– Kurt Cobb over at Resource Insights wrote an excellent piece on the state of the world’s economics the other day. I’m going to provide a couple of paragraphs to whet your appetite and then a link over to the full article on his site.
– It is a good site to know about and I’ve just added a link to it on my Blogroll.
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As the United States sinks into a financial vortex and begins to drag the rest of the world with it, commentators are reaching for every form of hyperbole available. Former chairman of the U. S. Federal Reserve Board Alan Greenspan characterized the current trouble as “the most wrenching since the end of the second world war.”
So unexpected and extreme have recent financial trends been that even the man who warned that derivatives are “financial weapons of mass destruction,” legendary investor Warren Buffett, has encountered difficulties when his companies waded into the derivatives market.
Concern about a cascade of failures among financial institutions led the Federal Reserve to make loans to the beleaguered investment bank Bear Stearns Cos. by invoking authority it last used in the 1960s.
All of the events of recent weeks including the wild swings in both the stock and commodities markets are signaling the advent a rare full-blown, long-term credit crisis not seen in, well, a blue moon. Some are saying we haven’t seen anything like it since the 1930s. As frightening as such pronouncements are, they all imply a rare but cyclical crisis that is understood to be severe, but ultimately of limited duration. Yes, such a crisis only occurs once in a blue moon, but when it does, despite all the damage that results, it eventually comes to an end.
All of this may turn out to be true, but only if the cause of this economic crisis is strictly as advertised, namely, too much credit given to too many people at prices too cheap for too long until many overreached and could not make good on their obligations. The problems appear to extend all the way from the humblest subprime mortgage holder to major financial institutions at the center of Wall Street.
More… ➡