Terrifying Article In The Times

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

http://business.timesonline.co.uk/tol/busi...icle3558527.ece

Bloody Hell!

Excerpt:

Finally, the Fed might be fighting yesterday’s war, when the problem seemed to be a liquidity crisis. The Fed first lowered interest rates to facilitate borrowing. No luck; long-term rates were immovable. It then made funds available to credit markets for very short periods on attractive terms. No luck; credit markets remained frozen. So now we have the offer of $200 billion of high-quality assets to replace those of lesser quality. Tune in after a few weeks to find out if this has significantly eased credit markets, or merely created a bit of euphoria in stock markets.

Meanwhile, the Fed’s critics are saying that the enemy is no longer liquidity, but the threat of insolvency. We have already had billions in write-offs, and hundreds of billions more of such “marking to market” is coming. So steep will these write-downs be that the banks will find they are bust - what they owe to depositors and creditors exceeds the value of their shrivelled assets. Unless they can get more capital, say the doom-mongers, they will have to shut their tellers’ windows.

So far, sovereign wealth funds have put up that capital, but even they do not have deep enough pockets to shore up the entire American banking system. Faced with a systemic collapse of the banking system, the government can do one of two things. It can flood the economy with cash, driving up inflation and the nominal value of the assets underlying bank loans. Lenders would get repaid, but in depreciated dollars. Fear of just such a devaluation has driven up gold to $1,000 an ounce, and the dollar down to record lows.

Or the government can nationalise the debt owed to the banks. Taxpayers’ funds would be conscripted, and pumped into failing financial institutions to prevent their collapse. Sound like Northern Rock? Or something like what the American government did when Continental Illinois, the nation’s seventh-largest bank, hit the rocks in 1984? Or what former Treasury secretary and Harvard president Larry Summers, now a hedge-fund adviser, says the government should “at least be thinking about”? Or what 32 of 51 economists surveyed by The Wall Street Journal...

Edited March 16, 2008 by gruffydd

[right_freds_dead]

gruffydd. have you got a copy of the times today ???

whats in the gardening section ?

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

gruffydd. have you got a copy of the times today ???

whats in the gardening section ?

I get copies of every single paper every day - lucky me

But seriously, this article is terrifying - Irwin is using really extreme language - he's usually pretty moderate. He's forecasting complete meltdown in the financial sector unless unparalleled state intervention is forthcoming. Never thought I'd see the day. Hold on tight for a switchback ride to the 1930s.

Edited March 16, 2008 by gruffydd

[DoctorJ]

Holy sh*tbags batman what are we going to do!?

Be vigilant. Stock up on beans.

[skomer]

I get copies of every single paper every day - lucky me

But seriously, this article is terrifying - Irwin is using really extreme language - he's usually pretty moderate. He's forecasting complete meltdown in the financial sector unless unparalleled state intervention is forthcoming. Never thought I'd see the day. Hold on tight for a switchback ride to the 1930s.

Ironic really - Stelzer and his backers (murdoch) have been one of the prime movers in promoting financial de-regulation, turning London into a non-Dom playground and providing excuses for all the excesses we've seen this decade. :angry:

Raw capitalism on the way up - socialise the losses on the way down. Was it ever thus

[bleakhouse]

I get copies of every single paper every day - lucky me

But seriously, this article is terrifying - Irwin is using really extreme language - he's usually pretty moderate. He's forecasting complete meltdown in the financial sector unless unparalleled state intervention is forthcoming. Never thought I'd see the day. Hold on tight for a switchback ride to the 1930s.

I agree he's been in the US isn't in recession camp for ages.

Has he started reading HPC?

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

A great comment at the bottom of the article -

"Murdoch and Stelzer are directly responsible for the wave of propaganda that led to all the deregulation, tax cutting, neo liberalism which led to the current crisis.

Murdoch and Steltzer backed every right wing neo liberal regime,every deregulation and every bubble of greed and waste, so it is interesting to see them now advocating Socialism for the rich. Welfare for the poor is too expensive apparently, but 200 Billion plus of welfare is a price well worth paying to protect the wealthy.

If Socialism is good enough for the rich then......"

