Tonight we have this from a Jacques Attali column, originally published in L'Express on Tuesday, and posted at truthout.org tonight: "
The Geithner Bubble." And, after that, another piece that followed it over at truthout.org, a reprint of Robert Reich's blog post from the past day which, in many ways, says the same thing that Jacques Attali is telling us: "
Why We're Not at the Beginning of the End, and Probably Not Even At the End of the Beginning."
SATURDAY 18 APRIL 2009
The Geithner Bubble
Tuesday 14 April 2009
by: Jacques Attali | Visit article original @ L'Express
In some people's eyes, a miraculous emergence from the crisis is brewing: Through the combined play of the Geithner plan, (which allows investment funds and banks to buy other banks' toxic assets, borrowing most of what they need to do so from the Federal budget) and accounting changes (which allow banks to carry those assets at an inflated value), we see a derivatives market take hold in which some will sell these assets at a very high price to others in order to buy more of those assets at a still higher price: so that an asset value bubble will form, entirely financed by the taxpayer. The value of banks' capital funds, up until now totally corrupted by the presence of these toxic assets, will be raised naturally by this operation, without the government having to spend any money apart from that which will have allowed the banks to buy these products and make their price rise. Then growth will be able to take off again, creating new financial fortunes in the midst of innumerable industrial bankruptcies.
This bubble is already underway: It can be measured by the difference between the stock market ( in full growth mode), in particular, stocks of at-risk sectors (especially the financial sector) and the (totally anemic) credit market, by the difference between the (negative) change in estimated profits and the (positive) change in stock prices, by the increase in company multiples, by the foreseeable nature of central bank actions, allowing the return of mechanisms for currency transfer, the so-called carry trade, on the dollar and the yen.
All by itself, this bubble could soon impart the feeling that the crisis is over: Banks will become solvent again, will reimburse the government the sums they've borrowed - recovering along the way their rights to distribute bonuses; the price increase in financial assets will relaunch investment, employment and growth. Thus will the unemployed and the taxpayers have reactivated the bonus pump that jobholders and lenders could no longer feed.
I really wish I could post the entire column, but I won't. So, I hope you read it via the link above. It is pretty powerful stuff.
I will provide us with one more Attali phrase (he's got some pretty profound, but-matter-of-factly stated quotes throughout his brief column) which is, for lack of a better word, intense:
"An immoral emergence from the crisis is better than a depression. "
Attali is a professor, writer, former advisor to the President of France, founder and first president of the European Bank for Reconstruction and Development in London from 1991 to 1993, and among other things, president of PlaNet Finance, "an international charitable organization that brings together the world's microfinance institutions."
Following Mr. Attali's column from L'Express, we have this from former US Secretary of Labor Robert Reich, which, IMHO, serves as the perfect accompaniment to Mr. Attali's column; a veritable second course, as it were: "Why We're Not at the Beginning of the End, and Probably Not Even At the End of the Beginning."
Why We're Not at the Beginning of the End, and Probably Not Even At the End of the Beginning
Friday 10 April 2009
by: Robert Reich | Visit article original @ Robert Reich's Blog
...we're not at the beginning of the end. I'm not even sure we're at the end of the beginning. All of these pieces of upbeat news are connected by one fact: the flood of money the Fed has been releasing into the economy. Of course mortage rates are declining, mortgage orginations are surging, and people and companies are borrowing more. So much money is sloshing around the economy that its price is bound to drop. And cheap money is bound to induce some borrowing. The real question is whether this means an economic turnaround. The answer is it doesn't.
Cheap money, you may remember, got us into this mess. Six years ago, the Fed (Alan Greenspan et al) lowered interest rates to 1 percent. Adjusted for inflation, this made money essentially free to large lenders. The large lenders did exactly what they could be expected to do with free money - get as much of it as possible and then lent it out to anyone who could stand up straight (and many who couldn't). With no regulators looking over their shoulders, they got away with the financial equivalent of murder.
--SNIP--
I spent the better part of an hour yesterday evening debating Larry Kudlow on his CNBC program, along with Arthur Laffer and two other financial analysts, all of whom were sure that the stock market had hit bottom and was now poised for a major recovery. I admire cockeyed optimism, and I understand why Wall Street and its spokespeople want to see a return of the bull market. Hell, everyone with a stock portfolio wants to see it grow again. But wishing for something is different from getting it. And cockeyed optimism can wreak enormous damage on an economy. Haven't we already learned this?
Yes, it certainly appears that America's just jonesing for another bubble.