Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Financial Crisis Anniversary, It's Not Over Yet!

Stock-Markets / Financial Crash Sep 14, 2009 - 09:41 AM GMT

By: Danny_Schechter

Stock-Markets

Best Financial Markets Analysis ArticleIn A Report for Al Jazeera, Danny Schechter Has A History Lesson

Al Jazeera Asked The News Dissector To Analyze The Occasion

The market meltdown that began in September 2007 was a 'slow-motion catastrophe', says finance journalist and author Danny Schechter.


New York, New York: Get out your party hats and strike up the band. We are about to celebrate the second anniversary of the GFC - the Global Financial Crisis.

No doubt the event will be marked by event-driven television programming and on the world's op-ed pages, even though this is a crisis that began long before most of the world found out about it.

Special report

The market meltdowns began in September 2007, but this has been a slow-motion catastrophe that started with the euphoria of financial bubbles that seemed to defy the laws of gravity by only rising.

When the markets were up, there were few naysayers.

Economist Brad Delong was one of the few reminding us that:
"Institutions and human psychology lead financial markets to bounce back and forth between exuberant greed and catatonic fear."

The housing bubble created in 2001 by a combination of low interest rates set by the Federal Reserve's Alan Greenspan, massive, predatory sub-prime lending by shadow lenders and financial institutions, and so-called market "innovation" in the form of exotic derivatives, securitization and deregulation all pushed profits in the financial services industry to new highs.

'Financial monster'

The consequences were largely ignored, as a process called financialization put more and more power in the hands of the economic architects on Wall Street.

New York University's Dr Nouriel Roubini was called "Dr Doom" for predicting the emergence of a "financial monster" that could not be sustained.

Roubini reasoned: "Combine an opaque and unregulated global financial system where moderate levels of leverage by individual investors pile up into leverage ratios of 100 plus; add to this toxic mix investments in the most uncertain, obscure, misrated, mispriced, complex, esoteric credit derivatives that no investor can properly price; then you have created a financial monster that eventually leads to uncertainty, panic, market seizure, liquidity crunch, credit crunch, systemic risk and economic hard landing."

What he and many others did not draw adequate attention to were the underlying structural problems in the US economy that led it to collapse.

Stephen Lendman of Gobal Research enumerated some of them:

- Soaring consumer debt;
- Record high federal budget and current account deficits;
- An off-the-chart national debt, far higher than the reported level;
- High and rising level of personal bankruptcies and mortgage loan defaults;
- An enormous government debt service obligation we are taxed to pay for;
- Loss of manufacturing and other high-paying jobs to low-wage countries;
- A secular declining economy, 84 per cent service-based and mostly composed of low-wage, low or no-benefit, non-unionised jobs;
- An unprecedented wealth gap disparity;
- Growing rates of poverty in the richest country in the world;
- A decline of essential social services

As the financial markets became more volatile, credit began to freeze, and an event outside the US signaled the deeper global crisis; customers were queuing outside London's Northern Rock bank demanding their money back.

Bank runs

Soon the Bank of England was pumping money in just one day after warning others, in the name of "moral hazard" rules, not to bail out lenders who had engaged in irresponsible practices.

A Wall Street insider told me: "A century ago, the depth of a banking crisis was measured by the length of the queue outside banks. These days, financial panics are more likely to be played out through heavy selling in share, bond or currency markets than old-fashioned bank runs."

The UK government was forced to rescue Northern Rock after it collapsed [AFP]

The bankers knew how bad it was. Here is Jim Glassman of JP Morgan: "The credit-market storm is a far more dangerous thing that anything we've seen in memory."

More and more news reports were glum. Here is the Sydney Morning Herald in Australia reporting on "How Bad Debt Infected the World": "The foreclosure butterfly flapped its wings in small town USA and the hurricane built and tore through world banking."
In many countries, angry critics blamed the US for exporting a form of "financial Aids" worldwide.

Luiz Inacio Lula da Silva, the Brazilian president, blamed "white men with blue eyes on Wall Street".

"I believe there is a systemic debt problem and it will take years to work out - and the Federal Reserve cannot resolve the issues," said Richard Bove, a bank analyst at Punk Ziege.

Michael Bloomberg, the mayor of New York City and a financial guru, also said the causes went deeper.

He believed the global credit crunch had as much to do with public debt as the US sub-prime meltdown. The billionaire media and business mogul talked about the "lunacy" of debt levels in the US and the UK at the Conservative Party conference in Britain.

"This is not a mortgage crisis," Bloomberg insisted, "It's a crisis in confidence and we're all in it together."

Bail outs

Washington responded with interest rate cuts and the injection of billions into banks, along with similar stimulus efforts by central banks in other countries.

