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blackcat
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eogz
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 Posted: Thu Aug 16, 2007 3:55 pm Post subject: |
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I was listening to Radio 2, on my way home from work. They are actually reporting it as a downturn in the markets (globally), blamed on US mortgages and the US hedge fund company going bust.
No need to worry about a recession they said....
Yet they continue to fall, despite injections of massive amounts of cash last week and this week.
Funny that..... |
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blackcat
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elohim
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Location: Ipswich
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| Posted: Fri Aug 17, 2007 6:23 am Post subject: |
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What we are seeing is the slow manipulated crash of the entire system vs a short sharp crash, leading in my opinion to a complete collapse of the dollar.
This of course would give them the excuse to offer an alternative currency for the North American Continent.
| Quote: | Yet they continue to fall, despite injections of massive amounts of cash last week and this week.
Funny that..... |
You gotta Laugh.....
The cash injections are simply to prop up the banks & prevent the whole stinking scam from collapsing, they do not bailout the hedge funds etc that the various groups are holding, which btw are likley worthless.
I would also note that they don't know the value of these funds yet & additionally you still have the shock to come when these losses are finally admitted & added to the balance sheet.
An ongoing oncern should be if they decide to pull the plug on the Trillion dollar dervitives market, which by all accounts dwarfs the world GDP.
An interesting interview by Alex Jones with Jerome Corsi (I think) laid out the facts very nicely.
I think it was on the 14th & can be downloaded below:
http://91.121.24.223/Radio/Alex%20Jones%20Radio%20Archive/2007/August/ aj_2007-08-14.mp3
The key stuff is in the last hour....
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karlos
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| Posted: Fri Aug 17, 2007 11:58 am Post subject: |
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blackcat
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| Posted: Fri Aug 17, 2007 12:31 pm Post subject: |
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http://www.jesus-is-savior.com/Evils%20in%20Government/Federal%20Reser ve%20Scam/united_states_is_in_deep_doodoo.htm
| Quote: | | The United States Is In Deep Doodoo! |
Excellent article with some great links at the bottom. The only conclusion can be that the USA is being deliberately wrecked.
http://www.jesus-is-savior.com/Evils%20in%20Government/Federal%20Reser ve%20Scam/kennedy_killed_by_bankers.htm
http://www.jesus-is-savior.com/Evils%20in%20Government/Federal%20Reser ve%20Scam/abolish_the_federal_reserve.htm
http://www.jesus-is-savior.com/Evils%20in%20Government/Federal%20Reser ve%20Scam/americas_nightmare.htm
http://www.jesus-is-savior.com/Evils%20in%20Government/Federal%20Reser ve%20Scam/quotes_on_the_federal_reserve.htm
| Quote: | Quotes on Banking and the Federal Reserve
The Rothschilds
"The few who understand the system, will either be so interested from it's profits or so dependant
on it's favors, that there will be no opposition from that class." -- Rothschild Brothers of London, 1863
"Give me control of a nation's money and I care not who makes it's laws" -- Mayer Amschel
Bauer Rothschild
Senators & Congressmen
"Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States" -- Sen. Barry Goldwater (Rep. AR)
"This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President
[Wilson} signs this bill, the invisible government of the monetary power will be legalized....the worst
legislative crime of the ages is perpetrated by this banking and currency bill." --
Charles A. Lindbergh, Sr. , 1913
"From now on, depressions will be scientifically created." -- Congressman Charles A.
Lindbergh Sr. , 1913
"The financial system has been turned over to the Federal Reserve Board. That Board asministers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money" -- Charles A. Lindbergh Sr., 1923
"The Federal Reserve bank buys government bonds without one penny..." -- Congressman
Wright Patman, Congressional Record, Sept 30, 1941
"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it". -- Congressman Louis T. McFadden in 1932 (Rep. Pa)
"The Federal Reserve banks are one of the most corrupt institutions the world has ever seen.
There is not a man within the sound of my voice who does not know that this nation is run by the
International bankers -- Congressman Louis T. McFadden (Rep. Pa)
"Some people think the Federal Reserve Banks are the United States government's institutions.
