SAW simply can't figure out the rationale for this silly scheme in the US, now the latest recipient of government largesse. Cash is handed out for returning an old non-fuel-efficient car, which is then applied as part payment for the purchase of a newer fuel-efficient car.
Given that vast swathes of the American population are now in debt, all this scheme does is add debt on debt.
© 2009 Sanjeev Aaron Williams All Rights Reserved
Thursday, August 06, 2009
Wednesday, July 01, 2009
Show Me The Money
A stunning graphic that portrays the huge US bailouts between March 2008 and March 2009 - put in an historical context.
The graphic is taken from www.ritholz.com/blog
As that blog article says,
".....the bailouts managed to spend far in excess of nearly every major one time expenditure of the USA, including WW1&2 (omitted from graphic), the moon shot, the New Deal, total NASA budgets (omitted from graphic), Iraq, Viet Nam and Korean wars — COMBINED".
Total cost: US 15 Trillion and counting.
Tuesday, June 30, 2009
Lessons From Michael Jackson
1. OK, you've got tons of talent - but your 2 biggest assets are your health and your time. Let either of those slip, and you've had it.
2. Should those in your organization even be there?
3. How did they get into the organization in the first place?
4. Are you clear on what authority they actually have, as opposed to the authority they think they have?
5. Who's paying them? For what? And Why?
6. What's your cashflow burn rate? Per Week? Per Month?
7. How strong is your ability to draw on new sources of funding?
8. Are your contractual commitments clearly spelt out?
9. Will you be able to keep those commitments?
10. What are your financial, logistical and creative resources to stage a commercial comeback?
11. Do you have the physical, emotional and mental stamina to see it through?
12. What's your corporate succession policy after you've left the scene or the planet?
13. Just how much drama will you tolerate before creativity dies?
14. Your business legacy will be ..........what, exactly?
© 2009 Sanjeev Aaron Williams All Rights Reserved
2. Should those in your organization even be there?
3. How did they get into the organization in the first place?
4. Are you clear on what authority they actually have, as opposed to the authority they think they have?
5. Who's paying them? For what? And Why?
6. What's your cashflow burn rate? Per Week? Per Month?
7. How strong is your ability to draw on new sources of funding?
8. Are your contractual commitments clearly spelt out?
9. Will you be able to keep those commitments?
10. What are your financial, logistical and creative resources to stage a commercial comeback?
11. Do you have the physical, emotional and mental stamina to see it through?
12. What's your corporate succession policy after you've left the scene or the planet?
13. Just how much drama will you tolerate before creativity dies?
14. Your business legacy will be ..........what, exactly?
© 2009 Sanjeev Aaron Williams All Rights Reserved
Wednesday, May 13, 2009
US Bank Stress Tests
The 19 - bank stress tests in the US are unconvincing and predictable. While the intent might have been laudable, the heavy back room politicking that triggered the abandonment of mark-to-market accounting weeks beforehand, laid the groundwork for an equally creative outcome of the tests. SAW remains wary – there’s still the weak state of the commercial real estate market, the default rates of prime mortgages, the true extent of the reset of Option ARMs and a potentially major credit card default. The latter if it materializes, would dwarf the combined capitalization of some well known credit card issuers.
So…..what are price earning ratios on banks worth these days? As we wait for the next shoe to drop, the tension in the bank balance sheets is between retained earnings and writedowns.
And guess which one is going to win? Yeah, the writedowns, since retained earnings will drop as current earnings shrivel. It's a little premature to point out "green shoots" or to claim that the financial system is "healing" (per Tim Geithner).
© 2009 Sanjeev Aaron Williams All Rights Reserved
So…..what are price earning ratios on banks worth these days? As we wait for the next shoe to drop, the tension in the bank balance sheets is between retained earnings and writedowns.
And guess which one is going to win? Yeah, the writedowns, since retained earnings will drop as current earnings shrivel. It's a little premature to point out "green shoots" or to claim that the financial system is "healing" (per Tim Geithner).
