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Radical Policy Steps Necessary to Avoid a Systemic Meltdown: Interview with the Council on Foreign Relations

Author: Nouriel Roubini  ·   ·   › Share This Print

Here is below the text of an interview with the Council on Foreign Relations; the interview took place on Sunday October 5th but the message and policy recommendations that I proposed to prevent a systemic financial and corporate sector meltdown are still very relevant as the Fed and other central banks are still fiddling while Rome is burning. As discussed in this Global EconoMonitor forum Friday and yesterday Monday radical policy action is urgently necessary to avoid a systemic meltdown and a severe economic depression. The global economy is now already in a recession (as GDP is now contracting in all advanced economies and sharply slowing down in emerging market economies). We need now to take steps avoid a global depression.

9.30am Update: The Fed just announced a plan to start buying commercial paper (both asset backed and unsecured) from financial institutions and corporations. This action follows closely one of the radical policy options that I recommended last week: “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. ” The action also allows the Fed to provide liquidity to non-bank financial instiutions that issues commercial paper; thus the PDCF has now been also extended well beyond non- bank primary dealers to other non-bank financial institutions that qualify for the new facility. This step also goes in the direction that I recommended last week: “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 corporate 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.“

What still remains to be done – as i suggested last week – is a temporary blanket guarantee of all (insured and uninsured deposits) followed by a radical triage between insolvent banks that need to be shut down rapidly and solvent banks that need to be rescued. While Congress may resist legislation to pass such massive extension of deposit insurance the FDIC can rely on its “systemic risk exception” to provide guarantees to uninsured deposits. This “systemic risk exception” was already used – for the very first time in its historyy – by the FDIC to do the Citi-Wachovia. And yesterday the President’s Working Group on Financial Markets made a statement that leaves open the option that “the FDIC will will use its authority and its resources, on an open or closed-bank basis, to protect depositors, guarantee liabilities, facilitate orderly wind downs, mergers, or adopt other stabilizing measures.” I.e. both closed banks and still open banks may receive a guarantee of uninsured deposits. It is thus important that the FDIC uses such authority to stop a run on the uninsured deposits of the banking system. Whether the FDIC can use its “systemic risk exception” authority to provide a blanket guarantee of all uninsured deposits or whether the authority allows only to guarantee uninsured deposits on a case-by-case bank-by-bank basis is not clear. But certainly the authority could be used for large and systemically important banks that are at a risk of a run.

Steps to Halt the Slide

Interviewee:

Nouriel Roubini, Chairman, RGE Monitor, Professor of Economics, New York University

Interviewer:

Lee Hudson Teslik, Associate Editor, CFR.org

October 6, 2008

Nouriel Roubini, a professor of economics at New York University and the founder of the financial analysis firm RGE Monitor, has made his name by correctly predicting financial problems. Dubbed “Dr. Doom” by the New York Times Magazine, Roubini correctly warned of the impending housing market bust back in 2006, and, last February, of a rising probability of “catastrophic” financial system failure. At the time, he says, people called him a “lunatic,” but his predictions have proven prescient.

In an interview with CFR.org, Roubini says the $700 billion financial bailout package passed by the U.S. Congress last week is unlikely to end the present crisis of confidence in financial markets. The plan, he says, does not get at the “much more urgent problem” of a “generalized run on the short-term liabilities both of the banks, of the non-bank shadow system, and now of the corporate sector.” Roubini encourages a multi-pronged policy approach to the crisis, including: 1) coordinated interest rate cuts by all major world economies; 2) a move by the U.S. Federal Reserve to guarantee that it will provide liquidity in the event of any major bank run; 3) increased Fed action to provide short-term liquidity to non-bank actors that lend to corporations; and, if that doesn’t work, 4) a willingness to make short-term loans directly to corporations. Roubini adds that despite having predicted much of the present crisis, he has been surprised at the speed at which it has unfolded.

Despite the so-called bailout plan passing the House of Representatives on Friday, there are obviously still some major strains to global financial markets, and it now appears as if commercial paper markets could be seizing up as well. How much of a help was the bailout plan, and where do you think things stand now?

The bill, first of all, in many dimensions is flawed. But leaving aside the flaws of the bill, there is a much more urgent problem that we’re facing right now. It is one of a generalized run on the short-term liabilities both of the banks, of the non-bank shadow system, and now of the corporate sector. In the case of the banks, there is the beginning of a silent run on the uninsured debts of the banking systems, which are still over $2 trillion despite the increased deposit insurance. Many institutions in the non-bank shadow financial system are also finding that they cannot roll over their debts. There is a situation of generalized panic and lack of trust in counterparties. And worst of all, at this point, the commercial paper [short-term debt issued by large banks and corporations] to the corporate sector, and other types of funding to the corporate sector, is frozen right now. That can tip a corporation into a situation of defaults. They might not be able to pay interest on maturing debts, they might not be able to roll over maturing debts, and they might not be able to finance their working capital. So we’re seeing a generalized liquidity run, and it’s something that this bill cannot directly address. It’s something that needs to be addressed with different sorts of tools.

What sorts of tools do you recommend? I see you’ve called for major coordinated interest-rate cuts, on the order of one hundred points across the board, in all major world economies.

That’s only part of the solution. It has to do with coordinated rate cuts, but it’s not obvious [even after the cuts] that liquidity is going to flow to those who need it. We need to do something slightly more radical than just an interest rate cut. Most likely the Fed will have either to guarantee all deposits on a temporary basis, since that’s the only way you can essentially stop a run. But since that requires legislation and it’s not obvious that Congress will pass a temporary blanket guarantee, the Fed has to stand ready to provide the liquidity to any bank that needs liquidity. So if there is a run on any bank, the Fed has to increase the money supply by as much as is needed to essentially prevent that particular institution from collapsing. That’s the first thing.

The second thing is that the Fed is already, through its own emergency authority, allowed to provide liquidity to non-bank primary dealers that are systemically important. But the money the Fed is giving to the banks and to the primary dealers is not being re-lent to the other financial institutions in the shadow banking system. So the transmission of monetary policy is locked. Fixing that might require the Fed to start extending the PDCF [Primary Dealer Credit Facility], that is the facility that provides liquidity to non-banks, also to other financial institutions like finance companies, leasing companies, and you name it, in a way to provide liquidity to those financial institutions that directly lend to the corporate sector.

And if all that doesn’t work, the Fed might be forced to directly liquefy the corporate sector by using its emergency powers to directly lend to the corporate sector, essentially buying commercial paper, providing cash.

Those are all three radical actions, but some combination of all three at this point is necessary. The problem is that once the bill was passed, the stock market reacted negatively both to the passage of the bill in the Senate–on Thursday, equities fell by 4 percent–then on Friday, after the House voted, the Dow fell almost 400 points. So the stock market is not reacting positively, and for the last couple weeks, interbank markets and commercial paper and other kinds of short-term lending in the financial system and the corporate system have come to a freeze. And this particular legislation doesn’t have any role in essentially restoring the confidence and the liquidity in interbank and short-term credit markets. And in the short run, in the next few weeks, that’s what you need to do. Because that legislation, even if implemented properly, is going to take a few months–if you don’t reliquefy the banking system, the shadow banks, and the corporate sector, you’ll have a financial meltdown in a matter of two or three weeks. That’s much more urgent than anything else.

If we do start to see spillover into the corporate sector, where would you see that starting? Are there specific firms or specific industries that you think are most susceptible?

Now the situation is that even triple-A corporations [corporations with AAA credit ratings, the highest level] cannot roll over [defer payment on] commercial paper at any maturity past overnight. So we’re already seeing a situation in which essentially commercial paper is frozen, and even corporations that are going to the banks now to try to draw down on their credit lines are finding that they are being refinanced at much higher rates. So it’s becoming very expensive, and it’s really squeezing the corporate sector. Unless the government steps in and directly provides liquidity to the corporate sector, I think we’ll be in big trouble.

You have said that Goldman Sachs and Morgan Stanley converting themselves to bank holding companies was a “cosmetic” move and that they should be looking to merge at this point to avoid a run on their overnight liabilities. How big of a risk do you see at this point of a run?

They wanted to convert themselves as banks to have a stable base of insured deposits in the same way that brokerages in JP Morgan and Citi[group] have it, and the same way that Merrill [Lynch], being a part of Bank of America, will have it. You’re not going to see Goldman Sachs or Morgan Stanley branches on the corner anytime soon. And even acquiring other banks over time, as a way to acquire deposits, is going to take a lot of time. Ninety percent of their borrowing is still overnight; they’re leveraged thirty times, and they lend in ways that are illiquid and longer term. So there is a serious risk. Morgan Stanley, over the last ten days, has lost a good third of their hedge-fund clients. So the foundations of what they do are being undermined. Of course the Fed is providing both institutions with mass amounts of liquidity to try to compensate for whatever lack of finances they have, but how much? $100 billion? $200 billion? At some point there has to be a limit. So I think both institutions would be well-advised to do what Merrill did, as a way to avoid ending up like Lehman [Brothers, which collapsed]. Just do whatever to avoid ending up like Lehman is the basic thing, and just converting yourself to bank holding companies is not enough at this point. You really have to merge.

Obviously in many ways this is metastasized into a global crisis, but how evenly spread is the crisis across the globe? We’ve been seeing some pretty ugly news out of Europe. Which parts of the world are most vulnerable, and which are best buffered?

Certainly European banks are very vulnerable, for a variety of reasons. They bought a lot of the securitized debt, there is a bursting of housing bubbles in the UK, Ireland, Spain, even in Italy, Portugal, and France. There is the beginning of a recession in the Eurozone. The liquidity credit crunch in the United States is negatively affecting liquidity conditions in Europe. Plus European banks are exposed to Eastern Europe, Scandinavian banks are exposed to Iceland, Lithuania, Latvia, and Estonia-which are on their way to a hard landing. German and Austrian banks are exposed to countries in southern Europe like Hungary, the Czech Republic, Romania, Bulgaria, and Turkey-and they all look shaky. On top of all that the Fed at least has been cutting the Fed funds rate aggressively, while the ECB [European Central Bank] was first on hold and then they hiked from 4 [percent] to 4.25. They’re going to cut them soon enough, but it’s too little, too late. So the Eurozone and the rest of Europe is already in a recession, and it’s getting worse, and now it’s hit by a liquidity and credit crunch. And there is a crisis of confidence in European banks since several of them now from Germany, to the UK, to Iceland, to other parts of Europe, are now in trouble and need to be rescued. So the European banking crisis is getting severe.

Asia is less affected in terms of banks, even if you’ve had a couple of problems with banks in Hong Kong and there has been some nervousness there. The impact has been more on the stock market. The real economy is about to start to slow down, and hit Asian financial institutions.

Back in February, you predicted, or at least predicted the possibility, of much of what has happened. What about the way it has actually unfolded has surprised you the most?

I predicted most of these things happening, but what has surprised me the most is the speed at which things have happened. In February, back before Bear Stearns, I wrote this piece in which I said there are a couple major broker-dealers that could go belly-up and that in a couple years there won’t be any major independent broker-dealers left, because I knew that their business model at this point was fundamentally flawed. But I said two years. Instead it took literally seven months, for first Bear Stearns to go, then Lehman, then Merrill merged with Bank of America, and now Morgan Stanley and Goldman Sachs have been forced to convert to bank holding companies. At that point people thought I was a lunatic to say two years, but it took seven months. In the last months we’ve had an acceleration of the collapse of the financial system. We had to go to a $700 billion package, but even that has not restored calm in the stock market, and it has not restored any calm in money markets or credit markets. The last few weeks since the proposal passed, interbank spreads have widened, TED spreads [the spread between interest rates on interbank loans and those on U.S. Treasury bills] have widened, credit spreads have widened, CDS [credit default swaps, essentially a kind of insurance on credit products] spreads have widened, and now there is even a run on commercial paper for corporations. So everything has gotten much worse. There is a generalized loss of confidence like we’ve never seen before. That was something that even somebody as bearish as myself wouldn’t have thought would happen so quickly.

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257 Responses to “Radical Policy Steps Necessary to Avoid a Systemic Meltdown: Interview with the Council on Foreign Relations”

PeterJB • October 7th, 2008 at 6:46 am

A Message to the Australia Leadership regarding the Global Socio-economic Collpase leading to the Mother of All Depressions in infantionary terms; A new experience:A. Your jacking up of Interest rates recently which you thought stopped inflationary trends in their tracks: You were wrong; deflation at that time was easily predicable; you made a fatal mistake, as the looks on your faces showed. The free-market cow was objecting to long term abuse and not short term abuse.B. Your dropping the interest rates today by 100 basic points is even more serious and shows that your incompetence and stupidity may be unequaled in what was the free world. Now you will see inflationary trends resume their trends which are set to destroy all the efforts to contain the free market system to the direct benefit of the Banks and the Body Politic (includes the faithfully and thoughtless bureaucracy). As I know that you cannnot contain this inflation beast, due to the two pre-mentioned moves, you have blessed all Australians with an unnecessary future of pain and suffering and have probably also have sealed your own fate.C. Your secret funding of the Banks from the Australian Future Fund and most probably elsewhere, indicates an acknowledgment of your culpability in things horrid and dread that will, through your cowardice, your dishonesty, your willingness to deceive, your arrogance and betrayal of the Australian public, seal the immediate fate for your constituents and the Australia socio-economic well being. Disaster comes as your promise wept.You speak of economic responsibility and I stand to answer that what you have brought to bear is crasse stupidity – a legacy that arises from your total ignorance and your eagerness to serve the Banks on a priority over the people of Australia; your wards.Today, Iceland took over all their Banks and seized their assets and management. This is an action that you should have taken, not for those Banks to be placed into some sort of Socialistic state but to free them from the socialistic and fascist state for the elite that they have been allowed to become but to return them to free-market fundamentals and operations. Usury has become the preferred mechanism of these Banks and continues on your watch.The liquidity of the World MUST flow freely and the Banks of this World are empowered and entrusted to this very function. Whereas, the Banks World-wide have enacted a treasonous wrought and have frozen lending while at the same time, have demanded and have been granted, by the likes of you, liquidity from the public purse. These acts Sirs, amount to TREASON, besides being stupid.As a result of the Banks actions Worldwide, the whole socio-economic system of the World will go into a major depression of some years.D. If interest rates are not concertedly raised in the last part of this year, Banks do not continue lending allowing liquidity to flow, if the peoples are not protected from the secondary economic fallout, then Sirs, be prepared to stand trial for Treason. Consider that you have been so advised and that you were pre-advised in the Year 2005 in formal terms, which you ignored.Mr Kevin Rudd, You talk about about “Tough decisions and tough Actions”; take such measures and arrest all Bankers, their Executives, and Board Members tomorrow and seize their assets while at the same time replace supervisory management into these Banks to allow the Liquidity to resume its Flow.Such bold actions will allow transparency to be brought to the state of our Nation’s finances and be a step towards bringing confidence back into Australian matters of socio-economics. There is no no other choice and it may be already too late due to the secrecy behind your funding deals with the Banks.This could be, Sir, your most enduring moment and your legacy while it could make your memoirs worth reading.Peter J. Boltonrepost

Octavio Richetta • October 7th, 2008 at 7:31 am

Professor, thanks for your continued stream of posts during this hard times. I post this before reading as I just realized there was a new thread while still in the previous one.Some great CD rates (e.g., 5% for a five year CD) from Fidelity (now insured up to 250K).http://fixedincome.fidelity.com/fi/FICorpNotesDisplay?refpr=ipwycbcd01&name=CD&sortby=YDUnless you think hyperinflation is gonna chew you up alive and/or that the USD will go the way of the Papiermark in the Weimar Republic (I don’t), you may consider building a core (e.g., 10-30% of your portfolio) around high yield CDs which guarantee a performance base and income with no volatility for a portion of your portfolio. Building such a base allows you to more comfortably stick your neck out to seek some alpha with the rest of your holdings (alpha is excess risk adjusted return). Until recently, the expected average annual return for US stocks for the next 10 years was about 5% (read Hussman this week: http://www.hussman.net/wmc/wmc081006.htm – this now has moved up to 7%) and comes with an annual standard deviation of return of 20%! Compare that to 5% annual return where the only risk is that in the event of a bank failure you get your principal back (plus interest if the total is under 250K) but will have to find a new investment to park your money for the reminder of the 10 years.As a rule, I never go over 30% of anything in my portfolio. The key rationale behind this is risk management: a 30% exposure limits your downside to manageable levels. For example, if you had been 30% in world equities before this mess started, the 30% decline in world markets would have meant a 9% loss in your portfolio. Not something to be happy about but only about a third of the total loss. That was my rationale for going only 30% short equities last March.Keep in mind this is “free investment advice” (probably worth as much) which I dare to give only because there are so many examples on how not to invest posted in this blog that I figured a bit of sanity would probably be welcomed.

Free Tibet • October 7th, 2008 at 7:42 am

Professor Roubini – “if you don’t reliquefy the banking system, the shadow banks, and the corporate sector, you’ll have a financial meltdown in a matter of two or three weeks. That’s much more urgent than anything else.”just as I said on last thread. Things are moving so fast we can’t keep up. Even intellectually. We’ve gone beyond recapitalizing the banking system. We’re going to have to deal with this first. Now. And it will have to be a coordinated international response. The entire $ economy is on the line. Not just US economy. We’ll have to come back to finding true asset values, recapitalization.Odds on getting it right? We haven’t been doing so well to now.

kilgores • October 7th, 2008 at 7:54 am

Not true. I have been affiliated with the Council on Foreign Relations for over twenty years through the Tampa Bay Area Committee on Foreign Relations, which was originally established by the CFR and is now affiliated with the American Committees on Foreign Relations. I can assure you there is nothing sinister about the CFR.SWK

James Kwak • October 7th, 2008 at 8:18 am

I agree that the problem with government response is and continues to be too little, too late. Part of the problem is that over the decades central bankers have developed an instinct for incrementalism – only change interest rates 25 bp at a time, try not to upset the markets, etc. Unfortunately, while this is a correct approach in stable times, it is sorely lacking in times of crisis.

Octavio Richetta • October 7th, 2008 at 8:20 am

U.S. Stock Futures Advance on Fed Plan to Buy Commercial Paperhttp://www.bloomberg.com/apps/news?pid=20601087&sid=ak.E0PK6fpqw&refer=homeI am glad (at least on the short term) that I have covered all my shorts. IMO, this will be more effective, faster than the 700 billion plan. Equities should rally but you never know…

Alessandro - http://castellidicarte.blogspot.com/ • October 7th, 2008 at 8:25 am

This is just money laundring: investors get money out of CP, investors put money into Treasury, Treasury puts money into FED, FED funds the exact same CP that the investors dropped in the first place. All with a nice carry (for the FED).Obviously, at some point the scheme will blow. But not today.

Incognito • October 7th, 2008 at 8:35 am

The current crisis reminds me the following funny anecdote:During a telecommunications conference various countries were taking their turns to make a talk about the history of telecommunication in their countries. Each was boasting about how advanced their telecommunication sector was through the history.The speaker of Country A claimed the following: After digging underground for about 100 feet, Country A found that it had the “wired connection” ability 500 B.C.The speaker of Country B claimed the following: After digging underground for about 200 feet, Country B found that it had the “fiber-optic connection” ability 700 B.C.Finally, the speaker of Country C claimed the following: After digging underground for about 300 feet, Country C found that it had “wireless connection” ability 900 B.C.It feels as though all the executives of the bankrupt banking system and the government officials responsible of this current mess came from Country C. They pumped up an artificial heaven based on false pretences and now they claim that it was fear and lack of confidence that caused the crisis. It is as though suddenly people feared and had lack of confidence based on nothing.The fact that banks ever had enough capital in incomplete markets (but fear and lack of confidence destroyed everything) is as realistic as the fact that some country ever had wireless connection sometimes B.C. The entire banking system makes money based on arbitrage. This eventually causes crisis. This is because the equilibrium between borrowers and lenders gets broken since there is a transfer of wealth from borrowers to lenders. In order to establish the equilibrium again, officials have to think about ways to restore fair income distribution within a well designed tax system.The problem here is that since most of these officials are from Country C, we have to first make them realize that liquidity and credit risk are two different types of risk. We are currently in the latter situation which eventually causes the former. Solving the former, however, never solves the latter.

Alessandro - http://castellidicarte.blogspot.com/ • October 7th, 2008 at 8:41 am

Don’t be surprised by what looks like crazy actions, it’s all very simple.1. Investors figured out that the financial system is terminally broken (finally!) and won’t lend to anybody but the government2. as funding comes due investors get out of any financial and corporate investment and rush into Treasuries3. Hanky issues a metric a**ton of new bills to accommodate demand and accumulates an inordinate amount cash4. Hanky and Benny think one scheme after the other to put the cash back exactly where it was CPs, CDOs, and any toxic, errr distressed asset class, they can think of5. since they are at it they chose who will win and who will lose from the new order.This translates roughly to a complete nationalization of the US financial system. This obviously doesn’t do anything to fix the broken system. This just put the losses on the taxpayer.

Free Tibet • October 7th, 2008 at 8:52 am

Here we go. Fed disintermediates the banks to buy directly CP. This TARP might be good for something after all.

Octavio Richetta • October 7th, 2008 at 8:58 am

It looks like you are right. So the shorts are not that bad when it comes to igniting short covering rallies. The action in the indices so far clearly shows they are not around to ignite the party.

Guest • October 7th, 2008 at 9:29 am

OK time for me to get on my soapbox.What’s the matter with the Fed coming out with a new plan on Tuesday? Nothing really, I guess. I haven’t even read through the details yet.BUT THERE IS A BIG PROBLEM when the market surges an hour before closing … the day before the plan is announced. That is stinking insider trading!!!!I called this move yesterday on this blog.How did I know it was going to occur?Because we’ve seen the same lousy pattern on the Dow before.The powers-that-be decide on some emegergency action, and low and behold if a few well-infomormed players don’t get all the information the day before it’s released to the public.Somebody needs to throw all of these clowns who are running the system into jail.I think I’ll make up a sign and frame it.Then I’ll mail it to Hank Paulson and he can hang on the wall in his office. The words say the following …————————————————”Give me market manipulation,OR … give me a chateau in Bordeau,Heck – even a nice mansion in Bermuda would do,I’m not picky!”————————————————-And NO … I was not short in the market.I’m just fed up with the corruption.PeteCA

Capone • October 7th, 2008 at 9:33 am

@Octovio (and All), if you do not believe hyperinflation is possible and you are considering asset allocation… Do you assign 0% probability of hyperinflation ? If you assign even a 3% probability, the high impact (US dollar purchasing power destroyed or -99% return) STILL warrants some allocation to balance your portfolio against these risks. Whether it be commodities, currency or whatever.That is my $.02 and I know ultimately it is worth much more.Be careful out there especially those who are blessed with wealth and merely need to defend it. Aim for 0% return in this environment and you will be doing much better than at least two extremely wealthy (unfortunately for their heirs, clueless) families I am aware of in Chicago…

iNnOsInZ • October 7th, 2008 at 9:35 am

I’m not suprised with Fidelity offering 5% on 5yr. They need capital asap. Check this article from ignites:Fidelity Looks Like Victim No. 1Article published on October 6, 2008Fidelity may be the hardest hit among all investors in the financial markets turmoil, the Boston Business Journal reports.As of June 30, it held about $10 billion in the stocks of financial services firms that are now practically worthless. Those include shares of AIG, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia and Lehman Brothers.Worse still, Fidelity’s investing disclosures for the second quarter suggest that it was betting on financial stocks to recover later this year, the Journal notes. It more than doubled its stake in Wachovia, for instance, adding nearly 70 million shares, to give it 116.2 million. At the end of the quarter, it ranked as Wachovia’s No. 2 holder, behind Dodge & Cox, with shares worth about $1.2 billion.Wachovia shares plunged 91% last week on word that Citigroup had reached a deal to buy it at a severe discount. But the stock revived later in the week, with news that Wells Fargo wanted to pay more for it. The two banks continued over the weekend to fight over Wachovia.The flagship Magellan fund held onto Wachovia in August, Reuters has reported. It had $404 million worth of Wachovia stock and $38.5 million of its convertible securities at the end of the month.Magellan also clung to AIG shares in August, Dow Jones Newswires has reported. At the end of August, the battered insurer ranked as Magellan’s seventh-biggest holding, representing just under 2% of net assets.

Silas Wigwilla • October 7th, 2008 at 9:43 am

Nouriel – You have been labelled the “doom and gloom” economist many times over, and I wonder if this is affecting how new readers/listeners approach your assessments and suggestions. I notice that you sound quite a bit like Triumph the Comic Insult Dog from the Conan O’Brien show. To inject some hilarity into your otherwise dire predictions, could you do a Triumph imitation on your next television appearance? Such as: “The 700 billion bailout bill is actually an excellent piece of legislation … for me to poop on!”

Guest • October 7th, 2008 at 9:47 am

Sign of the timeshttp://www.latimes.com/news/local/la-me-porterranch7-2008oct07,0,7425239.story?track=rss

PhilT • October 7th, 2008 at 10:13 am

Bravo PeterJB !Have you sent this letter to be published in national/intl newspapers or other periodicals?Best …

Guest • October 7th, 2008 at 10:14 am

Dow is now moving into negative territory. Even though the Fed has announced a “bold new plan”, people are already pulling money out of the market fast.This is a very significant reaction. Let’s go to a great insight that was offered by Brian Pretti and the folks at Contrary Investor. They shared this comment several months ago. I can’t quote them word-for-word, but it went something like this …”Watch out if investors ever lose confidence in the Fed and the Treasury to buoy up the markets when they really need to. On that day, the markets will be open to a much larger resolution.”Well folks … it could just be that we’ve reached that point in history.PeteCA

Guess • October 7th, 2008 at 10:48 am

What I have been trying to locate is a quality discussion or article on the epic battle that seems to be shaping up between inflation and deflation.

