Thursday, March 19, 2009

So we beat on…

If the present financial crisis is the moral equivalent of war, it is appropriate that we have a “New-New Gettysburg Address” written by Jeff Mathews. It begins with “Four or five years ago our Investment Bankers helped bring forth on this continent, and around the world, a new banking system, conceived in Leverage, and dedicated to the proposition that all persons working for Investment Banks can create enormous Wealth for themselves with almost no Risk except to Taxpayers.”

From Naked Capitalism an interesting, but rather technical explanation of the Federal Reserve’s attempt to prop up housing prices through its "shock and awe" announcement yesterday of buying long term debt (created by the Treasury!). One has to wonder whether China’s Prime Minister Wen Jiabao is now more than “a little worried” about their $1 trillion holdings of US debt and about being attached at the hip to US currency.

Finally, here is an insider’s view of the day-to-day workings of AIG. As an outsider, it’s like watching a car wreck in slow motion. Unfortunately, we’re all in this collision. A summary is at the Zerohedge blog, but within is a link for detail.

Unless we have job creation, the Fed can drive mortgage rates to zero without much benefit. People borrow because of confidence, not merely because rates are low. Since the recent Fed move is acknowledged to be their weapon of last resort, one has to wonder what the Fed knows that we don’t. But the last time we had artificially low rates and relatively strong employment we began the very leverage bubble that is now in the process of deflating. “So we beat on, boats against the current, borne back ceaselessly into the past.” (F. Scott Fitzgerald from The Great Gatsby).
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