sub-prime mortgage crisis

The Plenary Powers of the Federal Reserve or, How to Privatize Profits, Socialize Losses

File under: How the poor pick up the tab for the rich; or is it, How the rich pick the pockets of the poor? You choose.

Hank Paulsen, U.S. Treasury Secretary, spoke to us all this morning. According to today's front page of the Wall Street Journal, Paulsen is "confident" that Congress will bail Fannie and Freddie out because:

... of their size and scope, Fannie and Freddie's stability is critical to financial market stability," he said in a speech at the New York Public Library. "Their continued activity is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in our financial markets and financial institutions."

That's a clue to a future grab at plenary power over the country's financial markets and matters.

Two other articles in the WSJ caught my eye over the past couple of days... The first, alluded to in the title, is Mark Gongloff's column yesterday, Like S&Ls? Paying the Tab for a Cleanup, about the possibility of the Government resurrecting a Resolution Trust Corporation to resolve the current Banking and Credit Crisis as its predecessor did to resolve the Savings and Loan crisis. The line about robbing the poor to pay the rich -- well, that's straight from NYU economist Nouriel Roubini. Don't believe him? Check out the numbers -- the S&L bailout cost the American taxpayer $76 billion dollars (according to the FDIC); the subprime bail out could cost us an estimated $1 trillion dollars -- 'nuf to make you gag on your godiva chocolate.

Excellent MUST LISTEN interview with former CFTC regulator on the financial crises

Michael Greenberger, former Director of Trading and Markets at the Commodity Futures Trading Commission (CFTC), was interviewed by NPR’s Terry Gross this past Thursday, April 3. He explained that the sub-prime mortgage crisis was caused by financial derivatives, and that there are more crises coming, because there are many more financial derivatives out there. He notes that the one act of deregulation most to blame – even more to blame than the 1999 repeal of the Glass-Steagal Act (the law passed in the First Great Depression to separate commercial banking from investment banking) is the Commodities Futures Modernization Act of 2000, introduced on the sly by then Senator Phil Gramm (R-TX), who is now the top economic advisor to John McCain:

And Greenberger warns that we are at the beginning of the financial crises, not the end.

When people tell you this is the worst economic crisis since World War Two, that’s a way of not saying the panicky thing, which is, we may be heading for a depression. And if a Bear Stearns collapses, you’re going back to 1929.

The [stock] market went up last week because there is the belief that Bear Stearns is the end. But there are some of us who are very worried that Bear Stearns is the beginning and not the end, and if we needed $30 billion to bail out Bear Stearns . . . .

The Crash is past. Comes now Inflation.

-- originally posted 2008-03-02 20:23:36 -- bumped, cho

Seems to me a lot of people don’t realize the worst financial crash since 1929 has already occurred. I suppose they are waiting for a big explosive fireball and a lot of noise like in a Hollywood movie, or for the nightly news on their wide-screen televisions to show pictures of desperate bankers and brokers splattered on the sidewalks in front of 60-story temples of finance.

This diary is my humble little attempt to let these people know that the crash has already happened. It began in August. I guess they didn’t notice, but a number of financial markets have already collapsed. First, of course, there was the derivatives based on sub-prime mortgages. That seems to be about where the common consciousness stops. But before U.S. Secretary Treasury Hank Paulson and Federal Reserve Chairman Ben Bernanke (a.k.a., Captain Carnage) even lifted a finger to try and sort out the sub-prime mortgage mess, they first had to deal with the collapse of the market for Structured Investment Vehicles. Since these two crises began last summer many other financial markets have also collapsed: corporate junk bonds, asset-backed commercial paper, municipal bonds. This last was saved just last week by New York State Insurance Commissioner Dinallo basically forcing Moodys, S&P and Fitch to give AAA ratings to the monolines insurers. All these markets have pretty much ceased functioning, with not even the banks that created some of this stuff willing to buy their own product. Financial institutions have also been disappearing, especially a number of hedge funds, the most recent being this past week: Peloton, a London-based hedge fund specializing in asset-backed bonds.

CommercialPaperCollapse

World on the Brink- Depression or Hyperinflation

In August 2007, an obscure bank in Germany disclosed that it had suffered crippling losses on some financial instruments it held, which were based on a pool of sub-prime mortgages in the United States. Within days, traders in financial markets around the world were panicking as they found it nearly impossible to determine which other banks might be having the same problem, and just how large that problem was. Central banks around the world poured in money to calm troubled financial markets, and U.S. Treasury Secretary Henry Paulson made a show of declaring that the problems of the U.S.