![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
clearing the tabs
May. 31st, 2008 10:54 amThe credit crisis, some irrational commentariat spewing to the contrary, is not over. The surge in bank failures everyone knows is coming has barely started. S&P is finally starting to admit that all those "alt-A" CDOs and such aren't actually AAA worthy, and the inevitable hit commercial properties and lending are going to take is starting to ramp up. Oh, and I forgot to mention that banks have been systematically lying about borrowing costs to the British Bankers' Association, which explains some things about LIBOR rates.
So as you might expect, the Fed is concerned. But taking foreign collateral and acting as the world's central bank? And considering formally making the various "loans" made against the kind of collateral they've been taking permanent? Yeek. What's a permanent loan of good funds in exchange for bad called? Oh right - a gift. Or a bailout. One must consider whether this relates to the recent resignation at the Fed - Mish suspects this resignation is related to some of the serious infighting going on, which seems pretty reasonable. Leaving two years into a 14-year term is pretty surprising, so something must be up.
On the good side, you're starting to see some action from the SEC on the fraudulent ratings issued by ratings agencies. Wall Street has certainly indicated they no longer trust any of them, and even their own models are starting to rate each other as junk. And some of the more blatant fraud and corruption in the mortgage brokerage business is starting to come out, which will also force more of the overdue re-evaulations of ratings. But amusingly, the bank lending binge they thought they could get away with after the Republicans and GOP revised the bankruptcy codes to turn bankrupt people into something akin to wage slaves is now backfiring, fiercely, as there's now been a Federal ruling that stated-income "liar loans" can be discharged in bankruptcy, since the banks made no attempt to validate anything - largely on the strength of having the bankruptcy law they wrote get passed. This is a Nelson "HA-ha!" moment.
Meanwhile, you're seeing various commenters say that there's not going to be a recession at all. Tax receipts tell a different story. John H. Makin, writing for the AEI, strongly disagrees, showing his work. And the Chair of the Federal Reserve Bank of Dallas makes a rather sternly worded speech indicating that the US has some serious financial reckoning ahead, stating, "I see a frightful storm brewing in the form of untethered government debt. I choose the words—“frightful storm”—deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct." This may seem familiar to those of you who remember commentaries made by the previous Comptroller of the Currency who has since resigned in protest. And some former Fed economists are starting to speak out.
Also to keep an eye on: China's reserve growth has accelerated. It's gotten crazy enough that the Naked Capitalist calls it "scary bad," and, in a separate post, proposes that the entire point of this massive reserve growth is a reaction against the IMF as an economically imperialist tool of the G8, and specifically, is plan not to have to follow its dictates in the next economic crisis.
So as you might expect, the Fed is concerned. But taking foreign collateral and acting as the world's central bank? And considering formally making the various "loans" made against the kind of collateral they've been taking permanent? Yeek. What's a permanent loan of good funds in exchange for bad called? Oh right - a gift. Or a bailout. One must consider whether this relates to the recent resignation at the Fed - Mish suspects this resignation is related to some of the serious infighting going on, which seems pretty reasonable. Leaving two years into a 14-year term is pretty surprising, so something must be up.
On the good side, you're starting to see some action from the SEC on the fraudulent ratings issued by ratings agencies. Wall Street has certainly indicated they no longer trust any of them, and even their own models are starting to rate each other as junk. And some of the more blatant fraud and corruption in the mortgage brokerage business is starting to come out, which will also force more of the overdue re-evaulations of ratings. But amusingly, the bank lending binge they thought they could get away with after the Republicans and GOP revised the bankruptcy codes to turn bankrupt people into something akin to wage slaves is now backfiring, fiercely, as there's now been a Federal ruling that stated-income "liar loans" can be discharged in bankruptcy, since the banks made no attempt to validate anything - largely on the strength of having the bankruptcy law they wrote get passed. This is a Nelson "HA-ha!" moment.
Meanwhile, you're seeing various commenters say that there's not going to be a recession at all. Tax receipts tell a different story. John H. Makin, writing for the AEI, strongly disagrees, showing his work. And the Chair of the Federal Reserve Bank of Dallas makes a rather sternly worded speech indicating that the US has some serious financial reckoning ahead, stating, "I see a frightful storm brewing in the form of untethered government debt. I choose the words—“frightful storm”—deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct." This may seem familiar to those of you who remember commentaries made by the previous Comptroller of the Currency who has since resigned in protest. And some former Fed economists are starting to speak out.
Also to keep an eye on: China's reserve growth has accelerated. It's gotten crazy enough that the Naked Capitalist calls it "scary bad," and, in a separate post, proposes that the entire point of this massive reserve growth is a reaction against the IMF as an economically imperialist tool of the G8, and specifically, is plan not to have to follow its dictates in the next economic crisis.
