In this morning's NZ Herald, they sneak up on some reality: Liam Dann: A worse recession is our best hope as 1929 looms.
If any doubt was left, events of the past two days have shunted the gravity of the US financial meltdown past that of the black Monday crash in October 1987.
I remember black Monday, I was working in radio in Blenheim NZ and it scared the crap out of me as we looked over a precipice and realised that I had no parachute or safety net. But within 2 years I had paid off another mortgage and was Eurail-ing in Europe for 2 months so we dodged that one.
This time I'm much less startled and a lot more prepared. But still not happy with the media when they come out with this rubbish:
Pundits are now making comparisons with the big collapse of 1929, which caused the Great Depression.
How can we have intelligent conversations about the state of the world when the people reporting it think this stuff? The crash of 1929 only happened when all the conditions were in place for it to be the only possible outcome. Nobody CHOSE to have a crash, and
"In the very midst of the collapse" five of the country's most influential bankers hurried to the office of J. P. Morgan & Co., and after a brief conference gave out word that they believe the foundations of the market to be sound, that the market smash has been caused by technical rather than fundamental considerations, and that many sound stocks are selling too low.
They failed because the conditions were all in place by then, if they had had their meeting a year or two earlier they might have been able to apply some pressure to change course, but back then everything was going just so SWIMMINGLY.
Just as the US Treasury, Federal Reserve and central banks around the world are straining every financial muscle trying to turn this thing around. They have been for 13 months now and after all that time and all that money pumping, Bear Stearns is gone, so is Lehman Bros and Merril Lynch, FMAC and FMAE are on life support and AIG is on the block waiting for the axe.
Notice please that the failures have not been getting smaller, but bigger. can we please learn from that?
And lets recall that AIG has assets nominally valued at one TRILLION. When they go they revalue those assets to very little which will be a huge dump in the markets, but they also pretend to protect millions of people and their assets from hurricane, flood, fire, theft, medical misadventure and so on. That protection vanishes for all those people who, like me, have travel insurance through an AIG subsidiary. None of us is immune to what is happening and the only rational response is to prepare for the worst.
These events are not the CAUSE of anything, yet. They are the results, and until we get media capable of conveying that reality, we will be misinformed and in being more or less ignorant we will make bad decisions in our own lives and in our selection of leadership.
If you want a cause, try unregulated markets and a culture of greed. The 29 crash CAUSED politicians and industrialists to review their assumptions that such markets and attitudes were a good thing and they brought in the regulations that underpinned western economies for a generation. But greed and ignorance never rests and slowly those regulations were unwound and those that remained were in the care of people who were either corrupt or incompetent and were badly or negligently enforced.
Once again greed was free to work its magic and once again we are at depression's doorstep because this is always where those conditions lead, conditioned only by the strength of the economy to be mined.
And don't let the bounce on the DOW today fool you, it is driven by an assumption that the US taxpayer will take on AIG's debt. That bails out the wiseguys on wall St, but it doesn't solve the problem and with the US taxpayer tapped out, it just poisons the system even more.
(earl, please be aware that the DOW is a non-measure. it literally means nothing. an appallingly badly constructed index calculated on half a dozen irrelevant stocks. if you want a bettter indication of the US market, look at the S&P500 AND the S&P250: huge caps vs medium caps, inferring information from their differing behaviours.
i repeat: the dow is utterly meaningless. you're better off measuring women's skirtlengths)
Posted by: Saltation | October 04, 2008 at 08:52 AM