© 2009 Sanjeev Aaron Williams All Rights Reserved
Tuesday, March 03, 2009
Humility & Humongous Banks
SAW having kept his mouth shut for a few weeks to see which way the financial winds of change were blowing, has discovered that other than shaking like leaves in a hurricane, the global elite of bankers and the hapless politicians don’t have a clue.
Davos 2009 was a washout, with some CEOs too embarrassed to attend.
The European Union has discovered to its horror that it’s not unified at all, but consists of 3 distinct economic blocs: firstly Germany France and the U; secondly the southern European countries like Portugal, Spain, Italy and Greece whose real estate bubble has burst; thirdly the impoverished Eastern European countries to whose toxic debt the other European countries were exposed in addition to the US garbage. With Germany emerging as a reluctant central banker to the EU, there are pleas to avoid protectionism within the Eurozone which carries with it the spectre of a new Iron Curtain between rich and poor Europe.
Obama grins while throwing trillions at an unquantifiable problem and simultaneously promises new infrastructure projects and increased government stakes in Citigroup and others that still pretend to be banks. How he proposes to spread the wealth back to the middle and working class in the face of the greatest and utterly fraudulent engineered scam, that for 7 years sucked the wealth into the hands of the (unprosecuted) banking elite, remains to be seen.
No doubt as part of his inclusive policies, he’ll have to defer to those bankers complaining that they’re being unfairly bashed. The American Bankers Association bleated to Obama that very few banks were involved in the toxic debts. Numerically, that may be true. But those on Wall Street and elsewhere who were involved, leveraged their exposure to outrageous levels and sabotaged the real economy. Any good that came out of it was the realization that merging fractional reserve banking with the debt addiction of US consumers, for whom repayment was a novel concept, was bound to affect the banks Balance Sheet sooner or later – no matter how exotic the debt instrument or the credit default swap daisy chain that purportedly backed it.
Case in point, AIG that insured those credit default swaps and is now described as a “systemic risk”, is back for a second bite of US30 Billion the government cherry after its first chomp of US150 Billion. It faced a credit downgrade in the face of a US 61.7 Billion loss for the last 3 months of 2008 (apparently the largest quarterly loss in corporate history).
It’s right up there with the talent to be found at RBS.
Or HSBC, whose sub-prime exposure to the US market necessitated a cash call of US 17.7 Billion through a rights issue in the UK (the biggest in UK history), the closure of its consumer lending business in the US, and a cut in dividend.
What really cracked SAW up were HSBC’s statements of contrition, which included this gem that there had to be a reversion to some of the older principles of banking in terms of a simpler sense of providing good customer service, good relationship management and a sensible approach to liquidity.
“Reversion”???!!! why on earth would an apparently prudent bank diverge from those principles?
Oh yeah……….unbridled greed coz everybody else was doing it.
© 2009 Sanjeev Aaron Williams All Rights Reserved
Davos 2009 was a washout, with some CEOs too embarrassed to attend.
The European Union has discovered to its horror that it’s not unified at all, but consists of 3 distinct economic blocs: firstly Germany France and the U; secondly the southern European countries like Portugal, Spain, Italy and Greece whose real estate bubble has burst; thirdly the impoverished Eastern European countries to whose toxic debt the other European countries were exposed in addition to the US garbage. With Germany emerging as a reluctant central banker to the EU, there are pleas to avoid protectionism within the Eurozone which carries with it the spectre of a new Iron Curtain between rich and poor Europe.
Obama grins while throwing trillions at an unquantifiable problem and simultaneously promises new infrastructure projects and increased government stakes in Citigroup and others that still pretend to be banks. How he proposes to spread the wealth back to the middle and working class in the face of the greatest and utterly fraudulent engineered scam, that for 7 years sucked the wealth into the hands of the (unprosecuted) banking elite, remains to be seen.
No doubt as part of his inclusive policies, he’ll have to defer to those bankers complaining that they’re being unfairly bashed. The American Bankers Association bleated to Obama that very few banks were involved in the toxic debts. Numerically, that may be true. But those on Wall Street and elsewhere who were involved, leveraged their exposure to outrageous levels and sabotaged the real economy. Any good that came out of it was the realization that merging fractional reserve banking with the debt addiction of US consumers, for whom repayment was a novel concept, was bound to affect the banks Balance Sheet sooner or later – no matter how exotic the debt instrument or the credit default swap daisy chain that purportedly backed it.
Case in point, AIG that insured those credit default swaps and is now described as a “systemic risk”, is back for a second bite of US30 Billion the government cherry after its first chomp of US150 Billion. It faced a credit downgrade in the face of a US 61.7 Billion loss for the last 3 months of 2008 (apparently the largest quarterly loss in corporate history).
It’s right up there with the talent to be found at RBS.
Or HSBC, whose sub-prime exposure to the US market necessitated a cash call of US 17.7 Billion through a rights issue in the UK (the biggest in UK history), the closure of its consumer lending business in the US, and a cut in dividend.
What really cracked SAW up were HSBC’s statements of contrition, which included this gem that there had to be a reversion to some of the older principles of banking in terms of a simpler sense of providing good customer service, good relationship management and a sensible approach to liquidity.
“Reversion”???!!! why on earth would an apparently prudent bank diverge from those principles?
Oh yeah……….unbridled greed coz everybody else was doing it.
© 2009 Sanjeev Aaron Williams All Rights Reserved
Thursday, January 22, 2009
A Whiter Shade Of Pale
So let’s see..........World Emperor Bush rode into the sunset and hopefully, will be consigned to the trash bin of history. 44 is in, sternly warned the planet that things wouldn’t be easy, partied all night, went to church and started work.
Meanwhile US, UK and Hong Kong markets – and markets pretty much everywhere else, tanked and still are. Bank of America, which swallowed Merrill Lynch is throwing up, divested its “strategic” shareholding in a Chinese bank and screamed for a cash bailout from the Feds. They got it – US138 Billion for them, US118 Billion in guarantees for Merrill’s crap err….assets.
Citibank, the world’s global bank, is a global embarrassment with a share price to match. It’s disembowelling itself and donating part of a vital organ, the brokerage arm, into a joint venture for a capital infusion.
Royal Bank of Scotland proudly announced it had scored another first: a 28 Billion Pound loss, the biggest in British history. One assumes that its overpriced leveraged acquisition of ABN AMRO for 49 Billion Pounds – at the time the largest banking acquisition in UK history –might have contributed to its backhanded stellar performance.
The British government is all set to open the floodgates of liquidity with 350 Billion Pounds of cash. They already have precedent on their side. First it was Northern Rock’s bailout of 55 Billion Pounds in September 2007, then Bradford & Bingley in September 2008, then credit guarantees, a liquidity scheme in October 2008, something about a toxic asset buy up plan etcetera, etcetera…….plus the hint that the Bank of England could be given license to print money, effectively at will to enable “quantitative easing”. That’s assuming that buying up the crap with UK Treasury Bills doesn’t work. And remember, British interest rates are the lowest they've been in 314 years.
Meanwhile US, UK and Hong Kong markets – and markets pretty much everywhere else, tanked and still are. Bank of America, which swallowed Merrill Lynch is throwing up, divested its “strategic” shareholding in a Chinese bank and screamed for a cash bailout from the Feds. They got it – US138 Billion for them, US118 Billion in guarantees for Merrill’s crap err….assets.
Citibank, the world’s global bank, is a global embarrassment with a share price to match. It’s disembowelling itself and donating part of a vital organ, the brokerage arm, into a joint venture for a capital infusion.
Royal Bank of Scotland proudly announced it had scored another first: a 28 Billion Pound loss, the biggest in British history. One assumes that its overpriced leveraged acquisition of ABN AMRO for 49 Billion Pounds – at the time the largest banking acquisition in UK history –might have contributed to its backhanded stellar performance.