Despite this, the credit markets remained locked and the problem remained unsolved. Businesses closed, some went bankrupt and jobs were cut.

In March 2008, Bear Stearns became the first of the big banks to go down. Others followed and many, like insurance giant AIG, had to be bailed out.

"As recession was officially recognized in the US, American consumers stopped trekking to the malls, sinking our consumption-based economy even further"

Mortgage giants Fannie Mae and Freddie Mac were next to implode.

Suddenly the world was fixated on the fall of Wall Street. Lehman Brothers was not bailed out - creating a ripple worldwide with its many "counter parties" - and was soon driven into bankruptcy.
The Bank of America bought Merill Lynch in a transaction that is still being challenged.

On September 19, the Bush administration announced a $700bn bail-out plan to confront the crisis.

Ben Bernanke, the chairman of the Federal Reserve, would later privately say they acted to head off an imminent collapse - a new depression.

Publicly he was more restrained, saying: "If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse."

Initially, this was seen as simply a financial problem but it quickly became a social crisis too. States and cities began cutting back essential services as their tax bases contracted.

Markets plunge

Then the Dow fell 777.68 points, the largest one-day point drop in history.

The index experienced its largest one-day point loss ever after the House of Representatives voted down the government's proposed rescue plan.

By April 2008, the IMF projected a $945bn loss from the financial crisis. G7 ministers agreed to a new wave of financial regulation to combat a protracted downturn.

As a recession was officially recogized in the US, American consumers stopped trekking to the malls, sinking our consumption-based economy even further.

There was a ricochet effect worldwide - declines in growth were dramatic.

Banks in many countries which had bought into US real estate and asset-less sub-prime mortgages reported vast losses too.
It was like a deck of cards collapsing.

For the first quarter of 2009, the annualized rate of decline in GDP was 14.4 per cent in Germany, 15.2 per cent in Japan, 7.4 per cent in the UK, 9.8 per cent in the Euro area and 21.5 per cent for Mexico.

The World Bank reported that by March 2009, the Arab world had lost $3 trillion because of the crisis.

In April 2009, unemployment in the Arab world was said to be a "time-bomb" and, according to the Arab Labor Organization, it was among the hardest hit regions in the world.

One month later, the United Nations reported a drop in foreign investment in Middle East economies because of a slower than expected rise in demand for oil.

In June, the World Bank predicted a tough year for Arab states.

Economic turnaround?

Yet in August 2009, the world's finance ministers were beginning to declare victory, seeing signs of a slowing in the economic decline.

Some even cautiously projected signs of a recovery.

The amount of money lost is subject to much debate, largely because those in the know have failed to agree on what should be included in the final tally.

One estimate focusing on infusions of capital by central banks around the world, so-called stimulus plans, and monies at risk in debt swaps and shaky derivative products put the number at $196.7 trillion - but that could be low.

In the US, unemployment continues to rise, foreclosures mount, as do bankruptcies.

Many journalists, politicians and economists appear to bemoan the fact that adequate financial reforms and new regulations have yet to be put in place.

Of the fact only a few executives have gone to jail despite evidence of massive fraud in the housing market, Peter Schiff, a conservative financier, noted: "No one has been held accountable for a financial crisis that the professors, pundits and politicians told us would not come.

"All the same players are running the game, [they] always change the rules so they stay on top."

"Washington has done nothing to protect us from a new crisis and, in fact, has made a new crisis likely"

Paul Krugman, the liberal New York Times economist, seemed to agree: "Washington has done nothing to protect us from a new crisis and, in fact, has made a new crisis likely.

"There have been many reports on what Wall Street firms did, and continue to do to transfer wealth to their own coffers, but little in the way of a criminal investigation, as if it is all above rigorous scrutiny."

Many of the biggest banks are back in the business of handing out giant bonuses and record compensation packages. Even as a lot has changed, a great deal remains the same.

President Obama warned on September 22: "If we don't pass financial regulatory reform, the banks are going to go back to the same things they were doing before.

"In some ways it could be worse, because now they know that the federal government may think they're too big to fail. And so, if they're unconstrained [by stricter regulations] they could take even more risks."

There is very little to celebrate on this "anniversary", the people most in the know about finance are now wrestling with both hope and despair - hope that a turnaround will spread and fear that another, more serious downturn is possible.

They are all, however, acutely aware that there has been no structural change or new regulation.

As Americans often say: "We're not out of the woods yet."

News Dissector Danny Schechter, blogger in chief at www.Medichannel.org, is making a film based on his book PLUNDER (Cosimo) news.dissector.com/plunder. Comments to Dissector@mediachannel.org

© 2009 Copyright Danny Schechter - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules