run first marathon next week on Sunday in Chicago, also volunteering, networking, etc. I was too greedy, aggressive, reckless and early playing this mess so have a lot of work to do to get back to normal financially… Need to be removed from the day to day, play by play of this thing.

John RyskampOctober 3rd, 2008 at 1:27 pm

Also, Nouriel doesn’t understand what his proposal would do to the stock market: the stock market would go to 1200.The ONLY thing the Federal Government currently cares about is propping up the stock market. NOTHING else has meaning, because so many Americans are in the stock market. If it collapses, faith in the political system is destroyed.This is the key to understand what is going on, and it is why banks won’t be recapitalized. Everyone would know what this means for their stock portfolio: collapse.He is still fiddling with the mechanisms. You notice that in his proposal for rewriting home mortgages there is the implicit notion of a ban on housing evictions.So let’s get to the facts: quit diddling with mechanisms. We have to preserve the facts now.We have to have an individually enforceable, permanent, complete and absolute ban on housing evictions.I have advocated this for nearly two years as the only way to prevent social collapse. I am starting to be listened to now, but it is getting very late: the lists are being drawn up, and the private grudge matches are taking shape.If you want to know how this will all play out as far as government is concerned, just read my book, The Eminent Domain Revolt.For you lawyers: we are moving rapidly from minimum scrutiny for housing (Lindsey v. Normet), to strict scrutiny for housing. The West Coast Hotel scrutiny regime is OVER.A word to the wise.

GuestOctober 3rd, 2008 at 3:05 pm

Nice plug … I’ll look for it in the library.Your prediction in the opening sentence might come true but not on the back of Roubini. You should apologize.

MAOctober 3rd, 2008 at 4:33 pm

John, please do not hijack the blog.I enjoy a counterpoint every now and again… but your last run here ended ugly. With that said… I hope all is well.Miss America(or as you may remember me… Rich H)p.s. If you were around for my Star Wars parody, I would’ve dubed you: Ryscamp the Hutp.p.s. I went through your case study last year about “Housing enjoys only minimum scrutiny (Lindsey v. Normet)” and stated:”your 1972 case about a month to month renter, has NOTHING TO DO WITH TODAY’S SITUATION!” I still don’t see it having any relation. For me, it’s distinguishable. (You’ll have to convince me otherwise.)

GuestOctober 3rd, 2008 at 6:32 pm

I hope you behave yourself and not repeat your previous domination of the blog and excess use of capital letters.

CanadianKBOctober 3rd, 2008 at 9:25 pm

Ahhhh… RYSKAMP!Long time no see! Where have your travels taken you since we heard from you last?

GuestOctober 3rd, 2008 at 1:35 pm

OOHHHH NOOOOOO!! ALL THE POOR US SUCKERS WHO THOUGHT THIS BILL WOULD SAVE THIER 201K’S!!! NOW RED ACROSS THE BOARD!

JamesOctober 3rd, 2008 at 1:46 pm

I just read an interesting article in the NYT about SEC regulation having wilted on the vine under Cox. Basically, Bush put a deregulation idealogue in charge of the SEC who surrounded himself with other deregulation and so-called “conservative” idealogues. These are the people who are supposed to be in charge of regulation!!! They passed a rule in 2004 that did away with all capital cushions for the biggest financial firms allowing them to take on unlimited debt. As a result, Bear Stearns leverage ratio shot up to 33. Give them enough rope and they will hang themselves and us in the process!!!

John RyskampOctober 3rd, 2008 at 1:49 pm

Remember that the last nut to crack in American politics is small business. And these people have yet to see what Roubini is screaming about. This is the petit petit bourgeoisie. Very stolid. They don’t respond to ANYTHING except their own day to day circumstances. This is the group Marx loved to study as if their were a kind of beetle. And look what they’re saying! Quite a contrast from the picture Nouriel is painting. Also, Pete Stark–himself a former banker–really doesn’t see the declines in his Congressional district. So where’s the crisis?How bad is it?Credit freeze hasn’t hit small firms hard yet, but economic slowdown hasBy Andrea Coombes, MarketWatchLast update: 2:33 p.m. EDT Oct. 3, 2008SAN FRANCISCO (MarketWatch) — Amid a tightening credit crunch, banks’ refusal to lend to each other is hampering the operations of companies in an array of industries, but the degree to which the recent credit crisis is crimping small U.S. firms is a matter of some debate.While anecdotal evidence suggests some small-business owners have hit barriers in their search for funds, industry experts say that’s the result of an economy in or near a recession, rather than the effect of a severe credit crisis. See story on more companies struggling to borrow.Also see story on global liquidity crisis.You could argue that it doesn’t matter what larger economic machinations are behind a bank’s resounding denial of a business owner’s request for money, but in volatile economic times like these it helps to keep things in perspective.Credit crunch, or no?’There are over 26 million small businesses. To say this group is affected this way or that way is incredibly difficult.’— Brian Headd, Small Business AdministrationThe portion of small-business owners who said credit was harder to get was “up a point or two” in September, but there was “no signal in the data that things suddenly got worse,” according to William Dunkelberg, chief economist with the National Federation of Independent Business, a trade group representing small firms. NFIB surveys small-business owners every month.NFIB won’t release its official September figures on credit availability until Monday, but Dunkelberg, who has analyzed the September data, said they show “just the normal progression we see at the end of an expansion. … Credit is always harder to get then.”That’s in part because as the economy slows, firms’ profit picture worsens, making lenders less likely to approve requests. Also, there’s no doubt lenders have tightened their underwriting standards over the past year in the wake of the subprime meltdown. But it’s not clear that small firms have been particularly struck by the worsening credit freeze in September.Ten percent of small firms in August reported they had a difficult time securing credit, compared with 3% in 2003, according to NFIB.”That may sound like a horrible thing but it’s really normal … as [an economic] expansion peters out,” Dunkelberg said. “Back in the early 1980s, 28% said it was harder to get credit.”The NFIB survey also asks business owners what’s the largest problem facing their business. In the August survey, 2% of firms said access to credit, compared with 3% in the July survey; that figure hit 35% in the early 1980s, according to Dunkelberg.Of course, the economic turmoil in mid- to late September — when among other events, Washington Mutual ceased to exist, the federal government bailed out Freddie Mac (FRE:Freddie MacNews, chart, profile, moreLast: 1.61-0.19-10.56%2:46pm 10/03/2008Delayed quote dataAdd to portfolioAnalystCreate alertInsiderDiscussFinancialsSponsored by:FRE 1.61, -0.19, -10.6%) , Fannie Mae (FNM:Fannie MaeNews, chart, profile, moreLast: 1.42-0.14-8.97%2:46pm 10/03/2008Delayed quote dataAdd to portfolioAnalystCreate alertInsiderDiscussFinancialsSponsored by:FNM 1.42, -0.14, -9.0%) and insurance giant American International Group Inc. (AIG:American International Group, IncNews, chart, profile, moreLast: 4.09+0.09+2.25%2:46pm 10/03/2008Delayed quote dataAdd to portfolioAnalystCreate alertInsiderDiscussFinancialsSponsored by:AIG 4.09, +0.09, +2.3%) , and the stock market saw a stomach-churning drop after an initial failed financial-rescue plan — simply may have not hit small firms yet.In addition, it’s hard to generalize, as small businesses come in all shapes and a lot of sizes. “There are over 26 million small businesses. To say this group is affected this way or that way is incredibly difficult,” said Brian Headd, an economist with the Small Business Administration’s Office of Advocacy in Washington.Hiring? A mixed pictureDifferent surveys reveal mixed data regarding hiring among small firms, due in part to the wide variety of firm sizes and types surveyed.In September, average employment at small firms dropped by 0.34 workers on a seasonally adjusted basis, following a 0.04 decline in August, according to the NFIB’s September survey of about 740 small firms (NFIB’s employment data was released Friday), many of which but not all with five or fewer workers.Small firms have reported a small net decline in employment every month since January, with the exception of a 0.01 net increase in April, according to NFIB monthly surveys.But a separate monthly survey by ADP shows small firms increasing payrolls by 28,000 in September, slightly higher than the 17,000 gain in August. (That survey counts the period through Sept. 12, so would miss layoffs later in the month.) The ADP survey counts small businesses as those with 50 or fewer workers.

GuestOctober 3rd, 2008 at 2:01 pm

Ahhh the witching hour team is here right on time, dow just rocketed 80 points out of the red as the clock struck the hour…

Miss ItalyOctober 3rd, 2008 at 2:32 pm

Let’s admit that Paulson’s plan is actually necessary to protect the big banks because they are considered strategic assetts. As a war to increase power or the usual trills to keep the existing one, are fought with nuclear weapons (or just the existence of them) and air carriers, so finance war needs those banks to prosper. We the people don’t have a say on how the hydrogen bomb works or a nuclear vessel must be built, so let’s stop our screaming and let TPTB keep the strategic weapons as they wish and as they want to play with them. As they ask for our blood to “free” the world, so now they ask our and our kids money to keep the financial power that they deem necessary. But one thing I hope is clear: let’s stop talking about free market. Let’s face what it is, and let’s stop talking about democracy as well…..

GuestOctober 3rd, 2008 at 2:48 pm

In this Post-TARP passage world, is your comment above to be considered as optimistic, realistic or pessimistic ?

Miss ItalyOctober 3rd, 2008 at 3:06 pm

It’s clearly very pessimist in it’s realism. Or optimist for the people that think are at the top of the food chain and deserve rightfully so….

GuestOctober 3rd, 2008 at 8:18 pm

I think I see what you are saying, but, for me, just the opposite. (i.e. very pessimistic in it’s realism for people that think are at the top of the food chain…)At any rate, this day is one of Confirmation. If not before today, it should be very clear now what is real and what is make believe about this land.

GuestOctober 3rd, 2008 at 2:47 pm

In this Post-TARP passage world, is your comment above to be considered as optimistic, realistic or pessimistic ?

GuestOctober 3rd, 2008 at 2:48 pm

@Capone: “Did anyone else notice that the day the legislative branch told Wall Street and the financial establishment to take a hike with their miracle save the world bill the market was actually ALLOWED to go down more than ever?”And used it for all they were worth, including Pelosi. On September 30, as a digital screen in the House chamber recorded a cascade of “no” votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. “Six hundred points!” he yelled, jabbing his thumb downward. New York, the big banker state, and California pulled this deal off for the bankers. Add a few more names here today probably when the numbers come out.Thanks to Green Party Watch for finding this link. It is a roll call vote of how members of Congress voted on the corporate/bank bailout on Sept. 30. http://ap.google.com/article/ALeqM5iE1r_DuYH2j4rBy8JqBaVQ40MiOQD93GJ5H04SEPTEMBER 30 VOTENEW YORKDemocrats — Ackerman, Y; Arcuri, Y; Bishop, Y; Clarke, Y; Crowley, Y; Engel, Y; Gillibrand, N; Hall, Y; Higgins, Y; Hinchey, N; Israel, Y; Lowey, Y; Maloney, Y; McCarthy, Y; McNulty, Y; Meeks, Y; Nadler, Y; Rangel, Y; Serrano, N; Slaughter, Y; Towns, Y; Velazquez, Y; Weiner, Y.(20)Republicans — Fossella, Y; King, Y; Kuhl, N; McHugh, Y; Reynolds, Y; Walsh, Y. (5)CALIFORNIADemocrats — Baca, N; Becerra, N; Berman, Y; Capps, Y; Cardoza, Y; Costa, Y; Davis, Y; Eshoo, Y; Farr, Y; Filner, N; Harman, Y; Honda, Y; Lee, N; Lofgren, Zoe, Y; Matsui, Y; McNerney, Y; Miller, George, Y; Napolitano, N; Pelosi, Y; Richardson, Y; Roybal-Allard, N; Sanchez, Linda T., N; Sanchez, Loretta, N; Schiff, N; Sherman, N; Solis, N; Speier, Y; Stark, N; Tauscher, Y; Thompson, N; Waters, Y; Watson, N; Waxman, Y; Woolsey, N. (18 yes)Republicans — Bilbray, N; Bono Mack, Y; Calvert, Y; Campbell, Y; Doolittle, N; Dreier, Y; Gallegly, N; Herger, Y; Hunter, N; Issa, N; Lewis, Y; Lungren, Daniel E., Y; McCarthy, N; McKeon, Y; Miller, Gary, Y; Nunes, N; Radanovich, Y; Rohrabacher, N; Royce, N.(10 yes)If I counted right, that’s a total of 53 Ayes from 2 states.

