The Fed was wrong, says Bloomberg, and so was everyone else who said the subprime crisis was contained.
The subprime mortgage industry’s problems were contained, they all said. It turns out that the turmoil was contagious.
Washington Mutual, a major bank, just announced their deposits have decreased sharply and are now spending “billions in financing costs, a business that used to generate cash for the bank.” Central banks yesterday worldwide pumped many billions into their systems trying to support teetering banks and “provide liquidity” (translation: the banks need short-term money fast to service their debt obligations and margin calls.)
American Leftist asks, why are liberal blogs comatose about this?
Meanwhile, popular, high traffic liberal blogs, like firedoglake, Daily Kos, David Sirota and Crooks and Liars are totally oblivious, running posts on their usual obsessions, the presidential campaign, wiretapping, and the invariable helpless handwringing about the war in Iraq.
Indeed, a quick scan of the above blogs plus HuffPo and Americablog showed little coverage of the credit crisis. Hmm, maybe it’s because they can’t blame Bush for it, so therefore they don’t consider it bloggable? Or maybe they don’t realize yet how serious it is or think that they in their little netroots bubble will somehow be immune from this. Dunno, but it is odd.
From the normally on-the-ball Nicole Belle at CrooksandLiars on the credit crisis.
Great…just in time for my trip to Europe…
What’s a few billion dollar hedge funds blowing up while central banks try to stop the bleeding when you’re about to go to Europe? Oh the bother of it all. She recommends links to “wade through the hype of conflicting information on the status of the market.” But Bloomberg sees nothing to be confused about, they say it’s “contagious”, so why does C&L treat it as a minor annoyance?
This is going to be a campaign issue in the upcoming elections. Maybe even overshadowing the Iraq War. Why? Look at this chart. It shows the number of subprime mortgages that will reset in 2007-2008. These are mostly 2/28 adjustable rate mortgages made in 2005-2006 with extremely low payments for the first two years, which then reset to a much higher (and adjustable) rate. Nothing can stop this from happening, and predictions are that several million will lose their homes. They will not be happy about this. Spending will drop nationwide. Businesses will see income fall, maybe report losses. They will not be happy either. Neither will their laid-off employees. I’m guessing there may be a whole lot of seriously pissed off people in this country soon. We need to start thinking now about what we can do to help them.
PS Sue says, most aren’t paying attention yet, not just liberal blogs. They will be soon enough. “Honey, I thought our mortgage payment was $1800 a month, not $2200… and why does it say it will be $2500 in six months?”
Finally, this just in – yet another structured finance product.
Constant Obligation Leveraged Originated STructured Oscillating Money Bridged Asset Guarantees, or COLOSTOMY BAGS. Designed to accommodate the most sophisticated investment strategies, Colostomy Bags contain the equity tranches of Structured High Interest Taxable derivatives…
“Hmm, maybe it’s because they can’t blame Bush for it, so therefore they don’t consider it bloggable?”
It doesn’t take much imagination at all to blame Bush for this! Consider:
1) The so-called economic recovery (following the tech bubble bursting) was entirely due to the housing bubble. It was not a broad-based recovery, but a single-sector boom that carried the rest of the economy with it. Bush encouraged this lopsided condition with a program of tax cuts that did nothing to stimulate business and everything to help consolidate wealth at the top. If anything, this helped exacerbate the artificial rise in housing prices by making more income disposable for those in the tax brackets likely to buy real estate.
2) Bush appointed his lapdog, Bernanke, to the fed to ensure that no pesky independent-thinking fed chair got in the way of his plans. While retired-chair Greenspan was saying there’s a problem, Bernanke was saying there wasn’t.
3) Worst of all, the Bush administration borrowed over a trillion dollars, making credit already scarce before the crisis hit. When the fertilizer hits the circulating oscillator, fed overborrowing can only make an existing credit crunch worse.
(No, I don’t blame Bush entirely, but I can make a good argument.)
So, why are the liberals ignoring this, when it’s a slow pitch waiting to be hit? I can only think (1) they don’t see the political upside yet and are distracted by other issues (the economy is something you hit the incumbent with right before the election, after all), (2) admitting reality doesn’t benefit them because they have no solutions, and/or (3) maybe they believe Bernanke and think it’s going to blow over.
From Barron’s today
“Financial mischief on such a grand scale is not a one-man job, and Mr. Greenspan, needless to say, had a lot of help from Wall Street, Washington and points north, south and west. But there’s no diminishing the singular part he played.”
I think you’re right about the liberal blogosphere. If they can’t blame it on Bush, they would rather not talk about it.
I haven’t blogged about this crisis yet. I’ve mostly been following your blog and a few others on the pending crisis. But I did notice there are couple posts on it at TBV.
At any rate, the crisis is real and seems unavoidable. I’m afraid this could be bigger than any of us imagine.
dave
appreciate the link to the article
actually, I think that the answer to the question of the passivity of the liberal blogs can be more accurately understood by looking through the policy end of the telescope, and not the blame one
liberal blogs are centered primarily around issues related to the war in Irag, civil rights, reproductive rights, labor rights and civil liberties, hence, FISA gets 10 times more play than an economic catastrophe that will impact millions of Americans
the legacy of the Clinton era is that economic policy was abdicated to the markets, so, with rare exceptions, liberal bloggers can’t even imagine an alternative
so, from a policy perspective, what would liberals propose beyond what Barnacke has done, policies to ensure the orderly operation of the markets?
at this point, apparently nothing, hence, the silence on the issue that will probably be the most important issue of th 2008 election, along with the war in Iraq
Also, most liberal blogs use policy as a way to attack Bush and the neocons (which is fine with me) but they do tend to be totally focused on that and on getting a Democrat elected in 2008. Thus, events like this, which don’t have an easy policy answer and which can’t be used solely against Bush, tend to be ignored.
Yet a conservative blogger like Andrew Sullivan, who also opposes Bush and the war, and who focuses on policy, has been blogging more about it than the liberal blogs. Maybe that’s because conservatives tend to be more focused on economic issues?
As for orderly operation of the markets, the unsettling truth may be that no one knows what to do.
It seems to me that the netroots bubble is resting (uneasily, though they don’t seem to realize it) on the same lack of understanding of actual risks, that the finance world is coming to terms with this past week.
Truth is, there is no really clear conception of just how big or small the “middle class” in this country really is any more. Everyone has been confused by the overreliance on credit — the financial players don’t really know how much risk they are running; nobody really knows how many Americans are a few steps away from becoming hurt enough to become radicalized; our two-party political system is built on this bubble of ignorance, and so are the so-called “netroots,” because they’re built on the political bubble of the two-party system.
The whole thing is built on a bubble.
That is not to say that it will come crashing dramatically down, but I think you will just continue to see occasionally dramatic fluctuations (crunches) as both the financial world and the political world return to sanity. (“Sanity” meaning honesty… not necessarily justice.)