Is The Global Economy "Too Big To Fail?"

By Big Tent Democrat, Section Economy
Posted on Mon Feb 23, 2009 at 09:54:27 AM EST
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Via Digby, apparently George Soros does not think so:

Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis. Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union. . . . "We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

It is a little late to be talking about institutions being "too big to fail." They already failed. Oh by the way, apparently Paul Volcker was equally gloomy:

His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama. Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain. "I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said.

Think the Republicans get it yet? Me neither.

Speaking for me only

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Is The Global Economy "Too Big To Fail?" | 38 comments (38 topical)

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Oh, I don't know... (5.00 / 2) (#1)
by atdleft on Mon Feb 23, 2009 at 10:05:06 AM EST

I still think some (of the smarter) GOPers get it... And that's why they're hoping for a full economic collapse to blame on President Obama & Democrats. But hey, I'm just a nasty, cynical, "hyperpartisan" person living in a Broderite "post-partisan" world.

Food for thought (5.00 / 1) (#5)
by Slado on Mon Feb 23, 2009 at 10:31:51 AM EST

An economic professor that advises my company said that we are in for a "depression" like stage for the next 60months.

Obvioulsy it won't be just like the depression because we won't see 22% unemployment but in terms of how the economy will perform it will be similar.

Simplisticly stated: In his view the depression environment lasted approx 90 months and that is the time it took for the buisness environment to get back to "normal". In his view this recession while not a depression will be depression like in that it will take us approx 60months to get back to "normal". We will see low or minimal growth during that time period but what he means by non "normal" is that this will be an unfriendly times for buisness expansion and job creation and that companies will be operating in survival mode during that time. His advice is to prepare to operate lean (IE not add jobs, new infastructure etc...) until we hit bottom and once a small recovery starts to take hold position yourself to take advantage of it and be ready for the "normal" times.

It was very depressing to read his points of view.

This professor is a buisness turnaround specialist and is non partisan. It's just one mans opinion but food for thought.

My worry is that our government (I don't mean just Obama, McCain would be equally frustrated) is ill prepared to make the hard choices that need to be made in either direction (big cuts, big spending take your choice) for political reasons and what we get is half hearted measures like this stimulus that don't make anyone happy and just prolong the misery by adding debt, entitlements etc...

IMHO we'd be better off if the government went into survival mode rather then put out the political correct measures we've gotten from Bush and Obama.

Ugh.

Did your economist (5.00 / 1) (#6)
by Big Tent Democrat on Mon Feb 23, 2009 at 10:34:57 AM EST

assure you that "we won't see [REAL as opposed to the fake unemployment number provided by the gov't] 22% unemployment"?


No (none / 0) (#9)
by Slado on Mon Feb 23, 2009 at 10:40:04 AM EST

He was talking strictly to a CEO if you will on how the buisness environment will affect what you do and how you operate....IE ease of obtaining capital, demand for your products, etc...


: Indeed (5.00 / 1) (#11)
by Big Tent Democrat on Mon Feb 23, 2009 at 10:41:42 AM EST

See I expect huge unemployment spikes this year my self - but I hope I am wrong.

You make a good point (none / 0) (#12)
by Slado on Mon Feb 23, 2009 at 10:41:44 AM EST

What is real Unemployement anyway?

The reality is lots of people will lose their jobs in the coming months and we need to be prepared to deal with that.

Let economists argue about how high the unemployment rate is.


This drives me crazy (none / 0) (#16)
by Inspector Gadget on Mon Feb 23, 2009 at 11:42:49 AM EST

Is your CEO going to run his business on the advice and plan for 60 months of depression, or is he going to do his level best to beat it?

This all seems like the diagnosis of a terminal illness...people die right on schedule because their doctor told them when they would go. The ones who fight the diagnosis and make positive changes either live well past their expiration date, or go into complete remission.


: I share your frustration (none / 0) (#34)
by Slado on Mon Feb 23, 2009 at 05:12:39 PM EST

I was watching a dude/talking head on CNBC that was predicting the dow would reach 6,000 (that was a week ago when it still hovered above 8,000) I told my wife when we where talking about other things and she said..."why would you even say that?" which goes to your point, why wish it so?
It's a hard choice between being a pessimist and being a realist.
To your question in his opinion he's just stating reality. Take it for what its worth. I assume he would argue we're already there and denying the reality of our situation will prolong the misery. Get your company mean and lean and the sooner we'll all get to other side.