GuestOctober 3rd, 2008 at 2:50 pm

Hi Dr. Roubini, I agree completely that the govt ought to be insuring deposits, not bailing out banks. I have made a funny little “Zombie Bankers” cartoon video to make that exact point that you might like.The URL ishttp://www.dun.org/sulan/video/zombiebanker.html

CaponeOctober 3rd, 2008 at 2:53 pm

quick pass another BILL ! hurry ! need another 700 billioni mean wait, take the one they just passed back, i mean do something, what ? i don’t know just do it quick !

AfAOctober 3rd, 2008 at 3:19 pm

What about another $7 trillion + 300 bps rate cut?Should do the trick, “nay”?Hey Capone, nice to see you back.

CaponeOctober 3rd, 2008 at 2:58 pm

what’s next? “surprise” rate cut? only problem is everyone expects it, it is all too familiar since Bernanke started cutting 500 light years ago and like the “miracle bill”, the “DOW day trading bill”, it will be SOLD ! ! ! In summary, ALL of the intervention, every last bit of fraud, manipulation, spin, shock and awe will have been for not as the stock market CRASHES anyways !all is not completely lost however as the .0000001 of the population who pulled down trillions in bonuses over the years before the house collapsed will be long gone !

GuestOctober 3rd, 2008 at 3:16 pm

So, what did our glorious Washington representatives stuff into the Plan?I’m being told that there are more than 2,300 appropriations for home-district projects that total up to 6.6 Billion dollars.Here is a partial list:$2-million study of “hibernation genomics” at the University of Alaska.$800,000 for the study of razor bumps. This money would go to a pharmaceutical company outside of St. Louis, Mo.$1.6 million for research on low-temperature vehicle performance at Wayne State University.$5 million for a sustainable-energy project for the Vermont National Guard.$1.75 million for a Presidio Heritage Center.$1 million for a Military Intelligence Service Historic Learning Center.$1.75 million for Expanding Access to Proven Lifestyle Modification Treatments Focused on Preventing and Reversing Chronic Diseases.* Tax breaks for rum producers in Puerto Rico and the Virgin Islands.* Tax breaks for producers of wooden arrows used for children’s toys.* $10 million in tax breaks to small television and film producers.* $128 million of tax breaks for the manufacturers of car racing tracks.

Mother of GodOctober 3rd, 2008 at 3:23 pm

While walking down the street one day a US senator is tragically hit by a truck and dies. His soul arrives in heaven and is met by St. Peter at the entrance.”Welcome to heaven,” says St. Peter. “Before you settle in, it seems there is a problem. We seldom see a high official around these parts, you see, so we’re not sure what to do with you.””No problem, just let me in,” says the man.”Well, I’d like to, but I have orders from higher up. What we’ll do is have you spend one day in hell and one in heaven. Then you can choose where to spend eternity.””Really, I’ve made up my mind. I want to be in heaven,” says the senator.”I’m sorry, but we have our rules.”And with that, St. Peter escorts him to the elevator and he goes down, down, down to hell. The doors open and he finds himself in the middle of a green golf course. In the distance is a clubhouse and standing in front of it are all his friends and other politicians who had worked with him. Everyone is very happy and in evening dress. They run to greet him, shake his hand, and reminisce about the good times they had while getting rich at the expense of the people. They play a friendly game of golf and then dine on lobster, caviar, and champagne. Also present is the devil, who really is a very friendly guy who has a good time dancing and telling jokes. They are having such a good time that before he realizes it, it is time to go.Everyone gives him a hearty farewell and waves while the elevator rises…The elevator goes up, up, up and the door reopens on heaven where St. Peter is waiting for him.”Now it’s time to visit heaven.”So, 24 hours pass with the senator joining a group of contented souls moving from cloud to cloud, playing the harp and singing. They have a good time and, before he realizes it, the 24 hours have gone by and St. Peter returns.”Well, then, you’ve spent a day in hell and another in heaven. Now choose your eternity.”The senator reflects for a minute, then he answers: “Well, I would never have said it before, I mean heaven has been delightful, but I think hell is the place for me.”So St. Peter escorts him to the elevator and he goes down, down, down to hell. Now the doors of the elevator open and he’s in the middle of a barren land covered with waste and garbage. He sees all his friends, dressed in rags, picking up the trash andputting it in black bags as more trash falls from above. The devil comes over to him and puts his arm around his shoulder.”I don’t understand,” stammers the senator. “Yesterday I was here and there was a golf course and clubhouse, and we ate lobster and caviar, drank champagne, and danced and had a great time. Nowthere’s just a wasteland full of garbage and my friends look miserable. What happened?”The devil smiles and says, “Yesterday we were campaigning…Today you voted.”

GuestOctober 3rd, 2008 at 3:36 pm

Hank Paulson and the Leadership, a.k.a.The Walrus and the Carpenter by Lewis CarrollThe sun was shining on the sea,Shining with all his might:He did his very best to makeThe billows smooth and bright -And this was odd, because it wasThe middle of the night.The moon was shining sulkily,Because she thought the sunHad got no business to be thereAfter the day was done -“It’s very rude of him,” she said,”To come and spoil the fun.”The sea was wet as wet could be,The sands were dry as dry.You could not see a cloud, becauseNo cloud was in the sky:No birds were flying overhead -There were no birds to fly.Hank Paulson and the LeadershipWere walking close at hand;They wept like anything to seeSuch quantities of sand:”If this were only cleared away,”They said, “it would be grand.””If seven maids with seven mopsSwept it for half a year,Do you suppose”, Hank Paulson said,”That they could get it clear?””I doubt it,” said the Leadership,And shed a bitter tear.”O Taxpayers, come and walk with us!’Hank Paulson did beseech.”A pleasant walk, a pleasant talk,Along the briny beach:We cannot do with more than four,To give a hand to each.”The eldest Taxpayer looked at him,But never a word he said:The eldest Taxpayer winked his eye,And shook his heavy head -Meaning to say he did not chooseTo leave his old homestead.But four young Taypayers hurried up,All eager for the treat:Their coats were brushed, their faces washed,Their shoes were clean and neat -And this was odd, because, you know,They hadn’t any money.Four other Taxpayers followed them,And yet another four;And thick and fast they came at last,And more, and more, and more -All walking through the frothy waves,And scrambling along the shore.Hank Paulson and the LeadershipWalked on a mile or so,And then they rested on a rockConveniently low:And all the little Taxpayers stoodAnd waited in a row.”The time has come”, Hank Paulson said,”To talk of many things:Of shoes -and ships -and sealing wax -Of cabbages -and kings -And why the sea is boiling hot -And whether pigs have wings.””But wait a bit,” the Taxpayers cried,”Before we have our chat;For some of us are out of breath,And all of us are fat!””No hurry!” said the Leadership.They thanked her much for that.”A loaf of bread”, Hank Paulson said,”Is what we chiefly need:Pepper and vinegar, besides,Are very good indeed -Now, if you’re ready, Taxpayers dear,We can begin to feed.””But not on us!” the Taxpayers cried,Turning a little blue.”After such kindness, that would beA dismal thing to do!””The night is fine,” Hank Paulson said,”Do you admire the view?”It was so kind of you to come!And you are very nice!”The Leadership said nothing but”Cut us another slice.I wish you were not quite so deaf -I’ve had to ask you twice!””It seems a shame”, Hank Paulson said,”To play them such a trick.After we’ve brought them out so far,And made them trot so quick!”The Leadership said nothing but”The butter’s spread too thick!””I weep for you,” Hank Paulson said:”I deeply sympathize.”With sobs and tears he sorted outThose of the largest size,Holding his pocket-handkerchiefBefore his streaming eyes.”O Taxpayers,” said the Leadership,”You’ve had a pleasant run!Shall we be trotting home again?”But answer came there none -And this was scarcely odd, becauseThey’d eaten every one.

AfAOctober 3rd, 2008 at 3:47 pm

Karl Denninger presents two solid arguments today:*If Mark2Model was correct (and Mark2Market was wrong) why wouldn’t all the uncommitted cash sitting idly rush to buy those paper at, presumably, undervalued market values.*He presents a table, breaking down Commercial Paper outstanding by category, that clearly shows that seizure is happening only in financial and asset-backed CP.Although I am sure we can argue that most CP is related to financials some way or another, or that the latter represents the bulk of CPs, the argument still has merits.Anyone has more statistics?

K in TXOctober 3rd, 2008 at 3:55 pm

My DH has been of the opinion that we are seeing the implosion/splintering of the Republican party. Looks like the Democrats may suffer the same fate.http://www.dailykos.com/story/2008/10/3/134026/767/287/619084Our government of, by and for the people is none of the above. Those who run our government, at any time in modern history from either party, do not care about you and me. They care only about themselves and their ultra-wealthy overlords. The proofs of that statement are legion. I defy anyone to give me one solid reason to think otherwise.They have brought us to the brink of economic collapse and are now using that pathetic fact to blackmail us into giving them the last crumbs in the pantry. They are so besotted with greed that they can think in no other terms. To them, it’s all about stealing everything that we have.We need to come up with something pithy for the new party. The Party To Vote Out The Bastards That Voted For The Bailout is a bit too unwieldy.

subgeniusOctober 3rd, 2008 at 4:46 pm

I don’t know – it has a certain ring, and (unlike certain recent political maneuverings) the added bonus of being completely transparent in its intended action…

GuestOctober 3rd, 2008 at 4:49 pm

My sentiments exactly. Well put. The key to our future depends on breaking the hold of the present system. We are on the brink of economic collapse. This deal by Congress to force taxpayers to purchase Wall Street’s distressed assets is the straw that going to break the economy’s back.That’s what is is — the final straw. The economy is coming down and, hopefully, this one-party political charade with it. And, then, as Gloomy says, we can start to rebuild.

MAOctober 3rd, 2008 at 3:58 pm

I believe it’s safe to say that the “rules” have OFFICIALLY CHANGED as of today! Do you all agree?If so, my prediction on this site from a year ago has finally been solidified.If the current “rules” don’t change, and I were to make a long term prediction, (i.e. the bubble is forced to fully deflate in a controlled manner), I see DOW somewhere between 10,800 and 10,100. (S&P 1,180 and 1,100)DOW close – 10,325.38S&P close – 1,099.231,099!!!!Are you kidding me!I don’t know what I was thinking with 1,100.Thank you all for your kind regards the other day. (I was having a bad day/week) So I was howling at the moon a bit.I will try to work through what I see as the next leg of the financial war that has been waged over the past 2 years. A call I made for “Survivor Wall St” from the beginning of the year continues to play out, and it will be interesting to see what way this thing goes.In the meantime, do not forget these very important phrases:The bulk of the problem is fixed income. Gains and losses can be “reasonably calculated”. The major players in these markets know what their spreadsheet looks like (the custodians know it even better) …and you don’t!There are “definitive losses” that have to be felt. …and since the problem is a fixed income one, the players are using certain friction lines to deflate the bubble, (while at the same time playing the game of hot potato with the shaky stuff) …but at the same time you must realize, most issues ARE paying “in standard”. (“in standard” for non bankers means “on time”, and within %)Stop thinking about what’s good for you. Instead think about what good for the big boys? Knowing that you’re sitting on a rotten egg, how would you handle it? If you are crazy enough to invest… invest knowing that.Whenever it starts looking like things are at their most bleak, PERCEPTION needs to change! They control the vertical, they control the horizontal! Rules are meant to be broken. Especially since “they” make the rules.Miss America

AfAOctober 3rd, 2008 at 4:14 pm

Now that rules changed/are changing, how do the fact of integrating them into your forecasting models affect your previsions … say by Christmas (if we have one :)?

