Our continuing series on the credit crunch gripping US financial markets in which key Financial Players in the mortgage and security creation and evaluation businesses (think Moody’s and Standard and Poors in the latter case) did an Eliot Spitzer – failed to deliver on the fiduciary trust and monetary integrity for which they are paid so handsomely – all this is taking a distinctly nauseating turn. The crisis and resulting credit crunch is changing from Greedy Guts Itself to Greedy Guts Us – as the credit crunch leeches into every aspect of the US economy, spills over the financial borders which means worldwide, and threatens a not just as 2-3 quarter recession, but a) several years of stagflation similar to what has been plaguing Japan and Korea (both of which have just emerged from, Korea earlier and by heroic efforts) and b)loss of America’s position as the safest and strongest of capital markets just as the developing world is taking off and looking for secure capital resources on a massive scale.
The evidence for a very nasty Greedy Guts Us is accumulating rapidly:
Bloomberg News – the breadth and depth of the bad securities is just being accounted for
Business Week – the spill over of the credit crunch to other world economies
BusinessWeek – another “Hail Mary” Federal Reserve “blunts the worst” attempt
Economist – this crisis was foreseen based on the US economy’s wide and high leverage
Economist – one sobering estimate of the costs of the Credit Crisis
NYTimes – the nature and spread of the Credit Crisis
NYTimes – Krugman’s Face Slap wake up call to the deep nature of the Credit Crunch
Wall Street Journal – the technical complexities of the crisis
Wall Street Journal – the WSJ says economists say it is more than a “Hail Mary”
These artiucle are just confirm the breadth and depth of the crisis, primarily to the US Economy.
What is remarkable is the almost studied abstention of the commentary, despite being an election year, for real remedies that can prevent these financial bubble crises from attacking the US consumers and Economy once ever 5 years … and shortening. Sarbanes-Oxley, which has appeared to do the trick against corporate fraudulence like Enron and Tyco, has been branded by the financial community and its trade press(including stories in every one of the above cited sources) as too tough. Partially this is because the there is still not agreement on what the most effective measures. But that can always be cited as a reason for “temporizing” or effectively muddling through.
Of course, in the current Sub-Prime Fiasco there is still dispute on the depth and extent of the credit crunch(however taking upto $200 billion of bad debt off the derelict bank’s hands (and remember theses are all champions of Darwinian Financial “Natural” Selection, until their institution is threatened). But there is little disgreement over the causes as the Economist and Wall Street Journal above and this MIT Technology Review article indicate.
Despite these recurring crises and more frequent financial bubbles, there appears to be little stomach for prevention . And working against it there are so many very, very wealthy (think $hundreds of millions if not billions per year) hedge fund managers, private equity chiefs and investment bankers working overtime to prevent any regulations which would hamper their massive gravy trains. The cost – probably another bubble and the continued loss of trust in the US Capital markets as being safe, secure, and most of all efficient. Where else can you get your pensions and other investments sideswiped if not looted by another bubble once every 3, 5, or 8 years? But hey, raiding the Trust Commons is hard, complex work, give these Greedy Guts Guys another 5th of your retirement income, and they will have spread the risk more cleverly next time.