Panic at high levels of the world banking system is starting to set in. Paul Krugman removes the veil of secrecy
in a recent essay:
"What we are witnessing," says Bill Gross of the bond manager Pimco, "is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August."
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction - and that will mean a recession, possibly a nasty one.
Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they're not sure they'll be repaid.
He also tells us why:
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime crisis.
And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation - but added, "I don't think we'd want it the other way around." Is that your final answer, Mr. Secretary?
1 comment:
This is really serious.
It is raising deep spitirual questions about America's fundamental religion--Laissez-Faire Capitalism. That is even more important than the High School playoffs or the BCS bowls.
What would Jesus say about this? Oh! That's right. He already said that his followers have to choose between Adonai and Mammon.
Since Americans have already chosen Mammon, he doesn't have any fine-tuning advise to offer us.
Jesus' essential teaching is that we need to scrap the whole wrong-headed capitalist economic system from the ground up.
We need to find one that takes damned seriously the fundamental mission of caring for the least of His children: the poor, the sick, the homeless, the aliens, the orphans, the widows; i.e., those who are the systematic losers in our kind of enonomy.
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