NY Times: Bubblenomics

[marmar]

Bubblenomics

By DAVID LEONHARDT
Published: September 20, 2008


The past week, by any standard, has been an extraordinary one for America’s economy and its financial system. Merrill Lynch, which was founded during Woodrow Wilson’s administration, agreed to be bought for a bargain-basement price, while Lehman Brothers, which dates back to John Tyler’s presidency, simply collapsed.

By the end of the week, the federal government was preparing to buy hundreds of billions of dollars in securities that no bank wanted. It appears to be the government’s biggest fiscal intervention since the Great Depression, designed to get the financial markets working again and keep a credit freeze from sending the economy into a deep recession.

The announcement of the plan changed the mood on Wall Street and sent stocks soaring at the end of the week. But even if the economy avoids a tailspin, the next couple of years aren’t likely to feel especially good. It’s been a long period of excess, and the hangover could be long, as well. For the near future, the most likely outcome remains slow economic growth, scant income gains for most workers and, for investors, disappointing returns from stocks and real estate. If consumers begin to cut back on their debt-fueled spending things could get worse.

On Friday morning, the economists at Lehman Brothers sent out their usual weekly roundup of the news, but it came this time with a short, italicized note, explaining that the report would be the final one to appear under the Lehman banner. That bit of understatement preceded some more: “This episode of financial crisis,” Lehman’s economists explained, “appears to be much deeper and more serious than we and most observers thought it likely to be. And it is by no means clear that it is over.”

Yet, historic though this week has been, there is something familiar about what is happening. Once again, we are seeing the puncturing of a speculative bubble that was the result of asset prices soaring high above the underlying value of the assets. For as long as markets have existed, bubbles have formed. And whenever one of those bubbles begins to leak, it typically needs years to deflate, causing enormous economic damage as it does. ......(more)

The complete piece is at: http://www.nytimes.com/2008/09/21/weekinreview/21leonhardt.html?_r=1&oref=slogin

[begin_within]

1. I still don't get why it's the obligation of the federal government to bail them out.

[depakid]

2. Want a swift return to the great depression?

[Jack_Dawson]

3. How does justified bloodletting = Great Depression?

Seriously...I'm not being snarky. I need someone to connect the dots for me. What happens if we let stupid overextended companies pay the price for being stupid and overextended?

[jwirr]

4. Besides the above reason there is the rest of the world. If we let the

US economy fall into another Great Depression it will be world wide. All hell will break loose.

[depakid]

5. Freezing up the global credit markets

hits companies and assests in nearly every sector of the economy, both in America and abroad.

Regadless of what this first salvo of negotations produces, that's a very BAD situation.

[bain_sidhe]

6. One example...

There are very few people who can buy a new car without a loan. If credit freezes up (which is what a financial meltdown would do), no one can get a loan. Result? Every auto factory in the US shuts down. Every supplier of materials/parts to auto factories shuts down. Every business in town that serves the employees of those factories (restaurants, stores, what ever) goes bankrupt and closes its doors.

That's just one industry. Multiply it by *every* industry, and you get the idea.

[FreeStateDemocrat]

9. I was just offered a $39,000 interest free credit card loan from BOA & my son settled a home loan

last week, where is this money coming from? I don't believe anything these lying bastards are saying. Besides, if it is true why should the ones who allowed this to happen suddenly know how to solve it. This does not require a rubber stamped 700 billion giveaway but a studied, debated sound decision by all the parties that will be impacted so as to avoid the catastrophe of unintended consequences from such a massive transfer of wealth.

[Skittles]

7. it's not, but there is a presidential election in two months

[angstlessk]

8. the papers keep saying "biggest intervention since the great depression" was that what Hoover

did or what FDR did...they never say???