Sunday, October 12, 2008

Interesting Times

We are in interesting times. Some of us who survive would tell today's tale to our grandchildren, just like those who survived The Great Depression told theirs. Human beings evolve like other species but the evolution is limited to biological development and science & technology. Our race is stagnant in economics and politics as same mistakes are repeated time and again and poor public always trusts the rulers.

Last week I thought markets were oversold and there could be a bounce back. The bounce back did come but very small and the carnage in financial markets resumed. Note that this happened despite the "Crisis Postponement Plan" of USD 700 Bn and other measures by the "fed" and govt.

Globally we saw how govts tried whatever they can to calm markets but its the faith of investors which has been deteriorated so badly that they don't even want to look at those measures. In India, the hawkish RBI (Reserve Bank of India) cut CRR by 150 bps in single week but even that did not encourage buying into stocks.

The funny thing is that so called experts think the problem is of liquidity, while in fact it is of "trust". There is enough liquidity but zero trust and trust can not be created by merely "pumping" liquidity into system. Not at least by those people who had been lieing for almost two years about "soundness" of economy and their "ability" to get through the crisis.

In my opinion its the punishment that is required and not reward to those who created this situation in the first place. Why did SEC increase leverage limit to those 5 giants? Was SEC run by 5th grade students? Why not punish those CEOs and other executives who "played" with the system? Anyway, historically, perpetrators of such economic crimes are the ultimate beneficiaries.

There is meeting going on among Eurozone nations and perhaps they reach some point of solution by the evening. The trouble is any solution that they have must be global in nature and chances for that are slim. In times of crises nations tend to safeguard interests of their own citizens first. Moreover, the interbank lending is so complicated that its very difficult for all nations to stick to one universal solution. A global bank guarantee by govts can help but will they do that? I doubt.

Let us see how the premiers arrive at some "solution". Interesting times we are certainly in.


  1. I agree, these truly are interesting times...

    The question is, what can these governments actually do? Haven't they already tried everything they could think of? Do governments actually have the capability of saving us from the consequences of "our" own greed?

  2. Thanks Jason,

    Well, the governments have very few options left. They can cut interest rates, but that's tightly limited (they can't lend at negative rates). They can pump cash into the system, but that is not going to be effective as the problem is of trust (or the lack of it).

    At best governments can make sure there are no more "sellers" left. Only buyers. But we know any such step will stall any remaining liquidity.

    I think the more the governments interfere and try to calm it down, the more trouble they create.

  3. Great post, I think time will only tell at this point what will happen, but if people do not have jobs or savings, I don't think any bailout can help, but who knows.
    Interesting indeed.

  4. Yes Mish,

    Bailout is designed by politicians to survive november election.


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