Doom & Gloom Update: Meltdown
All my worst dreams here going back to July are being realized this week.
The two top bond insurers — MBIA and Ambac — were down 30% and 50%, respectively, today, after the rating agencies (Moody’s, S&P) finally fessed up and put their ratings on watch for imminent downgrade.
This means “credit events” will be triggered in the … trillions? Many billions, let’s says, worth of bonds — many of them structured finance bonds like the mortgage bonds — in the world.
Meanwhile the banks this week have been reporting new rounds of writedowns on their mortgage and similar bonds. 18 billion at Citibank. Ten or so at Merril Lynch. But the thing is, once the bond insurers are no longer rated AAA-capable, then … The subprime mess becomes a drop in the bucket.
The Bush-Cheney regulators remain silent. And the Fed Bank chairman today gave a merely lukewarm chat to the House of Representatives, betraying little of what’s wrong and promising that the Fed is prepared to cut rates “substantially” if the need arises. If the need arises …?!
The Reps in the House praised him without exception.
And tomorrow Bush is being pushed before cameras to talk about a “fiscal stimulus” package. (FDR, suddenly?) But the tax rebates he’s going to propose are meaningless in this crisis. Maybe somebody can buy a couch. If they have a house.
In short: A meltdown on the order of 1929 — I don’t just mean stocks — I mean the major institutions that comprise the financial system — is in progress before our eyes and the regulators are …
“Brownie, you’re doing a great job!”
It’s rather remarkable — that the feckless negligence evinced in Bush-Cheney foreign policy since 2001, and the criminal carelessness seen in the wake of Katrina, is now showing itself as the financial system melts.
Also interesting that most of the hope for mending the broken institutions — banks, brokers, bond insurers, insurance companies — lies overseas. Citibank, for one, will be forever changed by this: no longer an american bank. And it’s interesting that the man just appointed to salvage the sinking ship is not an american.
What’s wrong began in the 80s, with the culture of greed and ignorant cynicism that the media began broadcasting, rather abruptly, after the three tv networks were bought out — this whole movement a reaction by corporate elite to the “chaos” of the 60s and 70s, when the well educated working class that sprung up after the war asserted itself.
Today the hustlers at the banks and law firms believe greed is good as the sky is blue. They were told that as kids and teenagers in the 80s; they know little of history before Reagan.
Anyway. It is impossible to exaggerate the damage done already and the ramifications going out a year and five years. Mortgage loans will be as hard to come by as a winning lottery ticket. Or … I guess that’s an exaggeration.
ed says:
WALL St JOURNAL re smaller bond insurer defaulting:
Default Fears Unnerve Markets
By Susan Pulliam and Serena Ng
The turmoil on Wall Street is beginning to rock a foundation of the financial system: the ability of institutions to make good on their many trades with one another.
Today, a struggling bond insurer, ACA Financial Guaranty Corp., will ask its trading partners for more time as it scrambles to unwind more than $60 billion of insurance contracts it sold to financial firms but can’t fully pay off, according to people familiar with the matter. The contracts were intended to protect Wall Street firms from losses on mortgage securities and other debt they own.
The problem is that the insurer …
January 18th, 2008 at 12:05 am
Drew says:
Yes, good to point out how astonishing it is that this is presented to the public as something (nothing?) other than what it is. Your historical reference points are spot on: the flowering of social and political consciousness among a newly educated and prospering post-WWII working class; and the subsequent drive to consolidate the media under corporate control.
January 18th, 2008 at 5:41 am