Guest • October 7th, 2008 at 10:50 am

LOLOL NO SELLING ALLOWED IN US STOCKS ANYMORE! Dow drops 100 points and rallies back 108 points in minutes!! WOW!!!!!!

Octavio Richetta • October 7th, 2008 at 11:01 am

Good point. Hyperinflation probability is not 0%. Some inflation in the medium term is possible (read Gross) but I think we are still far from it and can do something about when smelling it. Following Mohamed Elrian’s book advice (nothing much new there for readers of this blog) I came up with my own version of a diversified asset allocation that fits my needs. We start with Boggle’s advice of your bond allocation being equal to your age. So for me a potential asset allocation when the dust settlesBonds of all kinds including CDs 40% (I am 50 but this is my number)Equities 35% (15% US, 15% other developed countries, 10% emerging)Commodities and RE 15%Special situations 10% (this includes individual stocks for short term holding)Total 100%

steve • October 7th, 2008 at 11:03 am

i think we need to put our selling shoes back on again; pretty pathetic pop; maybe i am early; that is my tendency; 9:00 California Time

Guest • October 7th, 2008 at 11:09 am

Octavio — thank you. I have been sick at heart at what’s been happening to my savings — and Roubini et al keep verbally pushing for lower and lower Fed fund rates. I cannot endure the risk of this market, but even sitting quietly on my nest egg has become extremely dangerous. The wolves are scratching and howling at my door.Thanks, again.

PhilT • October 7th, 2008 at 11:09 am

“What Buffett is doing is similar in ways to what Morgan did in 1907,” said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University. “It’s what you might call profitable patriotism.”

IHT article => Buffett assumes Morgan’s mantle

ewulf • October 7th, 2008 at 11:09 am

Crisis management is still on the containment phase ,which esentially deal with implementing the proposed solutions while , the crisis is unfolding.Therefore volatility is more intense,becasue of market psichology ,but on this stage the urgent needs might mislead to what important needs are.In this case, to keep confidence, avoiding to even suggest that the situation is out of control ,which it would be the case if policy makers let the markets to believe that, they do not trust the effectiveness of their own solutions because these are short of what it is needed.What it would be the quality of their judgment ?.This means that a step by step approach might be helpful.If there is a fire ,the damage caused by it is not less just because ,the fireman try to solve everything at the same time, in such a case ,it might rather turn out to be worse. It seems that the Fed has been quite engage into the process of following a step by step approach , dealing with the sentiment of the markets.Their european counterparts , also are in the mood to get more involved as long as needed.(they have just raised the amount of insurance deposits).Of course, more coordination would be more effective .However,the important thing is to keep in mind that there is a critical balance between solving the crisis , and sending the signal that no matter the unnecessary risk assumed by markets,policy makers will be there to give them the so called “golden parachute”.Politics is connected with economics, to the extempt voters and taxpayers agree.

Due lei No Mou Height • October 7th, 2008 at 11:14 am

This market downturn could be longer and deeper than anticipated, says MSN Money columnist Jim Jubak. With the $700 billion rescue plan a danger in itself, consider rebalancing your portfolio for harder times.

Guess • October 7th, 2008 at 11:21 am

Part of my problem is that I believe in the existence of the PPT – direct or indirect e.g. insider info yesterday. Notwithstanding, what would have been a “healthy” reaction to this latest action from Bernanke & Co. And to that end with the inevitable announcement of a rate cut of up to 1% – what’s your take on the reaction?

Guest • October 7th, 2008 at 11:28 am

9600 on the Dow is the head/should measure down for you chartists out there. Should see a lot of buyers there FWIW…

Guest • October 7th, 2008 at 11:28 am

REUTERS UPDATE 1-US Mint halts some American Eagle coin productionTue Oct 7, 2008 10:14am EDTBy Frank Tang NEW YORK, Oct 7 (Reuters) – Unprecedented demand forprecious metals and volatile markets forced the U.S. Mint tocease production for the half-ounce and quarter-ounce popularAmerican Eagle gold coins for the rest of this year and tosupply other bullion coins on an allocation basis. “Due to the extreme fluctuating market conditions for 2008,as well as current market conditions, gold and silver demand isunprecedented and the demand for platinum is unusually high,”the U.S. Mint said Monday in a memorandum to its authorizedcoin dealers. “The U.S. Mint has worked diligently to attempt to meetdemand, however, blank supplies are very limited and it isnecessary for the U.S. Mint to focus remaining bullionproduction primarily on American Eagle Gold one-ounce andSilver one-ounce coins,” the Mint said. The Mint said it would continue to supply one-ounceAmerican Eagle gold coins and one-ounce American Eagle silvercoins on an allocation basis to coin dealers. For half-ounce and quarter-ounce American Eagles, the Mintsaid that inventory was depleted last week and no more coinswould be produced for the rest of 2008. In addition, the Mint said it would produce 1-10th ounceEagles based on current coin blank supplies, but would ceaseproduction for the rest of this year once the remaininginventory was depleted. Produced from gold mined in the United States, the 22-karatAmerican Eagles have been novel items among collectors andinvestors since their introduction in 1986. Each coin has aface value of $50 but it is sold by authorized dealers at apremium to the price of gold. AMERICAN BUFFALO, AMERICAN EAGLE PLATINUM The Mint said it would continue to supply 24-karat AmericanBuffalo one-ounce gold coins based on current blank supplies,but would halt production once the remaining inventory wasout. The Mint had suspended sales of the Buffalos in lateSeptember due to strong demand and inventory depletion. Similarly, the Mint said that all denominations forAmerican Eagle platinum bullion coins were depleted last week,and it would halt production for the rest of the year once theremaining inventory was depleted. Coin dealers from the United States to Canada have recentlyreported a surge in buying of bullion coins. Gold has soared as much as $200 in the last 30 days aspanic investors flocked to gold as a worsening global financialcrisis prompted people to seek a safe haven. Spot gold <XAU=> traded at about $884 an ounce on Tuesday,while the gold contract for December delivery GCZ8 on theCOMEX division of the New York Stock Exchange was at $886 anounce.(Reporting by Frank Tang; editing by Jim Marshall)

Mandarin • October 7th, 2008 at 11:37 am

The Fed’s resources for prudent money management are limited to its own balance sheet. This was in the neighborhood of $900 billion when the crisis kicked in a year and a half ago. Arguably it has taken on so many liabilites over the past weeks that strictly speaking it is insolvent. To deal with this situation it has sought and received pledges from the Treasury that will liquify it with the “full faith and credit” borrowing power of the government proper.To initiate and continue its activities as purchaser of commercial paper, insurance underwriter and settlement house the Fed will need to inject dollars or dollar equivalents into the private financial system. Like the law of gravity, an injection of liquidity over and above the bona fide assets on the Fed’s books will result in a massive expansion of private credit.Banks are unwilling to recycle this money and as of now there is no way to siphon it into the real economy. Eventually a way will be found, probably through the creation of an as-yet unforeseen bubble. Inflation will once again be hitting certain classes of assets — my guess would be commodities.Should this massive monetary expansion trickle through to the real economy a general and severe inflation will be inevitable. This development probably lies a year or two in the future. Before then, though, the signs of a new bubble in tangibles will be apparent.Deflation is a real threat but the powers are equipped to handle it. They only need to make sure the money that is being lent to reliquify the system is spent. If the banks are unwilling to lend, the legislature can mandate as much spending as it wants. Of course, this will be in depreciating dollars, “borrowed” from private sources but really representing the new Fed liquidity. A new twist on the notion of “printing money.”

Guest • October 7th, 2008 at 11:38 am

Uh-oh…Thirty-six fliers suffer broken bones, other injuries when Qantas plane carrying more than 300 passengers takes a sudden in-flight altitude drop during a “mid-air incident.”

Dan W • October 7th, 2008 at 11:38 am

The reason it’s “too little, too late” is that the government—or more frankly the rich a**holes who comprise our government— simply cannot believe it/they is/are going to have to give up their wealth. It’s a new world order being born. The Ancient Regime is falling! Cometh THE GREAT FEAR!

Gloomy • October 7th, 2008 at 11:45 am

Hey Capone. Good to see you back. I’ll never forget your epic rant about Ben having fun going rat-a-tat-tat with interest rate cuts to manipulate the market early on and how he was getting low on bullets. Well now he’s heaving rocks, stones, the furniture, the silver, hell, everything over the castle walls, but the market huns just keep coming. Hope you are having a good time watching this little morality play unfold!

Guest • October 7th, 2008 at 11:51 am

Yes, the Goldman Sachs October Massacre, the murder of 138 million American taxpayers by a powerful Wall Street gang of criminal bankers led by Henry “Hanky” Paulson and “Bugs” Bernanke, and assisted by accomplices Ma Pelosi, Barney “Patsy” Frank, “The Scourge” Reid, “Dubya” Bush, and “Klepto” Kashkari.The gang of counterfeiters cleaned out the US Treasury, leaving behind a $300tn Derivative Death-Star set to detonate when exposed to light.

Guest • October 7th, 2008 at 11:52 am

Go ahead, Pete. Mail that sign to Hank Paulson. But if you ask me, it should be hung on the wall in his cell, not his office. He is the leader of this ring of criminals, after all, and is hell bent on preserving their profits (and his options).

Guest • October 7th, 2008 at 12:09 pm

1:08 p.m.Bernanke shifts toward rate cut given worse economic outlook1:08 p.m. Bernanke signals shift towards rate cut in Fed stance1:08 p.m. Bernanke: Current neutral stance may not be appropriate1:08 p.m. Bernanke: Outlook for growth is worse, for inflation better1:08 p.m. Bernanke: Inflation picture has ‘improved somewhat’1:08 p.m. Bernanke: Weak growth may linger due to financial turmoil1:08 p.m. Bernanke: Fed to use ‘all tools at its disposal’

Guest • October 7th, 2008 at 12:13 pm

Well that will turn markets green…why it is important I don’t know, the actual FF rate has already been trading SUBSTANTIALLY below the target rate for more than a week alreadY!

jomos • October 7th, 2008 at 12:14 pm

What is deflation in the traditional sense ? The money supply contracting.Today,their is very little fiat cash laying around in vaults of central banks.Our economies are tied together by over leveraged electronic printing machines called credit.The central banks use this electronic “velocity of money” to fund the present world system.In the last world depression,cash was the asset of choice to beat every other asset class.If indeed this worldwide deflationary depression is just beginning,and actual fiat cash is rare,than credit contraction is the place to look for resolution of the inflation/deflation debate.If you are seeing the unwinding of 30 years of highly speculative over leveraged pieces of paper with little intrinsic value,than credit is “drying down” and deflation is the primary motive force of the market.The temporary counter trend rallies are weaker forms of inflation that has been the primary tool of the past to stimulate the market.But this tool (the printing press) is a relic of past and this is what scares the hell out of the moneychangers,they pull the levers behind the curtain with less and less effectiveness.The central banks are becoming obsolete.

Guest • October 7th, 2008 at 12:16 pm

But Mandarin, eventually it all comes down to value. Either way, without value the market will destroy Bernanke. Total economic output for the US in 2007 was $13.8 trillion. Congress and the Fed already have indebted the US Treasury to $10 trillion. Who knows what’s happening now?I consider the ongoing 10% to 12% inflation, maybe higher, is going into hyperinflation in some areas, provoking deflation in others. If Bernanke keeps printing fiat money, and we have no knowledge or check on how much credit he really is creating or where it’s going (God help us), the man runs the danger of wrecking the cartel’s entire Ponzi Scheme, driving it the way of Zimbabwe hyperinflation and starvation.Notwithstanding that Bernanke is a lightweight, no banker or government can spend itself into prosperity. But both can perpetuate poverty amidst abundance, rendering the people powerless to protect themselves. Such are the seeds of tyranny.

AfA • October 7th, 2008 at 12:32 pm

Mandarin,This is almost exactly along the line of my scenario. Only one thing I came to realize is that the to-be bubble asset should necessarily be a cash-generating asset (cash=equity or debt). Commodities are therefore not suitable to accommodate a bubble, since they are consumption based, and any bubble is easily and quickly broken (example in hand, OIL). I am still looking for that next bubble-asset that can accommodate inflation.

Guest • October 7th, 2008 at 12:44 pm

Right. SWK is a tool, and like the best tools, doesn’t know it. Of course the Tampa Bay CFR are not involved in NWO directly. Only the top dogs run outside the fence.What a doofus.

Capone • October 7th, 2008 at 12:51 pm

Hello. Thanks! So it is the new routine to go back to all old posts to look for reply to comments? You mean back when he blew his wad all over the place like a teenage boy seeing his first R rated movie. In other words, premature Bernankulation… :) That’s for taking at least a year of my financial life Ben !