MAOctober 3rd, 2008 at 4:42 pm

AfAChristmas was cancelled.It’s been replaced by Paulsmas.He sneaks down our chimneys… and steals the equity from our house, the value from my dollar, and leaves a big pile of steaming debt under my christmas tree.Then he brings the cookie and milk back with him so he and his elves can enjoy it!Kinda funny… He does look Grinch like! (Maybe that can be a political cartoon?)Miss America

Alessandro - http://castellidicarte.blogspot.com/October 3rd, 2008 at 4:43 pm

Miss, you calling a local bottom (“Whenever it starts looking like things are at their most bleak, PERCEPTION needs to change!”) or the opening of the gates of Hell (“I believe it’s safe to say that the “rules” have OFFICIALLY CHANGED as of today!”)?You ended up doing the wrong work dude, you should sit somewhere in Greece making a living as a oracle 😉

MAOctober 3rd, 2008 at 4:58 pm

not a bottom. (a game change)We have to see who’s in control. The people or the power.It’s unfortunate, and I hate to say this… but I hope the “people” don’t take too much control. Most of the public is too porly informed, too frantic, too desperate, too irrational, etc… …and in general the “people” don’t get “long term” investment in the “i want it now” age.It is a balance that is needed… with PRUDENT leaders/advisors/investors.Miss AmericaNo matter how you slice it. The game has changed!!! Those who adapt fastest survive the longest.

MAOctober 3rd, 2008 at 5:06 pm

$.02Hopefully, I’ll have it done by the weekend.I have to listen to worldwide reaction. Foreign chatter affect the dollar. (Are FGN going to cut to save our dollar and keep inflation at bay???)How will the money flow?You learn a lot from listening…With that said… Penny for your thoughts? (couldn’t help the pun.)Miss AmericaGotta go. Post work shindig.

Alessandro - http://castellidicarte.blogspot.com/October 3rd, 2008 at 5:49 pm

GS spreading rumors about a 100pbs rate cut by the FED and a possible coordinated global rate cut (I can’t imagine the gold price action if they really do it)100pbs is in line with the real FFR of late.Apparently your “either the money or the cut” call look in danger. Game have changed and probably they need to fire all the remaining bullets just to keep the boat afloat a couple more weeks. Just enough to carry us to a Monday in mid October…

MAOctober 4th, 2008 at 3:05 am

Alles…My rate cut or cash call is based SOLEY on opinion!!!Absolutely no internal knowledge (which I wouldn’t be privy to anyway)I still see it being reactionary to the USD moves. If the cash influx inflates… there will be no us rate cut. (but if fgn markets cut, and usd runs up, the possibility opens up.)too much to drink tonight! gottta go to sleep.MA

GuestOctober 3rd, 2008 at 7:30 pm

I wonder if the rules have changed, or that the rules have simply become far more blatant. It doesn’t matter, though. Things have definitely changed, I agree with you.

DepressedOctober 3rd, 2008 at 4:01 pm

I think I am over estimating our country’s future but the United States of America as we know it is financially and morally doomed.

AfAOctober 3rd, 2008 at 4:07 pm

As Mark said, here is another “no sh!t headline” this time from Reuters/Yahoo!. I know, I know:”Stocks drop on economic concerns despite bailout”Let’s check again, the “economic concerns” (i.e. job report) was announced at 8:30am, on which the DOW rallied more than 200 points. After a short-lived 100 point surge after the approval of the bailout .. er, rescue plan, the Dow retreated more than 450 points from its peak.If anything, shouldn’t the headline read:”Stocks drop on bailout despite economic concerns”?

Alex GreyOctober 3rd, 2008 at 4:08 pm

I am not sure if this can be stopped. This type of financial crisis was symptomatic of the Great Depression as was a collapse in housing prices. The other symptoms were a stock market crash followed by a deep recession. It looks like a deep recession is now in the cards. The only thing missing is a stock market crash. I would not rule this out brought on by the financial crisis. Basically what I am saying is that the order of key events leading into the Great Depression is different this time but the events themselves are occurring. The reason the order differs is that strangely enough the stock market is still more regulated than it was in the 1920, which means that the great excesses there have been avoided barring the sky-high expectations in the communications bubble. The same cannot be said of the financial sector, which is where there have been excesses on a truly massive scale. In the end does it really matter in what order the events happen?

fyegoOctober 4th, 2008 at 4:53 pm

Are hedge funds regulated? Are they leveraged similarly to regular investors in the 1920’s? What happens when they get margin calls and have to sell?? Just like 1929….

Alex GreyOctober 6th, 2008 at 3:44 pm

I am including hedge funds in the financial sector. In 1929 there were such notorious things as “Investment Trusts” listed on the NYSE whose shares collapsed in the stock market crash – these are no longer allowed. What I am saying is that now the collapse is occurring in the financial sector first e.g. hedge funds are not traded themselves on the NYSE but the effects of their collapse affects NYSE stocks. So this will spread to the stock market. Seems to me that the stock market cannot hold up under these credit conditions. So it may just be an issue of timing. The huge volatility today in the NYSE may be a result of hedge funds unwindinging their leverage and possibly some collapsing though this is just a guess.

Wild BillOctober 3rd, 2008 at 4:16 pm

If you had any doubt about which of your representatives were bought and paid for, those doubts should be laid to rest now. You might notice that party affiliation had less to do with the vote than integrity. My two senators(Schumer and Clinton) will never get my vote again. My House Representative (Kirsten Gillibrand) will. I will not vote for Obama or McCain. I don’t like our one party system. I don’t like our rigged game. Somewhere out there, is a John Galt-like character I can support. Nouriel Roubini can’t be the only one with his head screwed on straight. As the temple comes down around their ears, they are still scrambling to see who has the best location for money changing.

Average JaneOctober 3rd, 2008 at 6:48 pm

I’m with you, Wild Bill. Though I might consider voting for McInsane and Miss Perky just so we can watch them try to squirm out of this mess.

GuestOctober 6th, 2008 at 7:04 am

You may want to consider voting for an independent, like Ron Paul, rather than not voting at all. It is time to give other parties a chance.

GuestOctober 3rd, 2008 at 4:20 pm

@MA: A friend sent me this link. Is this guy “lunatic fringe material”, or is he on to something?”The Coming Destruction of U.S. Bonds”Blog of Charles Hugh Smithhttp://www.oftwominds.com/blog.html

NedheadOctober 3rd, 2008 at 4:38 pm

The Federal Reserve is a private bank,Yes? Just how much money are THEY making from all of this and could the Fed Bank go bust and if so, how?

tutterfrutOctober 3rd, 2008 at 4:46 pm

Hey guys and gals, this will cheer you up.http://fr.youtube.com/watch?v=AePFDl8AqtkA German, playing American music, sent to you by a Belgian guy, who found it thanks to a British website link to Youtube. Ain’t the web a wonderfull tool to bring a variety of people together.I hope this will suppress the somewhat transatlantic ‘pointing fingers’, I feel popping up lately. Don’t let them get you into that game.Where in this mess together and our leadership failed on both sides of the Ocean.Let’s find the most constructive ways to get us out of this.

Alessandro - http://castellidicarte.blogspot.com/October 3rd, 2008 at 6:00 pm

Just out of curiosity, did the Fortis near-collapse strike close to home?What is say the man in the street in Belgium?

MarkOctober 3rd, 2008 at 8:42 pm

Wait a minute! This is fake; that, or he’s an alien (from outer space)! White guys don’t have rhythm! :-)And… how did they keep that piano from going up in flames? :-)Yes, absolutely awesome!

London BankerOctober 4th, 2008 at 3:08 am

Thanks for that! As I say, I remain optimistic that man is mostly a collaborative creature. Even with evil and selfish leaders, there are enough of us that can choose to collaborate rather than conflict to produce a more just world.

PeterJBOctober 3rd, 2008 at 5:08 pm

@ Roubini”Thus, emergency times where we are at risk of a systemic meltdown require emergency measures. These include:”Sorry Professor, I don’t accept any of your recommendations but I do accept your above statement. You now appear NOT to understand the full implications indicated by this emergent phenomena.This is a new game and not a repeat of history.Ho hum

PeterJBOctober 4th, 2008 at 1:52 am

Simple really:Have a Mises thought and let it get ugly and as ugly as possible but in a controlled manner; let the trash get taken out while at the same time move from a “faith-based” system to a physics based system. Let the Wall Street economy fully take the frontal blow and accept the full cost.Let the pain teach the lessons while protecting the “real economy”.Let it get ugly and let it all hang out – there is no other choice; junior has to grow up.Turn the FedRes into a high class Bordello.Re constitute the US Constitution.Find some leadership with integrity – this may be the biggest challenge but hard times do sometimes bring on some good leaders.I have answered this question before.Ho hum

PeterJBOctober 4th, 2008 at 2:21 am

I add to the above that which I stated sometime back:We must fully engage a 100 to 150 years GLOBAL rail and communications infrastructure build (real infrastructure and not just a government run rail and copper links) which engages the whole of the socio-economic economies of the World today (including returning to skill trainings and education) and including the Antarctica; we must also free up agricultural grains from private hands and bring efficiency to agricultural production, storage and distribution. The same principles must be applied to all our global water supplies.Our secondary economy must be girthed in a technology structure which allows full freedom subject to qualitative constraints, real regulation and forbids it to take over the real economy (again)- the latter being the only real prohibition; we must not unduly inhibit human creativity, the human spirit and innovation but we must engage more with technology (which is rapidly accelerating its advances at a mind-boggling rate, for our daily needs.We must implant into our vision, a fully implemented plan for 4 generations in advance.Then we will see the big picture.I repeat, let it get ugly as ugly gets but in a controlled way and get these politicians out of our faces and away from the fans of corruption.We need “leadership” – desperately.Ho hum

kilgoresOctober 4th, 2008 at 5:47 am

Nice sweeping high-concept thinking, Peter, but framing the results you think would make for a better world is not a substitute for concrete steps to get there, and certainly doesn’t address the question of what tangible actions can and should be taken now to militate against the pain and suffering that will soon be at everyone’s doorstep. Dr. Roubini has propsed specific actions to take immediately to blunt a wider and deeper downturn. You have not suggested anything useful alternative for immediate implementation.SWK

devils advocateOctober 3rd, 2008 at 5:13 pm

what surprises me is how much abtract distancing there is on these postsI went to my bank this A.M. – the teller told me that a lot of people werewithdrawing thousands of dollars from their accounts-this is probably taking place across the world-people hiding cash under their mattresses

GloomyOctober 3rd, 2008 at 5:19 pm

WE HAVE REACHED THAT INFLECTION POINT……where government action is greeted by a market fall rather than rise. The great purge has begun in earnest.

AnonymousOctober 3rd, 2008 at 5:35 pm

I left my bank (J.P Morgan Chase) for a credit union. I closed my account the Thursday before Lehman collapsed. My “personal banker” (this was his title) wanted to know why I was closing my account, but couldn’t accept my reason: systemic collapse of the banking system.

