Things to worry about today number two: Financial Meltdown

[koganbot]

Three blog posts and one column from Paul Krugman all give reasons why the financial markets may be in the midst of a meltdown. Unfortunately, I don't understand the arguments. Can any of you help me?

Krugman's saying that the Fed's recent actions are basically like slaps in the face to give the markets a chance to catch their breath, but that we're on the third slap and the slaps don't seem to have more than a momentary effect. So what the Fed's doing is just a drop in the bucket, and if the markets don't respond, way more drastic measures need to be taken. (Like what?) This seems to be a key sentence: "But a sterilized intervention means an intervention that doesn't affect the monetary base - swapping dollar t-bills for euro T-bills, or T-bills for mortgage-backed securities. And here the numbers are much bigger: $11 trillion in home mortgages, for example."

What Is To Be Done?

What's Ben Doing?

Why Sterilization Matters

The Face-Slap Theory

Comments

[dubdobdee.livejournal.com]

is he saying "more drastic measures needed"? -- or "these were the biggest measures the Fed can actually take" and if they don't work, the "solution" is DOWN WE GO (meaning that the market resizes a LONG WAY down, very fast, at free-fall speeds which will technically and mechanically bankrupt a lot of the institutes of finance currently considered essential cogs in the wider system)

the point of the slaps is to ensure that a necessary market revaluation doesn't become a massive overcompensation (i think this is what he's saying, anyway) (i read this last week and didn't reread just now); but if they don't work, it means that the "true" value is to be found a long way below where we are, and there isn't a gentle route down to it

(haha the more "drastic" measures would be anti-capitalist revolution! which i don't believe krugman is arguing quite yet!)

[koganbot]

is he saying "more drastic measures needed"? -- or "these were the biggest measures the Fed can actually take" and if they don't work, the "solution" is DOWN WE GO

This is exactly the question I have.

[dubdobdee.livejournal.com]

what i think i recall reading last week is that the fed simply doesn't have the cash back-up to pump the system in any significant way --- that the present geometry of banking has allowed the system to go bubbly (my def AND standard def) in a kind of polydimensional way, so that no one knows where the empty holes are or how big or how numerous they are, and the liquidity generated is essential to life-as-we-know-it: returning to old-skool reserve-means-reserve banking (tho i have been arguing that there's no old-skool about it; it's not proper banking if it ain't a bubble blah blah) will shut down the modern world :(

(which is why no one wants to face up to this possibility)

perhaps instead of BUBBLE i should argue that banking is a kind of FOAM, which removes friction and allows all kinds of wild and fun consequence-free activity EXCEPT FOR THE SIDE EFFECTS

[koganbot]

Of course, the Fed isn't the only entity that can take action, but since the current U.S. president is mentally and ideologically challenged, we're not going to get useful government intervention beyond the probably inadequate tax rebate stimulus bill (since President Doofus is against giving money to poor people who would pump the money immediately into the economy, or public works projects that would do the same thing).

[dubdobdee.livejournal.com]

case in point, spitzer's $5500-an-hour hookers!

(Speech of brazen exculpation ES shd have made: "Each of us must find our own way to deliver stimulus to the faltering economy") (ok i stole that from the comments at unfogged)

[carsmilesteve.livejournal.com]

hehe, without clicking on any of the links i immediately thought "REVOLUTION!!!" as a moar dramatic response ;)

[dubdobdee.livejournal.com]

"What Is to Be Done?" = quoting V.I.LENING of course!

[dubdobdee.livejournal.com]

ps i owe frank a whole bunch of filibustering expansions of ideas in various territories (me so renaissance!) and now do have three weeks in which to explore some of em i hope

[braisedbywolves.livejournal.com]

If you can spare the time, I'm interested in hearing more about how people get John Peel wrong.

[dubdobdee.livejournal.com]

yes that's one of them!

[dubdobdee.livejournal.com]

except it was also tied up with hendrix somehow (and that's how it was related to something frank asked): i'll have to go and look!

[koganbot]

OK, here's a new Krugman post that I understand somewhat better, and is saying that it's possible that the financial markets may be beyond help.

A Cartoon Model Of The Crisis

Ends with this thought:

I've been struck by how little analytical thinking I've seen about the current financial crisis. Economists, it's time to come to the aid of your country!