Some quotes on the financial crisis¶

Three posts till now struck a chord in me regarding the current financial crisis. In increasing order of "we're screwed"-ness...

Tim Oren has a link to a great powerpoint by Tom Maguire that explains the whole mess. Two quotes from his own article:

If we get nothing else from this, we're going to have several decades supply of Econ 101 and 201 cases for perverse incentives, moral hazard, regulatory capture.

Since extensions of credit are de facto expansions of the money supply, we need to keep in mind that deleveraging the $11 trillion or so mortgage market [...] could have a notable deflationary monetary effect.

What happened to right and wrong is what L.E. Modesitt (my favourite writer) asks himself. And he's right. How on earth can a person sell mortgages that people cannot reasonably repay? Which morally depraved well-paid executive allows what amounts to fraud? (Probably the one that gets paid handsome bonuses when short-term successful and that gets paid handsome severance packages when unsuccessful). Two quotes:

Didn't anyone of importance say, "These kinds of mortgages are wrong."? "These appraisals are inflated."? Didn't any executive observe that the leverage requirements were so far out of line with banking and securities reserve requirements that they were in effect dangerous and fraudulent? Didn't any brokerage firm or executive crack down on naked short-selling?

So far as I can tell, none, or very few, did. Instead, they followed the "business model" of "the highest level of short-term profit possible by any means allowable under the law."

And for the jackpot: onwards to a hollow state by John Robb. One of his main topics is failing states. 10 years ago, Iraq was a state. Now what is left of central government is just a hollow shell. Pakistan could soon follow. Oh, and maybe something like the United States of America is next. A shift from still-functioning to already-failed can trigger quickly when there is a financial crisis. A quote on one of the common things you can observe in such a scenario:

Corporations and connected individuals systematically loot the nation-state of financial assets and natural resources through a series of insider/no cost deals. These deals are made to "save" the nation's economy or financial system from collapse.

It's instructive to view the US Treasury's plans for a bail-out of the global financial system through the lens of the hollow state. By this measure, the bailout as it stands today, is a form of financial looting of the US Treasury (it isn't socialism, since the government isn't nationalizing the financial system). Trillions of dollars in government monies ($700 billion to begin with) will be infused directly into the coffers of corporations and wealthy individuals (via hedge funds). [...] The national debt will likely grow 20-30% in a single year, with obligations extended to many trillions more in guarantees.

There's apparently a chinese curse: "may you live in interesting times". Well, we do live in interesting times.