Watching the World
| Sat Nov. 28, 2009 11:31 AM PST
John Judis a few days ago on the possible fallout from the Dubai World crisis:
You have to remember that the Great Depression only became “great,” that is, global, when an obscure Austrian bank went under in 1931, and set off a massive financial explosion around Europe. Capitalism is an irrational system that is often full of unpleasant surprises. The collapse of Dubai World may turn out to be nothing. But it could also turn out be one of those unpleasant surprises.
Hopefully not. But this has always been my biggest concern. A slow jobless recovery seems all but certain at this point, but I also think we'll be lucky if that's as bad as it gets. The nightmare scenario is that something like Dubai World panics investors and sends them fleeing back to quality; Eastern Europe can't roll over its debt; Brazil goes kaboom as hot money suddenly stops flowing; Western European banks start to fail; etc. You can fill in the rest. I was unpleasantly reminded of all this by the lead to this story in the Washington Post today:
DUBAI CRISIS IS WAKE-UP CALL
Investors weigh risks in emerging economiesGlobal markets were jolted in recent days following the threat by a state-owned company in Dubai to default on its debt, as investors reawakened to the risks posed by mammoth debts in developing economies.
After the credit collapse of 2008, financial folks rushed to tell us that they had learned their lesson. But a lot of us were skeptical: sure, maybe they'd learned their lesson for a few years while the wounds were still fresh, but what about five years from now? Ten?
In the end, though, it didn't take five or ten years. It took one. Twelve months after the catastrophe of September 2008, hot money is racing around the globe, the carry trade is as big as ever, Wall Street profits are at record highs, and the chase for supposedly risk-free returns seems to be as widespread as it's ever been. That combination didn't end well even when it took place against the background of a strong economy, so how's it likely to end against the background of a weak and fragile one now that investors are "reawakening"?
Beats me. I sure hope I'm just a worrywart.
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Comments
An old mistake imploding.
Submitted by Omega Centauri (not verified) on Sat Nov. 28, 2009 12:47 PM PST.
This isn't the next cycle, as in finance won't learn its lessons and will build up other foolish dominoes waiting to fall. This is just another shoe dropping out of the many vulnerable ones. It isn't caused by post Lehman meltdown mistakes, but rather by debt accumulated prior to that. But we still gotta worry about the dominoes. Already weakened Eurobanks will take a hit here. Thousands of expat labourers will stream back to their countries of origin -many to India and Pakistan putting further pressure on their economies etc.
This is not "a new round" (as you're now speaking of my world)
Submitted by The Lounsbury (not verified) on Sat Nov. 28, 2009 2:15 PM PST.
The Nakheel Sukuk is financing from the height of the folly. It's issuance was 2007, as a long bond is not portfolio money.
Writing poorly informed things on finance is perhaps your speciality, but it would be nice to get some facts basic right.
The massive liquidity injections of course are going to naturally impact asset prices (and bank profits going up was the whole bloody point of the rescue, I mean bloody hell be consistent, either you want bank success or you want failure, I suppose whinging on both ways has a certain beauty) - this is not a matter of "finance" it is a matter of human nature.
Oh don't be stupid, "the
Submitted by MaynardHandley on Sat Nov. 28, 2009 5:53 PM PST.
Oh don't be stupid, "the Lounsbury". Kevin, and similar commentators, have been perfectly consistent in what they have called for throughout this whole process: they are happy for BANKS to survive as long as at least the MANAGEMENT and the SHAREHOLDERS of those banks lose everything, and the CREDITORS at least take some haircut. They did not get what they wanted, and the results are turning out not to be especially great, pretty much as they predicted.
Tell me, is this sort of willful misrepresentation of facts the way you go about your professional career in the financial world?
Or are you just unhappy that it took only about a year for not just the corruption but the sheer stupidity, the futility, of the bailouts to be apparent. Perhaps if the plutocracy could have kept it in their pants for another five years, they might have got away with it, but now it looks, oh so sadly, that there might actually be a day of reckoning coming up.
I expect the Dubai world lump will be squeezed back down; but it must surely be worrying more than a few plutocrats that this is hardly the last problem out there, and that the public will almost certainly be less than understanding when that next problem reaches the homeland.