The British government is all set to open the floodgates of liquidity with 350 Billion Pounds of cash. They already have precedent on their side. First it was Northern Rock’s bailout of 55 Billion Pounds in September 2007, then Bradford & Bingley in September 2008, then credit guarantees, a liquidity scheme in October 2008, something about a toxic asset buy up plan etcetera, etcetera…….plus the hint that the Bank of England could be given license to print money, effectively at will to enable “quantitative easing”. That’s assuming that buying up the crap with UK Treasury Bills doesn’t work. And remember, British interest rates are the lowest they've been in 314 years.
Australia is not looking so thrilled. Access Economics reported that the country is heading towards the sharpest recession in its history. Plumetting commodity prices mean a decrease in government royalties, taxes and increasing budget deficits.
With the scale of the toxic debt instrument creation belatedly becoming coherent, both the US and the UK governments have announced plans to set up a special bank to absorb those assets, in exchange for equity in the surrendeing banks.r
Great….so we have creeping trans-Atlantic nationalization, the Fed prints money at will, the Bank of England can print money at will and soon the European Central Bank, given the mess that Eurozone is in, will also be printing money at will. Effectively, every white country is up the creek and the loss of confidence is damaging emerging economies. It’s worth remembering that this scale of money creation, whether individually or jointly, has never been done before. We’re all watching an experiment in which nobody knows what’s going to happen and nobody can predict how much confidence there will be in all this freshly minted cash.
© 2009 Sanjeev Aaron Williams All Rights Reserved
© 2009 Sanjeev Aaron Williams All Rights Reserved
Thursday, December 18, 2008
Politicians, Ponzi & Prayer
So for the moment, the 3 US auto companies were rejected by the Senate in their media circus application for a multi-billion dollar bailout. Accusations and blame are being exchanged as pre-Christmas gifts amongst the management, union and politicians.
Whilst the quality of management and overall competitiveness of the US auto industry is debatable, it’s important to point out that at some level they are also victims of Wall Street’s financial engineering debacle. This is because the 3 US auto companies rely on short term financing via the commercial paper market, which seized up.
The politicians played tough with the auto CEOs – demanding oversight, cutbacks in wages and executive pay, then crashed their bailout in the Senate. It was the same song they sang to the investment bankers but then handed over hundreds of billions with no oversight in sight.
Those politicians screaming for greater financial regulation will no doubt be fortified in their views by the now collapsed, decades long, multi-billion buck Ponzi scheme run by Wall Street grandee, Bernie Madoff under the nose of the SEC (to whom he was an adviser) and NASDAQ (of which he was Chairman). Just how many complaints are necessary before the SEC will act? Ask them. There were complaints about Madoff since 1999.
Call Madoff the aftershock to the main financial earthquake. The best that can be said about him is that he appeared to be an equal-opportunity scammer, targeting the ultra-rich and charities. It’s all great news for the lawyers.
There are lessons to be learned for SMEs. It’s been widely reported that Madoff was under financial and emotional stress. Even a Ponzi scheme requires cash flow. SME Directors facing cash flow pressures frequently resort to paying off favoured creditors at the expense of others. Cooking the books is another option, but both are a zero sum game.
Cash is king and cash flow is the true measure of business success. Like Madoff, a business may be showing a profit, but is in reality insolvent.
With US interbank lending rates now cut to 0.5%, the hope is this will translate into widespread consumer lending so that the average American can once again, enjoy his drug of choice – debt.
SAW’s suspicion is that the US consumer has been so traumatised, they might actually start doing the unthinkable – save.
© 2008 Sanjeev Aaron Williams All Rights Reserved
Whilst the quality of management and overall competitiveness of the US auto industry is debatable, it’s important to point out that at some level they are also victims of Wall Street’s financial engineering debacle. This is because the 3 US auto companies rely on short term financing via the commercial paper market, which seized up.
The politicians played tough with the auto CEOs – demanding oversight, cutbacks in wages and executive pay, then crashed their bailout in the Senate. It was the same song they sang to the investment bankers but then handed over hundreds of billions with no oversight in sight.
