Friday, November 28, 2008

WHO THE GREAT CREDIT RISK CRISIS KNEW?

No one, wise or unwise, knew or now knows when depressions are due or overdue.
–JKG, The Great Crash 1929



September 2008 – Who knew? Not the masters of the Economic Universe who lord it over the consumers. When the early waters of economic tsunami began to rise, the Secretary of Treasury proved no more prescient than the telemarketing mortgage hucksterer. And why should it be otherwise? Tweak down the interest rates. Wall Street will applaud and the banks will demur. That’s the formula. It was a familiar pattern. The waves were barely lapping the first steps of the pillared Treasury building –right next to the White House – and more impressive. It all seemed manageable - just work with Ben ‘I wrote a book about the Great Depression’ Bernake, have some trust in the masters of Wall Street - which Secretary of Treasury Henry Paulson in his mind had not yet left - and their government shadow organization, which Ben had come to run. Hadn’t they got us out of the Russian-Asian spiral of 1997? Or the Dot.Com bubble of the early 2000s? Yes they had. You have to play with the dials. But the dials seemed to have lost their influence. The markets were not acting in the way they were supposed to. So, by the middle of September, all became true believers in socialism in the form of cash infusions. The Great Credit Risk Crisis was underway. By the end of Sept Bald Headed Henry P. – he of a tremendous intelligence, drive and pragmatism - waddled on his knees for bucks from Rep Nancy Pelozi [D-Cal]. It was a bailout for the financial folks. Ben and his expert partner on depression took this and went back to their offices. And the markets were happy for more than a day. Did they sell Nancy a bill of goods? No matter, he had her at waddle. But this $800 billion [there was more to come] – got spend in piecemeal just for the bankers to be somewhat more content when looking at their vaults. It didn’t unloose the credit risk crisis. On Nov 24 T-man Henry P. would bail out usurious stalwart Citibank with some $800 billion. Just a week after he’d declared all was stable.
Stern Paulson / high blood pressure guy / tie askew, these days /
On Nov 25 the federal reserve said it would commit another $800 b in mortgage, housing and consumer credit markets.. That via Fannie Mae and Freddie Mac and Ginnie Mac and their securities. And consumer securities backed by student loans, credit cards and other consumer credit too…but not a penny for the poor fops on the other end of those telemarketer calls, the consumers. It is very clear that the Republican administration out going and its sponsor bankers are getting the banker bailout done on their watch. If there’s a glitch, it must be fixed. Of course, programmed trading is largely to blame. But the people who fate had rewarded with responsibility here, were not like Lassie. When the Penn Railroad train was headed down the cliff they doubled their bets on Union Pacific. More to the point, they shorted Penn and prepared to chorttel. As the center lost hold, they set off the conflagration by effort making money on the bruthers' bad luck. Moreover, they did it on cheap credit. But now, they cant take the interest rate lower than zero. Hey, Junior try to get a 1% loan if you can!
My father was a credit manager, and he saw the automation of that function. He barely owned anybody anything. From this event to date: not outsourcing your credit analysis is the only take away. Dad couldn’t figure out the point of a paper shredder, and I don’t think he would have countenanced the big government rescue that assured the bank interests could weather the storm they’d finagled.
No they didn’t know what was coming. They were masters of no more than the sum of their accounts. Yes they were growing more incredibly rich with a marvelous Ponzi scheme. And yes they were mere bison in a herd. When you pay the referees, you got a jump on the rest.

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