This week, Congress returns to the question of what to do with the domestic auto industry, Detroit’s humbled Big Three. And the options range from awful to unthinkable. Yesterday we got a reading of auto sales in November. The story was extremely bad. Continuing the trend from October, sales were down anywhere from a third to a half, across all the manufacturers who sell in | Read More »
It seems to me that focus has shifted away from China’s economic and financial doings during the acute financial crisis that began last September. The story in China for most of this year and last year has been extremely high inflation (particularly in prices for staple foods), and vigorous measures by the country’s banking and monetary authorities to reduce the formation of credit. Up till | Read More »
Last week was Citigroup’s turn. Citi is one of the world’s best-known banking brands, and was once America’s largest bank by market capitalization. Last week, investors knocked 60% off the value of Citi’s stock, in a nerve-rattling selloff that was too reminiscent of Bear Stearns and Lehman Brothers for comfort. Citigroup is too large to fail. It has about 200 million accounts in more than | Read More »
So this week we witnessed the jarring spectacle of three wealthy, well-dressed CEOs flying from Detroit to Washington, DC, each in his individual private jet, to ask for anywhere from 25 to 50 billion dollars of your money. Instead, Congress turned them away. Democrats (if you take them at their word) said they wanted to give Detroit a big slug of money from the Treasury’s | Read More »
To go along with the piece I wrote earlier today (here), the bond market appears to have picked up on the theme of deflation. The 30-year US Treasury bond rocketed upward in price to more than 118 and a half by today’s market close, and much of the move came late in the day. This price corresponds to an interest-rate of 3.49% for the long | Read More »
The most urgent piece of economic news and policy over the next several weeks will be the fate of the General Motors Corporation. It will take precedence over the general policy response to the worsening recession. The problems in the auto industry go well beyond the Detroit Big Three. All eleven of the major automakers with operations in North America have come under severe stress, | Read More »
Today is Day 6 of the “New Trade”: the death and rebirth of the financial system as we know it. Every single day this week has brought things that no one working today has ever seen before. Yesterday was no exception It was a day of unprecedented volatility in the credit and money markets. The prices of short-duration Treasury securities traversed ranges that are usually | Read More »
Yesterday was the first day of the rest of Wall Street’s life. At the beginning of this year, there were five major broker-dealers. In March, the Bear Stearns Companies were acquired by JP Morgan Chase with a large assist from the Federal Reserve. Yesterday, Lehman Brothers filed for Chapter 11 bankruptcy. On Sunday, Merrill Lynch agreed to be acquired by the Bank of America. As | Read More »
As I described here, this is the weekend that the Treasury and the Federal Reserve decided to stop bailing everyone out. Secretary Paulson has been hinting for weeks now that we have to let capitalism work the way God intended it to. Which means: if you screw up, you die. This is what we free-market conservatives have been saying we wanted all along, folks. We’ll | Read More »
Ladies and Gentlemen, I’ve been faithfully chronicling the global credit and financial crises for you since the first cracks started appearing in early summer of last year. Tonight, with the almost-certain collapse of the investment bank Lehman Brothers, the crisis moves into a new and possibly very dangerous phase. I’m going to keep you up-to-date on the key developments over the next few days, or | Read More »
It’s been widely reported that Timothy Geithner (the President of the New York Fed) summoned a group of Wall St. and banking CEOs to a pow-wow in lower Manhattan on Friday evening, with Treasury Secretary Paulson in attendance. The subject: Lehman Brothers, the 158-year-old investment bank which is in dire need of new capital, partly because of losses in its large portfolio of commercial (not | Read More »
I’m going to get into three things with you this morning. First, I’d like to address the issues raised by many respected people, in regard to the suppression of private interests by an agency of government. To do this, I’m going to fill in some of the history of Fannie and Freddie. Second, I’ll give more detail on the exact terms of the Treasury takeover | Read More »
There are two points I want to make to you this morning, as the impact of yesterday’s nationalization of the mortgage GSEs works its way through the system. Here’s more information. First: while this is most definitely a fundamental change in the structure of the mortgage markets, it is not a change in our government’s existing policy of deep intervention in housing. The people who | Read More »
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