Guest • October 7th, 2008 at 12:52 pm

If you look at a LT chart of the S&P it is scary how this selloff is mirroring the 2000-2002 selloff…

Capone • October 7th, 2008 at 12:53 pm

oops replied to wrong comment… Hello Gloomy. Thanks! So it is the new routine to go back to all old posts to look for reply to comments? You mean back when he blew his wad all over the place like a teenage boy seeing his first R rated movie? In other words, premature Bernankulation… :) That’s for taking at least a year of my financial life Ben !

Guest • October 7th, 2008 at 12:55 pm

Looks like we should be listening to Cramer rather than 3 stoodges (Bernanke/Paulson/Bush)!!!! LOLOLOLBy the way, the House of Morgan is in freefall!!! Down almost 37%!

devils advocate • October 7th, 2008 at 12:55 pm

when the Fed guarantees business short-term IOUswe will see lots of businesses take the money and runbefore they go bankrupt….just another red ink spill on the Fed’s sheet

Guest • October 7th, 2008 at 1:01 pm

Looks like the market is claling the Fed’s bluff:2:00 p.m. Rate cuts may be used if markets worsen: Fed minutes2:00 p.m. Rate cut ‘not called for’ at Sept. Fed meeting: minutes2:00 p.m. Fed also discussed how to reverse easing at Sept meeting

Guest • October 7th, 2008 at 1:10 pm

9562 not too far off — It just occured to me — this will be the test of the lows and with some help from the PPT, they’ll be able to announce that a bottom was put in and successfully tested in time for the evening news.

Guest • October 7th, 2008 at 1:19 pm

Dow rallying hard, already gained back 100 points…this is starting to smell alot like yesterday!!!

Guest • October 7th, 2008 at 1:20 pm

2:19 p.m. U.K. bailout plan expected as early as Tues. night: WSJ2:19 p.m. U.K. bailout may exceed 45 bln British pounds: WSJ2:19 p.m. U.K. working to finalize financial bailout plan: WSJ

Guest • October 7th, 2008 at 1:26 pm

…major coordinated interest-rate cuts … in all major world economies…

What is the reason with that? Just let the Anglo-Saxon economies cut their interest rates. Which they of course will not do unless other major economies do as well…

Guest • October 7th, 2008 at 1:27 pm

Western civilization is built on one flimsy thing – voluntary support. Voluntary support of this government must be destroyed if the American people are to begin to think once again like the men who founded the United States — men who knew the Loyalists and the type of people we are now fighting. People have been divorced from the type of critical thinking that built this country for a long, long time.Trust in the current banking system is central to its existence. Trust is waning. Banks are needed for only one reason – to have a safe place to put your money and withdraw it when you want: credit can always be found. We are to the point in America where the people don’t even want to put anything into a safety deposit box, because it’s in a bank.Disinterested voluntary support is fraying. I’m hearing more and more people and radio commentators, and reading more and more columnists and cartoonists, who say: “Let them fail. We aren’t the problem: they are.”Banking is not rocket science. it’s a good part Oz wizardry. Bernanke and Wall Street are in line for a hard fall.

Guest • October 7th, 2008 at 1:39 pm

And they had the nerve to throw Martha Stewart in jail for a pittance’ worth of insider trading. It’s disgusting.

Guest • October 7th, 2008 at 1:42 pm

Market setting up for the witching hour…what is it going to do? The VIX in now DOWN over 5% even with stocks getting pummeled…clue about the witching hour direction????

GLOOMY • October 7th, 2008 at 1:47 pm

CHUMP CHANGEWASHINGTON – The top congressional budget analyst says pension plans have lost as much as $2 trillion in the past 15 months.Peter Orszag told a House panel on Tuesday that the losses are likely to force many workers to hold off on major purchases and delay their retirements.

Guest • October 7th, 2008 at 1:51 pm

RON PAUL today on “The Do-Something Congress”It has not been a good week for the Republic. It took quite a bit of trampling of the Constitution, but the bailout bill passed, as I suspected it would.The bailout failed the first time it was brought to the House. Undaunted, the Senate pressed on by attaching the bailout as an amendment to another House-passed bill that was pending in the Senate. The new bailout version had new taxes, so according to the Constitution it should not have originated in the Senate.The rallying cry heard all over the Hill the past two weeks was that Congress must act. Our economy is facing a meltdown. Would this bill fix it? Nobody could really explain how it would. In fact, few demonstrated any real understanding of credit markets, of derivatives, of credit default swaps or mortgage-backed securities. If they did, they would have known better than to vote for this bill.All they knew was that this administration was saying some frightening things, and asking for a lot of money. And when has Congress ever been able to come up with a better solution to a problem than to throw more of your money at it? So that is what Congress did, enacting a financial PATRIOT Act in the process.In its embarrassment at being called a “Do-Nothing Congress” the 110th Congress took decisive action and did SOMETHING. No matter that it was the wrong thing. In fact, it wasn’t until the Senate had a chance to load it up with even MORE spending, when it was finally inflationary and horrible enough, at $850 billion instead of a mere $700 billion, that it passed – and with a comfortable margin, in spite of constituent calls still coming in overwhelmingly against it. 57 members switched their vote!The market went down anyway. Our nation is now just that much more in the hole. You will pay your part of this mess through inflation, and very likely hyperinflation.Sometimes doing nothing is much better than thrashing about aimlessly – when one is caught in quicksand, for example, or when one doesn’t understand economics and finds oneself in the position Congress was in for the past two weeks, with decades of irresponsible monetary policy coming to a head. Why should we trust the same people who said just a few months ago that the economy was perfectly sound? The same people who just knew there were weapons of mass destruction? The same people that crammed the PATRIOT Act down our throats? Why not consult the people who had the foresight and understanding to see this coming? They would have recommended such logical actions as repealing the Community Reinvestment Act, which forces banks to make bad loans, or allowing the market to set interest rates instead of the Federal Reserve system. How about abolishing the Federal Reserve altogether? There are many things that could have been done, but don’t expect Congress take a course of action that comes from a place of understanding and competence when they could just spend money.This bailout will be the legacy of the 110th “Do-Something” Congress, along with record-low approval ratings. Here’s hoping the 111th Congress will be a “Do the Right Thing” Congress, and will focus on repealing and abolishing what is wrong with government instead of reinforcing it.http://www.lewrockwell.com/paul/paul483.html

Guest • October 7th, 2008 at 2:01 pm

3:00 p.m. U.S. Aug. consumer credit down record $7.9 billion3:00 p.m. U.S. Aug. consumer credit down at 3.7% rate3:00 p.m. U.S. Aug. consumer credit drop first since Jan. ’98

furiouscalves • October 7th, 2008 at 2:04 pm

isnt it more like 3 or 4 trillion after taxes for the bailout(s) and such. – i say give the consumer a trillion back – instead of the banks – it will trickle up.

Alessandro - http://castellidicarte.blogspot.com/ • October 7th, 2008 at 2:05 pm

BULLETIN: U.S. CONSUMERS PAYING DOWN DEBT FOR FIRST TIME IN A DECADEDeflation gaining steam.

Guest • October 7th, 2008 at 2:14 pm

This is just about the time the PPT started goosing things yesterday…looks like a double bottom is in for the day and lets see if the criminal Fed, er, um, I mean the PPT jams her up…

Guest • October 7th, 2008 at 2:18 pm

“Knock, Knock” (Hellasious todayRemember the old, silly schoolboy joke? (I’m showing my age here…)”Knock, knock”"Who’s there?”"Banana”"Banana who?”Replace “banana” with “deflation” these days and the joke is not so silly any more. Prices for a variety of assets and commodities are plunging almost uncontrollably now, raising the very real prospect that we are in for a long, drawn-out period of deflation. Just look at real estate, stocks, crude oil, industrial metals, agri commodities… everything is well off the highs reached a few months ago.There is a plethora of charts around, but I find the one below particularly illuminating. It shows that shipping rates for dry bulk cargo (e.g. coal, sugar, salt, iron ore, fertilizer, etc) have collapsed by almost 50% in the last few months. Shipping is a very competitive, free-wheeling global business with minimal regulation, so what happens there is a good indicator of actual conditions in the “real” economy. (click link below for chart)Obviously, then, things are rather serious in the “real” economy. In a nutshell, the current crisis is destroying debt (a.k.a. money), which is perforce lowering all prices. The silliness of policymakers the world over is that they keep acting to artificially prop up asset prices, via replacing private with public debt. That’s a remedy straight out of 1930′s Keynesian economics, but it won’t work because it can’t work. There’s simply way too much debt out there, compared with current earned income.What to do? It’s quite simple, really: let the debt fail and thus free the vast majority of the people from a big portion of their onerous obligations. It’s going to come to that sooner or later, so better make it sooner and get it over and done with. Oh, and keep in mind the social pyramid of debt: comparatively few people are going to get hurt when debt fails. – the very wealthy. The wealth disparity has never been greater in the West, at least in modern times..Yes, I know this is exactly opposite what Dr. Bernanke, the supposed expert on the Great Depression, advocates. But he and Secretary Paulson are dead wrong. Like all failed generals, they have prepared for and are fighting the last war, instead of the current one.http://suddendebt.blogspot.com/

P1AQL • October 7th, 2008 at 2:24 pm

Dear Prof. Roubini,At a recent NYU presentation, on a slide of Stern professors, you were on top of the list and Damodaran at the bottom. Kowtow to you again! Time for a mean reversal and sighting the bottom (of the abyss?)Meanwhile, please could you address my following line of thought? Any country, whose currency is NOT a reserve currency, could be at risk of run on its currency if it chooses to guarantee the bank deposits in the local currency.Going with the game theory, if one member of the European Union has guaranteed deposits, then all members of the EU must follow to prevent a run on their ‘local’ bank deposits. That means the risk of runs transfers to the currency of the national government.Would love your and the board’s thoughts on this.You already know my position in the Force: May the USD be with you!Best,P1AQL.

P1AQL • October 7th, 2008 at 2:33 pm

This is very interesting and serious. We seem to be moving from ‘don’t have credit’ to ‘don’t need credit’Ben, if you don’t activate your 2002 print machine, then very soon you’ll pushing on a string. Good luck with that!Don’t worry about hyperinflation. The AUD has volunteered to carry that cross. We’ll soon have more volunteers.PRINT WASHINGTON WITHOUT CARECheers to US Alpha!P1AQL.

Mandarin • October 7th, 2008 at 2:36 pm

Guest I agree with you in principle, when money creation is excessive their earning power is diluted. The logical end of a credit expansion is recession/depression. It takes special conditions such as a persistent trade imbalance for recession and inflation to occur simultaneously. AS it happens, the US is probably such a case now. Spending can’t of itself bring prosperity but it can maintain employment at a (hidden)cut in wages. Afa, an interesting idea that the assets should be cash-generating. I’d amend it to say value-maintaining in the short run. The suitability of the assets is a matter of perception: safe debt instruments when production is shrinking; equities when profits are rising; commodities when currencies are depreciating. Currently, government debt is favored but the inflation adjusted return is negative. Equities are not likely to recover becausewe have a combination of tight credit plus already low interest rates. They’ll only become cheap again at much lower prices. Still, as the Fed reliquifies larger and larger pools of capital, the money will be there. And even under conditions of slack in production the demand for a safe haven and inflation hedge will persist. Hence the attractiveness of the two biggies, oil and gold. I think each will find a floor well before the credit crisis is resolved. This will apply to some of the related agriculturals as well that are resource intensive, such as corn.

Guest • October 7th, 2008 at 2:44 pm

I asked that yesterday. It is the “Plunge Protection Team” I was given a Wikipedia link, that you can find on the prior thread…

Guest • October 7th, 2008 at 3:00 pm

how low do Ford and GM go? Can they go under? should I buy them? at what price would anyone buy them?

subgenius • October 7th, 2008 at 3:13 pm

Wow. I went out to look at boats, and missed all the fun. What happened, did somebody forget to leak some good news or something????

Capone • October 7th, 2008 at 3:20 pm

today the Fed announced that whatever you have at all, homes, A – Z rated paper, any instrument containing combinations of 3 letters of the alphabet, used furniture, old washing machines, tennis shoes, ANYTHING at all that NO ONE else wants, they will take it at the window. The Bar is Open ! Come drink from the infinite pool of Fed liquidity ?In other news, the Fed balance sheet topped a decillion 1,000,000,000,000,000,000,000,000,000,000,000 and I swear there is no inflation, there never was any and there never will be. Honest!1 gallon of milk $400

Forensic economist • October 7th, 2008 at 3:24 pm

CONTRARIAN INDICATORS – crossing the Merced (bottom of U-shaped Yosemite Valley)The fear and panic is getting so extreme that I have to think we are nearing a bottom. On my car radio this morning from the local hippie station out of Santa Cruz, KPIG, the news commenter Travis T. Hipp stated that banks were so dangerous that you should put your money in real things – if you were a contractor, for example, maybe you should cash out your checking account and stock up on 2 x 4s. If you were retired maybe you should move to Nicaragua.Meanwhile, ATT is paying a 6% dividend. So is Con Ed.We are now approximately 11 months into the recession – more than halfway through the forecast 18 month period. The stock market anticipates future earnings. I forecast it will bottom on inauguration day, if not sooner. Remember, the bear market of ’75 bottomed the day Nixon resigned.

