Sunday, September 14, 2008

Greenspan: Worst Economic Crisis Ever Seen

Greenspan to Stephanopoulos: This is 'By Far' the Worst Economic Crisis He's Seen in His Career

September 14, 2008 11:07 AM

ABC News' George Stephanopoulos Reports: Former Federal Reserve Chair Alan Greenspan said this morning that this is "by far" the worst economic crisis he has ever seen. "There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go," he said in an exclusive "This Week with George Stephanopoulos" interview.

Greenspan also noted, "let's recognize that this is a once-in-a-half-century, probably once-in-a-century type of event."


Lehman woes threaten AIG and Merrill Lynch

AS the endgame plays out for Lehman Brothers, pressure is rising on two other financial behemoths to take action to convince investors to stick with them.

On Friday, credit ratings firm Standard&Poor's threatened to downgrade American International Group, citing the significant decline in the company's share price and the increase in credit spreads on the company's debt.

Meanwhile, AIG will likely hold an analyst call this morning and could announce a series of steps aimed at reassuring investors, including possible asset sales, a source said.

A rapid plunge during the week in the price of AIG shares -- the stock fell more than 30 per cent on Friday alone -- coupled with equally worrisome signs for the insurance giant in the debt markets appeared to increase the heat on management to act.

Meanwhile, shares of securities firm Merrill Lynch fell 38 per cent in the four trading days since concerns emerged about Lehman's viability as an independent company when talks to sell a stake to a Korean bank ended.

While both Merrill and AIG were roiled as Lehman-generated concerns rippled through the market, each has distinct sets of problems.


AIG plans $20 billion asset sell-off - paper

American International Group, the world's biggest insurer, is planning a $20 billion asset sell-off as it fights to correct a slump in its shares and braces for the impact of Hurricane Ike, the Sunday Times said.

The newspaper, without citing sources, said details of the plan could come as early as Monday.


How big are Lehman, Merrill, and AIG?

In 1998, Long-Term Capital Management nearly collapsed. They had $129 billion in assets and $124 billion in liabilities. But the real problem was that they were counterparty to $1.25 trillion in derivatives trades. Because their collapse might have created a chain-reaction throughout the financial system, then-President of the NY Fed William McDonough called together the heads of the major commercial banks and investment banks and politely asked them to cooperate. The banks bailed out LTCM without any government backstop. (Bear Stearns declined to participate in the bail-out, a fact never forgotten by its peers.)

Bear Stearns (10-Q) had $399 billion in assets (or “assets”) and $387 billion in liabilities (10-Q page 5). But the real problem was that they were counterparty to $2.7 trillion in derivatives trades (10-Q page 36). That was enough for the Fed to give JP Morgan a hand in taking them over last March.

Lehman brothers (10-Q) has $640 billion in “assets” and $613 billion in liabilities (10-Q pages 5-6). But they are counterparty to “only” $729 billion in derivatives trades (10-Q page 40). This weekend, the current President of the NY Fed, Timothy Geithner, has called together the heads of the major commercial banks and investment banks and is politely asking them to cooperate. But this time, they want another deal like Bear Stearns. Think of it as a high-stakes game of chicken, with Hank Paulson representing you. We will know the outcome by 8 P.M. EDT tomorrow.

Merrill Lynch has $966 billion in assets and $931 billion in liabilities. They are counterparty to $4.2 trillion in derivatives trades. They get brownie points for including HTML anchors in their 10-Q. (Do we still use the phrase “brownie points” after Katrina?)

AIG (10-Q) has $1.0 trillion in assets (10-Q page 1) and $972 billion in liabilities (page 2). They are counterparty to at least $447 billion in credit default swaps (page 87). But that does not include the old-fashioned insurance operations, and who knows what else because I am tired of slogging through this stuff. Executive summary: What would happen if an insurer with $1 trillion in assets were to fail? I have no idea; and neither, I suspect, does anyone else.

9 Comments:

At 9/14/2008 2:02 PM, Blogger Louisa said...

Does anyone else feel like slapping Greenspan senseless after you hear him spouting off like this? He's out in the spotlight, blabbing profusely about the disaster he was instrumental in creating. He's like some sort of economic sociopath.

 
At 9/14/2008 6:28 PM, Blogger Randy said...

Completely agree!

It's all Easy-Al's fault. He cut rates and inflated at any sign of global economic troubles:

- US Stock market crash of 1987
- Japan's crash of 1990
- LTCM Collapse of 1994
- Asian Currency Crisis of 1997
- Russian Bond Default of 1998

All this easy-money policy grew into the NASDAQ bubble, which popped, followed shortly thereafter by 9/11.

Once again, Easy Al invoked his tried and true policy - cutting rates 13 times while ramping up the printing presses then pushing unconventional mortages - HE ABSOLUTELY KNEW what he was doing when inflating the biggest housing bubble in history, but secured an exit plan before it all blew up in his face.

When history is rewritten, Easy-Al will likely go down as the WORST
FED CHAIRMAN IN HISTORY

Randy

 
At 9/14/2008 10:01 PM, Anonymous jerry said...

Big Al is a fool of the biggest type. Read Michael Hudson's article on counterpunch.org about the Chicago School of Ayn Rand-type economics gargoyles.

Big Al has the biggest self-absorbed ego in America. It exceeds the Boy Bush.

BIg Al has convinced himself he did not kill Nicole-Brown..., oh, I mean the country. (You get what I mean about his personality type.)

To admit any error or the failure that took down the world's economy would force him to stand up to a massive verbal stoning, and show that the emperor of the federal reserve never had any clothes on to begin with.

I am sorry to offend any Republicons, but this is how the GO-Plunderers have led the country for decades.

 
At 9/14/2008 10:44 PM, Anonymous Anonymous said...

Not that I like to defend the GOP, but the tech bubble came on the Dems watch and led to Big Psycho Als interest rate response. Investment houses proceeded to make billions. Bin Laden certainly started planing his attack prior to Bush Jr. You could argue that it began with Bush Sr and that Clinton didn't do anything to mitigate it since the attack came barely into Jrs term. Don't be so eager to drink the Obamalade either. As a society/country we have learned how to bankrupt the treasury. I believe it is back in the early 80's we entered the path as a debtor nation which was underway during Carter and no doubt accelerated under Reagan. No one can deny how much of our budget is gobbled up by Social entitlement. Defense budget prior to the war was totally insignificant in comparison to welfare. Look how much we spend to service the national debt now. