Luis Arcadio De Jesus R.'s List: Economic Crisis

• If America is circling the drain, Goldman Sachs has found a way to be that drain
• Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage.

• collapsed and insurer AIG - closely connected to Goldman - was rescued with public funds
• Goldman was a major beneficiary of the AIG bailout, receiving nearly $13bn in counterparty payments ultimately funded by taxpayers, according to AIG disclosures in March. Goldman insisted it was fully collateralised and hedged against those positions in the event of an AIG failure, so it had no material economic exposure to the bailout.
• • So if he was interested in how to fix the mess, why is he talking to the healthy instead of with the dieing?
• • Goldman looking out for itself probably pushed for the salvation of AIG. What is freightening is the level of influence Goldman may have on the US Government.
• • Why then and not before? He had already spoken with Blankfein several times.
• denied Paulson had any intention of helping Goldman specifically
• instant approval to transform itself into a bank holding company and access the Fed’s borrowing window.
• did ask US Treasury and White House lawyers that week for a waiver from an ethics ban on contacting his former firm, amid fears of Wall Street’s total implosion.
• day after
• Paulson
• 24 times between September 16 and 21st.
• much more frequently
• far more troubled situation
• Paulson spent 32 years at Goldman and preceded Blankfein as CEO before becoming Treasury secretary in 2006

12 more annotations...

• • The Libor-OIS spread was 24 basis points today. Former Federal Reserve Chairman Alan Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread narrowed past the 25 basis-point level.

• But the American Dream is dying.  It’s been dying for years but few noticed, mistaking the “flip that house” pump and dump scheme for real economic growth.

• There's no way to push private insurers to become more efficient and provide better value to Americans without being forced to compete with a public option.
• won't have the scale or authority to do what a public option would do. That's why some Republicans say they could buy it.
• cooperatives
• If Obama tells Senate Democrats he will not sign a healthcare reform bill without a public option, there will be enough votes in the United States Senate for a public option.

  • But he's too Chicken.

2 more annotations...

• • But we also must consider what got us here in the first place? What options does Obama have but sitting back and doing nothing to mitigate market volatility and stimulate the economy?
• According to the Congressional Budget Office’s alternative fiscal scenario, public debt could rise from 44 per cent of GDP last year to 87 per cent by 2020.
• Mega-deficits as far as the eye can see are bad politics. They could be even worse economics.
• household net worth has slumped back to where it was 20 years ago. But household debt is still close to record highs at about 130 per cent of disposable income.
• Chinese, who are deeply concerned about their vast dollar holdings.

3 more annotations...

• • That is, money going out.
• • Money coming in.
• Outlays are rising at 20%
• receipts falling 14.8%

2 more annotations...

• What I would like to see is economic thought leaders developing a blueprint of a financial crisis strategy which tackles both the immediate crisis issues (liquidity) and the structural, regulatory and monetary issues that create financial volatility (solvency). When crisis does occur, I believe it will be systemic in nature due to the forces Keen so lucidly explains. Therefore, a blueprint which is 1) heavy on tactics and, 2) if implemented in a real systemic crisis, is likely to work, builds credibility. This is political capital which will carry over to longer-term preventive strategies and reforms.
• What I would like to see is economic thought leaders developing a blueprint of a financial crisis strategy which tackles both the immediate crisis issues (liquidity) and the structural, regulatory and monetary issues that create financial volatility (solvency). When crisis does occur, I believe it will be systemic in nature due to the forces Keen so lucidly explains. Therefore, a blueprint which is 1) heavy on tactics and, 2) if implemented in a real systemic crisis, is likely to work, builds credibility. This is political capital which will carry over to longer-term preventive strategies and reforms.

• The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10
• The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10,
• “With every crisis comes great opportunity,” said Mobius. When markets are crashing, “that’s when we’re going to be able to invest and do a good job,” he said.

1 more annotation...

• That framing conveniently omits the role of credit default swaps and how they multiplied the worst credit risks well beyond real economy exposure levels and concentrated them in highly geared financial firms.
• rebalance its economy (code for consume more, export less)
• Foreign investors’ hunger for safe US assets helped to cause the 2007-2009 crisis by encouraging banks to turn risky mortgages into AAA rated bonds,
• US regulators failed to keep the financial system from creating them
• This argument supports Mr Bernanke’s view that low Fed interest rates did not make an important contribution to the financial crisis and the main errors were in regulation.
• Third and most important, the savings glut countries liked Treasuries and Agencies. They did not buy the AAA securities that were at the heart of the crisis, namely AAA rated CDOs (far and away the most important driver of the toxic phase which turned a mere housing bubble into a global financial crisis) or AAA RMBS.
• when the Fed started increasing interest rates, demand for prime mortgages fell yet demand for subprime was supercharged
• The average global savings rate over the last 24 years has been 23%.
• At the same time, other data do lend support to the notion that the shadow banking system was the main culprit in the meltdown.
• But of course, the Fed has to continue to assert that its super low rates really have no distorting effect on the wider world.
• But the Fed is insistent on dodging responsibility for its past mistakes as well as its current actions.

9 more annotations...