It's interesting that you bring up Trust as an integral part of this whole mess; it is the consumer who has lost trust in the lenders, in the banks and the house of cards that is the economy, and while the books may say, "this much debt," the consumers know that much of that debt was tacked on using fine print technicalities, while the consumer was not informed. When my former bank says that they have to cover so much debt, I know that, in fact, most of that debt was added on in the form of--dare I say, predatory--fees and charges that were added arbitrarily based upon policies that were set down without any thought to my, or any other consumer's' well being. This is not real debt; and as a result, I don't trust them anymore. So while we continue to bail out the big boys, the banks can go on adding fee after charge after interest and continue to dig a hole for the consumers to not be able to crawl out of, while continuing to cry, "bad debt." No, the debt is a debt of trust, and the lenders lost it when they became unabashedly greedy.
The Most Dramatically Tragic Week
This Easter week, an interesting way to look at the U.S. financial markets is through the prism of religion -- and, in my case, Catholicism. Easter is the holiest and most dramatically tragic week of the Christian calendar. We begin with the euphoria and adulation of Palm Sunday. From these highs, we descend to the betrayal of spy Wednesday as the herd changes, the pathos of the Last Supper, the nadir of the Crucifixion and redemption of the Ascension. This week was doubly-special for us Irish Catholics as we celebrated St. Patrick's Day -- a proselytizer par excellence -- on Monday.
The same evening -- March 17th -- I found myself in midtown at the studios of a rather hysterical Fox Business News. As the financial world seemed to be falling apart and the presenter was getting more manic, it struck me that Wall Street had become all Catholic in the face of the meltdown.
One way to make sense of the decline of the U.S. and the gradual debasement of U.S. currency is to think of the Catholic ceremony or "get out of jail" card called confession. Once you regard Ben Bernanke as a benign parish priest, things begin to make sense. Corporate America is behaving like a sinner, and Ben Bernanke -- the head of the Federal Reserve -- is the forgiving priest.
For years, the U.S. banking sector was being warned that overspending and over-borrowing was the path to financial delinquency. All the alarm bells were ringing, the currency fell, the current account deficit rose, the saving ratio collapsed and the price of houses overshot ridiculously. Yet the banks in the U.S. ignored the warning.
Is it any surprise that when the Jesus lost it in the Temple it was with the money lenders? Yet the sinners continued with their abhorrent ways.
Now that a crisis has jolted Wall Street, it is adopting a Catholic 'bless me Father for I have sinned' tack. Bernanke -- like a good priest -- is responding to these acts of contrition with the monetary equivalent of three "Hail Mary's and an Our Father." He is granting absolution all over the place, most recently with last week's $200 billion bailout, this week's interest rate cut and an undertaking to guarantee the financial toxic waste on Bear Stern's balance sheet.
Now any reader who, as a child, has been to confession will remember the great sense of relief after the act of contrition. In Dublin, we used to skip out of our local church after confessing a few "mortalers" to our local priest. We were euphoric. We rallied and proceeded -- without hesitation -- to the local shop for a bout of serial sweet robbing! Confession only made legitimate our delinquency.
Similar euphoria is gripping Wall Street now. The rally of the past few days is unlikely to have any steam in it as the corrective power of the priest is open to question. No one believes that the financial crisis is over. Nor do people accept the word of the priest anymore. We have reached 'bailout fatigue.'
The last time we witnessed anything like bailout fatigue from the financial markets was in July 1998, when the International Monetary Fund (IMF) issued a $10 billion loan to Russia to assist the delinquent Yeltsin government, as a result of an economic crisis that had been building for months. Gullible market players took this loan as a sign that the corner had been turned. They contended that such intervention could only stabilize things.
In contrast, I got a call that morning from an old market hand who had seen it all before and who told me: ''Sell everything; this is your last chance." He was on the money -- Russia defaulted three weeks later.
There was an eerily similar reaction in world financial markets to the Fed's most recent bailout. The volatility of markets underscores the fact that no one has a clue about the next phase.
Many investors regard the Fed's intervention as either a sign of panic or a sign that the balance sheets of banks were much ropier than even the most pessimistic bear had imagined. As a result -- after an initial rise in prices -- the intervention prompted a sell-off, confirming the suspicion that we are not out of the woods yet, by any means.