They are not government institutions. They are private credit monopolies which prey upon the people
of the United States for the benefit of themselves and their foreign swindlers" -- Congressional
Record 12595-12603 -- Louis T. McFadden, Chairman of the Committee on Banking and
Currency (12 years) June 10, 1932
"I have never seen more Senators express discontent with their jobs....I think the major cause is
that, deep down in our hearts, we have been accomplices in doing something terrible and
unforgiveable to our wonderful country. Deep down in our heart, we know that we have given our
children a legacy of bankruptcy. We have defrauded our country to get ourselves elected." -- John
Danforth (R-Mo)
"These 12 corporations together cover the whole country and monopolize and use for private
gain every dollar of the public currency..." -- Mr. Crozier of Cincinnati, before Senate Banking and
Currency Committee - 1913
"The [Federal Reserve Act] as it stands seems to me to open the way to a vast inflation of the
currency... I do not like to think that any law can be passed that will make it possible to submerge
the gold standard in a flood of irredeemable paper currency." -- Henry Cabot Lodge Sr., 1913
From the Federal Reserves Own Admissions
"When you or I write a check there must be sufficient funds in out account to cover the check,
but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn.
When the Federal Reserve writes a check, it is creating money." -- Putting it simply, Boston Federal
Reserve Bank
"Neither paper currency nor deposits have value as commodities, intrinsically, a 'dollar' bill is just
a piece of paper. Deposits are merely book entries." -- Modern Money Mechanics Workbook,
Federal Reserve Bank of Chicago, 1975
"The Federal Reserve system pays the U.S. Treasury 020.60 per thousand notes --a little over
2 cents each-- without regard to the face value of the note. Federal Reserve Notes, incidently, are
the only type of currency now produced for circulation. They are printed exclusively by the
Treasury's Bureau of Engraving and Printing, and the $20.60 per thousand price reflects the Bureau's
full cost of production. Federal Reserve Notes are printed in 01, 02, 05, 10, 20, 50, and 100 dollar
denominations only; notes of 500, 1000, 5000, and 10,000 denominations were last printed in
1945." --Donald J. Winn, Assistant to the Board of Governors of the Federal Reserve system
"We are completely dependant on the commercial banks. Someone has to borrow every dollar
we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous;
if not, we starve. We are absolutely without a permanent money system.... It is the most important
subject intelligent persons can investigate and reflect upon. It is so important that our present
civilization may collapse unless it becomes widely understood and the defects remedied very soon."
--Robert H. Hamphill, Atlanta Federal Reserve Bank
From General Law
"The entire taxing and monetary systems are hereby placed under the U.C.C. (Uniform
Commercial Code)" -- The Federal Tax Lien Act of 1966
"There is a distinction between a 'debt discharged' and a debt 'paid'. When discharged, the debt
still exists though divested of it's charter as a legal obligation during the operation of the discharge, something of the original vitality of the debt continues to exist, which may be transferred, even
though the transferee takes it subject to it's disability incident to the discharge." --Stanek vs. White,
172 Minn.390, 215 N.W. 784
"The Federal Reserve Banks are not federal instrumentalities..." -- Lewis vs. United States
9th Circuit 1992
"The regional Federal Reserve banks are not government agencies. ...but are independent,
privately owned and locally controlled corporations." -- Lewis vs. United States, 680 F. 2d 1239
9th Circuit 1982
Past Presidents, not including the Founding Fathers
"Whoever controls the volume of money in any country is absolute master of all industry and
commerce." -- James A. Garfield, President of the United States
"A great industrial nation is controlled by it's system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world--no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men." --President Woodrow Wilson
Founding Father's Quotes on Banking (Maybe some repeats from "Founding Father's Quotes" / Information tends to converge)
Thomas Jefferson
"I believe that banking institutions are more dangerous to our liberties than standing armies.
Already they have raised up a monied aristocracy that has set the government at defiance. The
issuing power (of money) should be taken away from the banks and restored to the people to
whom it properly belongs."--Thomas Jefferson, U.S. President.
Andrew Jackson
"If Congress has the right [it doesn't] to issue paper money [currency], it was given to them to be
used by...[the government] and not to be delegated to individuals or corporations" -- President
Andrew Jackson, Vetoed Bank Bill of 1836
James Madison
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance". -- James Madison
Misc. Sources
"Banks lend by creating credit. They create the means of payment out of nothing" -- Ralph M.
