Sunday, December 23, 2007

Crisis may make 1929 look like a 'walk in the park'

From the UK Telegraph:

As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control.

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

‘Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.’

‘It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.’
Lenders are hoarding the cash, shunning peers as if all were sub-prime lepers. Spreads on three-month Euribor and Libor - the interbank rates used to price contracts and Club Med mortgages - are stuck at 80 basis points even after the latest blitz. The monetary screw has tightened by default.

read full article >>



Homer said...

Those are some harsh statements. Could it really be that bad? I guess we'll just have to wait and see. What is money to government anyway?

foreclosurefish said...

I read the article when it was first posted on the Telegraph. Part of the problem is that too many people now understand that "splashing liquidity" causes these problems in the first place. Interest rate manipulations and inflation led directly to the problem now being faced in the market.

Giving the patient the same medicine that made him sick in the first place isn't going to cure him. In fact, it's probably going to kill him.

I don't know if things are completely out of control yet, but we'll have to see if any large banks collapse, or if the credit card debt implodes. And defaults are already increasing...

Anonymous said...

if you beleive it has value, so be it. soon to discover it is worth nothing.


Mortgage Banker X said...

The implication for the current credit situation reverberate far deeper than the crash in 1929, but that doesn't mean there are not opportunities.

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