"Bottom nowhere in sight; staring at a deep hole that entire world could fall into"

This is not necessarily my view, but I wanted to post it because it stimulates the fundamental debate about exactly how deep and long (and how much worse) the recession will be.


This is not a knock on Hank Paulson. It’s simply that we can’t afford two months of transition where the markets don’t know who is in charge or where we’re going. At the same time, Congress should remain in permanent session to pass any needed legislation.

This is the real “Code Red.” As one banker remarked to me: “We finally found the W.M.D.” They were buried in our own backyard — subprime mortgages and all the derivatives attached to them.

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“A great judgment has to be made now as to just how big and bad the situation is,” says Jeffrey Garten, the Yale School of Management professor of international finance. “This is a crucial judgment. Do we think that a couple of hundred billion more and couple of bad quarters will take care of this problem, or do we think that despite everything that we have done so far — despite the $700 billion fund to rescue banks, the lowering of interest rates and the way the Fed has stepped in directly to shore up certain markets — the bottom is nowhere in sight and we are staring at a deep hole that the entire world could fall into?”



http://www.nytimes.com/2008/11/23/opinion/23friedman.html?_r=1

We Found the W.M.D.

By THOMAS L. FRIEDMAN
Published: November 22, 2008


So, I have a confession and a suggestion. The confession: I go into restaurants these days, look around at the tables often still crowded with young people, and I have this urge to go from table to table and say: “You don’t know me, but I have to tell you that you shouldn’t be here. You should be saving your money. You should be home eating tuna fish. This financial crisis is so far from over. We are just at the end of the beginning. Please, wrap up that steak in a doggy bag and go home.”

Now you know why I don’t get invited out for dinner much these days. If I had my druthers right now we would convene a special session of Congress, amend the Constitution and move up the inauguration from Jan. 20 to Thanksgiving Day. Forget the inaugural balls; we can’t afford them. Forget the grandstands; we don’t need them. Just get me a Supreme Court justice and a Bible, and let’s swear in Barack Obama right now — by choice — with the same haste we did — by necessity — with L.B.J. in the back of Air Force One.

Unfortunately, it would take too long for a majority of states to ratify such an amendment. What we can do now, though, said the Congressional scholar Norman Ornstein, co-author of “The Broken Branch,” is “ask President Bush to appoint Tim Geithner, Barack Obama’s proposed Treasury secretary, immediately.” Make him a Bush appointment and let him take over next week. This is not a knock on Hank Paulson. It’s simply that we can’t afford two months of transition where the markets don’t know who is in charge or where we’re going. At the same time, Congress should remain in permanent session to pass any needed legislation.

This is the real “Code Red.” As one banker remarked to me: “We finally found the W.M.D.” They were buried in our own backyard — subprime mortgages and all the derivatives attached to them.

Yet, it is obvious that President Bush can’t mobilize the tools to defuse them — a massive stimulus program to improve infrastructure and create jobs, a broad-based homeowner initiative to limit foreclosures and stabilize housing prices, and therefore mortgage assets, more capital for bank balance sheets and, most importantly, a huge injection of optimism and confidence that we can and will pull out of this with a new economic team at the helm.

The last point is something only a new President Obama can inject. What ails us right now is as much a loss of confidence — in our financial system and our leadership — as anything else. I have no illusions that Obama’s arrival on the scene will be a magic wand, but it would help.

Right now there is something deeply dysfunctional, bordering on scandalously irresponsible, in the fractious way our political elite are behaving — with business as usual in the most unusual economic moment of our lifetimes. They don’t seem to understand: Our financial system is imperiled.

“The unity seems to be gone. The emergency looks to be a little less pressing,” Bill Frenzel, the former 10-term Republican congressman who is now with the Brookings Institution, was quoted by CNBC.com on Friday.

I don’t want to see Detroit’s auto industry wiped out, but what are we supposed to do with auto executives who fly to Washington in three separate private jets, ask for a taxpayer bailout and offer no detailed plan for their own transformation?

The stock and credit markets haven’t been fooled. They have started to price financial stocks at Great Depression levels, not just recession levels. With $5, you can now buy one share of Citigroup and have enough left over for a bite at McDonalds.

As a result, Barack Obama is possibly going to have to make the biggest call of his presidency — before it even starts.

“A great judgment has to be made now as to just how big and bad the situation is,” says Jeffrey Garten, the Yale School of Management professor of international finance. “This is a crucial judgment. Do we think that a couple of hundred billion more and couple of bad quarters will take care of this problem, or do we think that despite everything that we have done so far — despite the $700 billion fund to rescue banks, the lowering of interest rates and the way the Fed has stepped in directly to shore up certain markets — the bottom is nowhere in sight and we are staring at a deep hole that the entire world could fall into?”

If it’s the latter, then we need a huge catalyst of confidence and capital to turn this thing around. Only the new president and his team, synchronizing with the world’s other big economies, can provide it.

“The biggest mistake Obama could make,” added Garten, “is thinking this problem is smaller than it is. On the other hand, there is far less danger in overestimating what will be necessary to solve it.”

Conventional wisdom says it’s good for a new president to start at the bottom. The only way to go is up. That’s true — unless the bottom falls out before he starts.

 

Are we "in" the year 1931, 1932 or 1933?

 

Too true.

 

Ben Bernanke is a moron.

 

By golly if one or two trillion isn't helping, let's try more! Yeah! Right away!

If we beat our heads against the wall long enough, it will eventually feel good. Or stop hurting, anyway. Doing something repeatedly does not turn a bad idea into a good one.

 

Try 1929.

 

I believe Obama has the perfect situation as an incoming Prez. Even if he just does average, and the earth does not come to an end, he will go down in history as a great Prez. Almost all the "greats" came into office during a full on shitstorm, starting right from the beginning with G Washington (the brand new US was completely broke).

I don't believe things are nearly as bad as the 30's, but they are bad enough, and we have an unpopular war to exit, although the treaty to leave has already been ratified by everyone but the Iraqi parliament. Obama will get credit for exiting anyway.

What you don't want as President is to enter office when all is rosy. Pretty much just a setup for criticism and blame.

 

Possibly - but it would be 1929 UK-style, not US-style as roles have changed. This go-round - if indeed we're having a go-round - China gets the treatment the US had post-1929.

In the UK the Great Depression was 1919-1922. The 30s were "The Great Slump".

 

the problem with Friedman and the obama gang is they think the government can step in and just try harder and this will get fixed

This is a way of life crisis. You cannot fix a debt crisis with more debt.

This isn't 1929 or 1837. This is 2008 and the next 10 years may make the civil war period look like a quaint walk in the park

It does the average american no good to foreswear off debt if the government wil continue to cram it down our throats and write checks in our names

Obama is part of the system and the system is collapsing


When the bond bubble collapses along with the US dollar the the true crisis will have begun.

 

Depression/Panic of 1873

Excerpt from wikipedia http://en.wikipedia.org/wiki/Depression_of_1873

The New York Stock Exchange closed for ten days starting September 20. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876, during a time which became known as the Long Depression. Construction work lagged, wages were cut, real estate values fell and corporate profits vanished.

Likened to 2008/2009...
Exchange closing = Biden forewarned of disaster.
Rail = Auto
Failed business = ongoing
Unemployment = ongoing
Construstion work lag = Obama's Green collar infrastructure plan
Wages cut = (hyper?)inflation on the horizon.
Falling real estate values = ongoing
Corporate profits vanish = Corporations unable to provide guidance to regularly downgraded forecasts.


Yes, this is 2008/2009. And history does repeat.

Osorico