Gerry Canavan

the smartest kid on earth

Posts Tagged ‘liquidity crisis

Back Home Just in Time for the Economic Collapse Links

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* Fantasy Premier League is starting up again! Email me for our league code or leave a request in the comments.

* My old friend Julie takes the critical thinking skills she honed on the Randolph High School debate team and takes them to the Center for American Progress with a piece on the war on diversity education.

* Jaimee reviews #13 and #14 in the Carolina Wren Press poetry series.

The final section of Pratt’s collection calls on us to transcend our economic predicaments. “Street of Broken Dreams” delves into the mortgage crisis: “No way to tell who owns my neighborhood homes/ until the for-sale-by-bank signs grow overnight.” It is a poem that celebrates the people who resisted their neighborhood home foreclosures, ending with their imagined chants: “We demand. Not rabble and rabid, not shadow, not terror,/ the neighbors stand and say: The world is ours, ours, ours.”

* Also in breaking Jaimee news: her pop culture icons will be hanging in Bean Trader’s on 9th Street starting August 1.

* America eats its future: Debt Ceiling Plans Take Aim At Graduate Student Loans.

* Not-so-post-racial America: As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009, the typical Hispanic household had $6,325 in wealth and the typical white household had $113,149.

* And House Democrats are finally starting to say what I’ve been saying all along. Even if the Republicans are capable of delivering any deal at all—which is by no means clear—there’s no deal they can offer that’s better than eliminating the debt ceiling altogether in one fell swoop. And as I’ve been saying eliminating the debt ceiling completely is now the only way left to calm the markets and prevent a potentially catastrophic downgrade:

Asian stock markets fell Thursday as uncertainty over the U.S. debt ceiling debate continued to weigh market sentiment, while concerns over a stronger yen dragged exporters in Tokyo.

“The scary part of the story is the fact that markets have not priced-in the U.S. defaulting on its debt. Should the unthinkable happen in the next week then a throw back to the chaos of 2008 would again become a reality,” said CMC Markets analyst Ben Le Brun. “Should the majority of opinion be correct and the U.S. does avoid a default, global markets do appear as if they are positioned for a relief rally of sorts. Until then investors should brace themselves for more pain.”

Thirteen Ways of Looking at a Sovereign Debt Crisis

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…at the Atlantic. #13 in particular is the one that’s got my hair on fire, in no small part because it gives us #7, 8, and 9 as a bonus.

‘Riskless Return’

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Ezra Klein on my broken record: If the federal government’s borrowing costs rise, so will everyone else’s. Mortgages rates will jump, car loans will be harder to come by, universities won’t be able to float bonds, cities won’t be able to fund themselves.

Treasuries are supposed to set the rate of “riskless return” — the price of loaning someone money and knowing, with perfect certainty, that they’ll pay you back, with interest. So when lenders decide how much to charge, they start with the riskless rate and then add to it to cover the risk that you won’t pay them back, and the inconvenience of having to wait for you to pay them back.

It’s a practice called benchmarking, and it’s everywhere: in your mortgage, your credit card, your car payments, the loan you took out to hire three new employees at your business. It’s even common internationally. The fact that Brazilian loans tie themselves to the American government’s debt just shows the high esteem in which the world holds us.

But if the rate on 10-year Treasuries rises, it means rates rise for everything else, too. That’s why economists consider the Federal Reserve’s power to affect interest rates — a power it has virtually exhausted during this crisis — so potent: if you can move the basic interest rate, you can move the whole economy.

End of the World Blues

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So what happens if the U.S.’s bond rating does get downgraded? Some 7,000 top-rated munis would be automatically downgraded if the U.S. government lost its AAA rating. In addition the credit ratings of a host of state and local governments, housing bond programs, higher education and non-profit institutions, and other entities dependent on the federal government would be reviewed, Bloomberg reports. 

And it could get much worse than that. There are huge swaths of the global economy that are predicated on the idea that the U.S. government will absolutely never default. Additionally, there’s no telling what sorts of CDS-style time-bombs and investment-product doomsday machines are out there waiting to be triggered if the U.S. were to be downgraded as a result of all this political posturing. Recall that the stock market crash of 2008 was triggered in large part by the downgrading of a single firm’s credit rating. The U.S. is orders of magnitude more important to the world economy than AIG.

In short, the Republicans have completely lost their minds.

‘Much of What Investment Bankers Do Is Socially Worthless’

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Think of all the profits produced by businesses operating in the U.S. as a cake. Twenty-five years ago, the slice taken by financial firms was about a seventh of the whole. Last year, it was more than a quarter. (In 2006, at the peak of the boom, it was about a third.) In other words, during a period in which American companies have created iPhones, Home Depot, and Lipitor, the best place to work has been in an industry that doesn’t design, build, or sell a single tangible thing.

The New Yorker asks “What Good Is Wall Street?” Via MeFi.

Written by gerrycanavan

November 23, 2010 at 11:00 am

Saturday Afternoon

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* We live in a world where Stephen Colbert testifies before Congress in character.

* “Karl Marx was right. We should struggle like he said in 19th century Europe. Chinese factories now are just like factories in 19th century Europe. And just like Karl Marx said, only through struggle with the capitalists can we gain our rights,” Liu says. Via Vu.

* Žižek: The key to actual freedom resides rather in the ‘apolitical’ network of social relations, from the market to the family, where the change needed for effective improvement is not political reform, but a transformation in the social relations of production. We do not vote about who owns what, or about worker–management relations in a factory; all this is left to processes outside the sphere of the political. It is illusory to expect that one can effectively change things by ‘extending’ democracy into this sphere, say, by organizing ‘democratic’ banks under people’s control. Radical changes in this domain lie outside the sphere of legal rights. Such democratic procedures can, of course, have a positive role to play. But they remain part of the state apparatus of the bourgeoisie, whose purpose is to guarantee the undisturbed functioning of capitalist reproduction. In this precise sense, Badiou was right in his claim that the name of the ultimate enemy today is not capitalism, empire or exploitation, but democracy. It is the acceptance of ‘democratic mechanisms’ as the ultimate frame that prevents a radical transformation of capitalist relations… Some analysis of Žižek’s analysis from Andrew Seal at the link.

Great moments in political honesty: John Raese, the Republican Senate hopeful in West Virginia, was asked this week about his background. “I made my money the old-fashioned way, I inherited it,” Raese boasted. “I think that’s a great thing to do.” He went on to say “a key part” of his platform is lowering inheritance taxes on multi-millionaires.

* How greedy subprime borrowers destroyed the economy by forcing virtuous lending conglomerates to commit fraud.

* And your AskMetaFilter of the day: What are your favorite articles on The Wire? I cleared out my Wire tag but there’s more at the link that I’d missed.

Towards a Grand Unified Theory of Apocalypse

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