A Possible Turnaround?
Posted by Phoenix Woman on March 18, 2009
While everyone’s looking at the bright shiny object called AIG, I’ve pulled my gaze back a touch to see some other things in my peripherial vision:
– Citigroup, Bank of America and Chase all reported last week that they’d been operating in the black since the start of the year. Granted, that’s only two months, but it’s two months more than they’d managed at the end of the year.
– Housing starts have risen slightly, further boosting a stock market that has gained several hundred points in the last week.
I’m touching wood as I type this, but we may finally be seeing some beneficial results from the various bailouts and the planned stimulus spending.
9 Responses to “A Possible Turnaround?”
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Billy said
Touching wood? Common practice while perusing the interwebs.
I’m feeling optimistic too.
Charles II said
Oh, they’ll manage to screw it up.
Amid all the doomsaying, the problem is not fundamentally that bad. But our national leadership, both in Congress and in the Treasury is.
I say this having corresponded with a senior Senate aide who is a long-time acquaintance, and trying to explain to him why TARP was going to look really, really bad in retrospect. Not to mention the glib little letter my Senator sent in response to my warnings about TARP telling me we would make money on what Atrios calls Big S–tpile.
Well, actually, Atrios spells it out.
And then there was Krugman’s statement that we needed to spend a lot of money fast and it didn’t matter what we spent it on. As I pointed out to him, it matters in case you have to go back to the well, because political will is very important in cases like this.
Anyway, the amount of stupid that I heard last fall and into the spring was enough for a lifetime.
Phoenix Woman said
A-yep.
charles von goedert said
With their past record in financial statement reporting, how can
anyone in the business community trust what they say, report or
write to the investors. they never seem to tell or expose all
their underlying liabilities until after bonuses have been paid
or contracted. Like the song says, “Nice if you can get it and
you can get it if you try.” And they know how to do that.
EP3 said
the only thing that is gonna straighten out this economy is when wages start to rise. and they are gonna hafta rise fast because once they go up, the fed will jump on the inflation wagon and raise rates. the american people are tapped out. they don’t make enough in weekly wages to keep up their spending. either we have to return to a 3rd world living existence or we need the minimum wage to rise to about $15 an hour. only then will the economic situation straighten out.
brownbuffalo said
Wait & see. A bottom will be reached in July 2010 after about 9 months of 1M plus newly unemployed each month. The Dow will be around 5500. The dollar will be holding strong, but not as strongly as last week, against the Mexican peso and not much else. No one of any account will have gone to jail for anything.
That’s my call and you can tell me how wrong I was in another 16 months.
Charles II said
Wow. 9 Million more unemployed? That would put us in relative terms very near the depths of 1932. My guess is that won’t happen.
The rest of it… well, you could be right.
brownbuffalo said
Well, I hope I’m wrong. Generally I just think there is a whole lot more writing down to go than anyone is willing to officially admit at present. There are trillions and trillions and trillions of dollars that are simply gone. They can “pump” a couple/few trillion into the system but it will be gone before it hits the vault. The U.S. banking system is effectively insolvent IMHO and that includes the Federal Reserve. To the extent this is right, well, it does get 1932ish . . . Or not!
Charles II said
The key to understanding the crisis, BB, is understanding the role of leverage. One mortgage is levered up 4 or 6 times in the normal banking system, but 10 or even 30 times in the shadow banking system. All the MBS/CDO/CDO^2/futures/CDS alphabet soup is just ways of talking about how the leverage is done.
Now, each of these securities has different likelihoods of catastrophic failure. MBS are actually safer than single mortgages. Futures and CDS are very likely to cause dislocations, because of the concentration of bets.
But there are still a finite and relatively small number of mortgages that fail and, in fact, many of those need not fail. The interest rate resets, the person who could pay the mortgage no longer can, and down it comes. In that case, the amount of money involved could be $100/month or so. Peanuts compared to the cost of paying off a CDS on a $250,000 mortgage or the cost of sending a multimillion dollar CDO^2 into default.
So, is it a big problem or is it a little problem? It depends on which end of the lever you look at. Nouriel says it’s a $3.6T problem when fully levered up. But that means it is a $360B problem (ballpark) if it’s addressed at the mortgage end. We need to raise wages and help people pay down debt.
The real problem is Washington. They refuse to look at the larger problem. They keep looking at it as a banking crisis. As long as checking and savings accounts pay off, as long as businesses can borrow and people can get mortgages, there is no banking crisis.