Fareed Zakaria: US Has Received The "Wake-Up Call From Hell"

Some of us--especially those under 60--have always wondered what it would be like to live through the kind of epochal event one reads about in books. Well, this is it. We're now living history, suffering one of the greatest financial panics of all time. It compares with the big ones--1907, 1929--and we cannot yet know its full consequences for the financial system, the economy or society as a whole.

I'm betting that, in the end, the world's governments will win this battle against fear. They have potentially unlimited tools at their disposal, especially if they act in concert. They can nationalize firms, call bank holidays, suspend trading for weeks, buy up debt and equity, and renegotiate home mortgages. Most important, the American government can print money. All of these tools have long-term effects that are extremely troublesome, but they are nothing compared with the potential collapse of the financial system. And Washington seems to have recognized that it must do whatever is required to shore up that system. Big questions remain. What will it take to stop the fall? How costly will it be? How long before the rescue plan starts to have an effect? But at some point, the panic that gripped world markets last week will end. Of course, that will not mean a return to growth or a bull market. We're in for tough times. But it will mean a return to sanity.

Read the whole story here.

Comments

[Harrier]

In March 2003, my friend Jeff got a $500,000 mortgage for his house. Jeff is a nice guy who couldn't manage his own money. None of his friends would loan him $10.00. When Jeff qualified for a load, I took my money out of the market. At that point, I knew the economy was on borrowed time and there is no way the banks didn't know it.

This is an intelligent article, but needs to go further. We seriously needs to away from oil and reduce pollution and waste. This will help stabilize our economy and add jobs in the US. In the long run, this can only make this country more competitive and our lives better. With global warming, water, particularly in Southern California is going to be a serious problem

[Marlyn]

"the American government can print money." ???

No it can't. The Federal Reserve prints our money, and it is NOT part of our government. It is a privately owned bank.

[BPCentrisAmerican]

I recall asking my economic professor if the Great Depression could happen again, an event that left a lasting impression on my parents. My professor answered no, because of the protections that were an integral part of part of FDR"s New Deal. Roosevelt needed to rebuild trust between the American people and the government, as-well-as financial institutions. Movement Conservatives have been waging an ideological war against FDR since 1932. The Great Depression a direct result of Milton Friedman"s, laissez-faire fundamentalism, which laid down the conditions for economic collapse under 2 Republican presidents, terminating with the market crash under Hoover in 1929.

Even FDR a capitalist, who the laissez-faire crowd thought as one of there own, believed that the economy would right itself, this did not happen. To this day conservatives believe that FDR policies prolonged the Depression, not supported by any historical data. What history dose show is that in the years leading up to 2nd World War unemployment declined 50%; much needed public works projects were completed. FDR"s programs were responsible for building strategically positioned ship yards, large enough to build the supper sized war ships needed to defeat the Nazis and Japan, yet laissez-faire fundamentalism, re-branded Supply Side economics is still the religion of right. George Bush had the tools, that Reagan didn"t, a compliant Republican Congress for 6 years striped away economic protections even anti-trust laws were ignored and what we are experiencing now is the natural conclusion.

[MagisterLudi]

"The Great Depression a direct result of Milton Friedman"s, laissez-faire fundamentalism."
Milton Friedman-Great Depression?
Related quote:" One time when me was high, me sold me car for like 24 chicken McNuggets." Ali G.

[mcyina]

Great piece. I hope people as well as the government will learn from this and improve on their decision making when it comes to finance. The sad this is with all this going on I am surrounded by people who rely on the government to feed their children but can't wait to own their own house in a year or two.

[Kahill]

Great! Now everyone is a Monday morning economist!
Another simple way to put the whole thing: Live within your means, and wake up to global competition!

[PT6]

YES! This is PERHAPS THE TOUGHEST TIME IN OUR LIFE!

Europe's action will hopefully provide the push we need and Futures are up about 4%!

We should have been working closely with Europe for the Past 8 YEARS! We will in the Near Future!

Lets hope this will free up the credit markets and help us find the "BOTTOM."

Thank you Europe!

[Christian]

It is always nice to read your educated perspective Mr. Zakaria, keep it up. There are too few voices in media with your international perspective and analysis.

[omop]

Another "pap" commentary by an enamored individual of the bs. prevalent in post Reaganesque America.

Mr. Zakaria aught to, if he has not, read up on Mahatma Gandhi's take on the ways of the West.

" First they insult us. Then they express hatred for us. Then they invade us. And then we win".

9/11 may have changed everything for the US, But what took place in Beijing and Georgia on 08/08/08 changed everything for the entire world including the US.

