Although his brief answer without any further analysis is “Probably not,” the remainder of his opinion piece is devoted to quoting a Great Depression era text that shows “eerie” parallels to our current situation. Excerpt (talking about the 1930s Great Depression):
a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
Read Reich piece →http://robertreich.blogspot.com/2008/03/are-we-heading-for-another-great.html
Categories: Great Depression
Digested version: bankers ignorant, reckless. The Treasury committee of the Parliament has now issued its report after hearings conducted in 2007. Readers’ Digest version: bankers and credit rating agencies were ignorant, reckless. As reported by the Telegraph, today’s report says that banks had not understood the financial products they were buying and selling. “The committee singled out Lord Aldington, chairman of the Deutsche Bank’s London branch, who declined to explain the difference between a CDO and a CDO-squared when he appeared before them.” The committee also lambasted the credit rating agencies for not responding earlier to the crisis in the US sub-prime mortgage market, and for alarming investors by making large downgrades at the height of the crisis. Read the full report (pdf) here:
parliamentbanks0308.pdf
Categories: Northern Rock · Parliament · bank assets · bank failures · bank insolvency · banking system · bond insurer · monolines