Ah the pissy cut off the nose to spite the face populism
Submitted by The Lounsbury (not verified) on Sun Nov. 29, 2009 10:49 AM PST.
I had rather found that Drum had accepted the bailout of US banks, in order to get the economy out the cycle of panic, but perhaps you are right, maybe he in reality has the classic populist cut off the nose to spite the face.
Not that I have anything against truly bankrupt institutions having shareholders wiped out, Citibank / Group comes to mind. But the extension of the whinging to general profits in the sector - well that has fuck all to do with the wiping out of shareholders or creditors. It is in fact the intended impact of the low base rates. If there is a misrepresentation of the facts, it is on the Left and the illiterate ranting that goes on.
As for your US bailouts, I see nothing in the current news that suggests any particular corruption, nor that there was a failure in the bailouts of the core financial sector. Rather, it looks to be working precisely as predicted (if one speaks to the technical expectations, not perhaps what illiterate gits thought).
The Dubai crisis has fuck all to do with you self-centred spoiled gits in the US of A, and dates back to before the current crisis. This is debt that PREDATES the crisis that the US of A set off, and in fact none of it has anything in particular to do with you self-regarding gits in the US of A. Bloody hell you people really do think you're the centre of the fucking universe.
The debt involved (immediately speaking, Islamic bonds, rated by an Islamic compliance board) largely bought by Gulf and Asian investors say a lot of the madness of real estate speculation (which I personally despise on a general basis) circa 2006-2007, but utterly fucking nothing about your fucking bailout OR the USA OR current lending.
It seems to me that there
Submitted by neutrino23 on Sat Nov. 28, 2009 2:44 PM PST.
It seems to me that there are quite a few differences between this depression and the last. What they both share is breadth and impact.
The last time around we lived in more of a cash based economy. There was no Visa or MC. When the banks closed that had an enormous impact on daily life. It would be as if the credit cards and ATM cards were turned off for a while.
There is more international wealth. "This American Life" has looked at this and refers to it as the Giant Pool of Money. There is an enormous amount of cash scanning the world looking for places to invest. I'm not saying this is good or bad but it certainly changes how we have to view our economy.
If Dubai's default brings
Submitted by pireader (not verified) on Sat Nov. 28, 2009 3:26 PM PST.
If Dubai's default brings down one or more European banks, then the European Central Bank will bail them out, just as the Fed bailed out the US banks last year. That's the whole point of having a central bank.
And until that day comes, the ECB will posture, denying that they'd do such a thing. Just as the Fed did last year.
Dubai's crash was obvious even from 5 years ago. A place that has to import every last chicken wing, manufacture every single glass of water and cool every litre of air by 30.C. All surrounded by obscure slush-fund, family financing and Michael-Jackson-like financial controls. Stories of Rolls Royces abandoned by the roadside because they ran out of petrol may be exaggerated but by how much?
finanacial reform what?
Submitted by an old guy (not verified) on Sun Nov. 29, 2009 9:03 AM PST.
Well, this is exactly why Obambi pushed so hard for financial reform, and put strings on all the bailouts, and got rid of the enablers like TurboTaxTimmie and "Africa is vastly underpolluted" Summers.....
Let it go
Submitted by Stairway to Steve (not verified) on Sun Nov. 29, 2009 1:01 PM PST.
Let the whole mess collapse of its own weight.
Yes, there will be untold privation and suffering on the part of many, if not most, but perhaps the oppressed and downtrodden will finally rise up and run the plutocrats and capitalists out of town, establishing a new world order of peace and economic harmony.
Or not.
"Capitalism is an irrational
Submitted by Luther on Mon Nov. 30, 2009 1:01 AM PST.
"Capitalism is an irrational system that is often full of unpleasant surprises."
I would say that economics is an irrational system, and thus economists are ever caught by surprise. Free traders sent our jobs to China, and now they are surprised we don't have jobs. Is that rational?
Up against the wall with all of them!
Submitted by Captain Franklin Grimes (not verified) on Mon Nov. 30, 2009 6:26 PM PST.
They arent worth the cost of powder it would take to blow them straight to hell.I think the taxpayer's should pay for blindfolds,the government should throw in ammo and the firing squads, and Phillip Morris should hand out the final cigarrettes. Then, they call it Wall Street, don't they? Put 'em up against the Wall!
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