The Fed measure of real unemployment, U-6, which (none / 0) (#20)
by jawbone on Mon Feb 23, 2009 at 12:46:10 PM EST

most closely matches the Great Depression means of counting unemployment, is available in Table A-12 from the Bureau of Labor Statistics, updated every month.

For January, the total unemployment is 15.4%. Not all that far from 22%... It was 9.9% a year ago, so it's possible to see why so many people were worried even back then. Especially those among the 9.9%.

Both Atrios and Dave Johnson at Seeing the Forest say this is the best correlation to unemployment numbers from the pre-LBJ change to not counting discouraged, under-employed workers. It also corrsponds to how most European countries count their unemployed.

If I understand this wrongly, please do correct this.


Anyway, I'm scared. (none / 0) (#2)
by atdleft on Mon Feb 23, 2009 at 10:11:20 AM EST

This just proves that we can't mess around in getting this economy moving again. I hope President Obama understands that "Stimulus I" should only be the start of a long campaign to invest (meaning SPEND!!).

Always with the Republicans... (none / 0) (#3)
by Samuel on Mon Feb 23, 2009 at 10:22:05 AM EST

Do they get what?

That "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom." like the Soviet Union?

How is this an argument for the stimulus package? Sometime things on life-support can't pull through. In this case it's economies premised on fractional-reserve banking. Go figure, when banks only hold 10% of their liabilities and interest rates are cut to 0...sometimes things don't work out. When it was the Soviet Union it was the unmanageable centrally planned economy that as a result of arbitrary government pricing had no means to allocate resources - what we're heading towards.

Economics is a soft science with a history of political manipulation. This doesn't mean that we can reverse engineer economic principals by assuming contemporary Republicans are telling the precise opposite of the truth. That action is a dismissal of the scientific method. Are we really giving the republican party the power that if they say ANYTHING we believe that the exact opposite is true? I understand they're wrong about a lot - but if we're to believe in this system it would seem imperative that the voters approach policy scientifically.

: Heh (none / 0) (#4)
by Big Tent Democrat on Mon Feb 23, 2009 at 10:28:05 AM EST

Nothing is too big to fail.... (none / 0) (#7)
by kdog on Mon Feb 23, 2009 at 10:35:16 AM EST

"The harder they come, the harder they fall...one and all".

Could Be Worse (none / 0) (#8)
by squeaky on Mon Feb 23, 2009 at 10:36:09 AM EST

At least Soros said:

Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

SOmething to be optimistic about. He did not say:

Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a long-term resolution to the crisis.

Does near-term mean a year to a year and a half? That would be my guess.

Soros said the financial system had (none / 0) (#10)
by Green26 on Mon Feb 23, 2009 at 10:41:37 AM EST

effectively disintegrated. He did not say all of the large financial institutions had failed (to my knowledge).

Soros was an early proponent of government support for financial institutions in this crisis. He criticized the plan to buy troubled assets, and instead proposed that the government support financial institutions by injecting capital into the banks, primarily by purchasing equity of the banks.

Soros has been involved in buying troubled/failed banks in the past month or two.

The financial crisis spun out of control when Lehman was allowed to fail in the fall. Some wonder if it was a mistake to let Lehman fail.

: Distinction without a difference (none / 0) (#13)
by Big Tent Democrat on Mon Feb 23, 2009 at 10:42:08 AM EST

What is the distinction without (none / 0) (#14)
by Green26 on Mon Feb 23, 2009 at 11:27:51 AM EST

a difference?

Financial systems versus (none / 0) (#18)
by gyrfalcon on Mon Feb 23, 2009 at 12:29:33 PM EST

financial institutions. Can't have one without the other. :-)


But I think the Distinction is ... (none / 0) (#23)
by santarita on Mon Feb 23, 2009 at 01:30:45 PM EST

between saying that the financial system has failed (or as Soros said, "disintegrated") versus saying that some large financial institutions are insolvent. There is a distinction. A financial system that disintegrates means that there is no meaningful lending going on, no intermediation. Insolvent large financial institutions don't necessarily mean that the system is in failure. And a disintegrated financial system doesn't necessarily mean the failure of financial institutions. In fact, part of the problem right now is that large banks are adding to their reserves instead of lending.

I don't know if the financial system has disintegrated. Soros said it, not me.


: Only if those (none / 0) (#27)
by gyrfalcon on Mon Feb 23, 2009 at 02:17:47 PM EST

failing institutions are standalone, I think. And they sure aren't. They're all tangled up with each other both in terms of actual finances and definitely in terms of the confidence on which the entire system relies to function.
When Lehman went down, it sucked a whole lot of others down with it. Personally, I don't want to find out what would happen if BofA or Citi collapsed.