[@contradevian]

When Irwin Stelzer writes like that, it really is the time to stock up on the baked beans and gol... err "yellow bricks." He is usually quite laid back.

Edited to Add. When David Smith writes as frighteningly, head for the hills!

Edited March 16, 2008 by rover2000

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

I agree he's been in the US isn't in recession camp for ages.

Has he started reading HPC?

He's usually wheeled out to tell us that things are doing just fine.

This time he's basically saying: "Game Over - We Have Meltdown."

Dave Smith is a lightweight - there's no need to pay any attention to the guy.

Edited March 16, 2008 by gruffydd

[Minos]

When Irwin Stelzer writes like that, it really is the time to stock up on the baked beans and gol... err "yellow bricks." He is usually quite laid back.

Edited to Add. When David Smith writes as frighteningly, head for the hills!

He did make me chuckle when he was on Newsnight the other day. He's always been a bull to my memory. Now he says the Titanic may not necessarily sink but he's reserving a seat on the lifeboat just in case.

[Sinking Feeling]

The problem always was insolvency, not liquidity. Anyone who has bothered to read any economics books written in the last 100 years knows this. To prove my point this is a quote from a book written in the 1930s by Swiss-German economist Wilhelm Ropke, describing this situation.

The credit crisis

At the top of the list we must place the tensions on the money and capital market which appear in the course of the boom period, and finally lead to those disruptions which we call a crisis, an expression which we shall examine more closely in the next paragraph. The difficulties of financing investments increase, and with them the rate of interest rises, reflecting the decreasing readiness of the banks to give credit (a reluctance concomitant with impaired bank liquidity), as well as the continued and now more and more pressing urgency of the need of credit— all phenomena which are summarized in the term " shortage of capital”……………… As it is no longer possible for industrial undertakings, which have got into debt with the banks owing to the enlargement of plants during the boom period, to liquidate these debts by the issue of new shares or debentures, and so to " fund their debts, the banks make the unpleasant discovery that a large part of their advances are " frozen," that is, that they cannot be called in for some time, and that no further turnover of the corresponding deposit accounts takes place. The banks become anxious and still less willing to give credit, which in the end makes the situation still more acute. The position of the banks may immediately become precarious, if they have invested a large part of their assets in securities whose decline in value now affects them directly, and if, in addition, their depositors become panic-stricken and cause a " run." At this moment the crisis begins to subside into its worst and most dramatic form: the credit crisis.

Misreading a solvency issue for a liquidity issue and the folly of central bank intervention

We turn now to the contention often denominated as " the ruling theory of the trade cycle " that the cause of the crisis and depression is the shortage of capital setting in at the end of the boom period. Superficially considered, this is correct, but it offers no real explanation, since the shortage of capital is not a new independent element but a result of the whole mechanism of the boom. The shortage of capital is the signal for the breakdown, but it is made inevitable by the over-expansion of investments. If the emphasis is laid on the shortage of capital it gives the impression that a further increase of the supply of capital could avert the turn. But if the increase of investments has taken on pathological dimensions a further increase of capital can only postpone the turn and this only at the expense of a later and all the more severe reaction. The shortage of capital at the end of the boom period is a sign that the credit system has put its last reserves into the firing lines in order to support the wavering front. The scale of investments at length even outgrows the framework of capital creation artificially extended by the expansion of credit. To use a simile, those who lay the main emphasis on the shortage of capital as the factor turning the boom into depression may be compared to some well-known politicians in Germany after the war, who used to say that the defeat could have been avoided if the people had shown more military strength instead of " stabbing the army in the back " by its defeatist spirit. It would have been excellent, of course, for Germany if, at the end of the war, she could still have had the armies and the spirit of 1914, but this is absolutely beside the point because it was precisely as the result of four years of war that Germany was down and out, and any effort to. make possible the impossible would only have delayed the ultimate defeat at a terrible cost. It would be a grave injustice to accuse the German people of a lack of spirit of sacrifice instead of accusing the length of the war and its ever-growing dimensions. We may conclude, then, that the emphasis must be laid not on the supply of capital, but on the demand for capital. The evil is not that too. little has been saved but that too much has been invested. The shortage-of-capital theory distorts, therefore, the causal sequence, limits itself to the surface and places the accent in the

wrong place.