Hawtrey, Secretary of the British Treasury
"To expose a 15 Trillion dollar rip-off of the American people by the stockholders of the 1000
largest corporations over the last 100 years will be a tall order of business." -- Buckminster Fuller
"Every Congressman, every Senator knows precisely what causes inflation...but can't, [won't]
support the drastic reforms to stop it [repeal of the Federal Reserve Act] because it could cost him
his job." -- Robert A. Heinlein, Expanded Universe
"It is well that the people of the nation do not understand our banking and monetary system, for
if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford
"[Every circulating FRN] represents a one dollar debt to the Federal Reserve system." -- Money
Facts, House Banking and Currency Committee
"...the increase in the assets of the Federal Reserve banks from 143 million dollars in 1913 to
45 billion dollars in 1949 went directly to the private stockholders of the [federal reserve] banks." --
Eustace Mullins
"As soon as Mr. Roosevelt took office, the Federal Reserve began to buy government securities
at the rate of ten million dollars a week for 10 weeks, and created one hundred million dollars in new
[checkbook] currency, which alleviated the critical famine of money and credit, and the factories
started hiring people again." -- Eustace Mullins
"Should government refrain from regulation (taxation), the worthlessness of the money becomes
apparent and the fraud can no longer be concealed." -- John Maynard Keynes, "Consequences of
Peace."
"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits".- SIR JOSIAH STAMP, (President of the Bank of England in the 1920's, the second richest man in Britain):
"The modern Banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint and unmint the modern ledger-entry currency".- MAJOR L .L. B. ANGUS:
"While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery. - Horace Greeley
"People who will not turn a shovel full of dirt on the project (Muscle Shoals Dam) nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work. This is the terrible thing about interest ...But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People. If the currency issued by the People were no good, then the bonds would be no good, either. It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold. Interest is the invention of Satan". - THOMAS A. EDISON
"By this means government may secretly and unobserved, confiscate the wealth of the people,
and not one man in a million will detect the theft."--John Maynard Keynes (the father of 'Keynesian Economics' which our nation now endures) in his book "THE ECONOMIC CONSEQUENCES
OF THE PEACE" (1920).
"Capital must protect itself in every way...Debts must be collected and loans and mortgages
foreclosed as soon as possible. When through a process of law the common people have lost their
homes, they will be more tractable and more easily governed by the strong arm of the law applied
by the central power of leading financiers. People without homes will not quarrel with their leaders.
This is well known among our principal men now engaged in forming an imperialism of capitalism to
govern the world. By dividing the people we can get them to expend their energies in fighting over
questions of no importance to us except as teachers of the common herd."--
Taken from the Civil Servants' Year Book, "The Organizer" January 1934.
"The Federal Reserve banks, while not part of the government,..." -- United States budget for
1991 and 1992 part 7, page 10
The Money Power! It is the greatest power on earth; and it is arrayed against Labour. No other power
that is or ever was can be named with it...it attacks us through the Press - a monster with a thousand
lying tongues, a beast surpassing in foulness any conceived by the mythology that invented dragons,
were wolves, harpies, ghouls and vampires. It thunders against us from innumerable platforms and ,Yes, so far as we are concerned, the headquarters of the Money Power is Britain. But the Money Power is not a British institution; it is cosmopolitan. It is of no nationality, but of all nationalities. It dominates the world. The Money Power has corrupted
the faculties of the human soul, and tampered with the sanity of the human intellect... Editorial from 1907 edition of The Brisbane Worker (Australia)
...I am convinced that the agreement [Bretton Woods] will enthrone a world dictatorship of private
finance more complete and terrible than and Hitlerite dream. It offers no solution of world problems, but quite blatantly sets up controls which will reduce the smaller nations to vassal states and make every government the mouthpiece and tool of International Finance. It will undermine and destroy the democratic institutions of this country - in fact as effectively as ever the Fascist forces could have done - pervert and paganise our Christian ideals; and will undoubtedly present a new menace, endangering world peace. World collaboration of private financial interests can only mean mass unemployment, slavery, misery, degradation and financial destruction. Therefore, as freedom loving Australians we should reject this infamous proposal. -- Labor Minister of Australia, Eddie Ward, during the inception of the World Bank and Bretton Woods, he gave this warning.
More Quotes
"Government spending is always a “tax” burden on the American people and is never equally or fairly distributed. The poor and low-middle income workers always suffer the most from the deceitful tax of inflation and borrowing." -Congressman Ron Paul
"Give me control of a nation's money and I care not who makes it's laws"
--Mayer Amschel Bauer Rothschild
"Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States" -- Senator Barry Goldwater (Rep. AR)
"From now on, depressions will be scientifically created." -- Congressman Charles A.