: IOW (none / 0) (#28)
by gyrfalcon on Mon Feb 23, 2009 at 02:18:48 PM EST

I agree with BTD. At this point, it's a distinction without a difference in practical terms.

Maybe it was just meant to be (none / 0) (#15)
by Saul on Mon Feb 23, 2009 at 11:42:12 AM EST

a humbling experience for the U.S. You can't be on top forever. All empires have had their glorious moments and their final downfall. I am not saying the U.S is having their downfall but it is an eye opening moment that should awake us to the fact that maybe we need to change our ways.

I do not recall a lot of publicity that U.S economy was about to collapse before it did. I feel like it just fell out of the sky last September and everyone including all the economist were shocked about it. Was there any who predicted this collapse accurately?

IMO Obama needs to dedicated the rest of his term about 85% to the economic recovery.

I would abandon all wars Iraq and Afganistan or cut dramatically our role in these areas.
You will not win in Afghanistan That land is a graveyard of past empires that have tried to conquer it or control it. Russia being the last casualty. You would have to be in Afghanistan for ever and we don't have that kind of time or money to be investing in other countries, especially now.

IMO I would spend that money in protecting the U.S here. Just make the U.S. a super secured country. This bit of we will fight them over there so we don't have to fight them here well yeah if you want to fight forever. With all the lives and money spent on Iraq what did we really accomplish? Yeah they got a different government, I really don't know how good it is but the initial goal was if we change this government then the rest of the surrounding countries will abandon their type of government to copy this one and people will change their way of thinking. That IMO never happened and probably will not happen. So lets cut our losses and concentrate on spending all that money just here in the U.S.

A lot of people (5.00 / 0) (#19)
by gyrfalcon on Mon Feb 23, 2009 at 12:38:43 PM EST

knew the housing bubble was going to burst and we'd go into recession when that happened. What I think few understood was the extent to which mortgage securitizations and derivatives and all that incomprehensible stuff had worked its way into the fabric of the financial system as a whole. What turned this abruptly from a housing slump and recession into a catastrophe was when the financial system just plain froze up in mid-September.

For a short course on why the financial system froze up, I highly recommend the recent PBS Frontline program called "Inside the Meltdown." You can watch it on the Frontline Web site, and there should be a transcript posted by now, plus transcripts of longer interviews with many of the key talking heads in the program.


The Frontline piece is good for part of what went (none / 0) (#22)
by jawbone on Mon Feb 23, 2009 at 12:56:53 PM EST

on between the Fed (Bernanke, Geithner), Treasury (Paulson), and the Wall Steeters, but it lacks a lot of explanation of what caused the Big Sh$t Pile and the Big Meltdown.

I was actually disappointed. Watching it, I knew most of what was covered, except for some behind the scenes descriptions of what people felt, said. But most of the "background" came from the "acceptable" econ reporters or pols, none of whom had raised questions, then alarms, up to two or more years ago. The econmists who saw this coming are still out in the MCM* cold. Alas.

I got nervous when I saw the producer Michael Kirk on Charlie Rose a few days before the broadcast and he seemed to be somewhat in awe of Paulson.

*MCM--Mainstream Corporate Media


I Agree... (none / 0) (#24)
by santarita on Mon Feb 23, 2009 at 01:33:28 PM EST

It was good as far as it went. But its timeline started in mid-2007. By then chickens were already coming home to roost.


There needs to be more (none / 0) (#25)
by gyrfalcon on Mon Feb 23, 2009 at 02:13:37 PM EST

clearly, but you can't just throw together in a few weeks a comprehensive analysis of how, in a broader sense, we got to this point. That wasn't what the program was intended to do.

Frontline has several other progams in the works for the upcoming months, including another by Kirk, on the deeper problems and issues.

But the tick-tock of the financial freeze-up is a subject that can be put together fairly quickly in the meantime, and that's what they did. I said at the time there was little in it I didn't already know, but I've been following this whole thing fairly closely. I suspect most of it was new to most viewers, and probably a large majority of the commenters here.

As the commenter above, a lot of pretty smart people never understood what it was that happened in mid-September that blew everything up and sent Paulson into the month-long panic attack that ultimately resulted in TARP.

Lotsa people even here were quite certain the whole thing was fabricated by Bushco to rob the taxpayers for the benefit of their fat cat buddies on Wall Street on his way out the door.

So I think this part of the situation was darn well worth explaining.