Guest • October 7th, 2008 at 3:29 pm

OOPS!4:21 p.m.[AA] Alcoa Q3 net income 33c vs 63c4:21 p.m.[AA] Alcoa Q3 revenue $7.23 bln vs $7.39 bln

Guest • October 7th, 2008 at 3:31 pm

IDIOTS!AIG executives spent $440,000 for a corporate retreat in L.A. after company’s downfall, committee finds

Guest • October 7th, 2008 at 3:34 pm

4:33 p.m.[BRCD] Brocade gets $1.225 bln loan for Foundry Networks dealLooks like you can still get a loan?????

Guest • October 7th, 2008 at 3:35 pm

Wait until we gut the run on guns and ammo. Bernanke didn’t even mention Credit Default Swaps today. Interesting. Is he stupid, deceitful or both?

Guest • October 7th, 2008 at 3:39 pm

that’s funny: panic about the markets from an area (Santa Cruz) that sits directly atop the San Andreas fault.

Shaken not Stirred • October 7th, 2008 at 4:21 pm

Well at least someone’s on the ball. Credit situation creates a business opportunity.CME Group and Citadel to Launch the First Integrated Credit Default Swaps Trading Platform and Central Counterparty Facility, Linked to CME ClearingJoint Venture will Facilitate Clearing for Existing Swap Contracts within 30 Dayshttp://cmegroup.mediaroom.com/index.php?s=43&item=2730

bcdogs • October 7th, 2008 at 4:24 pm

Thought I’d inject a bit of levity. I got another credit card offer from WaMu today, pretty nice 0% until 2010 on balance transfers! I have to answer by 11/08….I got the first one two days before the Feds intervened.My son and I have been besieged with credit card offers in the last two weeks…

bcdogs • October 7th, 2008 at 4:27 pm

I always just google when there are abbreviations I don’t understand, which usually take to wiki links…it’s easier than typing a question in here, ya know??!Google has been my friend lately trying to learn all the abbreviations…

Shawn • October 7th, 2008 at 4:38 pm

How can monetizing worthless asset classes(paper to dollars) at a level above the Macro clearing equilibrium NOT be inflationary? Trillions of real dollars will be in the system—I understand the need for short-term liquidity, but “hoarding” of reserves is a function of lending at some level plus risk premium. I can only see massive inflation—forget the Bernanke wage-spiral….that theory wags the tail now……..We are becoming ‘THEORETICAL”.

Free Tibet • October 7th, 2008 at 4:46 pm

Thank you. But I really still don’t understand. I’ll have to study that. I was wondering how much of the fed’s new ACRONYM facility was going to go to the likes of GE Capital and how much to what we’ve been calling main street businesses.

Guest • October 7th, 2008 at 4:49 pm

Well, if you think that’s all it will take, maybe Bush could resign a few weeks early, or just go on vacation, and save us all a a decillion 1,000,000,000,000,000,000,000,000,000,000,000. I mean what’s the fuss about?

Guest • October 7th, 2008 at 4:50 pm

What is a good (free site) to get quotations on index futures (pre market and after hours) please? e.g. S&P, Dow, Nasdaq Maybe they are they available on yahoo finance – if so what would the symbols be?Thanks

Guest • October 7th, 2008 at 4:53 pm

“My son and I have been besieged with credit card offers in the last two weeks..”Talk about fighting the last war!. This is the only game the banks know how to play–push more and more debt on consumers. The problem we see now is consumers pushing back. They either can’t or won’t play anymore. It is check mate for the financial system as we know it.

Capone • October 7th, 2008 at 5:05 pm

this is like shining light on the wall street vampires ! transparency ! what a great thing they had going sell insurance pay yourself all of the premium because it is your God given right to do so and when it blows up ? call in the Feds !Isn’t there some other black box being constructed out there now by Goldman? to trade “private equity” offline even as we are atomically exploding from the last round of greed masked in the dark ?Mark that stuff whereever you want, do not worry about the other side of the trade. Let them mark it wherever they want – it is BONUS time baby. Financial innovation in the 21st century. Derivative Ponzi schemes.

PeterJB • October 7th, 2008 at 5:18 pm

As failed policies by failed policy makers continue unabated and ad nauseum, expect things demographically spread to enter a Dark Age thanks to applied incompetence and stupidity engaged by fatal conceit:1. Life is a dynamic; a cyclic dynamic which obeys the fundamentals of the “Attentional Bell Curve”.2. The Sustainability of Policies (top of the Bell Curve) in societal management (applied political science or government) depends on a number of factors:a. The governing policies of governments.b. The practices of government and the individuals within the political frameworks.c. The integrity of governments and its members.d. Societal perceptions and reactions to a. & b. & c. above.e. The human behaviors and confidence levels of the public domain associated as a result of and reaction to all the above.f. The sense or perceptions and expressions of individual physical & intellectual freedoms in the citizen base.In other words, it is in the rapid acceleration of effects of human behaviors arising out of human perceptions, beliefs & levels of integrity (or lack thereof), which have dictated the commencement of the global economic collapse in 2006. The U.S. economy today is incomparably more vulnerable than in 2000.Or, the measure of value as to the qualitative state of government and the integrity of the constraints (laws & moralities) imposed on society by that government, where the latter, nominally and by default, must a priori be of a dynamic characteristic and of a nature, not deterministically static; as is the case today.http://verbewarp.blogspot.com/2006_08_06_archive.htmlhttp://verbewarp.blogspot.com/search?q=August+12%2C+2006Ho diddly hum

Guest • October 7th, 2008 at 5:21 pm

And isn’t it possible today’s 500 drop was a scare tactic?I don’t trust Paulson and Bernanke and Goldman Sachs. Friday they received $850,000,000,000 in tax money, on top of the $30,000,000,000 for Bear Stearns, $200,000,000,000 up to $800,000,000,000 for Fred and Fan, $83,000,000,000 for AIG, $138,000,000,000 for JP to prop Lehman… Monday Bernanke computerized $900,000,000,000 for auction (they don’t even have to pay for printing paper anymore: only 5% paper now) on top of who knows how much already to exchange for the Street’s worthless toxic collateral — essentially gift money. All Fed books, of course, are private.And Paulson has a blank check on the U.S. Treasury.Yesterday, Roubini said it is urgent these financiers not melt down and that they get more money. Isn’t it possible then that the Paulson/Bernanke-led PPT sold the market today and fed a barrage of stories to the media on the dire straits of 401ks to spook Americans into giving them more?I think so.

Guess • October 7th, 2008 at 5:32 pm

If you have an interest in technical analysis – here’s an interesting (depressing) video from earlier this evening – Jeff DeGraaf of ISIhttp://www.cnbc.com/id/15840232?video=881255718&play=1

AfA • October 7th, 2008 at 5:38 pm

What an epic day!How many will bet Bernanke will turn mad before the end of the year? I mean is anyone out there keeping notes of how much liquidity he is injecting, this should easily surpass the Fed’s balance sheet. TAF = $900B and PDCF now is open for Commercial Paper. There are a $1.5T CP outstanding, the majority of it is either financial or asset backed.The equity markets didn’t flinch. Anybody watching the credit markets?

Bob • October 7th, 2008 at 5:45 pm

Another factor, hitherto not observed too closely, is mutual fund redemptions. As Americans get discouraged over their retirement investments (in 401 K accounts), this rate will probably soar, removing even more liquidity from the financial system.

BK • October 7th, 2008 at 6:07 pm

Why so serious?kidding aside, that guy is not usually so gloomy. Good to see them recognizing the dire nature of the circumstances and painting a more real picture of the market situation.Glad you posted up the link.

Capone • October 7th, 2008 at 6:10 pm

Great point. You mean when people realize that the sell siders brain washed them and fooled them over 20 years into believing that “401K savings” were equal to “savings” ? Oh, for the days when people understood that savings were savings…

Guest • October 7th, 2008 at 6:33 pm

Why is the professor volunteering his advices for free ?People did not give him credit for foreseeing this disaster,now they are going to steal his advices too.

PeterJB • October 7th, 2008 at 6:38 pm

Red Meat:”I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.”-Frederich von Hayek”The episodes of credit crunches and housing busts are often long and deep. For example, a credit crunch episode typically lasts two and a half years and is associated with nearly a 20 percent decline in real credit. A housing bust tend to last even longer: four and a half years with a 30 percent fall in real house prices. And an equity price bust lasts some 10 quarters and when it is over, the real value of equities has dropped to half.”http://www.nakedcapitalism.com/If we had some “leadership” it still could be fixed; but, we don’t, so, er, whatever.Ho hum

Kafka • October 7th, 2008 at 6:52 pm

I keep saying there aint no conspiracy all the information is public yet no one cares. Heck, the PPT has been common knowledge forever and Warburg and Aldrich were not that clever or subtle. I feel sorry for those who believe but I truly feel bad for the naïve retirees whose savings have been destroyed under the presumption that they were acting prudently and Uncle Sam would not lie to them. I will say it again, GAAP, GDP, CPI and Unemployment are f…..ing lies. The cash trail and simple math never lie.………………………………………………………………………………………………Oct. 7 (Bloomberg) — U.S. Securities and Exchange Commission Chairman Christopher Cox’s regulators stood by as shrinking capital ratios and growing subprime holdings led to the collapse of Bear Stearns Cos., according to an unedited version of a study by the agency’s inspector general.……………………………………………………………………………………………“People can judge for themselves, but it sure looks like the SEC didn’t want the public to know about the red flags it apparently ignored in allowing Bear Stearns and other investment banks to engage in excessively risky behavior,” the Iowa Republican said in an e-mailed statement.http://www.bloomberg.com/apps/news?pid=20601109&sid=av2fpp3blAgY

Guest • October 7th, 2008 at 6:56 pm

And another disillusionment for many who have 40l(k)s. Losses are not tax deductable. And, as a few may not know, when you retire and begin withdrawing your funds, you pay income tax rates, not capital gains tax rates.Should you decide you’d like to roll your 401K or IRA funds into real estate — the property must be managed by a middle man, you can never live in the property later or sell it later to a close relative such as a child, you cannot deduct any work you put into the property yourself, nor can you stay in the property overnight while working on it, you cannot depreciate the property. The value of your real estate 401k is determined by a government appraisal. (These were the general rules when I checked a few years back.)401k “options,” such as most low money market rate options offered by companies, are designed to force people, however unskilled or unwilling, into the stock market and are usually restricted to packaged investment “choices.”IMO

Average Jane • October 7th, 2008 at 6:57 pm

I have never. Ever. Ever. Been comfortable with the idea of my retirement monies being anywhere within a cat’s whisker of the stock market. It just frosts my cornflakes that I’ve been forced to do this and my small business employer is throwing good retirement money after bad. I don’t even want to think about what’s happened to my teeny tiny little Roth IRA. And the nerve. The NERVE. To allow the billions of bonuses to go to former Lehman employees, throw a $400K going away party for AIG people? I am just spitting nails but honestly, to whom can I possibly vent my outrage???