[lifesaver]

Why didn't these mortgage lenders call in their clients and set them up with a fixed rate, reduce their mortgage, and give them payments people could afford? It boggles the mind. After 2 or 3 months of people not paying, the mortgage lenders should be calling people up and meeting with them to try and figure out what is going on.

Medical bills are the #1 reason why people can't make their mortgage payments. Our health care system is totally broken and needs a complete overhaul. This is what people can do about health care.

1. Watch Michael Moore's "SICKO"---Your eyes will be wide open about health care in this country.

2. Go to YouTube and watch the videos about HR 676. Watch the video where Dennis Kucinich talks about HR 676. HR 676 is sigle-payer. It will cover every American from the cradle to the grave. Everybody pays their fair share. Both candidates have their own health care reforms, but HR 676 will cost the government nothing because the American people

HR 676 will cover doctors visits, vision care, chiropractic care, dental care, nursing home care, mental health review, rehab, hospital stays, etc. Insurance companies will no longer exist.

3. Go to Michael Moore's website (michaelmoore.com),sign the petition, write a letter to all of your senators and representatives to ask them to support HR 676.

HR 676 will be similiar to what England, Canada, France, and Japan have.

Pass the word about HR 676.

[robbor]

Hey Fareed, thanks for your keen observations. By the way, where have you been the last 2 weeks , this stuff is old news.

[gorgol]

The estimated cost of this "funny paper" economic catastrophe is around $60 TRILLION....our $800 Billion bail out is pocket change to what's needed.

[Marlyn]

Kucinich says the total value of derivitaves (imaginary wealth, at this point) is $455 TRILLION.

[larry278]

Wonder no more Mr Z; this is the real thing. We now have a world wide depression. Ignore your mates of/& on the MSM. Whistling as you walk through the grave isn't & won't work in 2008.
There will be far few banks on 1/1/09 then we had on 10/12/08.

[tomhuggan]

I sometimes think this was all planned. Over the last 50 years or so, one wave of politicians after another have been adding various benefits to the factions of people they best represented. Democrats love to act like good Chris tians and help the poor, Republicans can't ever get enough tax breaks. The politicians come and go, but their programs linger on and on, charging up the national debt with very little prospect of it ever changing. Clinton did hold the line, running a rather frugal budget while reaping windfall tax profits from a equities market that was bursting with growth from computers, cell phones, internet, and all the peripherals. But that was the exception, not the rule.

Now, the bankrupter was selected in 2000 to put a stop to government generosity, by breaking it. The last 8 years have been very expensive. This "credit crisis", in my humble opinion, is W's final fireworks display, designed to bring down the USA like the USSR fell a decade+ years ago.

[gorgol]

I agree. He's a sociopath...and such twisted personalities like to see things destroyed...like to see people suffer..while they convince the masses they have a direct link to God.

[Swedishgal]

You all should read the interview with George Soros, another one of my heroes. He said China is the next superpower because of the last twenty five years of unfettered capitalism and wealthy CEO's not wanting to pay their fair share, more or less. The 'we can have it all for nothing people' are still around which is unfortunate for the rest of us but maybe if we can get our people educated and informed they won't ever allow these people to have power like that ever again. It's too late for us in the meantime. We are so screwed because of that market fundamentalism mentality.

[Marlyn]

"I sometimes think this was all planned."

... and you'd be right. Read "The Shock Doctrine" by Naomi Klein.

[HallStyle]

Why are we going to give BILLIONS of dollars to FAILED Companies that sell PAPER! We should be giving this money to companies that ACTUALLY MANUFACTURE GOODS. This would create jobs.

Why haven't we eliminated the TAX LOOP HOLES that allow OUR companies to set up shop overseas? That is the main problem.

Why hasn't the U.S. government be inactive in fixing our TRADE BALANCE? We need to protect our economy at home. Fixing our trade balance is a good way to do that. We import way more than we export. This has too stop. Giving MORE money to companies that SELL money isn't the answer. It will only be a band aid!

We must fix our infastructure. NOW! We start MANUFACTURING MORE GOODS IN THE U.S.

We must PENALIZE Companies that go overseas. And reward companies that choose to add more jobs. http://www.hallstyle.blogspot.com

[Mildmannered]

"A far better stimulus would be to announce and expedite major infrastructure and energy projects, which are investments, not consumption, and therefore have a much different effect on the country's fiscal fortunes"

Fareed, you are right on! Keep up the good work!

[JamesInDenver]

I second that!