Alessandro - http://castellidicarte.blogspot.com/October 3rd, 2008 at 5:56 pm

Most of the regulars here a sleeping over part of their savings since late 2007.We already had long discussions on how to stockpile canned food and the like.Somehow I’ve got used to panic. It’s not that exciting as it used to be.

devils advocateOctober 4th, 2008 at 5:31 pm

do you think the Govt really cares about the price of gold?- the “gold lovers” believe in market manipulation ——————

AfAOctober 3rd, 2008 at 5:50 pm

Another illustration of how bolder and bolder government interventions are having less and less effect on markets. Paulson’s giveaway impact lasted exactly 1 hour on equity markets and 0 minute on credit markets.What next?

Average JaneOctober 3rd, 2008 at 9:42 pm

There is some precedent for that, now, isn’t there, Peter JB?I was furiously writing my family members and friends to urge their congresspeople to vote no on the bailout, to no avail. They all think I’m a raving lunatic. And the hell of it is, when it turns out I’m right, the words “I told you so” will be ashes in my mouth. A hollow victory, to be sure.

PhilTOctober 4th, 2008 at 8:15 pm

“They all think…”Are you sure they do?I am finding that many people are not thinking at all, they are instead regurgitating that which the MSM is force feeding them through the cathode ray tube!Best to you AJ.Keep your wits about your inherently good self.

PeterJBOctober 3rd, 2008 at 6:02 pm

Adventures… new things … opportunities galore and a revival of the human pioneering spirit; you have been spirited from your “Waiting to Die” routine into the exciting regime of a potential new game.Feel the life forces flow through your very essence.Ho diddly hum

AfAOctober 3rd, 2008 at 6:05 pm

Is this in response to your previous post?Q: “so why do *YOU* believe them?”A: “Adventures…”

PeterJBOctober 3rd, 2008 at 7:26 pm

No, in response to your question:What next?@ AfA on 2008-10-03 17:50:38″Adventures… new things … opportunities galore and a revival of the human pioneering spirit; you have been spirited from your “Waiting to Die” routine into the exciting regime of a potential new game.Feel the life forces flow through your very essence.Ho hum with apologies for the confusion

GloomyOctober 3rd, 2008 at 6:56 pm

WHAT A DROP DEAD GORGEOUS DAY FOR THE MARKETFor a bear that is. Remember the good old days when government intervention could produce a rally? I can’t wait to see the reaction when the Fed cuts rates!

GuestOctober 3rd, 2008 at 7:16 pm

How much of GDP is of the real economy and how much is based on credit inflation? Abusive fractional reserve lending and borrowing from other nations besides causing a huge housing bubble has probably also created a huge GDP bubble and when those losses are realized how will the government pay its debt without huge amounts of monetization? This will of course cause a vicious cycle , I can’t wait to see how the government funds itself off the real economy and its real tax base of 10 dollar an hour wage earners. The party might be over.

GuestOctober 3rd, 2008 at 7:35 pm

This unfettered capitalism/free markets propoganda by republicans has been largely resposible for this mess. They fail to recognize that both socialism and capitalism in thier idealist forms wind up in the same place- facism. Pure capitalism creates a platform for massive consolidation of power untill the beuracratic lines between corporations and government become invisible ultimately leading to facism the same fate extreme socialism has. The republicans have had their way for the past 30 years with this extremist idealogy. They instead need to understand the importance of having a balance of capitalism and socialism so the two ideals keep each other in check. Guys like Rush Limbaugh and Sean Hannity and even Glen Beck are largely responsible with thier huge listener base and irresponsible politics. They have turned the word socialism into a evil word not recognizing its importance.

MarkOctober 3rd, 2008 at 8:48 pm

Sure, the neocon types are all idiots, but there’s still the fundamentals that are responsible- we’re running out of growth agent, most specifically energy/oil. These b@st@rds have been playing everyone: they’re the “false prophets” that the major religions have warned us about (and ironically many followers of these religions flock to these folks- go figure!).

GuestOctober 3rd, 2008 at 9:31 pm

The US government today passed legislation that, by law, will take money from American citizens who were following the law and give it to people who were not. It has named one of the chief architects of the financial crisis now facing the nation to take charge of the bail out, with public monies, of insolvent investment bankers who engaged in trade of high leverage, high risk mortgage backed securities, some fraudulent, and in derivatives betting.Hank Paulson, who, according to the NY Times, falsified, packaged and distributed fraudulent mortgage-linked investments to unsuspecting buyers while CEO of Goldman Sachs before he was named U.S. Secretary-Treasurer, assumes all bailout power. Neither the U.S. House of Representatives nor the U.S. Senate retains oversight powers. Goldman Sachs, long a recipient of bailout money from U.S. taxpayers, is a chief contender for the public money. Paulson also stands to benefit personally from the bailout.Using taxpayer money, the U.S. House of Representatives opened a revolving $700bn fund for Paulson’s use.Also assisting Paulson will be Christopher Cox of the Securities Exchange Commission ( SEC). Cox already has ordered more than two dozen hedge funds to turn over trading information as the SEC ramps up its investigation into whether traders were spreading rumors to manipulate shares. The order… identifies six financial institutions the SEC believes may have been subject to such manipulation.The order is akin to a subpoena… It seeks a wide range of trading data and email communications over a period of three weeks involving American International Group Inc. (AIG), Goldman Sachs Group Inc. (GS), Lehman Brothers Holdings Inc. (LEH), Morgan Stanley (MS), Washington Mutual Inc. (WM) and Merrill Lynch & Co. (MER).” (WSJ, Sept. 25)There will be no oversight of the investment banks. “We have no more investment banks, so we don’t have to regulate them,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told Bloomberg reporters September 23. “But we do have other entities that need regulation.”

Average JaneOctober 3rd, 2008 at 9:45 pm

I think “they” are going to try and reflate the housing bubble, folks, because there’re no other bubbles on the horizon. Thoughts?

Mother of GodOctober 4th, 2008 at 12:25 am

Yes, and don’t forget a frightened government is an instant killer. Remember Kent State. Remember Tiannemen Square. (i prolly spelled that wrong)I truly worry that America on her way down, will resort to the bombs. This empire has grown weak, just as all empires have as their inequality grew.The State built on injustice cannot stand.

GuestOctober 4th, 2008 at 1:02 am

Yes, and don’t forget a frightened government is an instant killer.

A killer of its own citizens, yes. But from the looks of it that could still be a couple of years in the future.

GuestOctober 4th, 2008 at 10:22 am

Review the dem and repub conventions, 1st army brigade to patrol us, Katrina,blackwater,caci, (last 2 mercenary army’s based in the us) then couple that with the concentration camps built in the us over the last 4 years and the “presidential” decrees on martial law

GuestOctober 3rd, 2008 at 10:10 pm

FLECK’s BACK“The next crisis: The economy”The banking system’s meltdown will run its course soon enough. Then we’ll have to face the reality of the coming severe recession.By Bill Fleckenstein\It was just a year ago, in my Oct. 1, 2007, column, that I wrote, “We are headed to recession, though it’s not possible to pinpoint the ‘when.'” To me, it was plain to see that a long-lasting credit spree could end only in pain and tears.It should be obvious to everyone that the “when” is now.My expectation has been that with passage of the financial-rescue legislation, a relief rally will be followed by the market’s heading lower once again, and potentially violently.Why? Because the intensity of the credit crisis has distracted folks from the economic crisis, the brutal recession we are destined to experience. The legislation is not going to change that fact. And when folks realize that, it could easily create a good deal of angst.We don’t need a grandiose planI continue to be against the bailout. As I noted in a column on my Web site (subscription required) last week, I thought portfolio manager John Paulson’s plan (outlined in a Wall Street Journal article, “The public deserves a better deal”) was better than Treasury Secretary Hank Paulson’s plan.But I’m not wild about any plan. I would prefer to see the problems handled ad hoc, as they have been. I think that for the long-term good of the country, no grand bailout would serve us better than individual plans, although I do think a broad plan would create opportunities for short sellers.I especially haven’t liked the tactics of the bailout proponents. They said that if this bill didn’t pass, we would experience turmoil and chaos, the implication being that if the bill did pass, we wouldn’t have much trouble.That is an absurdity, brought to you by the folks who maintained that the problem was just subprime, contained, etc., and who still do not understand the environment. Turmoil and chaos were preordained once the credit and real-estate bubble was allowed to go on for so long.Of course, a lot of the nouveau “economic patriots” in Congress see this plan as a chance to do what they do best, which is to throw some pork around. The bill has dozens of tax breaks for such important things as wooden arrows, owners of stock-car racetracks, Virgin Islands rum makers and so forth. These perks are not widespread, but I suspect there is more posturing and greasing of palms in Washington than there is genuine concern and understanding about what lies ahead.Now comes the economic crunchThe current phase of the financial crisis is getting later in the day. Maybe we’re two-thirds or more of the way through it. The next crisis will be in the economy.During the expansion, as I explained in my book “Greenspan’s Bubbles,” the economy wasn’t that strong, if you excluded the impact of the real-estate bubble.Now, given the contraction in credit, it will weaken dramatically, with the Institute for Supply Management’s data of Oct. 1 being a vivid example.Many large European financial institutions are also in trouble, with new casualties popping up regularly, and they are seeking varying degrees of bailouts. Several — Fortis (FTZBF, news, msgs), Dexia (DXBGF, news, msgs) and Hypo Real Estate (HREHF, news, msgs) — have fessed up in the past week.So this financial crisis is a global one, and the recession will be as well — because the notion of U.S. problems being decoupled from everything else is fallacious. Nothing can easily be decoupled from the financial system.Also in the misconception department, folks have heralded Warren Buffett’s investment in General Electric (GE, news, msgs), similar to the one he made in Goldman Sachs (GS, news, msgs), as something akin to a vote of confidence. It’s actually quite the opposite.What he’s doing is making the most senior equity investment that he can via preferred stock, and getting paid quite a large coupon to do so, with call options thrown in. Buying the common stock would be a vote of confidence. This is an investment you make when you’re still worried about lots of damage yet to play out.http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/the-next-crisis-the-economy.aspx

mjg0October 4th, 2008 at 2:20 am

A manager of a small hedge fund gave me his view of Roubini’s solution:Basically the Federal Government and Fed are the only liquidity providers and they will decide very quickly who survives and who doesn’t if you have any liquidity requirements. Kill all the smaller hedge funds who don’t have cash but let the large ones borrow. Government is king and it will decide who lives and/or dies. Markets are dead – Roubini is replacing them. Hail the new Czar!

MarkOctober 4th, 2008 at 2:21 am

I was hoping for a response to my reply to this posting by PeterJB from a previous thread, so I’ll re-post:Europe, the UK, Australia, Canada and other economies will just about collapse out of sight in the meantimeI replied with:And why would Canada be on your list of countries that will “just about collapse out of sight?”According to the CIA World FactBook -Current Account Balance- Canada ranks #23. Not great, but they’re in positive territory. The US, on the other hand, ranks dead last (at #188). [ref https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html%5DClimbing out of a hole which is getting increasingly more deep is a tough feat. I’d like to know of an example of some other country that’s pulled this off on its own.