Guest • October 7th, 2008 at 7:13 pm

One thing’s for certain. They are panic mongers. I think we can say they did nothing to stop it.I’ll tell you just how tough Paulson and the billionaire financiers and the “Leadership” think they are. They actually threatened the U.S. House of Representatives with MARTIAL LAW, along with the specter of markets dropping 1000 in one day, then 2000,and then GREAT DEPRESSION. Our effete representatives succumbed, of course — to the wreckers.

kilgores • October 7th, 2008 at 7:17 pm

And just what led you to “suspect” it, Sherlock? What is the source of your monopoly on truth and wisdom, anyway? Or are you just another ignorant, gullible conspiracy lover seeking some perverse thrill from self-generated paranoia? Perhaps you should consider keeping your vacuous and unsubstantiated comments to yourself…SWK

Andrew G. Bernhardt, ST. Louis • October 7th, 2008 at 7:17 pm

I will make this brief… I just don’t understand why and/or how borrowing another 700 billion dollars will somehow solve a problem that was induced from borrowing too much money in the first place! They also can’t print the 700 billion dollars, or tax it, any and/or all of these in any combination or simultaneously will have negative and bad consequences on the economy not only of the USA but the entire world! The Government has crowded out investment, it has crowded out borrowing, it has incited the credit crunch, and for some stupid meaningless war against the mountains of afghanastan and iraq! Retarded! The Executive Branch wrote the budget, and the entire negligent congress ratified and approved of the ridiculous budget, which has been in the red for too long, and by too much. This has not only wrecked the stock market, but it wrecked the GSEs, the US Dollar, and everyone’s financial situation. The Government should stop pretending that by borrowing even more money that this will somehow make things better, when this entire mess was and is induced by too much borrowing to beging with! What is the FBI doing? Why haven’t the executive branch (the president), the legislative branch (the congressmen), and the judicial branch (the supreme court justices) all been arrested for negligence?? They’re totally financially negligent! Malfeasant Robert S. Mueller III and John S. Pistole should also be arrested for not making an investigation! The government is at fault for creating this global financial mess! The USA should try to balance its budget, and should stop crowding out investment and should stopcrowding out borrowing! This impacts the financial and capital markets globally when proposals like another 700 billion dollars will have to be borrowed for stupid reasons! The Stupidity of the congess has never ceased to amaze me, nor has the total stupidity of the executive branch… the supreme court rulings are so foolish, even lawyers run around asking what’s the implication/ramification of any of their rulings?? If I was an FBI agent, there sure would be some change, I’d show up at the footsteps of the Capital, the Supreme court, and the White House and would make arrests! If they resisted law enforcement, don’t even ask me what I’d do! When will people learn to connect the dots between the actions of the President, the Congressmen, and the world’s global capital and financial markets! People should be very upset and angry with Washington DC, not downtowne lower Manhattan! BALANCE THE BUDGET YOU FOOLS ( <— my message to all those foolish government officials)! With over ten trillion dollars of debt now, I wonder when they will sign a declaration of default for both the US Dollar, and also of all US Treasury Securities (all the bills, notes, and bonds, both inflation linked, and also conventional securities!)??? Default here we come! If no default is signed, just wait until the US Dollar depreciates in a major way! Toilet paper may be worth more than US Dollars soon! So wipe your hiney with Dollars, and keep the toilet paper! Two ply is worth more than one ply! Everyone keep your chin up, and pretend your house is appreciating!~ Andrew G. Bernhardt, St. Louis, Missouri

kilgores • October 7th, 2008 at 7:23 pm

Oh, I’m an unsuspecting “tool” and a “doofus,” but you, of course, are “in the know.” Must be nice to be your own best admirer. I’m sure you’re deserving of that admiration, too.What is with the name-calling? Can’t you come up with a cogent argument to undermine my comments? Or is that too mentally taxing for you, junior?SWK

Medic • October 7th, 2008 at 7:31 pm

@ Bob on 2008-10-07 17:45:32I had the same idea quite a while ago. It was how I landed here. I was concerned that the Boomers would be taking money out of their retirement accounts to live on and pay for for expensive things such as healthcare after the GOV’t cut back or stopped the Medicare / Caid programs.The Dow has been built up over the past 20 years because we have neglected to save money in the traditional way – via banks. We were told (sold) to save via investments that were safe because they were “diversified” and would survive market variations. We can see now how well that has worked out.What will happen now, though, is that the 78 million boomers who have now received their 3 QTR statements will be pulling back (or for many of the oldest, pulling out) as their time to retirement is short – they will need the money soon. The markets will continue to fall as they do. It was not that long ago that the Dow traded at 5000.From here the only way is down. People here have commented on the nationalization of many industries, but I am most convinced that with 78 million boomers aging, healthcare will be nationalized first. The insurance companies are continuing to take big hits and sooner or later the gov’t will realize it has to nationalize to protect what little it has left to spend on healthcare. The days of getting what you want and getting it now are over folks. Welcome to reality.

Guest • October 7th, 2008 at 7:36 pm

Pope says world financial system ‘built on sand’http://www.timesonline.co.uk/tol/comment/faith/article4893190.ecei was hoping he said “bernanke, paulson, Burn in Hell”but he did mentioned wolf/false prophet:DPope Benedict XVI today said that the global credit crisis shows that the world’s financial systems are “built on sand” and that only the works of God have “solid reality”.Opening a Synod of Bishops in the Vatican the Pope referred to a passage from St Matthew’s Gospel on false prophets, saying ”He who builds only on visible and tangible things like success, career and money builds the house of his life on sand”.He added: ”We are now seeing, in the collapse of major banks, that money vanishes, it is nothing. All these things that appear to be real are in fact secondary. Only God’s words are a solid reality”.He was referring to Jesus’s words in Matthew Chapter 7, beginning “Beware of false prophets, which come to you in sheep’s clothing, but inwardly they are ravening wolves.”

Guest • October 7th, 2008 at 7:45 pm

THE BAILOUT WILL FAIL by Paul Craig Roberts (former Assistant Secretary of the Treasury in the Reagan Administration)Excerpts (the entire piece is informative, especially on housing)Americans, for the most part, will never know what happened to them, because they no longer have a free and responsible press. They have Big Brother’s press. For example, on September 28, 2008, a New York Times editorial blamed the current financial crisis on “antiregulation disciples of the Reagan Revolution.”What utter nonsense. Every example of deregulation that the New York Times editorial provides is located in the Clinton Administration and the George W. Bush administration. I was a member of the Reagan administration. We most certainly did not deregulate the financial system.The repeal of the Glass-Steagall Act, which separated commercial from investment banking, was the achievement of the Democratic Clinton Administration. It happened in 1999, over a decade after Reagan left office.It was in 2000 that derivatives and credit default swaps were excluded from regulation.The greatest mistake was made in 2004, the year that Reagan died. That year the current Secretary of the Treasury, Henry M. Paulson Jr., was head of the investment bank Goldman Sachs. In the spring of 2004, the investment banks, led by Paulson, met with the Securities and Exchange Commission. At this meeting with the New Deal regulatory agency tasked with regulating the US financial system, Paulson convinced the SEC Commissioners to exempt the investment banks from maintaining reserves to cover losses on investments. The exemption granted by the SEC allowed the investment banks to leverage financial instruments beyond any bounds of prudence…Why the SEC went along with Paulson and set aside capital requirements after the scare of Long-Term Capital Management is inexplicable…The 20th century proves that the market is likely to know better than a central planning bureau. It was Soviet Communism that collapsed, not American capitalism. However, the market has to be protected from greed. It was greed, not the market, that was unleashed by deregulation during the Clinton and George W. Bush regimes.I remember when the deregulation of the financial sector began. One of the first inroads was the legislation, written by bankers, to permit national branch banking. George Champion, former chairman of Chase Manhattan Bank, testified against it. In columns I argued that national branch banking would focus banks away from local business needs.The deregulation of the financial sector was achieved by the Democratic Clinton Administration and by the current Secretary of the Treasury, Henry Paulson, with the acquiescence of the Securities and Exchange Commission.The Paulson bailout saves his firm, Goldman Sachs. The Paulson bailout transfers the troubled financial instruments that the financial sector created from the books of the financial sector to the books of the taxpayers at the US Treasury.This is all the bailout does. It rescues the guilty…The Paulson bailout is predicated on cleaning up financial institutions’ balance sheets and restoring the flow of credit. The assumption is that once lending resumes, the economy will pick up.This assumption is problematic. The expansion of consumer debt, which kept the economy going in the 21st century, has reached its limit. There are no more credit cards to max out, and no more home equity to refinance and spend. The Paulson bailout might restore trust among financial institutions and enable them to lend to one another, but it doesn’t provide a jolt to consumer demand.Moreover, there may be more shoes to drop. Credit card debt could be the next to threaten balance sheets of financial institutions. Apparently, credit card debt has been securitized and sold as well, and not all of the debt is good. In addition, the leasing programs of the car manufacturers have turned sour. As a result of high gasoline prices and absence of growth in take-home pay, the residual values of big trucks and SUVs are less than the leasing programs estimated them to be, thus creating more financial problems. Car manufacturers are canceling their leasing programs, and this will further cut into sales.According to statistician John Williams who measures inflation, unemployment, and GDP according to the methodology used prior to the Clinton regime’s corruption of these measures, the US unemployment rate is currently at 14.7% and the inflation rate is 13.2%. Consequently, real US GDP growth in the 21st century has been negative. [The Clinton regime (and the Boskin Commission) rigged the CPI in order to cheat retirees out of their Social Security cost of living adjustments and ceased to count discouraged workers who cannot find a job as unemployed. To be counted as unemployed, a person has to be actively seeking a job.This is not a picture of an economy that a bailout of financial institution balance sheets will revive. As the Paulson bailout does not address the mortgage problem per se, defaults and foreclosures are likely to rise, thus undermining the Treasury’s estimate that 90% of the mortgages backing the troubled instruments are good.Moreover, one consequence of the ongoing financial crisis is financial concentration. It is not inconceivable that the US will end up with four giant banks: J.P. Morgan Chase, Citicorp, Bank of America, and Wachovia Wells Fargo. If defaulting credit card debt then assaults these banks’ balance sheets, who is there to take them over? Would the Treasury be able to borrow the money for another Paulson bailout?…Clearly, all Secretary Paulson thought about was getting troubled assets off the books of financial institutions.The same reckless leadership that gave us expensive wars based on false premises has now concocted an expensive bailout that does not address the problem, which will fester and become worse.http://www.vdare.com/roberts/081005_bailout.htm

Medic • October 7th, 2008 at 7:46 pm

Only God’s works have value. I like that. I like better what that great thinker George Carlin had to say about religion:”When it comes to bullshit, big-time, major league bullshit, you have to stand in awe of the all-time champion of false promises and exaggerated claims, religion. No contest. No contest. Religion. Religion easily has the greatest bullshit story ever told. Think about it. Religion has actually convinced people that there’s an invisible man living in the sky who watches everything you do, every minute of every day. And the invisible man has a special list of ten things he does not want you to do. And if you do any of these ten things, he has a special place, full of fire and smoke and burning and torture and anguish, where he will send you to live and suffer and burn and choke and scream and cry forever and ever ’til the end of time!But He loves you. He loves you, and He needs money! He always needs money! He’s all-powerful, all-perfect, all-knowing, and all-wise, somehow just can’t handle money! Religion takes in billions of dollars, they pay no taxes, and they always need a little more. Now, you talk about a good bullshit story. Holy Shit! “Pray. Go ahead. Nothing else is working either.

AfA • October 7th, 2008 at 7:46 pm

Andrew, you are one pissed off guy.Keep it up. Yelling is seemingly good for high blood pressure and stress evacuation.

Guest • October 7th, 2008 at 8:11 pm

McCain’s Michigan Woes May Widen as Economy Hits Working ClassOct. 7 (Bloomberg)… McCain’s campaign last week…pulled out of Michigan, a state that only a month earlier was one of the Republican presidential nominee’s top targets. Interviews with dozens of workers and elderly voters illustrate why: Michigan, whose 8.9 percent jobless rate is the highest in the nation, is filled with economic anxiety, and McCain was gaining no traction there.The trials he faces in places like Macomb and Monroe counties — largely white, Catholic enclaves near Detroit where many people make between $40,000 and $60,000 a year — are mirrored throughout industrial battleground states from Ohio and Pennsylvania to Missouri.George W. Bush won the support of these firefighters, carpenters, autoworkers, electricians and retirees by a margin of 15 percentage points in each of his two presidential races, exit polls showed. McCain has to do as well…Michigan has lost 40,000 manufacturing jobs in the past year. And workers interviewed cited anxiety over the rising cost of fuel and health care, home foreclosures, the disappearance of unions and anticipated cuts in Social Security…They range from a 55-year-old worker at the Automotive Components Holdings stamping plant in Monroe who is losing his home, to an autoworker, who must drive 100 miles to his plant each day; a sickly, retired pipe fitter, who says there are no good-paying jobs in the state for his children and grandchildren; and a single mother, who recently incurred $50,000 in medical expenses she doubts she’ll ever be able to repay…“We can’t afford to drive,” said Sue Hill, a 43-year-old pipe fitter from nearby Newport who took a $4-an-hour pay cut to work closer to home.Job losses have devastated local families, said Dave Desloover, a 37-year-old counselor to workers at Automotive Components, which is due to close by the end of this year. “There are a lot of families that are breaking up because of these pressures,” he said, citing seven divorces out of a few hundred United Auto Workers union members in just the last month…Deborah Sanders is a 57-year-old shipping and receiving clerk who frets about the lack of prayer in public schools, talks openly about the role of God in her life and is concerned about Obama’s “background and beliefs.” Still, she says she’s leaning toward him.“I don’t know if our economy and our country can handle another four years of what we’ve already gone through,” said Sanders. Her son, a foreman, was unemployed for four years, lost his home and ultimately left the state to find work.’http://www.bloomberg.com/apps/newspid=20601087&sid=adM8Fq0RTis0&refer=home

AfA • October 7th, 2008 at 8:14 pm

Well, I think he [Carlin] should know now if the “invisible man” is really there or not.Though I like him, I think he is making some kind of confusion, the same today’s financiers are making; confusion faith and religion. Faith is a personal enterprise; whether you believe in and follow the “10 commandments” or not, has no real impact on your life. Religion is an institutionalized faith which, most of the time, requires adherence, rules and forced participation. Religion is most of the time a human interpretation/derivation of a faith. It is people who ask adherent to pay money for their religion not what faith is based on.To keep the analogy, banking is a faith, but fractional reserve central banking based system is a religion.

