MONITORING THE MELTDOWN
The Weekly Stop The Squeeze Newsletter
In Debt We
Trust director Danny Schechter reports on the film and campaign.
WHAT GOES AROUND COMES AROUND
“Institutions and human psychology lead financial markets to bounce
back and forth between exuberant greed and catatonic fear. Times of
fear generate high unemployment. Times of greed are likely to be
times of destabilizing inflation.” Economist Brad DeLong
It was another week in which the debt crisis rolled over financial
institutions and people’s lives like an out of control freight
train. We saw customers at a credit-starved mortgage bank in London
lining up in the streets to pull their money out and the Bank of
England pumping money in just a day after warning others, in the
name of “moral hazard” rules, not to bail out lenders.
A CHEER FOR THE PEOPLE
The Times of London carried a cheer by Libby Purves for those
demanding their money arguing “salute the queuers for their nerve,
patience and admirable impermeability to patronizing advice.
For how dare the stuffed suits, financial and political (and indeed
journalistic), use expressions like “Don’t panic” and “Keep calm”.
The withdrawers are perfectly entitled to choose who looks after
their lavishly pretaxed savings. Some of them actually need money
right now – like the chap on the news who wanted to pay his builder
– and others just prefer not to rely on an institution that goes
begging to the “lender of last resort”.
By their presence on the streets, most
of it not at all panicky in demeanour, the queuers utter a
resounding raspberry to the financial industry and its political
masters. It is time someone did.</blockquote>
(When Will Americans do something similar? One promising shift in
the political wind:
Obama’s Speech on Wall Street on Monday.)
“EXTRAORINDARY” SAYS THE ECONOMIST
The world’s top business magazine The Economist noted:
A CENTURY ago, the depth of a
banking crisis was measured by the length of the queue outside
banks. These days, financial panics are more likely to be played
out through heavy selling in share, bond or currency markets
than old-fashioned bank runs. That makes the sight on the
morning of Friday September 14th of a queue of people waiting
(patiently in most cases) to take their money out of Northern
Rock, a wounded British mortgage bank, all the more
extraordinary.
Yes, folks, “extraordinary” as this
crisis becomes frighteningly global and it’s not clear if a rate cut
from the Federal Reserve Bank in the USA can put the genie back in
the bottle.
THE PEOPLE IN THE KNOW KNOW….
Bankers know how bad it is. Here’s Jim Glassman of JP Morgan: ‘The
credit-market storm is a far more dangerous thing that anything
we’ve seen in memory.” More and more news reports are glum.
Here’s the Sydney Morning Herad in Australia reporting on “How Bad
Debt Infected the World.”
” The foreclosure butterfly flapped its wings in smalltown USA and
the hurricane built and tore through world banking.”
Here’s the Independent on Sunday drawing a parallel with the Great
Crash of 1929:
“In his classic work The Great
Crash: 1929, J K Galbraith put the decline down to the bad
distribution of income; the bad corporate structure; the bad
banking structure; the dubious state of the foreign balance; and
the poor state of economic intelligence. He might have been
writing about George W Bush’s world rather than that of Herbert
Hoover.”
Remember: you can’t rely on what
officials are saying to calm us. One Website noted: “the time to
panic is when officials say, “don’t panic.” Remember Andrew Mellon,
Hoover’s Treasury Secretary who said famously:
"I see nothing in the present situation that is either menacing or
warrants pessimism." The comment, reported in London’s Independent,
was made on 31 December 1929, just after the Wall Street Crash and
ahead of the Great Depression.
No, I am not expecting or hoping for a depression. Who would? But
the parallels are eerie, and I am not the only one making them.
WILL THE INTEREST RATE CUT HELP?’
On Tuesday, The Federal Reserve bank cut the interest rate for first
time in four years, seeking, they said, to prevent a housing slump
and turbulent markets from triggering recession.
The Fed did more than expected, doubling the anticipated ¼ point
drop. Think about why: They are much more nervous than we know and
willing to take radical steps even if it leads to inflation.
The globally hyped interest rate cut was done more to “shift the
public mood” and show that the Federal Reserve Bank was doing
“something” even though most financial insiders knew it will have
little likely impact on the underlying problems although stocks
soared on the announcement.
Bloomberg’s Financial News explained the Fed’s “dilemma:”
While a quarter-point reduction
in the federal funds rate may not be enough to bolster growth
and investor confidence, a half-point cut might fan inflation
and be perceived as giving in to pressure from Wall Street firms
that made bad bets, especially in the market for securities
backed by subprime mortgages.
(NOTE: They Did the half point
deal. What do you think that means….Yup, the current crisis is
scarier to them than future inflation ad yes they did give in to
pressure.)
