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This crisis has a life of its own

This article was first published on guardian.co.uk on Friday March 14 2008. It was last updated at 18:07 on March 14 2008.



Forget talk of soft landings. Ignore those who say that the Federal Reserve is in control of events. Take with a pinch of salt suggestions that the problems at Bear Stearns are a one-off.
The rescue package orchestrated for America's fifth-biggest investment bank makes it abundantly clear that this is now a different sort of market and a different sort of crisis. It is no longer hyperbole to state that the US is facing the most serious threat to its financial system since the Depression of the 1930s.
After days of denying market rumours that it was in trouble, Bear Stearns eventually came clean today and said that it had been forced to seek help from a combination of JP Morgan and the New York Federal Reserve as a result of a deterioration in its financial position in the past 24 hours.
Bear's problems have, however, been building up for a lot longer than that, and the talk of a sudden descent into crisis looks like an attempt to prevent US regulators taking an interest in whether the bank has been trading under false pretences this week.
Like Northern Rock in the UK, it was the bank that was most heavily exposed to the sub-prime meltdown in the American real estate market. Like Northern Rock, it was singled out as the limping wildebeest struggling to keep up with the herd. And like Northern Rock it has been the victim of a bank run, only this time the run has involved other banks selling its shares short rather than customers turning up to withdraw their savings.
The severe problems at Bear Stearns explain why the Fed has been so hyperactive. Ben Bernanke, the Fed chairman, is a student of the Great Depression and knows only too well the role that collapsing banks had in magnifying the impact of the slump. The plan, evidently, is to take decisive action in the hope that Bear Stearns can be ringfenced from the rest of Wall Street.
Whether this works remains to be seen. Previous attempts to contain the sub-prime crisis to America's trailer parks and poorer suburbs proved singularly unsuccessful: the key word of the past eight months has been contagion not containment, and there are plenty of other banks that have allowed greed to influence their investment decisions.
There are three immediate conclusions to be drawn from today's events. The first is that the market turmoil will continue and perhaps deepen. The second is that the Fed will now almost certainly cut interest rates by 75 basis points when it meets next week. The third is that the chronic weakness in the dollar will continue and before long may prompt coordinated central bank action to prop it up.
But the scary truth is that the Fed has lost control of events. This crisis has a life of its own and it is not going to end until a floor is put under the US housing market, because only that will stem - eventually - the losses being made by the banks. As things stand today, that still looks a long way off.

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Very scarey.

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95 SL500 Smoke Silver, Parchment 64K
07 E350 4matic Station Wagon White 34K
02 E320 4Matic Silver/grey 80K
05 F150 Silver 44K

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Welcome to the depression.

Maybe people will figure out they don't need all this money and stuff
to make them happy.

Economically it will be devastating.
Socially it will be a wonderful thing.

I think in the end it will bring about much more happiness in this country.

Thanks

RichC

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When the power of love overcomes the love of power the world will know peace.
Jimi Hendrix

It's foolish to assume the Fed was ever in control of the economy - it isn't, it never has been, and it never will be. The Fed can only assist with the economy by altering rates and distributing more/less money. The economy is it's own monster, and we all live by the will and wish of that monster. The past eight years have been huge as a boon to the economy, now it's time for an "adjustment", which means we'll all be losing a little money for awhile. If the Dems get into full power of the government, you can expect higher taxes to pay for this, which means you be losing even more money.

Don't get too caught up in the "The sky is falling! The sky is falling!" mentality. Pay heed, but don't blindly follow.

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- Brian


1989 500SEL Euro
1966 250SE Cabriolet
1958 BMW Isetta 600

Absolutely correct! It's not the sky that's falling, it's the $Dollar$ ...!!!

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The Dems are the ones that balanced the deficit.
Remember the Clinton years.

The Repubs are the one that have gotten us into extreme debt.

The Repubs are the ones that are responsible for the money that
needs to go back into the system.


RichC

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When the power of love overcomes the love of power the world will know peace.
Jimi Hendrix

Interesting though, according to the Comptroller General who recently resigned, there is no way, even under the most ideal circumstances, that the deficit can be balanced before the mid 2030's.

Now Hillary steps up, telling us she will square it all out during a 4 year presidential term ... IF she will be the Prez

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I was just reminded of the "balance the budget bake sales"
,jokingly referred to by Clinton,
that people were putting on during the those years.

Specifically a story about a young child that baked cookies
and sold them in front of here house, then sent the money
to the president.

It bothers me that her money went to pay for the war thats going on.

RichC

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When the power of love overcomes the love of power the world will know peace.
Jimi Hendrix

Unfortunately, this war costs the nation a lot of grief and what we see at the present are only the first undeniable signs. It will spread like cancer.

Amazing though, how this current President keeps hanging in there, in his very own "belief bubble", but above all maintaining the job for what he was put in place.

I have to say, for those who invested in him, he generated magnificent returns, while on the flipside he set the country on fire, Nero-style.

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I think I can see a certain resemblance ...

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Yep, the President wrote up the budget, passed it on his own, wrote the checks and patted himself on the back.

What country are you folks talking about????

CONGRESS WRITES the budget - the President ONLY submits ideas...

CONGRESS PASSES the budget - the President ONLY signs, or vetos, it...

CONGRESS PORKS the budget - the President ONLY asks for ... whatever he does...he does...Congress has to APPROVE it before it can be done...

Clinton DIDN'T BALANCE ANYTHING - CONGRESS DID IT, THEN "UN-DID" IT...
Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush I., Clinton & Bush II. are as responsible for the health of the economy as all nine of them were responsible for the " 1929 Crash"...

And we, the citizens, are as close to Congress as the next voting booth...quit yer' *****in' and finger pointing...vote the real bastards out if you think your paycheck sucks, your 401(k) is tanking and your next loaf of split-top buttered wheat costs as much as your next gallon of liberal-smelling-tree-huggin'-eco'85...-

Bush II. didn't butter it or mandate it...

Your friendly, neighborhood CONGRESS MAN (PERSON...WHATEVER) did.

And that folks, is the facts.

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M. G. Burg
'10 - Dakota SXT - Daily Ride / ≈ 172.5K
.'76 - 450SLC - 107.024.12 / < .89.20 K
..'77 - 280E - 123.033.12 / > 128.20 K
...'67 - El Camino - 283ci / > 207.00 K
....'75 - Yamaha - 650XS / < 21.00 K
.....'87 - G20 Sportvan / > 206.00 K
......'85 - 4WINNS 160 I.O. / 140hp
.......'74 - Honda CT70 / Real 125
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“I didn’t really say everything I said.”
. . . . . . . . . . . . . . . . . . ~ Yogi Berra ~

And the "decider " is just along for the ride.

You sir are on the ride!

Tom W

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[SIGPIC] Diesel loving autocrossing grandpa Architect. 08 Dodge 3/4 ton with Cummins & six speed; I have had about 35 benzes. I have a 39 Studebaker Coupe Express pickup in which I have had installed a 617 turbo and a five speed manual.[SIGPIC]

..I also have a 427 Cobra replica with an aluminum chassis.

Congress, White House, all the same family.

I was referring to the current President's choice of words, articulation and intention to make us believe things that definitely aren't as he says.

I agree, Congress is even more a whore for lobbies than the White House inmates.

As far as your and others "voting philosophy" ... they, (whoever 'they' are) will get who they want. It's easier than ever to rig elections these days.

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If the budget became balanced at anytime during the Clinton Years it was Because of the financial policies of Ronald Reagan that produced what he said they would if we could wait and not fall into the instanf gratification game! Yes, Bush II is a lousy manager, but let's not forget that the pilot of the jet that brought down the world trade centersouth tower got his license to fly by getting a loan from Bank of America and taking his training right here at Williams Gateway Airport right here in Arizona during the Clinton years!

How many secrets did China get from us and at what price during those same Clinton years? Is it possible that Clinton might have had a shot of heading this off at the pass if he kept his pants on? HMMM.

Are you trying to say that th president has no influence over congress?
What country are you living in ?

O, and while your sniffing your eco'85' that costs as much as a loaf of bread.
You might want to thank the "tree hugging" farmer that grew the wheat that made it.

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When the power of love overcomes the love of power the world will know peace.
Jimi Hendrix