http://discuss.epluribusmedia.net/node/961Seems to me a lot of people don’t realize the worst financial crash since 1929 has already occurred. I suppose they are waiting for a big explosive fireball and a lot of noise like in a Hollywood movie, or for the nightly news on their wide-screen televisions to show pictures of desperate bankers and brokers splattered on the sidewalks in front of 60-story temples of finance.
This diary is my humble little attempt to let these people know that the crash has already happened. It began in August. I guess they didn’t notice, but a number of financial markets have already collapsed. First, of course, there was the derivatives based on sub-prime mortgages. That seems to be about where the common consciousness stops. But before U.S. Secretary Treasury Hank Paulson and Federal Reserve Chairman Ben Bernanke (a.k.a., Captain Carnage) even lifted a finger to try and sort out the sub-prime mortgage mess, they first had to deal with the collapse of the market for Structured Investment Vehicles. Since these two crises began last summer many other financial markets have also collapsed: corporate junk bonds, asset-backed commercial paper, municipal bonds. This last was saved just last week by New York State Insurance Commissioner Dinallo basically forcing Moodys, S&P and Fitch to give AAA ratings to the monolines insurers. All these markets have pretty much ceased functioning, with not even the banks that created some of this stuff willing to buy their own product. Financial institutions have also been disappearing, especially a number of hedge funds, the most recent being this past week: Peloton, a London-based hedge fund specializing in asset-backed bonds.
So, this is it. The financial system has crashed. Now we're finally seeing the Republican's cherished "trickle down" theories begin to work – and with a vengeance- as the damage spreads into the real economy. The basic mechanism for this is the contraction of credit, which is cutting off funds for real economic activity. Goldman Sachs and others estimate that the financial crash has contracted lending by about $2 trillion--and our economy is $15 trillion in GDP. Banks and other institutions are simply unwilling to lend. Here’s the results we know of so far:
Credit for auto loans is also drying up. A friend of mine applied for an auto loan at Wachovia, and was told they were not making loans. I thought it might be racism, so I called a different branch myself and was advised that if I wanted to buy a car my best option was to take out a line of credit on my home equity. Poof! There goes the auto industry, and all its supplying industries like steel, glass, plastic, machine tools, and so on.
As a wag on European Tribune noted a month or two ago, now we have peak credit to add to our worries over peak oil.
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