PeterJBOctober 4th, 2008 at 2:42 am

I apologize for the non-reply as I didn’t see your question; my error.My quick response is that most of the countries secondary economies rely almost totally on the USA for direction; they mimic the USA in their market actions and adopt that which the US giants offer, mostly without question. The Central Banks appear to also follow the FedRes and more or less have dropped independent thought: follow the leader stuff.Canada more so and the Canadian and US military are now inseparably whereas the trend away from technical input to all or most matters towards political solutions arising through the corporate networks and cross-monied convenience shops appear to be a fait accompli thereby suggesting that as this global collapse has just begun and will get far far worse right and well into 2010, Canada cannot but fail to reassert an independent doppelganger of its former self.I see the USA as the pivotal focus of distorted global economic forces and this is understandable and I believe that we will just see Canada fall into the hole that will soon be the USA because it has become too reliant on the USA for its policy decisions of the past few decades.The World is going to look to the USA to lead us out of this mess and I believe that this will happen but only after new leadership is found. The current “leadership” and the incumbents are just a bad joke.My opinion only:Ho hum

PeterJBOctober 4th, 2008 at 2:51 am

A country that has pulled it off on its own:My answer to that I believe may be Hong Kong prior to Britian’s treasonous role there under the bad offices of that mad cow Margaret Thatcher and her dirty drunken deal with China.Hong Kong survived a number of economic ravages prior to the above times despite the almost totally hands off policy of the British Government at that time. I believe it more than survived because of the wonderful resilience of its people and in particular, the lack of government blundering and bungle-ing. LegCo (The Legislative Assembly)at the time was manned by some fairly decent blokes who actually respected the former Colony and its people.Ho hum

MarkOctober 4th, 2008 at 3:23 am

Peter, thanks for the reply :-)Policies, as we’ve clearly seen under the Bush administration, can change pretty quickly.But… I see reality trumping policy. And reality IS the physical. The physical as in resources. And Canada, as is the case with Russia, Venezuela, Saudi Arabia and others, has key resources which are necessary for economic activity. If all nations’ borders were shut down I’d say that Canada’s population could survive longer than most, especially the US’s: per-capita it has more essential resources.The US has lost economic and moral dominance. Its debt cannot be dealt with without years of pain. And then it will still find that it cannot compete with other nations in essential (physical, not “service” [e.g. financial]) exports.

MarkOctober 4th, 2008 at 3:33 am

[I’ll get the threading mechanism figured out one of these days…]It could be argued that Hong Kong was artificially suppressed. There was a world market there for them.In the case of the US it has been artificially inflated. The world market is shutting down for the US and, owing to world-wide declines in resources and the US not being an exporter of key resources (agricultural outputs factor in, but these will decrease as petroleum availability becomes more scarce), I’m not seeing it picking up such that it places the US back up on the economic perch (which it has kept through non-productive means).

enriqueOctober 4th, 2008 at 2:43 am

The word “radical” comes from the word “Root” so a radical solution should addres the root of the problem.Although Prof. Roubini describes his proposals as such, there is really nothing radical in his proposals, as he still talks in terms of mechanical measures to fix some aspects of the current economic system. Financial systems reflect economic and social relations ,so a real solution should address the social and economi roots of the problemUsing the medical illustration so popular these days :If a person suffers from an heart attack , an emergency treatment is certainly necessary, but the next heart attack can be avoided by changing life style. It’s unconceivable to maintain a patient eternally in emergency.Analyzing the current situation from a wider economic perspective I would like to mention a few points1. Debt is a transfer of resources between those who have and not need to those who need but don’t have. It seems that the social / economic regime of the last 30 years created a lot of people that have a lot and a lot of people that need. Just to illustrate my point, remember that millions of households in the most rich country in the world cannot pay for their homes or send their kids to college without credit.2. The economic yield on debt is lower than expected (expectations are reflected in assets’ value) i.e. the whole system was based upon : False expectations which are needed to handle the over supply of financial resources which had to be channelled somewhere. The leverage is just a tool to transform a poor yielding investment into an average one and guarantee high bonuses pay.3. The over supply of resources derives from unequal income and wealth distribution ( and THIS is a RADICAL point) reflected in parameters as diminishing labor share / GDP , Ginny coefficient, decreasing real hourly wage, profit margins at historical highs , etc. Unfortunately poor workers are also poor consumers (B. Gates cannot eat millions of Big Macs … ) so the only way to sustain poor but happy consumer in the ever growing consumption party is by extending credit ( MEW is another mean ). Since credit for constant a consumption structural deficit cannot generate a real ECONOMIC yield, the system is deemed to collapse, sooner or later.Therefore the real Radical point is that only a more equal distribution of wealth and income among citizens ( and under our global economy we should adopt a global perspective) . This is my RADICAL point , and the rest is just details.

MarkOctober 4th, 2008 at 3:44 am

The root of the problem is that the US was selling a dream…If you’re proposing an egalitarian approach then you cannot isolate it to but a fraction of the world’s population. Keep in mind that 2/3rds of the world’s population lives on $3/day or less.THE question is how do we go about equal distribution? Central planning just doesn’t work: nowhere in nature can you find such an example, in which case this would tend to inform us that we’re not going to succeed either :-(I’ve never been a fan of capitalism, but I just cannot see any other way of trying to achieve some sense of equality. I’ve come to see government intervention as distorting things; governments have come to control people through repeated “corrections,” corrections which are really only about changing policies in order to push inequality (move more wealth to those managing the policies- again, refer to the fact that 2/3rds of the world’s population lives on $3/day or less).If you’re really wanting to promote radicalism then promote naturalism.Please note that I’m FOR equality, peace and justice. But know that things aren’t static, in which case equilibrium cannot be achieved. What matters most is that we seek sustainability…

MarkOctober 4th, 2008 at 10:15 am

Well, OK, if you put it THAT way! :-)And it built itself up on fraud, in which case to find its basic foundations again it’s going to have to dig/fall down a LONG way.

MarkOctober 4th, 2008 at 4:53 am

A must read:An Open Letter to Nancy PelosiThe Party is OverBy ADRIEN RAIN BURKEhttp://counterpunch.org/burke10012008.html

PeterJBOctober 4th, 2008 at 6:56 am

“Nice sweeping high-concept thinking, Peter, but framing the results you think would make for a better world is not a substitute for concrete steps to get there, and certainly doesn’t address the question of what tangible actions can and should be taken now to militate against the pain and suffering that will soon be at everyone’s doorstep. Dr. Roubini has propsed specific actions to take immediately to blunt a wider and deeper downturn. You have not suggested anything useful alternative for immediate implementation.”SWK@ kilgores on 2008-10-04 05:47:58Perhaps I have not made it clear as to my recommendations, for this I apologize. I could have said something like this:-1. Protect the real economy through bankruptcy protection (banks),2. Protect the real economy by keeping people in their “homes” (read: not investment houses).3. Allow free-market price determination.Let Wall Street collapse and bring in transparency to the coming CDS mess under advisement.4. Raise interest rates5. Find some “leadership” start with capable persons with experience who don’t want the job! Give them a mandate and protect them from the ghouls and feral of the faith-based economic system.Lets not get bogged down in the details when we know that whatever leadership is emplaced, it will be salted by the current incompetents.SOooo,… my answer is let it crash and let us learn our lessons, now!and btw, I was not framing my concepts of a better World, I was giving you a survival strategy as you obviously don’t understand yet what is coming and it will come during late 2009 – the greatest and darkest Dark Age man has ever experienced – so get used to it.The pain?Take it now while you can and learn your lessons.Ho hum

PeterJBOctober 4th, 2008 at 2:52 pm

Yes. And I actively work on making her strong by showing her the results of applied stupidity in her daily life – that is by pointing out things that are going on and offering here alternative explanations for her to consider.She observes.

PeterJBOctober 4th, 2008 at 7:51 am

” Homeland Security Advisory System Homeland Security Advisory System Current Threat LevelOctober 3, 2008 — The United States government’s national threat level is Elevated, or Yellow.”@ http://www.northcom.mil/? What has happened? Anybody?

JamesOctober 4th, 2008 at 9:34 am

One of three things in increasing order. 1) The authorities got wind of a possible planned attack 2) The authorities are afraid of people rioting in the streets over the economic bailout and massive incompetence in the Bush government 3) The authorities are doing what they always do: distracting from their own incompetence and getting the people to fear, fear fear.

GuestOctober 4th, 2008 at 8:13 am

Solution massive debt relief then start over, an educated organized society with democratic principles should be able to rebuild fairly quickly.

MarkOctober 4th, 2008 at 10:20 am

Rebuild with what? It takes ENERGY to rebuild with, and last I saw the US is relying on a lot of imported energy…Intelligence is just the same as technology, and as I’ve been saying, technology proves _process_, it’s near worthless unless there are actual inputs (materials).And who are we asking to forgive our debts?

GregOctober 4th, 2008 at 9:21 am

So can we get a count then, how many here are buying canned food and have cash under their mattresses?

RIPcordOctober 4th, 2008 at 10:06 am

Yesterday I pulled the gold and silver from the safe deposit box. I have been continually withdrawing cash over the past couple of weeks. I am leaning towards digging holes.I began my food/water/household goods stockpile back when Bear went down. I will be fine tuning it today. I am also going to buy some more meat for the chest freezer, soap and toilet paper from Costco. Filling up the prescriptions and the gas tanks.And I sincerely hope that none of this is necessary.

AnonymousOctober 4th, 2008 at 1:07 pm

I have been doing the same, canned food and other things that have an expiration date into 2011. I feel a little funny doing this and really do not believe anything will change to the point of using the stuff so I have the idea that I can give it to the poor, or at least poorer then I, if life continues as it has

HubbsOctober 4th, 2008 at 10:15 am

Watching in disbelief FOX news with Neil Cavuto reporting that Gov of California Schwartzenegger is asking for federal loans, and interveiwng former Gov. Pete Wilson with the critical question…how do you know if these loans can ever be repaid?The risk for such a request, if granted, would be the other 49 states lining up for handouts.It appears that the justification for such request (that there would be financial and social convulsion if no loans/flow of credit) seems to have morphed into outright blackmail of the entire system!I though Enrique’s (enrique on 2008-10-04 02:43:08) points are well put and succinct. Capitalism works if there is lean/efficient allocation of capital. But also important are limits/ rules, and here the issue is the need of some sort of central government control and or enforcement. Drawing upon the medical analogy, too much rich food and sedentary lifestyle are the primary causes of cardiovascular morbidity and mortality in the United States. On the other hand, you don’t see any such diseases in Africa, only starvation due to lack of food! There is a balance of socialistic and capitalistic forces that produce a sort of economic and societal “hybrid vigor.”I recall the last book I ever read on economic theory years ago was by Ravi Batra who propounded his theory of financial collapse every few generations because of wealth discrepancy build up…. well here it is!I abhor the fact that I should work, save, and sacrifice only to hand it over to some one who speculates, squanders, and indulges. On the other hand, in a pure capitalistic system with no restrictions, some/many people will starve, while those who perfect the capitalistic system wind up controlling everything, not just the money supply, industry and real, estate, but also the government.Equally disturbing is our armed forces have established precedent of being able to militarily kick anyone’s butt, and such latent power has turbo charged the capitalists ability to concentrate wealth and power, and to even steal from the rest of the world by injecting toxic financial products. But it is the common citizen, not the politically connected, who have sacrificed, been wounded or killed in the armed forces, and indirectly have enabled the capitalists in this land of opportunity and stability.It really is a crime against humanity to have a society where a select few can make incomes thousands of times greater than an hourly wage earner.John Ryskamp, I guess I agree with the issue of basic human decency in a society that is supposed to value human life and dignity and not throw them out on the street through foreclosure. But home ownership? I think that people should rent until they have saved until they can make a downpayment for a home.

Mother of GodOctober 4th, 2008 at 10:53 am

We must stop letting the Unlimited-Personal-Fortunes Capitalists use Adam Smith’s invisible hand for purely masturbatory purposes.We need to get jiggy with the fact that capitalism can be and is a great engine of progress for us, but that market forces AUTOMATICALLY shift the work in one direction and the wealth work produces in the other direction, and install a counter-measure/mechanism to correct for that inherent flaw, as any sane species would do.I want to say more about a simple plan to correct for all the legal thefts built into our system. I’m trying to write it up now…for later today.