Bernanke and fellow policy makers
``are really caught,'' said Robert Eisenbeis, a former research
director at the Fed's bank in Atlanta who attended meetings of
the rate-setting Federal Open Market Committee before retiring
early this year. ``The Fed needs to avoid the perception of
bailing out the markets, lenders or borrowers.''
It’s all a “perception game.” Look at
what the experts were saying before it was done:
THE WALL STREET JOURNAL: “TOO MUCH HOPE MAY BE PINNED ON RATE
CUT”
They say the rate cut “would offer
little immediate help for the fundamental problems weighing on the
country’s economy and financial markets.”
The Economist: “In the short term, lower
interest rates will not achieve all that much.”
So why all the hype. Perhaps because
symbolically this looks like the government is coming to the rescue.
It will help short term stock sales and bail out bankers but not the
people who are suffering under the burden of debt and foreclosures.
No one is talking about how to create economic inequality, lower
prices, control gas and food cots and RAISE WAGES FOR WORKING
PEOPLE. I wonder why. “Don’t be naive, a friend said, the FED is not
there to help us. It is run by bankers, for bankers. It’s part of
the problem, not the solution.”
Some people are advocating the Bank be nationalized.
THE NEW YORK TIMES EXPLAINED WHY A RATE
CUT IS A FRAUD
"Rate cuts won’t attack the
proximate causes of today’s economic turmoil — widespread
mortgage defaults at one end of the economic scale and a credit
squeeze afflicting Wall Street at the other, both rooted in the
excesses of the housing boom.
A rate cut will not make most
exploding adjustable rate mortgages affordable, because those
loans are set to rise to market-based interest rates from very
low teaser rates. The increases in monthly payments will be huge
even if the Fed cuts its rates by half a percentage point — and
it may cut less than that.
Nor will a rate cut magically
loosen credit. Rate cuts generally juice the economy through
mortgage lending. But the mortgage market has seized up, and is
likely to remain cramped as long as lenders are unsure about the
source and extent of losses on mortgage-related investments held
by banks, financial firms and hedge funds. A rate cut will not
make the system more transparent."
Note the references to the “excesses of
the housing boom,” a phrase that suggests this just happened all by
itself. Yes, some lenders were greedy and irresponsible—and on the
right, at places like the Free Republic Website where readers
trashed my last newsletter because they believe it was all the fault
of people who knowingly got in over their heads. How easy to blame
the people. They see the world only through partisan lenses and fear
that Bush will be blamed---and he will. He Is the new Herbert Hoover
bankrupting America.
They don’t understand and don’t want to understand how big banks and
investment institutions deliberately encouraged, bribed and
incentivized people to risk their lives so they could make a
fortune. It was a scam, and a crime! (See my latest article on “THE
CRIMES OF WALL STREET" on Mediachannel.org). This is the essence
of a Republican economy—transfer resources to the rich
THE LOSERS
According to writer Richard Walrath, there are four sets of losers
in this housing meltdown...
~~ Those caught with the homes
they bought for flipping purposes are not going to be able to
find buyers. They are going to lose whatever they have invested,
plus whatever mortgage payments they make. It may be cheaper for
them just to walk away.
~~ Those who own homes will see the value of their houses go
down because of the current oversupply due to overbuilding when
interest rates were lower and people were buying homes with
little or nothing down with the idea of flipping the houses as
soon as possible.
~~ Those who bought homes with variable-rate mortgages are
having trouble making payments because those payments keep going
up, and there's nothing they can do about it. Many did not even
realize they had such a mortgage. Millions are going to lose
their homes.
~~ And then, there's the murky many -- the banks and the hedge
funds which ended up with mortgages used as collateral for junk
bonds, which ended up as holdings by French and German and
English banks, not to mention those in this country.
"This is the dog that worried the cat that killed the rat that
ate the malt that lay in the house that Jack built, and we ain't
seen nothing yet," Walrath says.
"When it comes to saving the rich from losing money, no expense
will be spared. Actually," Walrath mused, "the economy is good
-- if you're rich. For the rest of us, there's not much to write
home about."
FEDSTERS BACKING AWAY
The funny thing that we are seeing every day is that the people in
charge are backing away. Hank Paulson, President Bush’s Treasury
Secretary, now blames the banks for the problem although as the CEO
of Goldman Sachs, he was making money on all this. (Former Fed
Chairman Alan Greenspan now admits he wasn’t attentive to the
problem—perhaps because he was more concerned about supporting tax
cuts for the rich.)
BANKS HURT THEMSELVES
Just look at all the money the bank have lost because of their greed
and stupidity—And the lack of regulation that enabled them to rip
off others. Now the chickens have come home to roost. There has been
a report that the banks lost THIRTY BILLION—and that may be a low
number. The editor of the ML-IMPLODE website says the real number is
in the TRILLIONS.