These days, the catchphrase in the banking world is now ''guilty until proven innocent." Everyone knows that there is more horrible sub-prime and other derivative related crud on the balance sheets of some large banks, but because the banks have been evasive, no one knows for sure where the toxic stuff is. So the essential lubricant of the financial system -- liquidity -- has dried up, because trust has evaporated. You lend to people you trust and, if you don't trust them any more, you demand a higher risk premium for the pleasure of lending them cash.
This ephemeral quality -- trust -- is what the central banks are trying to resuscitate. The financial markets arena has become a large game of pass the parcel. No bank wants to be the one that lends to the other bank with the huge sub-prime losses. The banks are desperately trying to pretend that they trust each other, while at the same time minimizing the potential risk of any inter-bank loan, by trying to lay off that risk to someone else.
When everyone was confident, there were lots of banks happy to ensure that the system of loans, repackaged loans and syndicated loans worked well. But now the chain has broken, and the central banks are finding that trust is an expensive and elusive commodity.
Even Father Bernanke -- the most benign, forgiving priest on the block -- has lost his powers. There is a real sense this Easter Week in New York that the financial markets, like Elliot Spitzer, are beyond redemption.
David McWilliams is author of The Pope's Children (John Wiley and Sons), available now.
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Great Catholic points here.
I still can't get beyond certain facts.
When BS ran their models, they were getting ready for a party.
When JP ran "their" models, they were prone to run.
So, the main rub about all this loss of confidence in the financial system is quite simple - nobody knows.
Nobody knows where the value is.
Certainly, least of all, the FED does not know.
Whatever real value there is, it is hidden among a bunch of incalculable emptiness.
Hiding the value of the financial system is a pretty f-in risky strategy for the entire financial services industry.
So, who dealt this mess?
And, why should any entity or group of financial entities be capable of and allowed to put the entire US economy at risk by the establishment of such a system?
And then, why should we the public be willing to let private bankers pledge our money to guarantee their losses that might come about through forced mergers and the like?
All the other big players out there have their own models of how to value the holdings of all the other players.
We don't have a model.
We have the full faith and credit of the citizens and taxpayers of the United States of America.
Let's not give it away to a bunch of unregulated, hidden, transnational corporations hell bent on holding us hostage to the infallability of their design - if we are too big to fail, the Treasury will be forced to bail us out.
Here's a strategy - create a secret, powerful financial cabal that can threaten the entire national economy.
Who's to argue with that?
Obama comes out of this week being stronger, and the press has had its first taste of his blood. All fine on the Western front.
Whatever happened to accountability and paying for your own mistakes.
In Catholicism, if you murder someone but confess to a priest you can go to heaven.
Investment banks should suffer for their predatory lending, as should borrowers who put themselves in over their head.
When you don't make people pay for their mistakes, they don't learn from them and so repeat them. Its almost like you're rewarding them.
I live in a rich, white, republican suburb just north of nyc, with many wall-streeters. I am a registered independent, left leaning, not rich white guy. at the ymca yesterday, I overheard two wall streeters saying "we just witnessed socialism for rich people."
a parliamentary system would be a better form of government. when I see gordon brown, or steven harper of canada, having to stand up to hostile questioning, think on their feet, and constantly face the threat of a no confidence vote, I realize george bush simply could not have done what he's done to this country in such a system - he doesn't have the intellectual capacity. instead, we're held hostage to the "wisdom" of the american people, and the four to eight year "get out of jail" pass we essentially give to a president. why is that? sure, we have "impeachment" - but the fact that it is so hard to pull off, a 2/3rd's vote in the congress, means it is pretty much useless in all but the most egregious circumstances. we IMPEACHED clinton for lying under oath about hummers in the oval office (no conviction in the senate) yet, we are rendered mute and spineless in the face of outright lies, deceptions, criminal acts, and secrecy beyond the pale by the bush administration. why exactly do we stand for that? it may eventually be our downfall. it may already be our downfall. imagine if george bush had to stand up in front of congress (parliament) and answer tough, fact based questions about: iraq, afghanistan, climate change, tax cuts for the rich and corporations during wartime, guns, gay-bashing, separation of church and state, torture, the list goes on and on and on. some might say "well, even under a parliamentary system, if he had the knee jerk republican backing he's enjoyed for much of his presidency, he'd win any no confidence vote. but imagine if the american people - day after day - on c-span, saw this guy exposed in his lies and his ignorance, unable to defend his position to his tough minded contemporaries, instead of a mostly cowed press corp that he submitted himself to at his and his handlers whim? he wouldn't have lasted 2 years. why do we tie ourselves to morons who get people killed unnecessarily and whore for the rich while ignoring the poor? does anybody out there think bush made sure the people of katrina were bailed out by the fed, the way, bear stearns was? save the rich - fuck the poor - go republicans! god bless america! I wear a flag pin! it's attached to my fucking chest - my ACTUAL CHEST - I stuck the pin right through! GOD BLESS AMERICA!! me in iraq? fuck no! my kids in iraq? are you insane?! but I voted for him TWICE! CAUSE HE WANTS TO ABOLISH THE ESTATE TAX - there's a great president!!
The proper term for "socialism for rich people" is fascism.
MrsWakely, you're a guy? Wall Streeters work out at the "Y" instead of Ballys?
Anyway, the Constitution gives the citizens the right to abolish the current government and establish a new one. I'm just sayin'...
By the way, capitalize the first letter of the first word of a new sentence. It makes reading easier.
beyond this point there be dragons
"Here There Be Tygers"
- Mr. Bradbury.
Beautiful.
HuffPost's Pick
Isn't it amazing the speed with which this government rushes to bail out companies, corporations and CEOs who produced their own private hell with other people's money and then are rewarded by millions of bonuses for their effort to ruin the businesses they were in.
Now watch the months of finagling, delaying, and obstructing help for the victims of the above crimes. Take note, thus far nary a one in the credit industry and mortgaging industry has been indicted. Indeed it seems the right is more apt to heap praise on these culprits because they think these crooks represent the entreprenurial spirit.
HuffPost's Pick
By reading these posts one would think that Democrats somehow hide in their closets and don't participate in society at large while a Republican is in office. It must be true...how else could EVERYTHING be the fault of republicans?
Democrats I know generally seem to castigate the banks and lenders and claim victimhood for all of the poor folks who moved into 4,000Sq.Ft. homes on $50,000 a year teaching jobs. Republicans I associate with tend to feel that both the banks and the borrowers deserve to suffer for this mess. Most of the "victims" in this whole mess knowlingly gamed the system and proffited while things were good, now they want to turn around and claim that they were screwed.
NO, people like me were screwed. People who could afford to take out more credit, but just didn't do it because it seemed crazy to live so close to the edge of our means were screwed. We were screwed while we watched every middle class idiot in the country buy new cars, houses, boats, and toys by pulling equity out of their homes on paultry annual salary's.
ANYONE with even a little common sense saw the storm brewing. Predatory lenders? There were plenty. Predatory borrowers? There were plenty. The real victims are those who made every effort to live responsibly during the last few years why those you call "victims" were living high on the hog. We'll continue to pay the price for stupid decisions by corporations and consumers.
As for the government, they are doing what they have to do to shore up banks. If the government lets a big bank fall into bankruptcy, then you'll have some real victims. People losing their savings, their retirement, their pensions. And it will domino. Bear stearns was not a bailout for the rich. The employees and major shareholders of Bear's paid DEARLY! The customers of Bear Stearns were bailed out, NOT the company. You misunderstand the situation if you believe differently.
Republicans aren't happy about the bailouts...but to many of us we don't see a way around it. To the armchair corporate hater it seems very obvious. To the thinking man, it's not so black and white.
Interesting, but foggy perception.
In reading these posts here, I only see one that's political of the whole half dozen that existed at the time of your post. Sure, Dems have the majority in both houses TODAY, but that's another misdirection. It was the years between 1994 and 2006 that Republicans ruled Congress, and the repeal of the Glass-Steagall Act with the signing of the GLBA in 1999 by Clinton, who by the way, Dems are beginning to see the Republican-lite prez for what he really was, that the criminal financial activity was given a free reign. Let us not forget the enron-type scandals which, for some reason aren't in the public view today, because today it's the financial industry. Why is it that banking scandals occur under Republican presidents? Do financial institutions automatically get bailed out under Republicans? So, it is appropriate to say that Republican "rule" encouraged the financial crisis we see today. It is you who are in denial.
Where are the Dems? Some who call a spade a spade are relegated to the back row and labeled by the MSM. Republicans even do it to their own, in the case of Ron Paul. The Dems are by no means organized, so picking on them is bad form. Nor are the overwhelming majority of corporate, including financial firms, Democrat.
Yes, it is not so black and white when corporations are in bed with government, is it? It's good that Repubs don't like it, because it is the Repubs that encouraged it. Both parties are guilty of greed and stupidity, but giving the Repubs a pass is BS.
That said, I fully agree that the true victims are the honest and fiscally responsible citizens. What is black and white is that there was criminal activity in these transactions, and the criminals are getting away with it. AGAIN. If the government has to bail out a private company, the taxpayers should become the owners, per the corporate process. That is equivalent to nationalizing the company. The people should own it. Sorry, why not?
Good post. What you left out is Bernanke's failure to grant plenary indulgences to Wall Street. Fortunately, for the everyday common investor such indulgences were not granted to the Bridge Players of Wall Street. The full cleansing of the remaining Bear Stearns' look a likes will soon follow.
Misplaced analogy.
The executive managers and employees of the Bear (the only people involved) did not get absolution. At t$2 this is the equivalent of bankruptcy - and many person fortunes are been wiped out. Particularly for the little people at the Bear - who no doubt like Enron employees had a lot of BSC stock in their 401Ks.
The apt analogy here is that Brother Ben is a medieval doctor and the Black Plague has broken out in his town and he's trying everything he can think of to prevent it from spreading.
We are on the brink of the meltdown of the financial sector and a replay of the Great Depression.
This is not a liquidity crisis. Fundamentally it is a solvency crisis. Which is why despite Fed actions since last August, the crisis is not going away.
Last week, there was a dramatic run on the Bear ($17 billion in two days!), worldwide counterparties stopped dealing with perceived weak links in the US financial system - both of which led to the first financial domino wobbling.
The Fed engineered the sale of BSC at a bargain price.
Until yesterday, I was angered by the Fed's engineered bailout of Bear Stearns and then learned in detail what actually happened. Everyone at Bear Stearns from president and CEO down to staff lost their jobs and any wealth they had linked to Bear Stearns value. But the Fed bailed out the billions of dollars in third party assets being held in trust by Bear Stearns and that would have ended up for years in bankruptcy court: This was the right thing to do. Unfortunately, McWilliams hits on a number of interesting and I think valid points. The blood letting on Wall Street isn't over. For a generation, Wall Street has operated deregulated or under regulated and anyone who has studied the history of capitalist economics understands that markets don't regulate themselves and capitalism tends to focus on greed (Bear Stearns being the perfect example of a company that cared about nothing so much as itself, which is why there were so many smirks on Wall Street when their stock was sold for $2/share, which one analysts stated was overpriced). What next? Good question but my guess it won't be pretty. Analysts are desperate to put a good face on all of this.
RHW
Precisely.
This failure to regulate is based on two key delusions which ignore abundant recurring factual evidence to the contrary
:
That markets self-regulate and self-police by themselves
That government regulation is bad as it distorts the market.
And now we stand on the brink of a financial market and real economy crisis that represents a fundamental threat to our national security and way of life.
Good points, Rog. Nomi Prins argues along the same lines, pointing out that the bailout's real beneficiaries were the Bush administration and the Fed itself.
www.commondreams.org/archive/2008/03/19/7759/
Ever wonder why you don't hear the CEOs talking about this situation? Because it's incredibly horrible to the point of being unknowinly ugly. If it were all exposed, this country would fold up like a cheap tent in a tornado. Opportunity for martial law?
We are all the victims of the financial industry's fraud. All of us.
Good thing we have a republican President and a nearly republican controlled House and Senate. Those republicans really know how to manage the economy.
NEWSFLASH: Another name for "neary republican controlled House and Senate" is DEMOCRAT controlled House and Senate. You are so in denial.
It is you who are in denial.
yes I say 50 lashes for Mr President, lay it on with a will Mr Christian
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Posted March 20, 2008 | 09:22 PM (EST)