Mother of GodOctober 4th, 2008 at 11:18 am

Here is a quick preview or summary of the elements of what I’m saying, offered in hopes it helps you charge up your energies to read the fuller material. (It takes time to wear a new mental path, so give it time to soak in?)The solution I propose: Is capitalist (is justice capitalism as opposed to unlimited personal fortunes capitalism), is free-er market (freer and realer than the actually subsidised businesses that CALL themselves free-market), is private property, small bureaucracy, economically gentle, pays every working person including housewives and students approximately one or two thousand US dollars a month, lifting 99% of people gently but firmly up towards the world average of $40 an hour, $100,000 a year, $200,000 per two-working-person unit (in 2007 USDollars, doubling every 18 years at 4% global inflation), is no-force, is consensus-based (because I prove that it is very beneficial to everyone, from richest to poorest, starting with the benefit of non-extinction – I prove that extinction IS inevitable if we don’t drastically reduce pay injustice). This solution greatly increases productivity, entrepreneurship, business, vigour and stability of the market, it dramatically reduces taxes, government, bureaucracy, warmongering and cannon-foddering, tyranny, undemocracy, crime, unfreedom, disorder, corruption. It goes to the root of almost all problems, so it makes most problems disappear. It doesn’t even interfere with the macho game of besting the next guy, and getting overfortune in the person’s lifetime. It just stops pay injustice and its reliably-generated violence (war, crime and weaponry) growing limitlessly. It changes social structure, social habits, very little, it is very non-invasive. The only visible effects are every working person getting one or two thousand dollars a month in an account, and the wealth in real terms of the overpaid slowly diminishing (which reduces their danger and social isolation, actually increases their happiness – explanations given). It is easy to set up, very easy to administer. It requires no group or organisation, just creating a consensus by individuals learning the points, and, if they decide they agree with it ( I show that everyone does already agree without recognizing they do), passing it on to two friends. More work than that is not necessary, but of course people can teach more than two others if they want to. If the solution is true, if people can come to see it in about a month, national consensus will arise quickly (within a year or two?) and, after that, what needs to be done can be done very easily. It is a little change that has very large effects. Strong proof is given that we can be literally, conservatively, incredibly, 100 times happier. (Pay justice causes happiness, we have super-extreme pay injustice, so we can be super-extremely happier. All this is explained.) Technological progress will be 100 times faster.All history and logic, and much wisdom, support this idea. Because 99% are underpaid, there is (after learning) a 99% majority…plus, not all of the currently overpaid are incapable of objective assessment of an idea. A 99+% majority who prefer non-extinction and 100-fold happiness leaves the remaining closed-minded overpaid no ‘muscle’ to impose their will. What is required is heroic mental re-viewing of accepted but incorrect ideas, heroic re-cognition of reality. Culture springs out of ideas: there is no change of culture without change of ideas, there is almost instant change of culture with change of ideas.It is bad, incorrect ideas that are the enemy and the problem. We live in a time when bad, incorrect ideas about economics makes bad economics kill everyone’s every good thing very effectively – more efficiently than armaments do.Fuller material to be supplied…

Mother of GodOctober 4th, 2008 at 12:01 pm

We must define pay justice. How can we know how much people should have and should pay unless we have sound, fundamental ideas of pay justice? James Madison said “The purpose of government is justice”. The state built on injustice cannot stand – so to be democratic, for the people to do their job of ruling, to save the state, to be patriotic, to love your country, to love yourself, to pursue happiness (of which pay justice is a very important part), you need to be able to locate pay justice.At the moment, many are saying: these people should have less, these others have more. But how much should they have? What are the principles of pay justice? Happiness [everyone’s everything], survival of the state, peace, order, satisfaction – all depend on justice. Those are ‘pretty important’ things, yet we look in vain for thoughtful study of where pay justice is. It should have been the focus of all education, from young age right through. People should have been very sophisticated about pay justice, able to pinpoint it by good principles. Instead, all the debate we hear boils down to: they should have less, no, they shouldn’t have less, they should have more, no, they shouldn’t have more.Pay justice is the great wallflower, waiting to give us the world average pay per hour, which is approximately US $40 per hour including paying housewives and students. Pay justice waits to give us peace and plenty – and give us our future back.Pay ranges widely while no one asks how widely it should range. How are people going to be able to say: “This far and no further. This is the line between right and wrong, between fairpay and robbery, between fairpay and overpay-underpay.”? Children should all grow up knowing that overpay-underpay is the cause of the shaking of societies to pieces. People should worry about their society being shaken to pieces. People should know that every empire so far has been shaken to pieces by pay injustice. There is no subject closer to civic responsibility and pursuit of happiness – no subject more worth our care and mental labour – and it is utterly neglected. Vigilance is the price of liberty – but vigilance about what? Very few can answer that question.Proper pay is what a person’s work would win them in a state of nature, plus an equal share of the benefits of division of labour. An equal share, since division of labour is a community effort, with equal contribution, so everyone should reap the benefits equally.Pay justice is no-pay for no-work, pay only for work [= sacrifice], equal pay for equal work. Pay justice is taking out of the social pool of work as much as you put in, as your work puts in. [We pool the workproducts because of division of labour, and trade is ideally the exchange of items of equal workvalue – in order to remix goods separated by division of labour, job specialization – to get the mix of goods everyone wants and needs.] The variety of goods we take out is ideally of equal workvalue to the workproducts we produced in our job. Anything more or less than this is overpay or underpay, and overpay-underpay is unjust, causing tensions which escalate endlessly as people try to get justice and people tug to and fro, causing violence, war, crime, weaponry growth – which has grown for 3000 years – and brought us to superextreme pay injustice and danger, and corruption, tyranny, slavery, wageslavery, disorder, undemocracy, falling states – all our gigantic problems.What things are there, that justify unequal pay per unit of work, unequal pay/hr, unequal pay/yr? Are there any? Provided society pays students for studying, there are NO reasons for unequal pay per hour. Close scrutiny of the reasons given for unequal pay do not, as far as I can see, stand up to rational examination. (I’m open to rational discussion.) One common, universally accepted reason given for payment is personal gifts – he’s really smart, she’s especially talented, but reason says that these gifts are work done by mother nature. It doesn’t take any work, any sacrifice, by anyone, to have these gifts, and using them doesn’t mean the gifted person is sacrificing any more than a lesser gifted person does, who uses the gifts he got. No one got to choose greater or lesser gifts. No one who has lower intellect or more fragile health or lesser innate abilities chose that for themselves, so it is no part of justice to force the lesser-gifted to give up equal pay in order to give overpay to those who won greater gifts, those who have already been paid extra by mother nature. Rationally, [as distinct from the irrational invalid fallacious argument to the authority of irrational but accepted ideas, in which people put such great reliance] pay for natural gifts is as irrational as payment for receiving Christmas gifts, which has not received the fallacious support of custom.Personal sacrifice of time and effort spent developing one’s gifts is different. Pay for developing gifts [of commercial value] is just, because developing gifts is work. There is no *reason* anyone can give for payment for natural gifts, and no reason anyone can give for others having to fund this payment, and because the pool of wealth is finite, it is the underpaid who must take less for their sacrifice in order for there to be more to give the better-gifted. Everyone loves being paid for gifts, because they hope to benefit by them, but it hasn’t worked out like that and it never will work out like that. 99% are paid less than the world average pay per hour. The downside of funding this payment is, for 99% of people, much greater than the benefit, but few are aware of this – of how they rob themselves by supporting this payment, of how they con themselves out of money by this, of how they open the floodgates of limitless overpay-underpay [and consequent violence and misery] by this support.Again, and similarly, people support pay for experience – but cold, hard sense says that experience is gained at no extra sacrifice of time and effort beyond that made in doing the paid work that provided the experience. Again, people support it, defend it, although for 99%, the costs of funding this exceed the financial benefit to them. They con themselves out of their full rightful pay by mis-thinking that pay for experience gives them more money, and they thus open the floodgates to unlimited uncontrollable growth of overpay-underpay [and consequent unlimited uncontrollable chaos, violence, war, crime, weaponry ever-growing]. People don’t want to look at justice because they fear it will mean less money – they never suspect that justice will mean more money and the destruction of violence.How could stopping myself from getting pay for things like gifts and experience give me *more* money? It doesn’t make sense to people – it doesn’t make sense to people because they are looking at a tiny part of the picture – themselves only. Not being paid yourself for non-work things gives you more money because it stops others being paid for these things at your expense. Overpay, pay for nonwork, is funded by work for no pay, underpay, by others. The overpay buys things other people have worked to make. Your participation in this injustice prevents you stopping others benefiting from this leak – the line is crossed, erased, and there are no principles of justice left to limit pay, to prevent unlimited pay/hr, hence we have pay per hour, after 3000 years’ growth of inequality, from $10,000,000 to 1cent – an inequality, violence, misery, war, crime, weaponry, tyranny-slavery, undemocracy, unliberty, unfraternity, corruption brutality torture state-terrorism private-terrorism warmongering cannonfoddering disinformation rights-trampling factor of one billion, and rising – to extinction soon, thanks to e=mc2. Happy people have no history. We have heaps of history – and history is now accelerating exponentially.Get the idea of pay justice, and we get a history-free golden age. Keep faith with pay injustice, and we get oblivion. The bombs are global. Glob
al means every house. Culture is based on ideas. Our idea for 3000 years has been wrong – it has produced underpay misery for 99%, overpay misery for 1%, and violence for everyone.To be continued

Mother of GodOctober 4th, 2008 at 12:17 pm

Overpay is necessarily always happiness-negative, because 1. satisfaction waits on desire, overpay is just 3000 pairs of shoes for two feet, 1000 rooms for one body, etc., and 2. erosion of overpay [individual, national and imperial] [by both underpaid and overpaid] is myriad and relentless, so the labour of keeping it is constant and danger-fraught: the sense of justice is indestructible.The same “logic whoopsie” governs the universal support for private inheritance. The heir has done nothing to deserve that money, done nothing to earn/create that wealth. People see themselves getting money from private inheritance, they don’t see themselves funding this gift, impoverishing themselves, and they don’t see they are thereby starting the evergrowth of inequality violence misery.The same logical error governs the universal support of profits above fairpay for work. By definition, the owners have done nothing to earn profits above fairpay for work – others fund that gift. For various reasons, it is not good to interfere directly with this injustice. It can be controlled at the macro-macro level by making everyone equal heirs of large deceased estates. Everyone has done the work that the overfortunes represent and buy, so overfortunes belong to everyone.And the same logical error [seeing only part of the picture, imagining themselves gaining, not seeing themselves losing by funding the bigger gains for others, not seeing themselves opening the gates to ever-growing inequality violence misery, which gets to everyone, overpaid and underpaid] governs the support of capital gains. People do the work that builds cities or other infrastructure, but only landowners get the added value – and get it in proportion to their fortunes – for no work, for no sacrifice of personal time and effort to working.We only have to see the reality, we only have to see the real enormous badness of pay injustice, and the real enormous goodness of pay justice, and human culture is changed forever, violence dies forever. War is not human nature – human nature is unchanging and violence has grown for 3000 years – no correlation, therefore no causality. And so-called religious and racial wars are really pay-injustice wars along religious or racial lines; where there are religious or racial differences without pay injustice, there are no wars – again, no correlation, so no causality. Culture is ideas. A change of ideas is change of culture. And the ideas are not hard to see.No force is needed, just education, just epiphany – no evergrowing bureaucracy, but a massive reduction of bureaucracy [lower taxes, more money and freedom for productivity, money and freedom needed so we can proceed to sustainability] – no group, just individual realization and tell your friends – no economic upheaval, just a little law with gigantic benefit – no restriction of ambition, just efficient prevention of evergrowth of pay injustice. Pay injustice is the vital justice, because money is the joker good, good for most things, including social power.Justice causes happiness – the purpose of everyone’s life. To minimize the bad in life and maximize the good is happiness, is everyone’s everything. We can secure far, far greater happiness for this whole planet, but not by pretending to believe in justice but by knowing the reality: pay injustice is theft, theft is injury, injury ricochets untiringly as atoms. As doormats, people are totally unreliable – every plutocracy has fallen. Where is Spanish Inca gold? Honey attracts bears. The Golden Rule is ironclad: hurt people and they hurt back. Other-injury is self-injury – ask Hitler, Marie Antoinette, Ceausescu, Nero, Richard III.Justice is not a cost, it is happiness out of the vast quagmire, at the cost of objective, patient examination of a new expression of an ancient idea, at the cost of ditching idols that have hurt us enormously, that are set to kill us – is the price too high?more later on the legal thefts…