This American LIfe has two very good programs (none / 0) (#30)
by jawbone on Mon Feb 23, 2009 at 03:39:33 PM EST

available as podcasts which go into the causes of the Big Sh$t Pile and Big Meltdown. NPR's Planet Money is also supposed to be very informative.

CNBC's House of Cards, per reviews I've read, is very good also about the mortgage industry problems, banksters' roles. I saw only a way to buy the DVD, but perhaps it will be rebroadcast (I don't get CNBC so haven't seen it).

I wrote a comment with all the links, but somehow it somehow got erased/lost. But they're easily found by googling. If I have time I'll come back and do the links, but, gotta run.


Billmon is now blogging about this topic --at DKos (none / 0) (#31)
by jawbone on Mon Feb 23, 2009 at 03:41:32 PM EST

Check his piece on "Chocolate Covered Cotton."

There are others as well.


If you can find them (none / 0) (#32)
by gyrfalcon on Mon Feb 23, 2009 at 04:11:24 PM EST

that would be great.

I did read the transcript of the first "This American Life" thing on the mortgage mess, and it's what gave me the grounding to have a clue what all has been going on. Haven't gotten to the second one yet, so thanks for the reminder. (I have zero patience for podcasts, so I hope they have a transcript up on that second one.)

The guy who does Planet Money-- Davidson, I think his name is? -- was one of the key people in the Frontline program, and I found the transcript of his full interview that's posted on the site just fantastic. He does have the ability to explain this stuff so it can be understood but without gross simplifications, it seems.

I get CNBC, but I dislike its regular programming so violently that I never watch it, and i missed the "House of Cards" program. I do hope they rebroadcast it.


: This American LiFe Program Was... (none / 0) (#36)
by santarita on Mon Feb 23, 2009 at 07:22:23 PM EST

excellent. I listened only to the one that had the mortgage broker in Nevada talking about the demand for Ninja mortgages from the securitizers. But it really caught the feeding frenzy nature of that market.

"House of Cards" (none / 0) (#33)
by gyrfalcon on Mon Feb 23, 2009 at 04:21:54 PM EST

CNBC Web site says they're showing this again

Wednesday, February 25th 8p ET
Sunday, March 1st Midnight ET
Sunday, March 15th 9p ET

Looks like maybe they're thinking of running it every two weeks or so for a while, which would be great.

Many thanks for the reminder!


Absolutely Correct... (none / 0) (#37)
by santarita on Mon Feb 23, 2009 at 07:27:20 PM EST

the more correct information that people have the more able we'll be able to watch our government like hawks... or falcons.

I think a lot of people saw that the housing boom would go bust as soon as interest rates started rising. But what people didn't have a handle on was how badly the checks and balances would fail.


I agree...many had to have known (none / 0) (#17)
by Inspector Gadget on Mon Feb 23, 2009 at 11:50:25 AM EST

But, I expect, they were in the Federal Reserve, large banks, and the Bush administration. I wonder if Bush had been a year away from leaving office if the emergency would have been responded to the way it was.


Who ius the new top dog? (none / 0) (#21)
by Big Tent Democrat on Mon Feb 23, 2009 at 12:49:09 PM EST

the global economy is melting.


: Really! (none / 0) (#26)
by gyrfalcon on Mon Feb 23, 2009 at 02:14:16 PM EST

"Was there any who predicted this (none / 0) (#29)
by vml68 on Mon Feb 23, 2009 at 03:16:00 PM EST

collapse accurately?"

There were a couple of people I was reading three years ago who predicted this pretty accurately, right down to many bank failures and nationalization of some of the "too big to fail banks". I admit I found it hard to swallow at the time but I did not know/understand all the intricacies of the CDS markets,etc.


: Peter Schiff did (none / 0) (#35)
by Slado on Mon Feb 23, 2009 at 05:14:58 PM EST

and now he is predicting hpyer inflation.
Let's hope he bats .500
Google the name and you'll get tons of hits.

: Many people predicted it, (none / 0) (#38)
by NYShooter on Mon Feb 23, 2009 at 09:20:01 PM EST

but that information was useless. What would have been useful was "when?"
Everyone knew the "dot-com bubble" had to come crashing down also back in the 90's; But, no one knew "when."
And, if you were in "the business," and you prudently took your clients' money off the table when valuations went into the stratosphere, put it in money markets or CD's, while the Joy-Stick boys all around you were racking up huge gains day after day, you didn't have a job for long.
Remember? "The Trend Is Your Friend!" "Cash Is Trash!"