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How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.
This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.
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See, I've always likened the markets to Las Vegas. It's gambling, but with other people's money. With all the different investment vehicles floating around, there are just as many games on the floor as there are at Harrah's.
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“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”
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And you can blame this whole mess on the same thing that's keeping us in Iraq and stealing away our civil liberties.
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Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime crisis.
And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation — but added, “I don’t think we’d want it the other way around.” Is that your final answer, Mr. Secretary? [my ems]
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Look, I don't care what the fucking 'financial guys' say, business needs regulation. The mess in the air travel sector we're feeling now is directly related to the deregulation of airlines by St. Ronnie of Raygun in the '80s.
Big Business, be it airlines, banking and credit, pharmaceutical, or others, can't be allowed to police themselves because they always look to the bottom line, the environment, economy, and consumers be damned.
It's time to rein these businesses in, especially the credit markets. We're gonna have a bitter pill to swallow real soon and the sooner we accept reality, the sooner we can straighten this mess out.
Update:
Via Skippy, Dave Johnson asks: Is Your Money Safe?
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This is exactly what could happen to money markets and banks as people realize this is their money everyone is talking about in the news. YOUR money. Find out where your money is, your parents' money, etc.. [em in orig]
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