James Grant on our current financial situation:
"Since the credit crisis burst out into the open in
June 2007, inflation has risen and economic growth has faltered. The
dollar exchange rate has weakened, the unemployment rate has increased
and commodity prices have soared. The gold price, that running straw
poll of the world’s confidence in paper money, has jumped. House prices
have dropped, mortgage foreclosures spiked and share prices of
America’s biggest financial institutions tumbled…
In that vein, the central bank pushed the interest
rate it controls, the so-called federal funds rate, all the way down to
1% and held it there for the 12 months ended June 2004. House prices
levitated as mortgage underwriting standards collapsed. The credit
markets went into speculative orbit, and an idea took hold. Risk, the
bankers and brokers and professional investors decided, was
Now began one of the wildest chapters in the history
of lending and borrowing. In flush times, our financiers seemingly
compete to do the craziest deal. They borrow to the eyes and pay
themselves lordly bonuses. Naturally — eventually — they drive
themselves, and the economy, into a crisis. And to the scene of this
inevitable accident rush the government’s first responders — the Fed,
the Treasury or the government-sponsored enterprises — bearing the
Today’s bear market in financial assets is as nothing compared to the
preceding crash in human judgment. Never was a disaster better
advertised than the one now washing over us. House prices stopped going
up in 2005, and cracks in mortgage credit started appearing in 2006.
Yet the big, ostensibly sophisticated banks only pushed harder."
I don’t buy into everything Grant writes in this OpEd — note the jihad against those short financials or long energy — but there is certainly enough good commentary to spark an interesting debate . . .
In Defense Of Speculators (July 2008)
A Nation of Whiners? No, Just Wall Street Beggars (July 2008)
Why No Outrage?
WSJ, July 19, 2008; Page W1
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