Edited March 16, 2008 by Sinking Feeling

[right_freds_dead]

I get copies of every single paper every day - lucky me

But seriously, this article is terrifying - Irwin is using really extreme language - he's usually pretty moderate. He's forecasting complete meltdown in the financial sector unless unparalleled state intervention is forthcoming. Never thought I'd see the day. Hold on tight for a switchback ride to the 1930s.

thats fine if you have a paper shop in prestatyn, but wheres the free link to us (not dragons).?

[George Ldn]

Bring it on!

[huw]

Faced with a systemic collapse of the banking system, the government can do one of two things. It can flood the economy with cash, driving up inflation and the nominal value of the assets underlying bank loans. Lenders would get repaid, but in depreciated dollars. Fear of just such a devaluation has driven up gold to $1,000 an ounce, and the dollar down to record lows.

Or the government can nationalise the debt owed to the banks. Taxpayers’ funds would be conscripted, and pumped into failing financial institutions to prevent their collapse.

Is there any real difference between these two options? Unless taxes rise, there will be no funds to be 'conscripted' -- and I can't see taxes rising as we go into recession/depression. Any reflation will be done on a wing and a promise IMO.

[Killer Bunny]

But seriously, this article is terrifying - Irwin is using really extreme language - he's usually pretty moderate. He's forecasting complete meltdown in the financial sector unless unparalleled state intervention is forthcoming. Never thought I'd see the day. Hold on tight for a switchback ride to the 1930s.

Actually, he's an even bigger VI than D Smith. What's he up to? Telling people to sell so that he and his bank and Republican mates can buy...?

[yaakov]

Actually, he's an even bigger VI than D Smith. What's he up to? Telling people to sell so that he and his bank and Republican mates can buy...?

come on. You still think this is the bottom in the equity markets?

He's been very bullish up until now. I just think he knows he can't continue with this nonsense without losing all credibility.

[Killer Bunny]

come on. You still think this is the bottom in the equity markets?

He's been very bullish up until now. I just think he knows he can't continue with this nonsense without losing all credibility.

You've just confirmed my asertions. Bullish when he should have been the opposite etc

[yaakov]

You've just confirmed my asertions. Bullish when he should have been the opposite etc

OK, ignoring Steltzer for now. Do you think we're headed for a very nasty recession? Do you think the crisis is almost over? I'm struggling to understand why you are now bullish but would be very interested to hear the reasoning.

[yawnIHateSundays]

Actually, he's an even bigger VI than D Smith. What's he up to? Telling people to sell so that he and his bank and Republican mates can buy...?

He's preparing the ground for governments to cave in to banks and hand over taxpayer's money to them.

[Killer Bunny]

Do you think we're headed for a very nasty recession? Do you think the crisis is almost over? I'm struggling to understand why you are now bullish but would be very interested to hear the reasoning.

I have repeatedly stated the real economy is toast.

My belief is that stocks are decoupling. We shall see. This week will possibly tell all.

[Minos]

I have repeatedly stated the real economy is toast.

My belief is that stocks are decoupling. We shall see. This week will possibly tell all.

The thing is FP, not so long ago you were recommending selling equities in advance of a bloodbath. Why the about face ?

[Killer Bunny]

The thing is FP, not so long ago you were recommending selling equities in advance of a bloodbath. Why the about face ?

Sorry, I have said it so often on this site over the last fortnight. We got it right during 2007. Let's see what happens now.

[DabHand]

I havent seen you offer a single reason for the "impending equity bull", and l only read this site when l breath. Hope whatever you are up to, you're doing well out of it.

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

He's preparing the ground for governments to cave in to banks and hand over taxpayer's money to them.

Probably about right!

Have our beloved governments got enough cash to prop them up though?

[Guest vicmac64]

In other words, hyperinflationary monetary holocaust.

100% correct, guaranteed.

I think this is the way things will go - Paulson has as much as said so. They will do 'everything' - these the club of elites are the real villains here.