Those politicians screaming for greater financial regulation will no doubt be fortified in their views by the now collapsed, decades long, multi-billion buck Ponzi scheme run by Wall Street grandee, Bernie Madoff under the nose of the SEC (to whom he was an adviser) and NASDAQ (of which he was Chairman). Just how many complaints are necessary before the SEC will act? Ask them. There were complaints about Madoff since 1999.
Call Madoff the aftershock to the main financial earthquake. The best that can be said about him is that he appeared to be an equal-opportunity scammer, targeting the ultra-rich and charities. It’s all great news for the lawyers.
There are lessons to be learned for SMEs. It’s been widely reported that Madoff was under financial and emotional stress. Even a Ponzi scheme requires cash flow. SME Directors facing cash flow pressures frequently resort to paying off favoured creditors at the expense of others. Cooking the books is another option, but both are a zero sum game.
Cash is king and cash flow is the true measure of business success. Like Madoff, a business may be showing a profit, but is in reality insolvent.
With US interbank lending rates now cut to 0.5%, the hope is this will translate into widespread consumer lending so that the average American can once again, enjoy his drug of choice – debt.
SAW’s suspicion is that the US consumer has been so traumatised, they might actually start doing the unthinkable – save.
© 2008 Sanjeev Aaron Williams All Rights Reserved
Monday, November 24, 2008
The Bigger The Trough
…..the larger their snouts…..
The US auto companies didn’t quite get the warm political reception they’d hoped for as part of their grubbing for US25 billion. Given that all 3 claim to be on the verge of bankruptcy, it didn’t help their case that the CEOs arrived in private jets. In mitigation, General Motors is returning 3 of its leased jets while promising greater use of video conferencing…..
Oh, and being asked by politicians to spell out exactly why they need capital, what they intend to do with it, over what time frame and what kind of returns to expect, was hardly a surprise. Any SME, whether looking for factoring funds, seed capital, mezzanine financing, venture capital or a bank loan would be asked exactly the same questions. What gave the auto companies’ CEOs the temerity to think they’d be exempt from the basic criteria of accountability?
Probably the fact that to date neither the US Federal Reserve nor the Treasury will disclose exactly what securities they have accepted as part of the now scrapped “cash for trash” deal that was the original TARP. The new plan to directly take equity in the banks (and potentially anyone else) has already been derided as incipient nationalization and crony capitalism. Oversight provisions as to how the government funds will be dealt with once injected, are non-existent, other than a bland assumption that the funds will be deployed for lending.
Meanwhile, according to Calculated Risk, as of 21 November 2008, 22 US banks have failed this year – so far. In fairness, some banks in the US, particularly those that stayed well away from the financially engineered toxic debt instruments, are doing just fine and are happy to continue and extend lines of credit to well managed commercial clients.
And the boys at Citigroup – whose share price is now that of an enhanced penny stock - are working overtime negotiating a government bailout or a sell off (of their lucrative credit card business, the Smith Barney brokerage, or their recently appointed CEO Vikram Pandit who announced jobs cuts totalling 82,000).
The joys of being an international conglomerate like Citigroup, allow for a degree of self-righteousness flatly denied to private companies: Citi is too big too fail and must be “saved” to end the hysteria; as a US company operating all over the world overseas governments should help bail it out; Citi is a victim of short sellers whose stock price has a reached a level that necessitates government intervention by way of cash injection, absorption of bad loans and an assisted merger.
Um… OK… government intervention for whose benefit? The shareholders or the financial system?
© 2008 Sanjeev Aaron Williams All Rights Reserved
The US auto companies didn’t quite get the warm political reception they’d hoped for as part of their grubbing for US25 billion. Given that all 3 claim to be on the verge of bankruptcy, it didn’t help their case that the CEOs arrived in private jets. In mitigation, General Motors is returning 3 of its leased jets while promising greater use of video conferencing…..
Oh, and being asked by politicians to spell out exactly why they need capital, what they intend to do with it, over what time frame and what kind of returns to expect, was hardly a surprise. Any SME, whether looking for factoring funds, seed capital, mezzanine financing, venture capital or a bank loan would be asked exactly the same questions. What gave the auto companies’ CEOs the temerity to think they’d be exempt from the basic criteria of accountability?
