Saturday, December 15, 2007

After the Money's Gone

Paul Krugman says we shouldn't expect the financial crisis to go away anytime soon.

After the Money’s Gone, by Paul Krugman, Commentary, NY Times:

On Wednesday, the Federal Reserve announced plans to lend $40 billion to banks. By my count, it’s the fourth high-profile attempt to rescue the financial system... Maybe this one will do the trick, but I wouldn’t count on it.

In past financial crises — the stock market crash of 1987, the aftermath of Russia’s default in 1998 — the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn’t working.

Why not? Because the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency.

Let me explain... Suppose that there’s a nasty rumor about the First Bank of Pottersville: people say that the bank made a huge loan ... on a failed business venture... If everyone, believing that the bank is about to go bust, demands their money out at the same time, the bank would have to raise cash by selling off assets at fire-sale prices — and it may indeed go bust...

----- Silly man knows the government can, if it chooses, put a freeze on Pottersville bank withdrawals to stop a panic run on the bank.

In the past decade or so Krugman seems to have become more fear-monger than economist. His flip from Reaganista to liberalista is complete. Take this article from 2000, Fights for the Global Economy Against Continuing Doubt, his first column for the NYT; Krugman writes reasonably enough for me until the last paragraph:

" For that, surely, is the lesson of the trashing of the World Trade Organization meeting in Seattle last November. Not that the protesters were right: it is a sad irony that the cause that has finally awakened the long-dormant American left is that of -- yes! -- denying opportunity to third-world workers. But though the facts may be on the side of the free traders, though global trade really ought to have mass public support, one can hardly deny that the opponents are winning the propaganda war. For the moment, as long as it seems to deliver the goods and services, globalization is tolerated; but it is not loved. The big economic question for the next century, in other words, is really political: can the Second Global Economy build a constituency that reaches beyond the sort of people who congregate at Davos? If not, it will eventually go the way of the first."

Denying opportunity to third-world workers (global trade). Ya mean slave labor, cheap labor, forced labor, child labor? You mean Nicaraguan shirt factories and Haitian shoe factories and the Mexican maquilápolis and Chinese peasants making plastic yellow ribbons for my SUV, opportunity for workers who can't afford the shirts and shoes they produce 10 hours a day 6 days a week?

Krugman states global trade really oughta have mass public support, in other words support worldwide wage slavery so you may buy cheap shoes from Wal-Mart and so the disparity in world wealth can continue. Why does Krugman find irony in the American "left" not supporting globalization for what it is - expendable human labor for profits?

Krugman: "How will it all end? Markets won’t start functioning normally until investors are reasonably sure that they know where the bodies — I mean, the bad debts — are buried. And that probably won’t happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years. Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed."

----- After the money is gone? How does it all end? Will his comments create nail biting among the affluent? The wealthy? The working lower middle class poor? Luckily for Krugman, as he predicts the fallout will take years, most of his readers will not remember his commentary from today.

Economic crisis are planned, manipulated. Did the Rockefellers and Vanderbilts and Kennedys become paupers in 1929? Did the lords and ladies of Europe? Did the oligarchies anywhere? No. Joe Blow and his family lost their savings. Guess where the money went when it disappeared. Guess who bought the homes and land abandoned by the little people who couldn't find work. There's a saying that when Joe Blow is encouraged and enticed to put his pennies in the stockmarket it's time to sell.

Why expect the Feds to make it go away - perhaps the economy is going as planned. But, take note. Help is on the way ... European investors have more purchasing power in the U.S. market and they have arrived.

"Adding to the appeal is the fact that the U.S. housing market has been hit hard by the credit crisis, which has made properties even more attractive for Europeans stunned by sky-high house prices in their home countries. In a mid-2007 survey, the National Association of Realtors found that Florida led the nation in foreign home buying, accounting for 26 percent of all international purchasers. California was next at 16 percent, followed by Texas at 10 percent. Some 34 percent of the foreign home buyers in Florida were from Latin America. An additional 21 percent were from Britain. About 9 percent came from Canada and 8 percent from Germany. The rest were from Asia, Eastern Europe and other areas."

Carpetbaggers? It's not just the warm-climate states. They have arrived here in Podunk, Heartland. Great investment opportunity if a person has a little money. I know a couple of folks out of state buying quite a bit of property here with no intention of every living in the area. It's just too cheap to pass up.

Krugman says in the past the Fed has been able to wave its magic wand and make turmoil disappear. But Bubba, there is no magic wand and never has been. And if you can't hang on in the turmoil - consider yourself collateral damage from globalization.

(The new word for unfettered capitalism is globalization, or as Krugman would say it - opportunity for third-world workers).

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