Lindbergh Sr. , 1913 |
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Rowan Berkeley
Relentless Limpet Shill
Joined: 05 Aug 2007
Posts: 306
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| Posted: Fri Aug 17, 2007 12:50 pm Post subject: |
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| One of the many lamentable consequences of the domination of british culture by the usa is that whatever modern social studies we ever pursued have been lost to us. Consequently, we are obliged to listen to pseudo medieval disquisitions on the occult powers of the rothschilds. |
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Stephen
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Posts: 819
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| Posted: Fri Aug 17, 2007 2:38 pm Post subject: |
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I reckon the money system is about to fall!
You can bet your bottom dollar on that  |
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eogz
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Posts: 262
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| Posted: Fri Aug 17, 2007 3:22 pm Post subject: |
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The US national debt graph is really scary, wonder what the UK natoional debt graph looks like?
Certainly does look like a global downturn.
I wonder if they will let it crash yet? Or wait to blame it on some patsy person/group....
I found a little something about the UK National Debt...
The UK national debt as at the end of 2003 - the last date for accurate(ish) figures was...
£437.4 billion
The UK population was 60.2 million, leading to a calculation that each British citizen has a share of that debt of £7,265.78
However, if you take into account that non-workers cannot repay their share of the debt and spread that debt only among the working population (28.5 million), then their share jumps to £15,347
It should also be noted that thanks to the current governments use of PFI - Private Finance Initiatives, a large quantity of debt is hidden away onto company balance books and does not appear in the government figures. No exact analysis exists for the value of this hidden debt, but it is said to be significant.
The last bit is quite interesting, wonder how much the hidden debt is? And how much the National Debt is today? Any ideas? |
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blackcat
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| Posted: Fri Aug 17, 2007 5:17 pm Post subject: |
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| Rowan Berkeley wrote: | | One of the many lamentable consequences of the domination of british culture by the usa is that whatever modern social studies we ever pursued have been lost to us. Consequently, we are obliged to listen to pseudo medieval disquisitions on the occult powers of the rothschilds. |
Do they tie you down and lecture you? |
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eogz
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Posts: 262
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| Posted: Fri Aug 17, 2007 6:01 pm Post subject: |
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Just heard the news..
Everything has shot back up again, especially in the UK.
Wonderful.
However they are expecting a turbulent time over the next few weeks.
Wonder how turbulent it will be, sadly that is the full extent of my economic knowledge. |
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heart-earth
Suspended
Joined: 21 Oct 2006
Posts: 31
Location: M DNA ARK
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| Posted: Fri Aug 17, 2007 6:22 pm Post subject: they tell us before it ....... |
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We in for some nasty rain i reckon ....
Why does Jay Z mention rocafella with a we in front ?
"No clouds in my storms
Let it rain
I hydroplane into fame (Eh eh)
Come'n down with the DOW JONES
When the clouds come we gone
We Rocafella (Eh eh)
She fly higher than weather
And she rocks it better
You know me
An anticipation for precipitation
stacks chips for the rainy day (Eh eh)
Jay, rain man is back with lil Ms. Sunshine
Rihanna where you at?"
_________________
"you can fool some people sometimes,
but you can`t fool all the people all the time." |
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eogz
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Joined: 29 Jul 2007
Posts: 262
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| Posted: Fri Aug 17, 2007 7:11 pm Post subject: |
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I've read those lyrics 3 times now, I still don't understand them and I have no idea why he refers to Rockerfella. I got DOW JONES, ROCKERFELLA AND RHIANNA WHERE YOU AT? I wonder if this Rhianna knows something we don't ? Ha Ha.
I'm probably not with it or Yoof enough to understand either, which is a shame, i'm only 17.
I'm not really i'm 36, but the humour demanded 17...
I'd reckon on some rainy days ahead too.... |
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Rowan Berkeley
Relentless Limpet Shill
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conspiracy analyst
Trustworthy Freedom Fighter
Joined: 27 Sep 2005
Posts: 2279
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| Posted: Sat Aug 18, 2007 11:40 am Post subject: |
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I dont think they can control the system anymore.
Its imploding everywhere.