Probably the fact that to date neither the US Federal Reserve nor the Treasury will disclose exactly what securities they have accepted as part of the now scrapped “cash for trash” deal that was the original TARP. The new plan to directly take equity in the banks (and potentially anyone else) has already been derided as incipient nationalization and crony capitalism. Oversight provisions as to how the government funds will be dealt with once injected, are non-existent, other than a bland assumption that the funds will be deployed for lending.
Meanwhile, according to Calculated Risk, as of 21 November 2008, 22 US banks have failed this year – so far. In fairness, some banks in the US, particularly those that stayed well away from the financially engineered toxic debt instruments, are doing just fine and are happy to continue and extend lines of credit to well managed commercial clients.
And the boys at Citigroup – whose share price is now that of an enhanced penny stock - are working overtime negotiating a government bailout or a sell off (of their lucrative credit card business, the Smith Barney brokerage, or their recently appointed CEO Vikram Pandit who announced jobs cuts totalling 82,000).
The joys of being an international conglomerate like Citigroup, allow for a degree of self-righteousness flatly denied to private companies: Citi is too big too fail and must be “saved” to end the hysteria; as a US company operating all over the world overseas governments should help bail it out; Citi is a victim of short sellers whose stock price has a reached a level that necessitates government intervention by way of cash injection, absorption of bad loans and an assisted merger.
Um… OK… government intervention for whose benefit? The shareholders or the financial system?
© 2008 Sanjeev Aaron Williams All Rights Reserved
Thursday, November 13, 2008
Suck My Cash
It’s either gone surreal or we’ve entered the realms of financial pornography.
So far, at least 23 American banks signed up to fellate the US Treasury-demanded cash injections from the US$250 Billion intended to prop up the banks by buying stock in them and to encourage lending.
Well, that was the theory anyway.
The bottom line is that the onward lending to the floundering consumer and the anxious business owners isn’t happening.
In the last 24 hours, the US Treasury Secretary announced that TARP (the acronym for the program to purchase toxic assets from banks) isn’t working and has been shelved. Instead, the US Treasury will directly purchase shares in banks.
Or, apparently anyone else that needs money......like the big 3 US automakers lining up for US25 billion on the basis that as legacy companies they are too important to fail…..American Express looking at massive credit card defaults and a major purveyor of securitized credit card instruments, now imploding, has become a “bank holding company” in the same way as Morgan Stanley and Goldman Sachs, with greater access to federal funding.
But the real figures are likely to be mind-boggling. Forbes.com in an article entitled, “Washington’s $5 Trillion Tab”, dated 12 November 2008 cites data from CreditSights in an attempt to itemize where the money is going.
But what are we actually witnessing? For starters, a total lack of oversight as to where the money is going and a refusal to fully identify recipients of US Treasury largesse. Bloomberg's report of 10 November 2008 stated that the Federal Reserve was refusing to identify who was receiving US$2 Trillion dollars of loans courtesy of the American taxpayer or what securities the banks were pledging in return. Congressional oversight was allowed as part of the US700 Billion dollar TARP, but far more than this is being lent out in separate rescue programs that did not require congressional approval. Hardly surprising that Bloomberg filed federal legal proceedings in the US under the Freedom Of Information Act. And what else are we looking at? Crony capitalism, the evisceration of retirement savings and ultimately, a global increase in the retirement age.
© 2008 Sanjeev Aaron Williams All Rights Reserved
So far, at least 23 American banks signed up to fellate the US Treasury-demanded cash injections from the US$250 Billion intended to prop up the banks by buying stock in them and to encourage lending.
Well, that was the theory anyway.
The bottom line is that the onward lending to the floundering consumer and the anxious business owners isn’t happening.
In the last 24 hours, the US Treasury Secretary announced that TARP (the acronym for the program to purchase toxic assets from banks) isn’t working and has been shelved. Instead, the US Treasury will directly purchase shares in banks.