Capone • October 7th, 2008 at 8:14 pm

in the crisis book i read long before this mess came about, they always referred to a magic moment where the panic subsides. the studies dated back 100s of years with one bank run ending by literally having people stand in line, get their money, walk around the back of the bank and redistribute the same dollars to someone else to create the appearance the money was there.can someone please compare the various day after tomorrow derivative storms now wreaking havoc to this simple example and tell me how or what could ever cause this panic to subside? where is the bank? where is the cash? this was what i thought of when i woke up this morning for the day after 3 hours of sleep (not good when i have a first marathon to run sunday!) what could it possible be. the Fed is accepting toilet paper at the window now… honestly, i think it just may be the great great grandmother of all equity crashes where after the dust settles the banking / credit folks say what the hell does it matter at this point, half of the street is gone, 50+% of all equity market cap is gone, screw it and start trading paper with each other again…you know “they” got their bill passed and now they sit with a rate cut in their back pocket to keep everyone honest and watch the crash. this equity business just may be over in the next 2 days unbelievable…

kilgores • October 7th, 2008 at 8:18 pm

Thanks. There’s not much to debate, however, as the content of the CFR links you have posted pretty well speaks for itself and alone serves to refute baseless claims about the conspiratorial nature of the organization (I don’t know of many successful clandestine conspiracies that routinely record and transcribe many of their meetings and make them available to the general public!). Moreover, the diversity of the membership alone belies any unfounded suggestions that some “New World Order” conspiracy is afoot, and do the variety of topics and opposing perspectives published by the CFR in Foreign Affairs.SWK

Guest • October 7th, 2008 at 8:21 pm

If you really want to start pointing out ‘disgusting’ people, why don’t you begin with the area that will do everyone the most amount of good right now. Like the fed and the government, and maybe some companies and people on Wall Street. That should keep you busy for awhile.

Guest • October 7th, 2008 at 8:25 pm

The bourgeouisie’s empty desire to have money beget money as men beget remained an ugly dream so long as money had to go the long way of investment in production….”The Origins of Totalitarianism” H. Arendt

Guest • October 7th, 2008 at 8:27 pm

The bourgeouisie’s empty desire to have money beget money as men beget men remained an ugly dream so long as money had to go the long way of investment in production….”The Origins of Totalitarianism” H. ArendtCorrected

Anonymous • October 7th, 2008 at 8:38 pm

Come on sheeple- the solution to this mess is not that difficult!: THE GOVERNMENT PUTS A TEMPORARY FREEZE ON ALL FORECLOSURES AND ALLOWS PEOPLE TO EITHER RETURN THEIR HOUSE TO THE LENDER (DEED IN LIEU OF FORECLOSURE) OR RESET THIER MORTGAGE AT 3% INTEREST RATE. THEN ALLOW THESE RETURNED HOMES TO BE PURCHASED WITH 10% DOWN AT 3% INTEREST RATE TO NEW BUYERS OR INVESTORS WITH THE STIPULATION THAT THEY MUST HOLD THEM FOR A MINIMUM OF 5 YEARS. THIS WILL RESULT IN A CURRENT VALUE TO ALL THE FINANCIAL INSTRUMENTS AND SYSTEMATICALLY STABILIZE THE SYSTEM AS WELL AS THE ECONOMY. I CAN NOW GO BACK TO STUDYING THE ORIGIN OF BLACK HOLES IN THE UNIVERSE INSTEAD OF THOSE CREATED BY WALL STREET!

bcdogs • October 7th, 2008 at 8:40 pm

Absolutely right….my son is 20, full time college, part time worker, makes about 3,000 to 5,000 a year and they are targeting him, with all their bad paper…mind boggling.Two weeks ago new housing development where I walk the dogs M/I Homes builder, sign in front of nearly finished home, own this home for 1057.00 a month (NO money down) …wow thought I, nice two car garage, large house, much larger than mine. I might could swing that, dogs and I inspect sign, second year payments go up to 1347.00 a month, fourth year 1547. a month!!! No way thought I and let both dogs whiz on sign. Wonder how much of the houses in this development will foreclose in years two and four, pretty steep jump in payment. I know exactly what the greedy buggers say to the buyer, had them do the same thing with me and ex for ARM “aren’t you going to be making more in one year, two years, etc.” What amazes me – THEY ARE STILL DOING IT, crap mortgages, this was two weeks ago.

Guest • October 7th, 2008 at 8:42 pm

Which proves the point that people are entitled to create their own opinions, but we are not entitled to create our own facts.I was hoping to learn from those who took exception to your view the reason for their view. It’s unfortunate that they have chosen to be idle here.Also, their point is completely devalued, when they pull the namecalling card – especially on such an esteemed contributor to this space.I have noticed that when the names of certain high profile individuals appear on Boards of organizations, that it is the mere mention of those high profile names that triggers the type of categorization that has just been applied to CFR above.I encourage those with the NWO viewpoint to “tell us how you got there.” Who knows you might be correct!

Guest • October 7th, 2008 at 8:48 pm

glad someone saw the link to Zeitgeist – but remember to read Adorno, et al (especially the GREAT Michael Lockwood)

bcdogs • October 7th, 2008 at 8:51 pm

Dr Roubini joked (or was it??) on one of the shows pharmaceutical companies that market antidepressants might do well in the coming market.

Guest • October 7th, 2008 at 8:55 pm

it’s not the assets – it’s the financial instruments that were created (some 500 TRILLION ?? in derivatives) etc.I don’t think housing assets in the US are worth that much.If they come to “collect” I suppose possession is 99% of the lawCheck out the “tequila trap” to get a handle on the types of minds behind this game – not nice

bcdogs • October 7th, 2008 at 8:56 pm

what is disgusting is the billions of dollars that churches everywhere have in their coffers…they build larger and larger edfices and pulpits to preach from while there are millions living in poverty and hunger the world over. I believe that it is they that Christ referred to when he drove the money changers from the temple….

Guest • October 7th, 2008 at 8:57 pm

If you haven’t yet done it – Wiki is waiting for a submission”premature Bernankulation… :) “(with the emoticon)

Guest • October 7th, 2008 at 8:58 pm

Medic,hope/prayer is all that we have right now,Heck, we have even lost our freedom,if you take that one precious item away,there’s nothing left but despair,ive read several survivor stories, and allmostall share the one same trait, those who hope/pray plushave the will to live, survives,those in despair died..

hero • October 7th, 2008 at 9:12 pm

One serious question:When the Dow dropped 508pts on Weds, why didthe bond yield go up??????I don’t get it…Shouldn’t bond/bill yield godown and their prices go up????Bond market should rally…If you can help me,I will be very happy.hero

Average Jane • October 7th, 2008 at 9:13 pm

Not to have this board devolve into a discussion of religion, Guest, but with all due respect to you and the legion of believers in various dieties out there, not adhering to any particular religion does not automatically mean a person lives in despair. I choose to believe in the human spirit, bereft of any trappings of religiosity (all man-made). Now unfortunately, I had “faith” in the fraudsters on Wall Street to take care of my retirement account. Misplaced? Yes, indeedy. Do I live in despair now? Hardly. My will to live survives, sans any deity, and my faith remains in myself (where, as M. Scott Peck put it so beautifully in his book “The Road Less Traveled,” god actually lives and breathes).

Medic • October 7th, 2008 at 9:18 pm

Guest,How can I take away prayer from you? I merely point out that it is not likely to help.As for those who think I missed my meds – well, let me just assure you that it is I who work with the patients who believe they are god / gods / jesus whatever. It is not a big step for me to see that 2000 years ago, an uneducated, superstitious and down on their luck group believed the person we would consider a psych patient today, was what he told them he was.Someday, maybe people will look back on the early part of this century and say the same things about us – and Bush.

Guess • October 7th, 2008 at 9:18 pm

Great comments – thanksIn Roubini’s article above he comments on the speed in which things have taken place, answer: at a speed well beyond his worst case sceanrio. In reviewing the above comments the epic battle between deflation and inflation seems to continue with the idea of a sequencential transformation or evolution from deflation to inflation. If one subscribes to that idea and notwithstanding the speed factor; where does one put ones money and assets for phase one (deflation) and phase two (inflation or even hyper-inflation)? For whatever reason gold does not appear to be reflecting much of anything other than a temporary safe harbour.

Guest • October 7th, 2008 at 9:20 pm

this posting is complicate i meant to put at the bottom so here it is (again)Great comments – thanksIn Roubini’s article above he comments on the speed in which things have taken place, answer: at a speed well beyond his worst case sceanrio. In reviewing the above comments the epic battle between deflation and inflation seems to continue with the idea of a sequencential transformation or evolution from deflation to inflation. If one subscribes to that idea and notwithstanding the speed factor; where does one put ones money and assets for phase one (deflation) and phase two (inflation or even hyper-inflation)? For whatever reason gold does not appear to be reflecting much of anything other than a temporary safe harbour.

Guest • October 7th, 2008 at 9:26 pm

check out mr wise ass at the council of foreign relations:US support for housing has a long history dating back to at least the 1930’s. The idea is that if people own houses, they will be less attracted to radical political movements, and is a major reason why the US has never had a strong Socialist Party. Until the late 1970’s, the US enforced low interest rates on deposits so that low loans would be available to homeowners, and Fannie and Freddie was the result of the collapse of that system in the early 1980’s. College radicals that support overthrowing the government get much less radical when they end up owning a house, which they will lose if there is some fundamental social revolution.why ! why! would Roubini pander to them, why……………….stop being the “subject” of these retards

Guest • October 7th, 2008 at 9:27 pm

For any who were around in October 1987 (pre CNBC) there are a bunch of complete episodes of Wall Street Week with Louis Rukeyser and The Nightly Business Report on youtube -http://www.youtube.com/watch?v=2MyToTwag34http://www.youtube.com/user/crashof1987

Guest • October 7th, 2008 at 9:30 pm

This is unbelievable by the way. Average investors need these coins to insulate against a dollar devaluation. Why doesn’t the Mint just buy more gold and silver and make new coins? If demand is skyrocketing, why aren’t they responding????PeteCA

Guest • October 7th, 2008 at 9:41 pm

To get proper quotations you need to find a broker, or subscribe to an online futures trading service. Free services will not give you the kind of accurate up-to-date info that’s needed for trading. For a free service that gives you some idea of current trends in spot prices, try www. tradingcharts.com But this will not give you the prices on all the futures and options contracts with different dates.PeteCA

AfA • October 7th, 2008 at 9:44 pm

Can we all agree then that the fact that the Pope is commenting on the financial crisis is quite funny and that he is, at least, half right; “financial systems are “built on sand” “Although I hoped he said “He who builds only on [IN]visible and [IN]tangible things like [credit, leverage and derivatives] builds the house of his life on sand”

Guest • October 7th, 2008 at 9:44 pm

That’s an important observation – and you need to watch that trend carefully. If it continues, it’s telling you there’s a major shift in market behavior taking place.PeteCA

Guest • October 7th, 2008 at 9:54 pm

Some CommentsToday’s moves in the markets were very important.First, I commented a couple of weeks ago that volatility on the Dow was increasing markedly. And people should beware a significant crash. We’re seeing that now.Yesterday, I noted that it looked like we were headed towards a Black Monday event. But for market intervention, I beleive we would have seen it in one day. However, if you add the losses for Monday and Tues of this week, we’re looking at the Dow being down by about 900 points. That’s pretty close to a quadruple digit loss. This week is “Hell Week” for the US markets, and total downwards movement probably could become a 4-digit drop.Under some circumstances, investors might consider the drastic drop over last week and this week as the approach to a bottom. That would be reasonable analysis, perhaps even for a 1987-style crash. BUT unfortunately, market levels & trends today have triggered a much more serious set of concerns now. The possibility has opened up for much more serious long-term damage to equity markets. Special thanks to Brian Pretti for an inspired piece of analysis that hit the streets yesterday. The possibility is now opened that this is not simply a really bad recession for the USA … we’ll see how it plays out.PeteCA

Anonymous • October 7th, 2008 at 9:55 pm

Like a trend change from a long term bond uptrend that started in ***1982***.After 26 years of a massive bull market it’s getting near time for a long term trend change.I’m starting to hear some reports of people happy their portfolios are heavily in bonds right now.Year after grinding year of bond losses coming up starting in the next year may eliminate those reports.

Guest • October 7th, 2008 at 10:01 pm

If this means what I think it means … we are in really big trouble now — Last Updated: October 7, 2008 21:19 EDThttp://bloomberg.com/apps/news?pid=20601087&sid=aKjhr4WttCiM&refer=home

kwalla101 • October 7th, 2008 at 10:01 pm

can someone please delete these inane, useless comments? who the hell cares if you’re first, especially if you have NOTHING to say.