Mother of GodOctober 4th, 2008 at 12:37 pm

There are 2 simple steps that correct for all injustices in our economic systems, but do so indirectly. Why the indirect route/method? Because, for one thing, attempting to prohibit each legal theft would be futile. It would be futile partly because the primary, omnipresent legal theft is found in the very nature of transaction itself and occurs with or WITHOUT human agency (the two things exchanged are not of equal workvalue, so every transaction contains a fair exchange plus a big or small drop of automatic, unavoidable transfer of wealth from earner to non-earner on top of the fair exchange) …and partly because there exist hundreds of legal thefts, and partly because more/new legal thefts will endlessly be hatched to game the system (until the reason for doing so and the capability to do so are eliminated). Also, legal theft is not the entire picture, and this indirect method is the only efficient corrective mechanism that counters for ALL economic systems’ errors/flaws/injustices that I am aware of after comprehensive searching.step 1. A 1% increase per month in the global money supply, going equally, directly, freely, electronically to every living human being, children included, one account per person. The inflation effect will reduce overpays, the money effect will reduce underpays, and it does so without the cost of assessing fortunes. This method is not perfectly efficient in reducing overpay, but it is very easy and quick to reduce underpay. A 1% per month inflation will make a 1% imbalance, which will adjust, as the underpaid spend more, generating more supply. It is gentle enough to avoid any economic social shocks, and works because the inflation effect reduces overfortunes MORE than the equal share increases them, while it reduces underfortunes LESS than the equal share increases them. The weakness in this is that the overpaid can inflation-proof their fortunes to some extent, especially if the idea is implemented nationally not globally. This approach is easy and quick to set up, it immediately relieves underpay stress and pressures and violence at the bottom. It is the lowest possible, most indirect interference with the overpaid. A regular inflation is very much less inconvenient than an irregular one. The fact is, governments and banks are ALREADY increasing the money supply – only at present they are giving the money increase to the banks to suck more money off people through loans. Inflation devalues everyone’s money. It is a sneaky tax, forcing people to borrow, and in effect making them pay interest to buy back their own money.step 2. Making inheritance public instead of private. This will make the overpay shower gently down on humanity over three generations. It takes no self-earnings from living persons, and it reverses the perpetual concentration of wealth and political power in fewer and fewer hands. It counters effectively the natural tendency of money to concentrate unjustly, violently. Yes, making inheritance public instead of private means (almost) a 100% inheritance tax. We are preventing inequality of fortunes from growing to infinity by shovelling overfortunes into underfortunes. We know money automatically, unjustly concentrates endlessly, so any sensible species will introduce a counter to that. The simplest way is having every human being have one account (which governments will be happy to open since it means money coming into the country) into which the estates of deceased persons over US$1 million are distributed equally, electronically, directly, immediately, automatically. Private heirs can share the first US$1 million, (if we choose not to completely eradicate free gratis money). Parents would have trusteeship of children’s accounts till some suitable age, say 12? (This will give parents good reason to teach economic sense before the date children take over responsibility for their own funds!) This method is low-impact, yet totally effective. It doesn’t take away overfortunes from living persons, yet it will move humanity from extreme injustice and violence to near perfect pay justice and non-violence in just three generations – the time it takes for all the overfortunes to die.This plan does not propose interfering with any of the thefts in human economic systems at present, except by preventing these thefts from accumulating endlessly. Again, in brief, it does this by either 1. Distributing a 1% increase of money supply per month equally to every human, or 2. Distributing deceased estates over US$1 million equally among every human, or 3. both. (Or, by any other system/method that has greater advantages in low bureaucracy, low social upheaval factor, etc, than these.)One of the bigger things humans keep secret from themselves is this: It takes no intellectual rigor at all to come up with reasonable-sounding “reasons” to overpay some people, but no justification can be given, because none exists, for underpaying another person in order to do so.*****Hey, I hope I’m not cheesing you guys off with these several posts. It seems to me a lot of us are looking to get away from extreme mal-distribution of wealthpower now, is all, and I think now, in the “after-glow” of the intense vigil we held together trying to stop the failout plan, is maybe a good time to say all this?? Should i shut up, or go on?

TijnOctober 4th, 2008 at 5:27 pm

MoG, your ideas are quite ok and I do believe that this would make a better and happier world, but I really wonder how this should work. Payment also reflects risk (owning a company), working conditions (night shifts etc) and it should stimulate people. If every job will pay you the same $40, why go to college or try your best to get a promotion?And the people that are “gifted” with entrepreneurship will still make their millions by trading etc.So you probably end up in a USSR type of society with no stimulus for doing that little bit extra and that makes most people very passive and in the end unhappy.I think that a model like in Europe (Sweden is a good example) is the best we have at the moment: Avoid poverty and misery by sharing the wealth (high taxes, especially for the rich!) and taking care of the less fortunate (spending those taxes wisely), meanwhile giving opportunity to everyone to pursue happiness and even financial wealth.It is not perfect, but I think it’s much better than the current situation or your proposal.

GuestOctober 4th, 2008 at 7:14 pm

There’s an econonomist by the name of Michael Hudson who has excellent ideas of how to create more equal wealth distribution and his ideas are right on the money IMO. He says rewrite tax codes to encourage the wealthy to use thier capital in the most efficient and productive manner. Right now all the tax codes are written to encourage asset investment and appreciation and that’s a job and wage killet besides being unsustainable.

MarkOctober 4th, 2008 at 6:29 pm

I have a concern that this will all be co-opted, and that it’s still focused on consumerism. The foundation needs to be closer to naturalism than economy, to “money.” Here are some good articles from one of the best magazines around (Orion):Building an Anti-Economyby Chris CarlssonPublished in the September/October 2008 issue of Orion magazinehttp://www.orionmagazine.org/index.php/articles/article/3223The Idols of EnvironmentalismDo environmentalists conspire against their own interests? First in a two-part series.by Curtis Whitehttp://www.orionmagazine.org/index.php/articles/article/233The Ecology of WorkEnvironmentalism can’t succeed until it confronts the destructive nature of modern work—and supplants itby Curtis Whitehttp://www.orionmagazine.org/index.php/articles/article/267

ignatiusOctober 4th, 2008 at 7:27 pm

By all means, keep them coming – we can use some unconventional thinking in this times – John Ryskamp are you listening? ;-)But frankly, if you intend to convince people, then shorten the ideology part and focus on the actions. What you propose (inflation tax plus a 100% inheritage tax with a certain exempt amount used to finance a basic income for everyone) is actually not too complicated and shouldn’t need more than one page to propose, which would also make it easier to engage into a discussion.So for my 2 cents:I won’t comment on your “fair pay” concept as ideological and insubstantial to your proposed measures.I agree that spending new money into existence by evenly distributing it to all citizens beats the current debt based system and is less prone to produce runaway inflation as there is no limited group of privileged first spenders (banks an/or governments) with a motivation to hyperinflate. Your 12.7% p.a. rate of planed M1 inflation is of course anything but “gentle enough to avoid any economic social shocks” …Also, I am generally a fan of a progressive inheritage tax as it’s the most palatable form of taxation (after all, the ppl. you are taking from are dead). But here, the devil lies in the details: How do you avoid the liquidation of businesses, how to avoid circumvention etc. In the extreme form you propose (100%) and as a standalone measure it is IMO too easily circumvented and has too many undesirable side effects, so that direct taxation of certain assets is probably preferable.

AnonymousOctober 4th, 2008 at 3:16 pm

Dr. Roubini, your proposals look to be in good faith, but why don’t we just nationalize the entire U.S. banking system? It appears that almost every bank is already or is very close to being insolvent. They don’t have the trillions of dollars of reserves necessary to absorb the losses. This bailout is going to cause massive dollar inflation. I’m going to withdraw all of my cash (over $100,000) and buy precious metals immediately. If the economy continues to deteriorate at its present pace, it won’t be long before you see folks standing on the street saying “Brother, can you spare a dollar?”

GuestOctober 4th, 2008 at 4:16 pm

Perhaps we are undergoing a downsizing, as they say, or is it rightsizing. People will go back to driving their cars for 10 years. Smaller houses will become popular, instead of McMansions. Don’t call it a recession, it’s rightsizing. This consumer is not about to spend like a drunken sailor anytime soon. Any stimulus package would go in the bank. Expect crime to go way up. My house and cars have been burgled four times since June. It is expensive to be poor. Police budgets are going to be cut. Actually, they don’t care about burglaries, the cop said “that is what insurance is for”. Buy stock in security companies.

GuestOctober 4th, 2008 at 5:20 pm

Read my comment on the top of the comments, fifth comment from the top. As I said, therewill be no use to keep money in the mattres

GuestOctober 4th, 2008 at 6:30 pm

In Michigan the past year police are all over the streets writting tickets trying to save thier jobs. Government won’t go easy they’ll try to get it out of us people will have to go under ground to avoid all the DMV fees and taxes they’ll keep trying to put on us.

eddie UKOctober 4th, 2008 at 4:56 pm

Prof. Roubini, you argue for triage and letting banks go , but in the UK, the government saved Northern Rock last year. Today, ironically, there is a “run” towards Northern Rock, ie people are depositing their money into this bank, becasue it is government owned! So this is a successful form of nationalisation!

flipperOctober 5th, 2008 at 5:19 am

How come, if there is no offers on Libor, if Libor O/N actually came down on Friday, from amost 7% to 2%?Also, how come there can be no offer in a London Interbank OFFERED rate?To much panic in someone’s posts, i guess?

flipperOctober 5th, 2008 at 5:28 am

Again, the money center banks all over the world are just drowning in liquidity. The problem is that they will not lend it into the system – crisis of confidence. But the greed will eventually prevail. If overnight is already collapsing, over maturities will follow. Fed and other central banks are pumping huge amounts of money. That is needed, as pointed out by Prof here, some steps to improove confidence, and only coordinated rate cuts come to mind,In Russia we had and auction of Ministry Finance money last week – nobody came for it. The ministry tried to auction 3 month money at around 8% in rubles. This means that 20 allowed banks have a lot of cash on their hands. Meanwhile the repo rates for equities are in a range of 15-25% O/N.It’s not a liquidity or even solvency problem in many cases, it’s panic.

MalthusOctober 5th, 2008 at 7:52 am

On Friday, even though the overnight Libor fell, the three-month Libor rose to 4.33 percent and the Ted spread widened to 3.86 percentage points, a record high. Three month Libor is the preferred metric.

flipperOctober 5th, 2008 at 9:50 am

Yeah, i am aware of that. But if O/N went down sharply, other maturities will have to follow. If no one is willing to lend even overnight, that’s extreme. 3 months is another issue, in current situation you do not want to lend 3 month. Some of your counterparties might go bust and with the outlook worsening longer maturities demand a higher premium.And again – this libor is still down 1% from a year ago.

GuestOctober 5th, 2008 at 5:36 am

Statistics now show SUVs and big gas-guzzling luxury cars are the two biggest growing segments of new car sales in China – so as much as the US is downsizing towards more economical gas-saving cars, the Chinese continue to upsize…

flipperOctober 5th, 2008 at 5:50 am

You should have seen what is going on in Moscow. It looks like everybody owns a SUV. The roads are frozen most of the time. Same situtaion in all major cities. Russia became biggest auto market in Europe this year.