Or, apparently anyone else that needs money......like the big 3 US automakers lining up for US25 billion on the basis that as legacy companies they are too important to fail…..American Express looking at massive credit card defaults and a major purveyor of securitized credit card instruments, now imploding, has become a “bank holding company” in the same way as Morgan Stanley and Goldman Sachs, with greater access to federal funding.
But the real figures are likely to be mind-boggling. Forbes.com in an article entitled, “Washington’s $5 Trillion Tab”, dated 12 November 2008 cites data from CreditSights in an attempt to itemize where the money is going.
But what are we actually witnessing? For starters, a total lack of oversight as to where the money is going and a refusal to fully identify recipients of US Treasury largesse. Bloomberg's report of 10 November 2008 stated that the Federal Reserve was refusing to identify who was receiving US$2 Trillion dollars of loans courtesy of the American taxpayer or what securities the banks were pledging in return. Congressional oversight was allowed as part of the US700 Billion dollar TARP, but far more than this is being lent out in separate rescue programs that did not require congressional approval. Hardly surprising that Bloomberg filed federal legal proceedings in the US under the Freedom Of Information Act. And what else are we looking at? Crony capitalism, the evisceration of retirement savings and ultimately, a global increase in the retirement age.
© 2008 Sanjeev Aaron Williams All Rights Reserved
Wednesday, October 08, 2008
Global Interest Rate Cuts
Earlier today, Hong Kong time, there was a coordinated response from the US Federal Reserve, Bank Of Canada, Bank of England, European Central Bank and the Riksbank of Sweden to cut interest rates by 50 basis points. All banks issued public statements in similar form, pointing out the need to take action in a slowing global economy.
Would it be impertinent to point out that interest rates are already low, have been for sometime and still the US economy, the European economies and the Asian economies are slowing or are expected to slow?
Is SAW missing something? How do lowered interest rates deal with the 2 fundamental issues of institutional decapitalization and deleveraging?
And if the problem is one of outrageous consumer debt and shoddy bank lending, are lowered interest rates going to make the banks thrilled to lend again to consumers who turned out to be lousy credit risks?
Not likely.
One of the widely read blogs, Mish’s Global Economic Trend Analysis, asserts in a posting, Global Coordinated Rate Cuts Won’t Solve Economic Crisis dated 8 October 200,8 that the root cause of this crisis is fractional reserve lending. Interesting……SAW is no economist just a simple lawyer, who in his previous post entitled What Crisis dated 1 October 2008 suspected the same thing.
As MIsh put it:
“The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.
Would it be impertinent to point out that interest rates are already low, have been for sometime and still the US economy, the European economies and the Asian economies are slowing or are expected to slow?
Is SAW missing something? How do lowered interest rates deal with the 2 fundamental issues of institutional decapitalization and deleveraging?
And if the problem is one of outrageous consumer debt and shoddy bank lending, are lowered interest rates going to make the banks thrilled to lend again to consumers who turned out to be lousy credit risks?
Not likely.
One of the widely read blogs, Mish’s Global Economic Trend Analysis, asserts in a posting, Global Coordinated Rate Cuts Won’t Solve Economic Crisis dated 8 October 200,8 that the root cause of this crisis is fractional reserve lending. Interesting……SAW is no economist just a simple lawyer, who in his previous post entitled What Crisis dated 1 October 2008 suspected the same thing.
As MIsh put it:
“The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.
The root cause of this crisis is fractional reserve lending, and micromanagement of interest rates by the Fed in particular and Central Banks in general. The Fed started the party by slashing interest rates to 1%, but Central Banks everywhere drank the same punch to varying degrees.
The Greenspan Fed lowering interest rates to 1% fueled the initial boom, but like an addict on heroin, the same dose a second time will not have the same effect. The Fed, the ECB, etc. could have slashed rates to 0% today and it would not have mattered one bit.
The reason is simple: There is no reason for banks to go on a lending spree with consumers tossing in the towel, unemployment rising, and rampant overcapacity everywhere one looks with the exception of the energy sector.”
© 2008 Sanjeev Aaron Williams All Rights Reserved
© 2008 Sanjeev Aaron Williams All Rights Reserved
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