Zaroc Stone
2007-10-28 14:56:10 UTC
How Bad Will the Next Recession Be?
By Scott Thill, AlterNet. Posted October 26, 2007.
If our government really is a corporation and Bush is its CEO, we're
all likely to be self-employed contractors out of a job.
"My rant was the rant heard around the world," CNBC personality and
ex-hedge funder James Cramer told viewers of his cable show Mad Money,
a talk-radio spectacle involving its host's over-the-top antics like
hitting sound-effects buttons and giving stock advice at breakneck
speed. The setting was 2007's fiscal third quarter, a highly volatile
period in which the market nosedived on the heels of a subprime
housing and credit meltdown.
In the rant, broadcast on the show Stop Trading! before becoming an
online hit, Cramer aggressively screamed for a rate cut from the Fed
for his "people [who] have been in this business for 25 years!" -- by
which he meant, of course, the hedge funders whose deceptive bundling
of mortgage-backed securities built on subprime loans and no oversight
from the SEC whatsoever are finally getting their comeuppance.
Cramer, who ignored repeated requests for participation in this story
and its predecessor, viewable on AlterNet here, made it pretty clear
that his friends in the hedge fund industry manipulate the credit and
housing markets for fat-ass paydays. But there he was a few days
later, backtracking hard. He was even lucky enough to get on The
Colbert Report to do some much-needed damage control, asserting that
he was really defending the millions of suckered Americans about to
lose their homes, thanks to highly leveraged loans manipulated by
investment banks and private equity groups like Blackstone, KKR and
Bear Stearns (now the target of a criminal investigation) into
Kafkaesque packages called CDOs (collateralized debt obligations).
Those labyrinthine Ponzi schemes allowed hedge fund managers and
private equity groups to not only buy out big names like Sallie Mae,
Hilton, Chrysler and more, but also skim huge percentages off the top
for themselves, their wives, mistresses and mansions.
And here we are, after the subprime collapse and Cramer's rant hear
'round the world, teetering on a fourth quarter that is screwed
without some help from the Federal Reserve Bank. In fact, we could be
headed to the type of economic recession that the Los Angeles Times
recently reported may swallow us all -- at least until 2009, if we're
lucky. Others aren't so optimistic: Paul Krugman, a noted economist
and caller of bullshit on fantasies financial and military, like the
occupation of Iraq, wrote in an aptly titled New York Times op-ed
called "Very Scary Things" that "what's been happening in financial
markets over the past few days is something that truly scares monetary
economists: liquidity has dried up ... This could turn out to be
nothing more than a brief scare. At worst, however, it could cause a
chain reaction of debt defaults ... Let's hope, then, that this crisis
blows over as quickly as that of 1998. But I wouldn't count on it."
That was Krugman's take on Aug. 10. The 1998 crisis he's referring to?
That would be total implosion of Long-Term Capital Management, a hedge
fund made up of bond traders and Nobel Prize-winning economists that
tanked billions and needed to be bailed out in order to avert an
American recession under President Clinton. Hedge funds have the Midas
touch, it seems, for making gold only for their shareholders, and few
else, before needing a federal lifeboat.
Sure enough, in the days since Krugman's very scary thoughts, the
situation has worsened. "Signs of progress have appeared," said
Federal Reserve Chairman Ben Bernanke to a German conference on Sept.
11, "but ... most countries have only just begun to undertake the
policy changes that will ultimately be needed ... in part because of
the greater recent volatility in financial markets and investors'
demands for increased compensation for risk-taking." Henry Paulson,
current secretary of the treasury and former CEO and chairman of
investment bank Goldman Sachs, a major beneficiary of the CDO bonanza
and one bank that helped bail out Long-Term Capital Management, added
that our current economic crisis will take longer to fix than the
other major depressions of the last two decades, including the Russian
default of the '90s and the Latin American debt nightmare of the '80s.
http://www.alternet.org/stories/65037/
By Scott Thill, AlterNet. Posted October 26, 2007.
If our government really is a corporation and Bush is its CEO, we're
all likely to be self-employed contractors out of a job.
"My rant was the rant heard around the world," CNBC personality and
ex-hedge funder James Cramer told viewers of his cable show Mad Money,
a talk-radio spectacle involving its host's over-the-top antics like
hitting sound-effects buttons and giving stock advice at breakneck
speed. The setting was 2007's fiscal third quarter, a highly volatile
period in which the market nosedived on the heels of a subprime
housing and credit meltdown.
In the rant, broadcast on the show Stop Trading! before becoming an
online hit, Cramer aggressively screamed for a rate cut from the Fed
for his "people [who] have been in this business for 25 years!" -- by
which he meant, of course, the hedge funders whose deceptive bundling
of mortgage-backed securities built on subprime loans and no oversight
from the SEC whatsoever are finally getting their comeuppance.
Cramer, who ignored repeated requests for participation in this story
and its predecessor, viewable on AlterNet here, made it pretty clear
that his friends in the hedge fund industry manipulate the credit and
housing markets for fat-ass paydays. But there he was a few days
later, backtracking hard. He was even lucky enough to get on The
Colbert Report to do some much-needed damage control, asserting that
he was really defending the millions of suckered Americans about to
lose their homes, thanks to highly leveraged loans manipulated by
investment banks and private equity groups like Blackstone, KKR and
Bear Stearns (now the target of a criminal investigation) into
Kafkaesque packages called CDOs (collateralized debt obligations).
Those labyrinthine Ponzi schemes allowed hedge fund managers and
private equity groups to not only buy out big names like Sallie Mae,
Hilton, Chrysler and more, but also skim huge percentages off the top
for themselves, their wives, mistresses and mansions.
And here we are, after the subprime collapse and Cramer's rant hear
'round the world, teetering on a fourth quarter that is screwed
without some help from the Federal Reserve Bank. In fact, we could be
headed to the type of economic recession that the Los Angeles Times
recently reported may swallow us all -- at least until 2009, if we're
lucky. Others aren't so optimistic: Paul Krugman, a noted economist
and caller of bullshit on fantasies financial and military, like the
occupation of Iraq, wrote in an aptly titled New York Times op-ed
called "Very Scary Things" that "what's been happening in financial
markets over the past few days is something that truly scares monetary
economists: liquidity has dried up ... This could turn out to be
nothing more than a brief scare. At worst, however, it could cause a
chain reaction of debt defaults ... Let's hope, then, that this crisis
blows over as quickly as that of 1998. But I wouldn't count on it."
That was Krugman's take on Aug. 10. The 1998 crisis he's referring to?
That would be total implosion of Long-Term Capital Management, a hedge
fund made up of bond traders and Nobel Prize-winning economists that
tanked billions and needed to be bailed out in order to avert an
American recession under President Clinton. Hedge funds have the Midas
touch, it seems, for making gold only for their shareholders, and few
else, before needing a federal lifeboat.
Sure enough, in the days since Krugman's very scary thoughts, the
situation has worsened. "Signs of progress have appeared," said
Federal Reserve Chairman Ben Bernanke to a German conference on Sept.
11, "but ... most countries have only just begun to undertake the
policy changes that will ultimately be needed ... in part because of
the greater recent volatility in financial markets and investors'
demands for increased compensation for risk-taking." Henry Paulson,
current secretary of the treasury and former CEO and chairman of
investment bank Goldman Sachs, a major beneficiary of the CDO bonanza
and one bank that helped bail out Long-Term Capital Management, added
that our current economic crisis will take longer to fix than the
other major depressions of the last two decades, including the Russian
default of the '90s and the Latin American debt nightmare of the '80s.
http://www.alternet.org/stories/65037/