I want to introduce visitors to Finance Capital to another website which is deserving of a regular visit by anyone concerned about the evolving crisis in global finance. For nearly a half dozen years or so I have been reading the Prudent Bear site that is linked below.
The site is hosted by an investment company that manages investment funds based on bearish sentiment about the economy. I am not recommending or expressing any opinion about the funds themselves. They may or may not be of interest to you.
But the website is a gold mine of information about some of the most important issues at stake in the world economy today. Each day it posts headlines and links to news articles from around the world about the economy. And its hosts serious writers who write original material for the site on a variety of issues.
A regular weekly column is written by Doug Noland which tracks the “credit bubble.” Doug saw what is happening today – kind of like a train wreck in slow motion – coming years ago. Anyone who was reading Doug five years ago was well prepared to grasp the dynamics of the current environment, whether from a policy or an investor stand point.
I should say that I do not always agree with what is written on the site. It is limited to financial issues and only rarely ventures into the political and social implications of economic and financial events – a void that this blog will attempt to fill. But much of what the site does is provide its readers with a basic education into issues that for many are overwhelmingly complex.
One other feature of the website is that it hosts a chat room called Bear Chat. This is not for the fainthearted but often the discussions are intense and fascinating if sometimes a bit over the top. Lots of theories about the markets and finance and even politics get debated and argued over. Makes for fascinating reading.
For the time being I will be blogging over at Finance Capital. This is a new blog project that I have been thinking about for some time. I think the new global situation demands greater attention to the issues raised by finance capital.
As I point out there:
The great global credit crisis of 2008 indicates how fragile the global capitalist system remains. At the heart of global capitalism is the creation of financial instruments that represent real economic activity. The institutions that manage these instruments shape the basic structure of the global economy. This blog aims to assess the impact of these institutions on global politics.
Feel free to join me over there or look around here for past posts.
The underside of the global credit crisis is rising social unrest. Food riots, price hike demonstrations, and other forms of protest are becoming more common. A kind of global wildcat strike is emerging as global inflation takes its toll. A solution to the global financial crisis will likely require political restructuring as well. The shape of that restructuring remains as up in the air as the solution to the financial side of this worldwide cataclysm.
The Washington Post is beginning a very readable series on the housing credit boom and bust. Today is the first installment and it is called “The Bubble: How the housing bust started a panic in Florida, felled a storied bank and raised the specter of recession.”
For some time now people have wondered which big bank would find itself in trouble after the collapse earlier this spring of Bear Stearns. Everyone’s best guess is that it might be Lehman Brothers. The news today is not good: a $2.8 billion loss that the bank’s tough CEO Dick Fuld called “totally unacceptable.” Do you think?
One of my co-workers, economist Jennifer Kuan at the Stanford Institute for Economic Policy Research, suggested to me the other day that one explanation for an attack on a bank might be whether or not it is up front with investors that it is in trouble. Possibly, for example, Bear Stearns was not as forthcoming as it should have been about its mounting losses and so others on Wall Street were not willing to back them up when things got really difficult.
Could the same be happening to Lehman now?
A perfect kick-off post for this new blog. Today’s New York Times posts the “staggering numbers” – RED numbers – that are hitting Wall Street now in the wake of the credit sector meltdown over the last year. At a minimum the numbers show why timing is everything if you are an investor.
(The picture at the left may be a bit of an overreaction. It shows the aftermath of the infamous bombing of Wall Street in 1920. Thirty were killed.)
In the words of the Times:
“The numbers are staggering. Between early 2004 and mid-2007, a period of unprecedented wealth on Wall Street, seven of the nation’s largest financial companies earned a combined $254 billion in profits.”
But now? Well since last July more than 100 billion of those profits have vanished. That’s just here in the US! Globally, the total is $380 billion.
What is critical in the story, however, is the conclusion that the models used by big banks are still problematic. These models rely heavily on historical data. But as they say, Garbage In, Garbage Out – if you don’t have historical data that can track potential future events, the models are pretty worthless. Hence, the continued use in the words of the Times of “giant erasers” to write down the value of banks’ loans and investments.
Restructuring and regulation of the industry is underway.