GuestOctober 5th, 2008 at 8:13 am

I think we have not hit the energy crisis yet, even though prices of energy have gone higher…energy crisis likely to hit within the next year or two…gas rationing and 200 per barrel oil likely

flipperOctober 5th, 2008 at 9:54 am

I do not think so, US and Europe consume most of the petrolin the world, with demand falling there sharply, it’s thery unlikely. But hte elsticity of demand is very low, especially in US, since there is no reasonable public transportation.

RedCreekOctober 5th, 2008 at 9:52 am

The business section in the Times newspaper in London highlights Nouriel Roubini as one of four “who got it right”: Robert Shiller, Nouriel Roubini, Hyman Minsky, and Warren Buffet.Couldn’f find it online, but here is the typed up comment:” NR’s perceptive analyses have seen him elevated from the ranks of academia to a sought-after public speaker. He predicted the IMF’s crisis in 2006, and since 2004 has been writing about America’s problems and forecasting a crisis. His predictions emerged from his research on collapses of emerging market economies, where he saw the link between large current account deficits financed by investment from overseas.”

CanadianKBOctober 5th, 2008 at 9:59 pm

which article is this from? a keyword search on the site or on google does not turn up anything.

AnonymousOctober 5th, 2008 at 10:10 am

please help me right now. I am single with immediate family of 9 other people. we are all scared about the upcoming depression/recession. we have discussed ad nasuem about what is going to happen and we just don’t know. on my advice we laid in 1 month of food and bought 20k in junk silver coins. my sister lives on a 75 acre farm and we could all go live there. thankfully it has a water source and abundent game. we all have money in banks and wonder if it will just disappear or be worthless. what–if anything are you men and women doing to prepare for what you all obviously think is coming?please help a poor family trying to prepare for the ultimate disaster. if there is already discussion somewhere, please give me access. thank you all, and good luck to all.

GuestOctober 5th, 2008 at 11:02 am

Sounds like great plans, make sure you have food water shelter and heat, believe it or not that’s all you need to survive.

GuestOctober 5th, 2008 at 11:05 am

why is it that in the US people are looking backwards towards agriculture whereas in Asia people are looking forward in development, industry, economic development, investment?

GuestOctober 5th, 2008 at 1:21 pm

Thanks to RGE Monitor / Prof.Nouriel Roubini’s insight we have gathered items over the past 2 years such as caned and dried food, diesel fuel, agricultural products, precious Metals, 2-250 gal. buried propane tanks that will service a gas stove and hot water heater as well as back up heating fuel if needed. Guns and Ammunition for hunting and self protection. We live in the Southern U.S, in an area referred to as the country on 11 acres of good cleared land surrounded by dense woods with wild game and one well stocked fish pond, many of the items we would need for preparations we already had and used on a day to day basis.We will not take a loss on any of the items we have purchased or saved for a possible financial meltdown as they can be used in normal times as well. If the financial system deteriorates we will have food to eat and good shelter. Every step we took to prepare for the possibility of hard times has brought down our anxiety levels and has shown us that a simpler life is really a better way to live. We have actually saved more and enjoyed life more since we started preparing for uncertain times ahead.We have also prepared for some overflow of family who live in heavy populated areas and have not paid attention to the warning signs and only now have started to realize the possibility of a financial crisis.I have also noticed over the past 4 months many land owners who had acreage for sale have pulled them off the market, Many possible reasons for that.Thanks Prof. Roubini for the early warning.

GuestOctober 5th, 2008 at 5:28 pm

looks like Americans ready to live back into the stone ages while Asia and LATAM progresses into the future…

Ryan DarwishOctober 5th, 2008 at 11:25 am

Congress has passed the Paulson Mega Bailout Plan. Much of the public dialogue around this issue appears to confuse the two major factors underlying this crisis. These two factors are liquidity and solvency.The credit markets are the lifeblood of a healthy functioning global economy. This financial crisis has resulted in a “freezing up” of the credit markets. Despite Central Banks flooding these markets with access to funds, the credit markets had remained frozen. The ostensible reason is that there is an underlying fear of institutional insolvency arising from exposure to toxic assets on their balance sheets. Because of the complexity of the financial structure of these assets, valuation becomes, more or less, conjecture. At the very least there is an asymmetric knowledge regarding the real quality of these assets. Probably, however, this even overstates the value assessment of these assets because, apparently, even the holders of these assets have exercised poor judgment regarding their value.A more nefarious explanation as the why the credit markets continue to remain frozen after hundreds of billions of dollars have been injected into the system, could be a “money cartel strategy”. In this case, the fear generated by this credit crisis provides great cover for the institutional withholding of credit. The resulting worsening of financial market conditions result in more institutional and corporate failures and an increased availability of distressed asset sales for those who have access to capital.Whichever explanation may be partially, or wholly, representative, the recently passed Paulson Plan is intended, at least at face value, to address the frozen credit market conditions by alleviating the institutional solvency concerns.Unfortunately, as the point has been made by Roubini, and others, this only partially addresses the real problem which is the crushing personal debt burden. This is an underlying weak point which has lead to the deterioration in home values, and the associated mortgage securities. The idea that making more credit available to an economic system whose members are already drowning in debt seems to leave something to be desired as to this strategy’s future efficacy and effectiveness.Because of the immense magnitude and pervasiveness of this financial crisis, it is likely that $700 billion will not be sufficient to successfully address this problem because the dollar value is insufficient, and its focus is incomplete. The other aspect which must be addressed is how to provide relief to an overly indebted population who cannot adequately service its debt, and how to do it equitably so that those who have acted prudently do not feel penalized for their more prudent financial behavior.From my perspective the inevitable public policy which will arise will be monetizing the debt, and creating enough inflation to diminish the real value of the existing debt. This appears the only real option if the global financial system will not collapse in a shambles. This would be the case where the number of losers is maximized, and a result would arise from either an immensely stupid public policy decision, or a monumental geopolitical miscalculation. My inclination is to believe that because the vested interests are at stake of so many who truly are mentally sharp, as well as business and worldly-wise, the inflating option will be the direction we find ourselves going in. Given the monetary and fiscal policy apparatus, mechanisms, and policy maker predispositions, this seems the most probable outcome.The next step in this would be to more directly address the personal solvency issues. This is a bitter pill to swallow, but this would be a natural consequence of the imprudent financial behaviors on the scale we have witnessed over many years. There are many creative ways in which this could be done. I would think, however, that a policy this is bold, and demonstrably decisive would be what is really required to breathe life back into the system. The follow-up, if we were to really correct the error of our ways would be to put in place regulations as well as financial education, training, and counseling programs, and a rethinking of our values, as to not get ourselves, globally, back into these circumstances.Ryan Darwishryandarwish@gmail.com

GuestOctober 5th, 2008 at 11:59 am

People: Most dialogue is happening on RGE’s Weekly Roundup, I would say. There’s a bit of a glitch in the link-up going on I think as I arrived here trying to go there. (?) Anyway, Ryan, I re-posted you over there, also.

KafkaOctober 5th, 2008 at 12:07 pm

At the end of the day, you can apply all the econometric analysis you want, the math is simple, you can’t beat a “liquidity trap”, all the rhetoric and analyses on the planet will not solve one the most massive liquidity traps in history. Perhaps more debt will defer or smooth out the insolvency issues for a time but more debt can not and will not solve the liquidity trap which necessarily requires a reversion to the mean. And all you lovers of Buffet ought to go read his simple article on Squanderville from 2003 (which apparently the bottom feeder is now ignoring for his own financial gain), more production, less consumption and less debt are the only answers; which I do not see ever happening especially if you listen to your Politico heroes.

RedCreekOctober 5th, 2008 at 12:45 pm

I read on Naked Capitalism that Freddie, Lehman and Fannie CDS are up for expiration(?)this week? Apparently, Freddie alone would trigger US$ 500 Billion of Freddie CDS coming to the market?They also argued that that was the reason why, by the end of last week, banks stopped lending to eachother and the Commercial paper mkt dried up??Any thoughts? If this is correct, then we should see armageddon this coming week???

RedCreekOctober 5th, 2008 at 1:01 pm

Also – is this why Paulson and co wanted to push the 700bn bill through the house before this weekend???

GuestOctober 5th, 2008 at 1:08 pm

RedCreek — I would re-post on RGE’s Weekly Roundup. There’s a mixup, I think, and most dialogue is going on there. Just what I would do…

GuestOctober 5th, 2008 at 6:10 pm

Called my banker re the concern about my $2M. He told me to quit watching the TV and surfing the internet. My $2 Mil is now out of the bank and split between Gold, Silver and Cash.

Allan GreenOctober 6th, 2008 at 6:18 am

Mr. Roubini, please provide more info on silent bank run. Clearly, if FDIC wants to insure 250,000 and European banks, are promising to insure all deposits – these are confidence measures aimed at stemming a run on the banks. So1) Is such a run taking place?2) Is it deliberately being played down?3) Consider that this can be a confidence trick. The depository banks will go bust anyway, because they are overlevereged, and depistors SHOULD run on the banks if they want to see any of their holdings. Ironically, a bankrun would put more in the hands of savers, than an eventual insolvency caused by another overextension of central bank liquidity.

NoviceOctober 6th, 2008 at 9:48 am

where is everybody??? Markets are tanking- I thought there’d be lots of discussion going on here. The silence is deafening, is this it???? Black Monday revisited????Are you all running off to your home in the hills or what???

L. Morgan Stanislaw, IIIOctober 6th, 2008 at 9:50 am

The end is nigh…few of us believed that Paulson’s plan would result in any kind of rally. Even fewer believed it was merely psychological.

MandarinOctober 6th, 2008 at 10:59 am

Finance has become a zero-sum game. One side wins, the other loses. One side sells securities/derivatives/instruments with no basis in production, with only notional value.When the game is exposed, the losers go broke en masse and drag the winners down with them. That’s the situation nw. And there’s a massive monetary expansion underway which seems to originate with the Fed, but which is really a sea change in central banking: the unlimited expansion of its balance sheet, and limitless injections of liquidity into the entire system.In the financial sector the attempt to make everybody whole won’t work. The basis of finance is that there are winners and losers; it’s impossible for everyone to win. The money pumped into this sector is going to vaporize in the issuance and failure of new instruments, repos, swaps, spreads, repos on repos etc.Wall Street and the banking function is dead in this country. However, it survives internationally. The massive money and credit expansion of the bailout will trash the dollar and the weaker European currencies. The productive assets of the real economy and the personal wealth of the working class will be appropriated, respectively, in a stock market crash that places these assets cheaply on the auction block and through a combination of consumer inflation and higher net taxes.This thing is of such proportion that I think bailing out the stressed homeowner and stabilizing real estate values will not be enough. Maybe a year ago it would have been. Increasingly it seems like an us versus them situation, and in American politics nobody is representing “us.”There are solutions. I don’t think anyone is seriously talking about letting the whole thing crash. What are the alternatives? It’s time to relieve the holders of financial instruments of their legal rights toprofit, to fictitious capital gain, to garnishement. To dispossess them of their right to bring our nation to its knees. The financial function can be performed by public agencies for the modest fees its services deserve. However, direct nationalization is not yet on the agenda. So much the worse for us.

SimpletonOctober 6th, 2008 at 7:11 pm

Ah the markets. The mother of all card sharks.You can never bluff and expect to come out on top. It will not blink. All one can usually do is play it straight and hope you have the better hand. Unfortunately, we lost this hand. Will the government play the next hand right? I doubt it. The stakes are getting higher and the blind is more expensive. It’s time to check the chips. Professor, will you play this next hand, please? I feel like we’re all in.

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If you check out Bloombergs quickly you may get a good laugh.EQUITY INDEXESSingapore Straits Times 2,159.96 -8.36 -0.39FUTURESSingapore Straits Times 216.00 -1,955.00 -90.05OMFG, this is what the future holds? HAHAHAHA. Think someone will lose their job over THAT one?

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