Posts filed under “Finance”
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A recent paper by the Minneapolis Federal Reserve has gotten a lot of attention. The paper is titled Facts and Myths About the Financial Crisis of 2008 and it argues there was in fact no credit crisis. Several people have used this paper to argue that Wall Street overstated the severity of the credit crisis in order to get a bail-out they didn’t need. What these commentators have failed to heed is this paper was widely criticized within the financial community, even drawing a rare rebuke from a sister Federal Reserve Bank. In short, to argue there was no credit crisis — to say we were “punked by Wall Street” — flies in the face of every available fact on the crisis.
First, let’s provide some background for this debate. As of this writing 311 lenders have “imploded.” The XLFs — the ETF that tracks the financial sector – is down almost 70% from a high in the summer of 2007. Total credit losses at the world’s financial institutions have totaled 1 trillion dollars:
The gauge is down 46 percent in 2008 as credit losses and writedowns at the world’s largest banks surpassed $1 trillion and the U.S., Europe and Japan entered the first simultaneous recessions since World War II.
In other words, the financial sector’s economic position is terrible at best.
But the evidence runs deeper. About every six weeks the Federal Reserve issues a paper titled “The Beige Book.” This is a book complied from anecdotal evidence from the Federal Reserve Districts on the general economic environment. Every Beige book issued in 2008 has indicated credit conditions were tightening and loan demand was decreasing.
Here is a question that I have been wrestling with: What exactly did the repeal of the Glass-Steagall Act accomplish? Were there positives as well as negatives? Should the Gramm-Leach-Bliley Act be repealed, and Glass-Steagall reinstated? > ~~~ What say ye? >
The WSJ is reporting that Goldman Sachs, the guys who have so far managed to avoid getting banged up by the credit crunch, has run out of luck. “Industry insiders,” whoever they may be, are suggesting losses for the Q of as much as $5 per share. Excerpt: Though analysts and investors already were bracing…Read More
“In hindsight, it was spot on.” -Jeffrey Brown, former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending. > A brutally damning article about the warnings the Bush administration received and ignored was published this morning by the Associated Press. The AP summed…Read More
click for interactive graphic > Sources: Citi Faces Pressure to Slim Down U.S. Seeks Change as Part of Rescue Deal; Talks Began on Fears of Client Exodus DAVID ENRICH and DEBORAH SOLOMON WSJ, NOVEMBER 25, 2008 http://online.wsj.com/article/SB122753629931853007.html Citigroup Should Be Held Accountable, Obama Aide Podesta Says Edwin Chen Bloomberg, Nov. 28 2008 http://www.bloomberg.com/apps/news?pid=20601087&sid=akf_DTv.v8ic&
The Bailout of Citigroup moves forward (Is this book ever going to be finished?): “Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which…Read More