Reports the Daily Telegraph in London:
"Lehman Brothers, Bear Stearns,
Morgan Stanley and Goldman Sachs are all expected to write off
hundreds of millions of dollars. Merrill Lynch has already
warned in a regulatory filing that it had made "fair value
adjustments" in the face of potential losses and admitted to
"significant risk" from further exposure.
The banks have seen their combined share prices fall 22pc during
the quarter amid concerns about their exposure to the sub-prime
market."
They don’t even know the extent of the
bad debt as anthropologist Lionel Tiger explained in the Wall Street
Journal:
"The task is bewilderingly
difficult because many of the transactions were actually managed
by computers with whirring models assessing countless points of
yesterday’s data. So there’s nothing for the anxious investor
looking for his money to do but trudge trudge trudge through the
financial thickets. Even James Bond would have to shoot his way
through the bonds upon bonds. Then triumphantly he finds where
his stash is actually located! It’s perched in New York in an
entity called (don’t try this at home) the High-Grade Structured
Credit Strategies Enhanced Leveraged Fund. A very reassuring
name! What intrepid literature! But then he notices a sign on
the door saying “Closed. Oops. No Money Here.”
THE ”UNKNOWN UNKNOWN”
Overseas, there is even more skepticism as the Indian Newspaper The
Hindu reported . They did an interview with Mr Prashant P. Kothari,
who worked on Wall Street.
So far, losses have been reported from France, Germany, China,
Australia, Japan and England in addition to the US. And this is just
the tip of the iceberg. There are likely to be many more casualties
over the next two years.
We have here a situation that I like to
call the “unknown unknown”, where no one knows which firms have
exposure to sub-prime or the amounts involved. Given this
uncertainty, banks decided to stop lending -- not just housing debt
but other forms of debt as well. This led to the liquidity crunch in
August, which in turn hit the markets worldwide.
The world’s central banks (the American
Federal Reserve, the European Central Bank and others) are trying to
pump liquidity into the system via different routes but are
successful only marginally. Overall the outlook in world credit
markets remains tenuous, with lots of things that can still go
wrong.</blockquote>
He also reminds us of the NINJA LOANS
The most notorious example of
this laxity -- the so-called NINJA loans i.e., loans to
borrowers with No Income, No Job or Assets. It seems ludicrous
in hindsight, but mortgage banks in America rushed to lend
billions of dollars as NINJA loans.
So what do we do. If you read this
newsletter regularly you know, I feel this issue has to move from
the financial world to our world, from the business pages to the
front pages, and from the suites to the streets. We need to press
politicians to act. Here’s an example. A
video question to political candidates from someone who was in
the industry.
Congress is debating tougher laws on predatory lending. Some
States are acting too: “The staggering foreclosure rates in Illinois
prompted Governor Rod Blagojevich to file amendments to HB 4050, the
Illinois Predatory Lending Database Program.”
The blogger Atrios reminds us that
politicians can act quickly when pressed:
"They can pass bills very quickly
when they want to. Remember how fast they gave George Bush the
power to spy on you without a warrant!"
LET’S NOT FORGET THE STUDENT LOAN
SCANDAL
Read this---shocking:
How banks rip off college students and the government
EDUCATION IS KEY: WHAT WE CAN DO?
We have to educate the public because
people don’t know their rights—or their right to have rights. They
don’t understand the issues because our media doesn’t explain them
and seems more worried about the security of the banks.
That’s where showing
IN DEBT WE
TRUST comes in. By setting up screenings and holding
discussions, we can inform more people about the crisis -
You can organize a screening in your neighborhood.
And that’s where you come in—by taking the initiative, getting the
film, sending this newsletter to friends and enemies, you can help
raise the visibility of this issue.
I am doing all I can, speaking this week
in Queens and Brooklyn and at a church center an then off to
Michigan to brief journalists. Soon, I will be at the Brooklyn Law
School and NYU. Invite me. And if you can, get an honorarium. It
costs money to do this kind of work and we need support badly.
* * *
Your comments and experiences are welcome. Write: Dissector@mediachannel.org.
You can read more of my daily blogs and articles on Mediachannel.org
We are also maintaining a
DEBT BLOG
on this site. Please visit it and tell us what you think
Please send this newsletter to your friends.
We are also looking for some donors to support our not-for-profit
outreach and educational campaign with tax-deductible donations to:
The Global Center
575 8th Avenue, suite 2200
New York, New York 10018
If you have comments or suggestions,
share them with me at
dissector@mediachannel.org.
Danny Schechter
Editor
Mediachannel.org
Director IN DEBT WE TRUST
InDebtWeTrust.com
212 246-0202x3006 |