If they could control it they would. They cant and it is going to pot.
Already people are crowding outside US banks asking for their money.
Soon they will close the doors and do a 1929.
When stock prices fall around 30% of their original value staying in with shares is suicidal. Selling becomes fashionable.
http://mparent7777-2.blogspot.com/2007/08/ceo-of-nations-largest-mortg age-lender.html
Having deindustrialised America they produce nothing but wars and fictitious money. Now everyone is dumping the dollar its value plummets daily.
Only rationing, controls on capital movement and the abolition of all betting on stock markets can restore monetary control with people producing goods that people require all within their financial means. |
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karlos
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Location: london
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| Posted: Sat Aug 18, 2007 2:30 pm Post subject: |
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China has been divesting itself of dollars recently, this is what has triggered the most recent collapse. Nothing at all to do with this sub prime bogus story they have been running with.
But China gets in another $20,000,000,000 every week and obviously cannot just hold those worthless pieces of paper for eternity.
The dollar staged a rally with the stock market fall but this is a short term fix, the dollar is terminal and they want to replace it in a couple of years with the 'amero' and therefore wipe out all of the uSA's overseas debts.
I am not sure how this affects the pound which is seen as a strong and stable currency at present unlike the dollar.
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conspiracy analyst
Trustworthy Freedom Fighter
Joined: 27 Sep 2005
Posts: 2279
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| Posted: Sun Aug 19, 2007 7:51 am Post subject: |
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| stelios wrote: | China has been divesting itself of dollars recently, this is what has triggered the most recent collapse. Nothing at all to do with this sub prime bogus story they have been running with.
But China gets in another $20,000,000,000 every week and obviously cannot just hold those worthless pieces of paper for eternity.
The dollar staged a rally with the stock market fall but this is a short term fix, the dollar is terminal and they want to replace it in a couple of years with the 'amero' and therefore wipe out all of the uSA's overseas debts.
I am not sure how this affects the pound which is seen as a strong and stable currency at present unlike the dollar. |
Yep thats exactly what they are doing.
The unnavoidable economic war between the USA and China (despite the fact that China produces much of what is sold in the USA) can be seen with the recall of baby toys laced with 'dangerous' substances as a sign to the Chinese to stop dumping the dollar...
By going over to a new currency they will wipe out their debt in a stroke but will destroy the American middle class as well. This is what happened when the Soviet Union imploded. The same is on the cards for the USA.
The defaults in Argentina in 2000 were a prelude to this to see how people react when banks close their doors. |
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karlos
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Location: london
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| Posted: Mon Aug 20, 2007 1:07 am Post subject: |
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What is the most prudent postion to be in?
A net debter and declare bankrupcy or a net creditor and cash in all ones chips?
All of us have some sort of debts and all of us have some sort of assets and like always there will be winners as well as losers.
House prices WILL fall
The country has actually been in recession for several years but the media have neglected to report it.
But like every boom and recession this is an engineered one in order for a few to make a profit at the expense of many.
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conspiracy analyst
Trustworthy Freedom Fighter
Joined: 27 Sep 2005
Posts: 2279
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| Posted: Mon Aug 20, 2007 10:15 am Post subject: |
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| stelios wrote: | What is the most prudent postion to be in?
A net debter and declare bankrupcy or a net creditor and cash in all ones chips?
All of us have some sort of debts and all of us have some sort of assets and like always there will be winners as well as losers.
House prices WILL fall
The country has actually been in recession for several years but the media have neglected to report it.
But like every boom and recession this is an engineered one in order for a few to make a profit at the expense of many. |
Who is the question referred to?
The stockbroker responsible for millions of dollars in stock options?
The transnational corporation?
The millions of unemployed in Indian slums?
Everything depends on who you are. What debts/assets you have, which country you live in, what the position of the currency your country has in the global order of things etc.
The ability to raise credit on rising house prices for homeowners as well as the ability to raise credit on businesses on declining sales which has been going on for years may actually stop. This is what is frigthening the money markets.
Hyperinflation in house prices or if a flat in a certain area costs £1 million as opposed to £3 million when all the other flats cost the same price is an irrelevance for all you can buy is the same flat at the same price. What zeros you have at the end of the £1 means nothing. It only has meaning if you leave the country or go up north.
If a credit crunch develops the whole machine will grind to a halt. To what extent they control the machine is key.
| Quote: |
Look Out. This Crunch Is Serious.
