Krugman: The Face-Slap Theory

[tpsbmam]

http://www.nytimes.com/2008/03/10/opinion/10krugman.html?ref=opinion

Friday’s employment report — which was so weak that it had many economists declaring that we’re already in a recession — was bad news. But it was actually less disturbing than what’s going on in the financial markets.

The scariest thing I’ve read recently is a speech given last week by Tim Geithner, the president of the Federal Reserve Bank of New York. Mr. Geithner came as close as a Fed official can to saying that we’re in the midst of a financial meltdown.

To understand the gravity of the situation, you have to know what the Fed did last summer, and again last fall.

As late as August the favorite buzzword of financial officials was “contained”: problems in subprime mortgages, we were assured, wouldn’t spread to other financial markets or to the economy as a whole.

Soon afterward, however, a full-fledged financial panic began. Investors pulled hundreds of billions of dollars out of asset-backed commercial paper, a little-known but important market that has taken over a lot of the work banks used to do. This de facto bank run sent shock waves through the financial system.

(Too much to post here -- more at link.)

[Redbear]

1. Who is this guy Margin who keeps calling me?

scary stuff

[Doctor_J]

2. I think he's being too kind at the end of the article though

Nobody wants to put taxpayers on the hook for the financial industry’s follies; we can all hope that, in the end, a bailout won’t be necessary. But hope is not a plan.

The Bush Crime Family and all of their subsidiaries would love to put the taxpayers on the hook for billions of dollars. This needs to be made clear by the few columnists on our side of the spectrum.

[catnhatnh]

3. I LOVE the assumption that the same administration.....

that never even counted the bodies of those they left to die in Katrina simply MUST spend more to save a handful of corporations and their investors than they ever spent to save or restore New Orleans....In what alternate universe "must" investors be "protected" against investment loss on highly leveraged junk mortgages with money taken from Americans without portfolios,without golden parachutes, and without their consent???