Still on the Edge of the Abyss

[Crewleader]

October 6, 2008

By MIKE WHITNEY

French Premier François Fillon: "We're on the edge of the abyss”

Years from today, when the current financial crisis is over, historians are likely to agree that it would have been far better if the Bush administration had declared a state of emergency earlier in the process so that the necessary steps could have taken to avoid a complete financial meltdown. The media could have been used to bring the American people up to date on market-related developments and educated in the bizarre language of structured finance. Knowledge is power; and power can prevent panic.

Now we're in a terrible fix. People are scared and removing their money from the banks and money markets. This is intensifying the freeze in the credit markets and driving stocks into the ground like a tent stake. Meanwhile, our leaders are caught in the headlights, still believing they can finesse their way through the biggest economic cataclysm since the Great Depression.

f something is not done to increase the flow of credit immediately, the stock market will tumble, unemployment will spike, and many businesses will grind to a standstill. We could be just days away from a severe shock to the system. Secretary of the Treasury Henry Paulson's $700 billion bailout does not focus on the fundamental problems and is likely to fail. At best, it puts off the day of reckoning for a few weeks or months. Contingency plans should be put in place so the country does not have to undergo post-Katrina bedlam.

Does Congress have any idea of the mess they've made by passing the Bailout bill? Did any Senator or congressperson voting Yes even notice, that while they were busy mortgaging off America's future, the stock market was plummeting to new lows? Between the time the ballots were cast on Paulson's bailout, and the announcement of the final tally (which was approved by a generous margin) the market went from a 310 point gain to a 157 point loss; a 467 point plunge in less than two hours.

http://www.counterpunch.org/whitney10062008.html

[Hydra]

1. Heh

Why fix a problem when you created it for the purposes of a smash and grab?

[anigbrowl]

2. This seems highly contradictory

But then it's from counterpunch, so no surprise there.

"If something is not done to increase the flow of credit immediately, the stock market will tumble, unemployment will spike, and many businesses will grind to a standstill."

In a nutshell, yes.

"Secretary of the Treasury Henry Paulson's $700 billion bailout does not focus on the fundamental problems and is likely to fail."

Well, considering the entire object of this bailout is to increase the flow of credit by removing uncertainty from banks' balance sheets, I'd say it most certainly does focus on the fundamental problem, although I'm not sure it does enough, fast enough. Something along these lines should certainly have taken place earlier.

The Fed is making more and more money available at the discount window, but as long as there are securities on balance sheets whose value remains unknown then this problem will continue, which is why the treasury (via the bailout bill) is offering to buy said securities at a discount in order to draw a line under the situation.

The GOP alternative (so far) seems to be to suspend the practice of fair-value accounting and allow banks to say the value of their assets are whatever they feel like (for all practical purposes) - in other words, to abandon reality completely.