By Edward Chancellor
Sunday, August 19, 2007; Page B01
Incipient panic has reigned in U.S. financial markets over the past couple of weeks, and no wonder. Some hedge funds have blown up, the country's second-largest mortgage lender has come close to collapse and stocks have fallen. On Friday, the Federal Reserve Bank lowered a key interest rate to help calm things down.
Yet most economists insist that Main Street will trundle along just fine, regardless of what happens on Wall Street. But will it?
A home is advertised for sale at a foreclosure auction in Pasadena, Calif., Tuesday, Aug. 14, 2007. Home sales in a six-county region of Southern California dipped to a 12-year low for July as a growing percentage of homes went on the market as a result of foreclosures, a research firm said Tuesday. Foreclosure re-sales accounted for 8.3 percent of sales activity in July, up from 7.7 percent in June, according to DataQuick Information Systems. In all, 17,867 homes and condominiums were sold last month in Los Angeles, Riverside, San Bernardino, San Diego, Orange and Ventura counties. (AP Photo/Reed Saxon)
A home is advertised for sale at a foreclosure auction in Pasadena, Calif., Tuesday, Aug. 14, 2007. Home sales in a six-county region of Southern California dipped to a 12-year low for July as a growing percentage of homes went on the market as a result of foreclosures, a research firm said Tuesday. Foreclosure re-sales accounted for 8.3 percent of sales activity in July, up from 7.7 percent in June, according to DataQuick Information Systems. In all, 17,867 homes and condominiums were sold last month in Los Angeles, Riverside, San Bernardino, San Diego, Orange and Ventura counties. (AP Photo/Reed Saxon) (By Reed Saxon -- Associated Press)
It's true that some panics pass without consequence. But there are times -- think October 1929 -- when the tremors on Wall Street anticipate a more widespread economic storm. Given the tremendous run-up of debt in recent years, there's a good chance that today's credit crunch will turn out to be more than just a wisp of cloud in an otherwise blue sky.
Such wisps, to be sure, have appeared before. On Oct. 19, 1987, stocks fell by 22 percent. Nearly 60 brokerages went bankrupt, and many worried that a depression was around the corner. The fears were overblown. It turned out that the causes of the crash were merely technical. A large number of investors had been following a particular strategy, known as portfolio insurance, which required them to sell stocks automatically as the market fell. That created a cascade of forced selling. As the panic hit, the Federal Reserve Bank, with Alan Greenspan at the reins, rode to the rescue, providing money for the financial system. The stock market soon recovered.
The hedge fund Long-Term Capital Management started to collapse in the early fall of 1998. This fund, run by a bunch of the smartest traders on Wall Street aided by a pair of Nobel laureates, had borrowed about $25 for every dollar of its own capital. The market went haywire as LTCM's huge holdings in equities, bonds and other securities were sold. It turned out that many other investors had placed similar trades, also funded with borrowed money. Once again, the Federal Reserve performed its duty, providing liquidity to the financial system and even cutting interest rates. Over the next six months, technology stocks listed on the Nasdaq exchange soared by more than 50 percent.
The 1987 crash and the LTCM debacle each involved a "liquidity crisis." Forced sales of financial securities drove down prices, creating a panic and temporarily straining the capacity of the financial system. But liquidity crises per se have little if any economic significance. Provided the problem is contained relatively early on, a recession can be avoided.
Is that what will happen this time? In his 1873 book, "Lombard Street," British financial journalist Walter Bagehot described how fear spreads in financial circles: "Incipient panic starts with a 'vague conversation.' People are talked about every day, [and] as a panic grows, this floating suspicion becomes both more intense and more diffused: it attacks more persons, and attacks them all the more virulently than at first." At times such as these, Bagehot wrote, "men of experience" bolster their positions by borrowing money while it's still available. However, "minor money dealers come under suspicion" and have trouble finding funds.
