All of the interesting stuff that's happened with the subprime mess and related fallout has happened on the weekend. I wonder what Bernake is up to this weekend...
If you're still trying to figure out what is going wrong and why, here's an excellent FAQ by the authors of Freakonomics.
The Fed is conduction a scare campaign against the Senate to get their bill passed as quickly as possible. With as few questions as possible.
Krugman comes out hard against the proposed bailout. There is no quid-pro-quo for the taxpayers. Without nationalizing failing firms before handing them loads of cash, what's going to happen, especially if it doesn't work? Also, there's no real attempt at accountability for the army of liars, tricksters, and greedy bastards that started the whole mess. Nothing to discourage the next mess.
Here are a few of my personal thoughts on the issue:
* I STILL don't know what a derivative is and how the derivative market works. I consider myself a fairly bright person and I've been researching it, but I still don't get it. I have a strong suspicion most of the people involved don't get it, either. The whole mess should either be shut down, or regulated to the point of driving out everyone except those that really know what they're doing (if those people even exist).
* A government bailout of the size they're talking about is going to light a fire under the commodity markets. Inflation, here we come! $6 gas, brought to you by the fat fucks on Wall Street! If only people would make the connection between the dollar and commodity prices...
* The political implications of this mess are MASSIVE. The Democratic coalition could be torn asunder. What I find interesting are 2 main factors: mortgage holders and gasoline consumers. Both constitute huge voting blocks. If politicians do too much to help out mortgage holders, they'll drive down the dollar and drive up the price of gas. If politicians let companies fail, the price of gas will plummet (stronger dollar + fewer consumers (less demand) = lower prices),* BUT they'll have a lot of angry foreclosed homeowners beating down there door. This is a lose-lose situation for politicians and I don't see a single one that has any inkling of what they're in for.
If anyone is going to anything about the subprime mess and it's related dominoes, the first step has got to be holding people accountable. That means jail time and confiscated assets for investment bankers, mortgage brokers, traders, "liar loan" applicants, etc. All of those people, though, are big contributors. Don't hold your breath. It looks like the lesson of this bubble will be to those that avoided it: participate in the next one, because you'll be paying for it whether you like it or not.
UPDATE- Wow, I knew energy prices would explode, but this is ridiculous. $25 a day is too much instability. They had to pause trading because the price was going up too fast! $6 gas on the way, thanks to Hank Paulson. And to think we could soon be back to $3 or $2.75 a gallon soon without the intervention...
2 comments:
A derivative is a slightly more complicated financial tool than a typical share of stock.
The most common derivatives are futures and forwards, which are a contract to buy or sell a stock at a specified price at a specified future date (used for hedging) and call/put options. A call option is the right (not obligation) to buy a stock on a future specified date at a specified price. A put option is the similar right to sell.
Someone should ask John McCain if he has a fundamental understanding of these financial products... and if he believes they are strong.
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