Wall Street Voodoo - Krugman

[groovedaddy]

Old-fashioned voodoo economics — the belief in tax-cut magic — has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans.

But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.

To explain the issue, let me describe the position of a hypothetical bank that I’ll call Gothamgroup, or Gotham for short.

On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets — say, $400 billion worth — are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion.

http://www.nytimes.com/2009/01/19/opinion/19krugman.html?th&emc=th

[Greyhound]

1. K&R #5, welcome ot the greatest page.

:kick:

[groovedaddy]

7. man, does Elizabeth have Dennis looking younger or what!?! n.t

[Greyhound]

9. He does seem to have reversed the years he put on in this last primary. n/t

:kick:

[Stevepol]

2. Hope & pray Obama reads this.

[bertman]

3. Sounds like Ms. Bair is into that "reverse Robin Hood" thing. She must be Mr. Paulson's

evil twin.

I don't want to say how bad this will make me feel if it goes down as Krugman has said he thinks it's going down. What it being the day before Hope Day and all.

[Danascot]

4. More on Zombies

A New Menace to the Economy: ‘Zombie’ Debtors

Call them “zombie” companies. Many more has-been companies will be feeding off taxpayers, investors, and workers—sapping the lifeblood of healthier rivals

Zombies. Seen one lately? If not, you may soon, because they are about to menace the U.S. economy. In financial lingo, zombies are debtors that have little hope of recovery but manage to avoid being wiped out thanks to support from their lenders or the government. Zombies suck life out of an economy by consuming tax money, capital, and labor that would be better deployed in growing companies and sectors. Meanwhile, by slashing prices to generate sales, zombie companies can drag healthier rivals into insolvency.

Sometime in the past few months, zombies went from being a latent risk to a genuine threat—one that is likely to increase in the months ahead. The Bush Administration has already ladled out billions of dollars in assistance to weak banks and automakers. As the economy goes into what may become the worst economic downturn since the Great Depression, the Obama Administration will come under even more pressure to prop up sick financial and nonfinancial companies to save jobs. The debate will center on wounded giants such as Citigroup (C), General Motors (GM), and insurer American International Group (AIG). Other sectors with their hands out include steel, airlines, retail—and homeowners, who may be the scariest zombies of all.

http://www.businessweek.com/magazine/content/09_04/b4117024316675.htm

[BeHereNow]

10. I read that one today too-

pretty good synopsis for the layman who has yet to
figure out what has happened, I thought.

BHN

[mrdmk]

5. quick k & r n/t

no more needs to be said.

[chill_wind]

6. Will Obama listen to Krugman?

Friday, January 9, 2009


VIDEO-- Obama: "If Paul Krugman has a good idea…then we’re going to do it."



http://thepoliticalcarnival.blogspot.com/2009/01/video-obama-if-paul-krugman-has-good.html

Will he?

[bvar22]

8. I hope Obama listens to Krugman and NOT his Economic Team...

...which is composed almost exclusively of unrepentant Supply Siders, Trickle Downers, Wall Street Insiders, De-regulators, and Free Traders.

[SergeyDovlatov]

11. Of course Obama won't listen to Krugman

Obama selected a banker Geithner as a treasury sec. who immediately hired a lobbyst for Goldman Sachs as his assistant.
Geitner is there to make sure that bankers are safe and well fed.

We will see... I would love to be proven wrong on this.