That's a pretty good description of what has happened in the financial markets over the past month or so. In mid-June, a couple of hedge funds run by the brokerage house Bear Stearns announced surprise losses on investments in supposedly safe triple-A-rated mortgage securities. Over the following weeks, suspicions grew. Several other hedge funds, in the United States and abroad, have imploded. A small bank in Dusseldorf, Germany, that was supposedly funding mid-size industrial companies, has had to be bailed out by German taxpayers after it announced large losses on liabilities kept off its books (shades of Enron). In Canada, a firm that helps companies issue commercial paper -- the stuff that goes into money market funds -- experienced problems rolling over its debts. People have suddenly realized that many money market funds were lending money to obscure investment vehicles that used their money to invest in subprime mortgage securities. Countrywide Financial, the second-largest provider of mortgages in the United States, has been forced to draw on emergency funding from other banks to stay afloat.
When fear replaced greed in the financial markets, Bagehot knew what the authorities should do. "A panic grows by what it feeds upon," he wrote. It "is a species of neuralgia, and according to the rules of science you must not starve it." Providing that the central bank lends freely at such times, the panic will pass. Over time, Bagehot's advice has become the orthodox practice of central bankers, whose main purpose is to act as "lender of the last resort." Both the Federal Reserve and the European Central Bank have dutifully performed this function over the past couple of weeks.
Treasury Secretary Henry M. Paulson Jr. believes that the recent flurry in the markets will have little lasting impact. A recent poll taken by Consensus Economics finds that most economists expect the United States to return to about 3 percent growth next year, which is around the average growth rate for the economy. But that's assuming that the recent credit crunch is merely a passing liquidity event, like the 1987 crash.
There are times, however, when credit booms have more profound consequences. Research suggests that severe financial crises tend to follow the rapid expansion of credit. The longer the credit boom endures, the more severe the hangover. Furthermore, because real estate is not liquid and the process of foreclosing on defaulted mortgage loans is time-consuming (as well as politically problematic), the economic downturns that follow property booms tend to be deeper and to last longer.
The experience of the U.S. economy after the 1920s and that of Japan in the 1990s appears to confirm these findings. In both instances, the period of credit expansion lasted several years, largely involved real estate speculation, and came to involve much of the population, whether that meant plunging into American stocks with borrowed money in 1929 or buying Tokyo condos with 100-year mortgages in the late 1980s.
Some economists take heart from the fact that inflation is currently quiescent. This ignores that the longest-lasting American crises over the past two centuries, those of 1837, 1873 and 1929, have each followed periods in which consumer prices were relatively stable. Needless to say, during the preceding booms, real estate and stock prices, fueled by rapid credit expansion, had soared.
The quality of lending and the "soundness" of credit also have a bearing on the extent of a crisis. Commenting on the collapse of the London bank of Overend, Gurney and Co. in 1866, Bagehot wrote that "losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better." What would Bagehot have made of the so-called NINJA loans of recent years, supplied to homebuyers with "No Income, No Job and No Assets"? He may have raised an eyebrow at the "liar loans" given to those who falsified the information on their mortgage applications and would certainly have expressed disdain for the loans, many without traditional covenant protection for lenders, that until recently financed corporate buyouts.
Finally, a credit crunch is likely to have a bigger impact when the financial system has become weak. The so-called Long Depression that started in 1873 was sparked by the collapse of Jay Cooke and Co., one of the largest U.S. banks. More than 2,000 banks in the United States failed in 1931. Those failures wreaked havoc on the economy. Banking failures and bad debts plagued the Japanese financial system throughout the 1990s.
There's a good chance that the current panic will give way to a full-blown economic crisis. That's because the credit boom has been going on for five frenetic years and virtually everyone has become involved, either directly or indirectly. An increasing number of businesses, from motorcycle retailers to cellphone operators, are finding their sales affected by the subprime debacle, according to the Web site Footnoted.org. Household spending continues to exceed income by a large margin. If credit stops flowing to consumers, the economy is bound to suffer.
Many people, including Treasury Secretary Paulson, believe that the financial system is robust enough to weather the crisis. It's true that, after many fat years, banks have lots of capital. But that was also the case in October 1929.
I believe that something profound has happened in recent weeks. The credit system is losing its, well, credibility. People no longer trust the triple-A ratings that many complex debt securities carry. The risk models used by rating agencies, hedge funds and banks have also come under suspicion. The effects of subprime losses are being felt in unexpected places, including supposedly impregnable money market funds. Hedge funds and other highly leveraged investment vehicles are being forced to unwind. After years of excess, credit is beginning to contract.
There has been a "run on Wall Street finance," said Doug Noland, editor of the online Credit Bubble Bulletin.
But no one knows how long it will last, or where it will end. |
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