The TED spread over the past month:
The TED spread is basically, as Wikipedia says, “an indicator of perceived credit risk in the general economy.” On Friday, after the House passed the $700 billion bailout, the measure saw a record close of 3.86. (Higher means more perceived credit risk. This high, any economist will tell you, is kinda terrifying.)
But the bailout was still a good idea, right? Dean Baker last Friday:
Okay, let’s hear from all those media commentators and politicians who screamed about the stock market plunge on Monday in response to Congress’ rejection of the bailout. With the market closing lower today than it did on Monday should we assume that the bailout didn’t work?
Should we be screaming about the hundreds of billions of dollars lost in retirement accounts and pensions? Or was that just something they talked about when they were pushing for a Wall Street bailout?
My prediction? We’re screwed.
learn the meaning of these three words.
Credit Default Swaps.
The supposed market out there, which no one really knows, is around 60 TRILLION dollars.
It makes the 700 billion bailout seem pretty puny.
oh boy . . .
Globalists have argued that economic interconnection is a good thing because the more we rely on other countries and vise-versa, the more stable the world becomes. In the modern world, this concept was first exemplified in the mid 19th C. by the then international hegemon Great Britain – for the first time in hundreds of years it seemed that France and Great Britain weren’t military adversaries because they needed each other for economic survival.
The more recent sweep of economic globalization that began in earnest in the 1990s is now demonstrating how dangerous these interconnections can be. For example, Iceland of all places, which had an economy based primarily on fishing, but established a large banking sector in the ‘90s is in real trouble. The fact is that every capitalist economy in the world is in palpable danger.
My prediction is that this will all result in a massive recoiling of funds and a re-nationalization of economies – of course, a real danger that this poses to the US is that China holds 1.4 trillion dollars in American debt, that it can cash-in whenever it sees fit.
I predict that the next move by American leaders will be to push for bailout plans to be implemented by every other country that hopes to do business with American banks. The reasoning behind this is that one economy can’t tank without the “contagion” spreading to others. We can call this the “we’re all in it together” model. However, with the US on everyone’s shit-list, I highly doubt this will work out.
The American bailout cannot work in a global economy without similar bailouts occurring in the rest of the world. And of course Hank Paulson and Ben Bernanke know this.
We have been bamboozled people…but what the fuck else is new?
for those of you who, like me, are fairly ignorant to the inner workings of wall street shenanigans and lack a comprehensive knowledge of economics, (and who, therefore, have little-to-no authority in predicting whether the bail out was a good or a bad thing), this week’s episode of this american life was incredibly enlightening.
Ooo, I need to listen to that.
I admit I’m not qualified to make predictions about this kind of thing. The problem here is that the people who are most obviously qualified to talk about our incredibly complex financial system are nearly all completely embedded in the system — they work for investment banks, etc., and are not to be trusted on questions where the interests of some or all of the financial elite don’t line up with the interests of most Americans, and that really seems like the case most of the time. So I end up relying on people like Dean Baker and Paul Krugman, excellent economists who disagree with each other often but can at least give us non-experts a sense of some reality outside the interests of Goldman Sachs.
I also just have a bad feeling about this bailout. It was adopted in an anti-democratic, anti-deliberative manner that smells too much like the Authorization of the Use of Military Force that gave Bush the pretext to go into Iraq.
Wow. The Dow’s below 10,000.
Krugman has a blog entry up now with the title “Dow 10,000!” — oops, it’s from the wrong direction though.
dave: your appropriate lack of trust for wall streeters is another great reason to listen to TAL this week; they interview insiders who give some starkly honest reviews of the current situation. let me know what you think.
Yeah, the next time someone gets all mystical about the invisible hand, I’m a-gonna punch them with my visible hand.
Pick-up line: “Hey baby, they call me the invisible hand — of luuuvvv…”
One piece of good news was that someone wrote language into the bailout bill allowing for a “Stock Injection Plan” if the Secretary of the Treasury deemed it necessary. It is confusing as hell, but This American Life explained it like this:
1-Say you tell someone you will give them $1,000 and tell them that you will take a huge pile of crap out of their basement for them. (huge pile of crap = horrible assets)
2-Then you offer to pay $1,000 but instead you move into the house to watch over the crap, and live with that person, and possibly kick them out if needs be.
Which would you choose if someone were offering these two deals to you?
The banks lobbied for the first plan, which is this bailout plan that we have been hearing about. They don’t want our government in there messing around with stuff, even though (according to TAL) the a large majority of economists believe it is in the best interest of the taxpayers.
Guess what, we now have the second option. Its a good thing I think.
The This American Life episode was very good. Thanks for posting the link, and thanks TAL for the great public service (and conservatives complain about tax dollars funding NPR and PBS… there isn’t better consumer value in all the world).