• Markets
• Economy
• Federal Reserve
• Housing
• Energy
• Digital Media

"One of the Wildest Chapters in the History of Lending and Borrowing"

James Grant on our current financial situation:

"Since the credit crisis burst out into the open in June 2007, inflation has risen and economic growth has faltered. The dollar exchange rate has weakened, the unemployment rate has increased and commodity prices have soared. The gold price, that running straw poll of the world's confidence in paper money, has jumped. House prices have dropped, mortgage foreclosures spiked and share prices of America's biggest financial institutions tumbled...

In that vein, the central bank pushed the interest rate it controls, the so-called federal funds rate, all the way down to 1% and held it there for the 12 months ended June 2004. House prices levitated as mortgage underwriting standards collapsed. The credit markets went into speculative orbit, and an idea took hold. Risk, the bankers and brokers and professional investors decided, was yesteryear's problem.

Now began one of the wildest chapters in the history of lending and borrowing. In flush times, our financiers seemingly compete to do the craziest deal. They borrow to the eyes and pay themselves lordly bonuses. Naturally -- eventually -- they drive themselves, and the economy, into a crisis. And to the scene of this inevitable accident rush the government's first responders -- the Fed, the Treasury or the government-sponsored enterprises -- bearing the people's money...

Today's bear market in financial assets is as nothing compared to the preceding crash in human judgment. Never was a disaster better advertised than the one now washing over us. House prices stopped going up in 2005, and cracks in mortgage credit started appearing in 2006. Yet the big, ostensibly sophisticated banks only pushed harder."

I don't buy into everything Grant writes in this OpEd -- note the jihad against those short financials or long energy -- but there is certainly enough good commentary to spark an interesting debate . . .

>

Previously:
In Defense Of Speculators (July 2008)
http://bigpicture.typepad.com/comments/2008/07/in-defense-of-s.html

A Nation of Whiners? No, Just Wall Street Beggars  (July 2008)
http://bigpicture.typepad.com/comments/2008/07/a-nation-of-whi.html

Source:
Why No Outrage?
James Grant
WSJ, July 19, 2008; Page W1 
http://online.wsj.com/article/SB121642367125066615.html

Free WSJ / Digg version
http://online.wsj.com/public/article/SB121642367125066615-4K_l2jdjmxrSAZRs5Ii1mziroY8_20080818.html

~~~

Sunday, July 20, 2008 | 07:30 AM | Permalink | Comments (22) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Comments

I agree with everything you have posted here from his OpEd piece - absolutely!

The thing I can't seem to get over is the outrageous salaries and bonuses these bastards were getting at the same time they were wrecking the entire financial system.

Also, it amazes me that we got into this mess with not a single person doing anything wrong! How the hell can we find ourself here with no one being identified as being implicated, complicit or just plain stupid? How can that be? We are here; but, no one did anything illegal? COME ON!!! They should be throwing these bastards in jail at least for fraudulent lending practices. Has anybody gotten arrested for anything???

They knew exactly what they were doing and what would eventually happen or they would not have been securitizing this shit at such a feverish rate. Don't listen to what they say. Look at what they were doing! Guilty as hell! They knew full well what was going to happen and even then continued still unnerved.

Also, the Wall Street crowd has learned that if you are going to go begging, make sure you fuck up badly enough to where you can not be ignored; thus forcing the Fed and US taxpayers to bail you out. The small fry would have to go bankrupt; but, if you FU badly enough, you will be saved. Doesn't that make perfect sense?

Posted by: BG | Jul 20, 2008 8:28:33 AM