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The Engine of Mayhem

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Consider stocks. Their plunge has been driven in part by hedge fund selling. Hedge funds often buy stocks by borrowing from their "prime dealers"—firms such as Goldman Sachs and Morgan Stanley, which in turn borrow from commercial banks. If banks "deleverage" by reducing loans to prime dealers, then prime dealers tighten up on hedge funds, which react by selling stocks. "It's a big piece of why the stock market is down," says Michael Decker, former chief economist for the Securities Industry and Financial Markets Association and now co-head of the Regional Bond Dealers Association.

All around the world, we see variants of this cycle. Countries could face crippling capital outflows. The yen "carry trade"—borrowing at low interest rates in Japan and lending at higher rates in other countries—is reportedly contracting. Iceland's main banks have been nationalized because they couldn't renew their short-term borrowings. But if credit is withdrawn too abruptly, the prices of stocks, bonds and other assets that it propped up—and also the real economy of production and jobs—will fall. And the effects feed on themselves. Hedge funds, for example, have been hit with high redemptions from investors: about 5 percent in September, 2 1/2 times normal, says Charles Gradante of the Hennessee Group. These compound selling pressures.

The present challenge is far more complicated than merely quarantining dubious mortgage-related securities. What's involved is a fundamental remaking of the global financial system, from one that was inherently fragile to one that rests on firmer foundations. But if the change proceeds too quickly and haphazardly, it risks a hugely destructive credit implosion. All the policies undertaken so far will ultimately be judged by whether they succeed in managing the transition and restoring confidence in financial markets that self-correct naturally—as opposed to submitting to the continuing mayhem of uncontrolled deleveraging.

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Posted By: Nowforthetruth @ 10/14/2008 9:13:17 PM

"Press Releases

AJC Strongly Condemns Rev. Jesse Jackson's Comment on American Jews
October 14, 2008 - New York - The American Jewish Committee (AJC) has condemned the Rev. Jesse Jackson's statement about 'Zionists who have controlled American policy for decades.'
"Rev. Jackson's remarks, which appeared in an interview with the journalist Amir Taheri in today's New York Post, echo classic anti-Semitic conspiracy theories about Jewish power," said AJC Executive Director David A. Harris. 'This statement, regrettably, is not the first troubling comment by Rev. Jackson regarding Israel, Zionism and the Jewish people.'

Arguing as a private citizen that an Obama administration could bring significant change to U.S. foreign policy, Jackson was quoted as saying that "Zionists who have controlled American policy for decades" would lose much of their influence should Senator Obama be elected president."

http://www.ajc.org/site/apps/nlnet/content2.aspx?c=ijITI2PHKoG&b=849241&ct=6107743

And people are upset about raciest comments some in the crowd are allegedly saying at Palin events? Isn???t this the same Democrat leader who once called New York "Hymietown"?
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Posted By: junkmail6 @ 10/14/2008 3:39:49 PM

Both parties in Congress and the administration had a hand in covering up the impending collapse, and nobody wanted anything different. I'm sick of the finger pointing; it's time to look at what happened and realize that some of our (my) most precious assumptions don't work anymore. Free markets only work when companies can collapse without sucking everyone else down with them. I could care less about Wall St., and the Dow Jones will recover in a year or two. But the fact that my job is at risk, even though what I do has *nothing* to do with mortgages hedge funds... That gets my attention.

If we can't afford to let companies fail, then we can't afford to let them do as they please, especially when the CEO's are motivated to build a bubble, get out, and let their companies fail right after they sell off their options. I can't believe I'm saying this, but it is time for some *serious* regulation, including *serious* restrictions on executive compensation. How about all their bonuses stay in an escrow account for 5-10 years after they leave? Not to mention *tight* regulation on debt to asset ratio's for *all* financial companies.

Do I sound a little *frustrated*?
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Posted By: Adrian Zolkover @ 10/14/2008 2:46:01 PM

This administration and its Republican majority in Congress, including Senator McCain, over most of the last 8 years, have deliberately created this problem. It's no suprise. The U.S. Comptroller of the Currency, Administrator of National Banks publishes a report 4 times a year showing, for example, that J.P. Morgan Chase Bank NA has total derivatives of $89,997,271 TRILLION, which gives them a total credit exposure to capital ratio of 411.6 times (not 411.6%). I have read the estimated wealth of every economy in the world added together is around $97 trillion. Bank of America and Citibank National ASSN each have over $35 trillion of derivatives and credit exposure to capital ratios each of over 200 times. This didn't happen overnight. This information can be found on the report they publish, "OCC's Quarterly Report on Bank Trading and Derivatives Activities First Quarter 2008. Table 4." For years, economic experts and others such as Warren Buffet have repeatedly warned this administration of the dangers of not regulating the banks to prevent this from happening. They continually refused to regulate. In my mind, a main danger here, is that money such as drug lord's, fascist vast profits from wars politically motivated and mismanaged, and the very people who managed these banks and made billions of dollars, will again clean up by purchasing for pennies on the dollar, as we are the victims of the mess they deliberately created. I think it is most wise to keep in mind author Samuelson's warnings about too much deleveraging of debt too fast. This could be most difficult to control. I think controlling marginal changes, like one quick step after another, would be safer. Kind of like preventing the ship from being attacked, and the pirates with their life rafts looting all the gold, as everyone else is scrambling for safety.