Posts filed under “Bailouts”

How Credit Came to Rule – and Ruin – Our Economy

On this day 56 years ago, the U.S. economy began to undergo a momentous change. It was Oct. 1, 1958, and the company known best for its Travelers Cheques introduced a new product: The charge card.

Although American Express technically wasn’t the first company to introduce a charge card, it was the first to make its cards ubiquitous, and in the process changed the concept of where and how credit could be used. The nation hasn’t been the same since

From those humble beginnings, the use of credit spread throughout the county. The Depression-era generation was loath to become indebted to any bank or lender after seeing what could happen in a credit crisis. It’s no coincidence that the widespread use of credit didn’t occur until a new generation came of age.

Along with that new generation came the birth of the suburban bedroom community. Homes were bought with mortgages and furnished with revolving debt. Cars purchased with dealer financing were the glue that held the edifice together. All of these items were out of reach for the average family, unless purchased with credit. This is no small matter. As you can see from the Federal Reserve’s most recent Flow of Funds report, the total indebtedness of U.S. households is a staggering $14 trillion dollars.

What makes the unstoppable rise of credit so significant is the role it played in the 2007-09 financial crisis, and the subsequent recovery. Credit crunches are different from ordinary recessions. Not only are they more severe, as Carmen Reinhart and Ken Rogoff have documented in “This Time Is Different: Eight Centuries of Financial Folly,” but their character is significantly different.

Consider an ordinary recession . . .  continues here

 

 

 

Category: Bailouts, Consumer Spending, Credit, Cycles

Big Banks Manipulated $21 Trillion Dollar Market for Credit Default Swaps

  Derivatives Are Manipulated Runaway derivatives – especially credit default swaps (CDS) – were one of the main causes of the 2008 financial crisis. Congress never fixed the problem, and actually made it worse. The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market. Indeed, many trillions of dollars of derivatives are…Read More

Category: Bailouts, Legal, Think Tank

Scottish Banks Are Voting ‘Nay’

Source: Societe Generale   Albert Edwards, the insightful but not especially upbeat analyst at Societe Generale SA, writes to warn: The sequence of events which might flow from a Yes vote may be as unpredictable and as uncontrollable as those of the late 1980s in Eastern Europe, which led to the ultimate demise of the…Read More

Category: Bailouts, Politics

The ABCs of ECB’s QE

Source: Bespoke Investment Group     The European Central Bank announced its latest — and belated — program of quantitative easing last week. The ECB made fresh commitments to buy a series of asset-backed securities (ABS), various bonds and expanded its previously announced Long-Term Refinancing Operations (LTROs). The ECB’s brand of quantitative easing is an…Read More

Category: Bailouts, Digital Media, Federal Reserve

No Banker Crimes? Don’t Make Me Laugh!

“There Were No Convictions of Bankers for Good Reason” is the headline of a post by Mark F. Pomerantz, a lawyer and retired partner at Paul, Weiss, Rifkind, Wharton & Garrison in the New York Times’s Room for Debate discussion: The reason that senior bankers did not face charges, even though investigators interviewed countless witnesses…Read More

Category: Bailouts, Foreclosures, Legal, Really, really bad calls

When and how should the Fed exit?

Category: Bailouts, Federal Reserve, Think Tank

Our Bifurcated Recovery

The Standard & Poor’s 500 Index closed yesterday at a record high of more than 2,000. Yet many people feel that the economy is weak. There are numerous reasons for this, but the one I want to focus on has to do with employment and wages. The economy feels weak because, depending on your education,…Read More

Category: Bailouts, Consumer Spending, Cycles, Economy, Employment

MiB: Sheila Bair, Chairman of FDIC

Sheila Bair, former chairman of the U.S. Federal Deposit Insurance Corp., describes what it was like in the room with former Treasury Secretary Hank Paulson and former Federal Reserve Chairman Ben Bernanke when the global economy was on the verge of falling into the abyss in this week’s “Masters in Business” podcast. Listen to the…Read More

Category: Bailouts, Media, Podcast

The System Worked (?!)

Dan Drezner, author of The System Worked, discusses how we avoided another Great Depression.

Category: Bailouts, Video

How Greenspan Became the ex-Maestro

On this day in 1987, Alan Greenspan became chairman of the Federal Reserve Board. This anniversary allows us to take a quick look at what followed over the next two decades. As it turned out, it was one of the most interesting and, to be blunt, weirdest tenures ever for a Fed chairman. This was…Read More

Category: Bailouts, Federal Reserve, Markets, Really, really bad calls