JLarkin • October 7th, 2008 at 10:11 pm

As we all thought, BAC is choking on Countrywide now:According to General Accepted Accounting Roles (GAAP), lenders like Countrywide Home Loans can claim deferred interest (negative amortization) as income and the lender can count as revenue, the highest amount of an Pay Option ARM payment (fully amortized payment), even when the borrower is making the bare minimum payment as their mortgage balance goes up.This means that lenders can claim this bogus future revenue as income now, even though they know full well that this loan will most likely default. The typical difference between the actual note and the 110% or 125% reset is allowed to be placed on the books of the lender as an asset. This is huge in a state like California. Thus, the lender can offset massive losses with these sneaky and creative accounting practices. (sneaky mortgage business 2.0)http://loanworkout.org/2008/10/bank-of-america-brand-seriously-infected-by-countrywide-loans/

Guest • October 7th, 2008 at 10:12 pm

Nikkei now down by 460 points in early trading. Doesn’t look good for US markets again tomorrow.A few months ago the Royal Bank of Scotland warned its investors about the possibility of a global stock crash. This looks like it.PeteCA

Guest • October 7th, 2008 at 10:18 pm

the entire financial system seems to be under attack now from all different types of directions – from credit events, to mortgage defaults, to downgrades, to credit freezing, to equity falls, to valuations writeoffs, to bank runs, to etc…unbelievable…

Guest • October 7th, 2008 at 10:22 pm

As we look at the development of the credit crisis, we can see a few trends:* The loss of a couple of major hedge funds at Bear Stearns* Collapse of Bear Stearns itself* Collapse of Fannie and Freddie* Loss of Lehman* Emergency efforts to stabilize the banking systems in both USA and EuropeThe credit crisis is growing ever wider, and ever larger. And the key to all of this is too little capital, too much leverage, and too much derivatives trading.But looming on the horizon … we now see a new level of the global crunch that frankly no-one really ever thought possible. The collapse of entire countries. The imminent threat is the economy of Iceland. GDP is about $20 billion. Icelandic banks are holding debt that’s been estimated to be somewhere in the range of $120-200 billion. The system there is impossibly over-leveraged. Efforts by the Russians to inject a few billion are nothing more than chump change. If Iceland goes down, it would be the equivalent of another failure of a large global bank (counting the holdings of all Icelandic accounts as one entity). This has the potential to cause another enormous ripple in the CDS markets, and a further shakeout in the fire sale of assets.Beyond Iceland, there are a variety of other countries that may not be in danger of imminent collapse today … but are tipping in the direction of insolvency in the coming months. One possibility that has been mentioned is Pakistan. No doubt there are other countries on that list.PeteCA

Guest • October 7th, 2008 at 10:27 pm

Just a week or so ago, I was telling a friend that it was like watching a roomful of mousetraps with ping-pong balls on them. Tossing a single ball into the room set off one, which set off more, and before long, the entire room was a flurry of sprung mousetraps and ping-pong balls.

hero • October 7th, 2008 at 10:43 pm

Looking at bond ETF’s like TLT and SHY.Seems they are overbought near termlooking at technical graphs….UST yields of 1-M, 3-M, 6-M, 1-Yr, 5-Yr,10-Yr all rose…..Stocks going to rally soon??????I’m not a professional bond trader, soI don’t know.hero

Stratonovich calculus • October 7th, 2008 at 10:44 pm

Okay, time to cite the Church’s positions on usury and debt:

“And if you lend to those from whom you expect repayment, what credit is that to you? Even ‘sinners’ lend to ‘sinners,’ expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back.”—Jesus on usury from the Sermon on the Mount, Luke 6:34–35″His master was angry, and delivered him to the torturers until he should pay all that was due to him. ‘So My heavenly Father also will do to you if each of you, from his heart, does not forgive his brother his trespasses.’”—Jesus, Matthew 18:34–35″When the existence of the Church is threatened, she is released from the commandments of morality. With unity is the end, the use of every means is sanctified, even cunning, treachery, violence, usury, prison, and death. Because order serves the good of the community, the individual must be sacrificed for the common good.”—Dietrich von Nieheim, Bishop of Verden, De schismate libri III (1411). Quoted in Arthur Koestler’s 1941 novel Darkness at Noon.”All the world suffers from the usury of the Jews, their monopolies and deceit.”—Pope Clement VIII, Caeca et obdurata (“Blind Obstinacy”, 1593)What shall we Christians do with this rejected and condemned people, the Jews? …First to set fire to their synagogues or schools and to bury and cover with dirt whatever will not burn … Sixth, I advise that usury be prohibited to them, and that all cash and treasure of silver and gold be taken from them and put aside for safekeeping. …Seventh, I commend putting a flail, an ax, a hoe, a spade, a distaff, or a spindle into the hands of young, strong Jews and Jewesses and letting them earn their bread in the sweat of their brow, as was imposed on the children of Adam (Gen 3[:19]).—Martin Luther (1543), On the Jews and Their Lies

Personally, I like Tom Paine’s observation about debt and the Church:

“If I owe a person money, and cannot pay him, and he threatens to put me in prison, another person can take the debt upon himself, and pay it for me. But if I have committed a crime, every circumstance of the case is changed. Moral justice cannot take the innocent for the guilty even if the innocent would offer itself. To suppose justice to do this, is to destroy the principle of its existence, which is the thing itself. It is then no longer justice. It is indiscriminate revenge.”—Thomas Paine, The Age of Reason (1794)

Guest • October 7th, 2008 at 10:46 pm

Peteas Sun Tzu said,the ultimate strategy to defeat a foe is by not moving your army at all (my own choice of words)if this was someone’s strategy, flooding the world with ever expanding debt with no prospect of repayment,then swooping in to buy assets at fire-sale price, he is fricking brilliant,but Thomas Jefferson warned us about this already didnt he??

Fuld Punch • October 7th, 2008 at 10:48 pm

The imminent threat is the economy of Iceland.Brit depositors in Icelandic banks (and others!) could be out $4 billion pounds!

Guest • October 7th, 2008 at 10:49 pm

————————————”All the world suffers from the usury of the Jews, their monopolies and deceit.”—Pope Clement VIII, Caeca et obdurata (“Blind Obstinacy”, 1593)What shall we Christians do with this rejected and condemned people, the Jews? …First to set fire to their synagogues or schools and to bury and cover with dirt whatever will not burn … Sixth, I advise that usury be prohibited to them, and that all cash and treasure of silver and gold be taken from them and put aside for safekeeping. …Seventh, I commend putting a flail, an ax, a hoe, a spade, a distaff, or a spindle into the hands of young, strong Jews and Jewesses and letting them earn their bread in the sweat of their brow, as was imposed on the children of Adam (Gen 3[:19]).—Martin Luther (1543), On the Jews and Their Lies———————————–wow. *now* I am disgusted.

Guest • October 7th, 2008 at 10:53 pm

Yeah. I wonder what Bush, Cheney, Paulson and Bernanke are gonna’ do … if Thomas Jefferson, Sam Adams, John Hancock, Banjamin Franklin, and John Adams coming riding back into Washington D.C. That would be quite the show – now wouldn’t it :-) PeteCA

Guest • October 7th, 2008 at 10:56 pm

So that’s what the $4 billion from Russia is all about. I wonder what the Russians get out of this deal? Anyway, it’s still a drop in the bucket. The Fed and the ECB can’t go around bailing out whole countries, they’re barely holding their own banking systems afloat right now.PeteCA

Guest • October 7th, 2008 at 11:03 pm

doesn’t make sense, why would a small country like iceland matter, and why would brit’s invest 4 billion pounds in it?

Guest • October 7th, 2008 at 11:32 pm

http://www.dailymail.co.uk/money/article-1069715/200-000-Britons-fear-losing-savings-collapse-Icelandic-internet-bank.html200,000 Britons fear losing life savings after collapse of Icelandic internet bankBy BECKY BARROW and JAMES CONEYLast updated at 1:36 AM on 08th October 2008More than 200,000 Britons fear losing their life savings after the collapse of an Icelandic bank.They were left with lukewarm reassurance last night that their £4.5billion deposited in Icesave – equal to about £22,500 for each customer – will ever be returned.Icesave was owned by Landsbanki, Iceland’s second biggest bank, which went into receivership yesterday.

Guest • October 7th, 2008 at 11:34 pm

No, I support Ron Paul. My point in posting the Bloomberg article was to show the plight of America’s middle class – the backbone of our country. These people are victims of their own government: they are the workers displaced by Wall Street financiers who merged our industrial base, many with hostile takeovers by ownership of only12% of the voting stock, and moved our industries overseas along with our patents and our jobs and employed slave laborers as replacements. And became billionaire plantation masters.Then began the corporate influx of third world laborers into America, a deal worked out by Ted Kennedy and these same financiers in 1965, displacing more and more Americans from their jobs. The government then taxed her citizens to subsidize the low wages paid by corporations to these laborers and their families with health care, free legal service, reduced utility costs and property taxes, minority ninja mortgage packages, Social Security benefits for elderly arrivals, $3,500 federal earned income tax credits per child as wage supplements, food stamps, and welfare — all so the corporations controlled by these same financiers would not have to pay living wages, either to these people or to Americans.Thus, the Republican Party destroyed itself. I was a state delegate to the Republican working to preserve the party’s staunch grassroots and the creed of our Founders. When we won the Congress in 1994, the self=called neoconservative cabal that had heavily financed the Democrat Party moved across the aisle into our party, within one week. Former Trotskyite Bill Kristol and Newt Gingrich stepped in front of our parade and professed to have won the election with their Contract With America and shut us out.Murdock set up the “Weekly Standard” magazine within a month as the “conservative” voice, with Kristol as our “spokesman.” He set up Fox News as our “voice,” and when Rush Limbaugh was asked, “Your country or the money?” he took the money. I became an Independent when George W Bush was nominated as the Republican candidate for president.So, to blame me for McCain’s showing in Michigan is counterproductive, or for Obama’s for that matter. You should blame the newcons and the liberal Republicans and the wealthly moderate Democrats and the Trokyites who now make my party their home. It is they who will return the Democrats to office in November.

professor X • October 7th, 2008 at 11:38 pm

the way out to america is near….do not panic …look this way..after this storm,the market will adjust itself,because the other option is the extiction of the financial world,wich is an utopia..so…based on that,i assume there will be the day after. and we will learn how to spend money more wisely,and wll st will have to treat us well. 2 years from now, we will be here laughing about it..poorer,but safe and sound.

Guest • October 7th, 2008 at 11:53 pm

There is an online bank called IceSave that’s at risk. The parent is Landsbanki, based in Iceland. That’s the immediate problem. Iceland became a magnet for money from the carry trades – because the country offered very high interest rates. But there was always substantial currency risk involved in the deal. As the carry trade has dwindled recently, the Icelandic krona has fallen by over 30%.PeteCA

Guest • October 8th, 2008 at 12:02 am

9:58 Pacific, Oct 7′thNikkei now down by over 600 points.Looks like Wednesday is another day where the markets get pulverized!Investors are definitely headed to a global flight for safe havens at this stage.Sooner or later we’re going to see some new form of emergency action from the folks in Washington. Probably by the end of the week – if this keeps up. I wouldn’t be surprised to see some kind of major coordinated action by the Fed, ECB, BOJ and BOE to head off this global equities slide.PeteCA

Guest • October 8th, 2008 at 2:04 am

yeah, I agree with Andrew G. Bernhardt. How does borrowing more help the situation?? Don’t even forget the interest due too from all that excessive and wreckless borrowing! Maybe they should propose borrowing another one trillion or two next week, and see what that does!

Andrew Bernhardt, St. Louis • October 8th, 2008 at 2:11 am

Looks like the Dow Jones Industrial Average and the Nikkei average are both about just under sub 10,000 now!!! Who would have thunk it?! The Nikkei used to be nearly 40,000 in like 1990… just look at it now! Pathetic! Equties and stocks are just utterly pathetic beyond belief! Everyone should only invest in fixed income! I like treasury inflation protected securities (TIPS)! Emerging market government debt can add some excitment to your fixed income too! Remember the DJIA was at 386.10 in 1929, and it’s now sub 10,000… this means the annualized gain is pathetic, and then when adjusted for inflation it gets to nearly 1.0% real return annually… when TIPS are currently resting at real yields of nearly 2 to 2.5% all across the yield curve, who in their right mind would be invested in equites!?~ Andrew Bernhardt, St. Louis, Mo.

ESC • October 8th, 2008 at 2:30 am

Pharaoh needed a man of vision; Joseph was recommended and brought out of the dungeon. Pharaoh was so impressed with his analysis of the problem and his 14 year forecast, that he appointed him Prime Minister and Minister of Finance.The next President should appoint our present day ‘Joseph’ as Sec. of the Treasury….NOURIEL ROUBINI

jomos • October 8th, 2008 at 7:46 am

You can sit people at the Kings table with all it’s abundance, but you cannot make them eat more than they are able to bare.Me thinks,Deflation!

Anonymous • October 17th, 2008 at 2:33 pm

Just minutes ago:FED’s EVANS – *EVANS: CREDIT DEFAULT SWAPS `HAVE POTENTIAL TO CAUSE PROBLEMS’

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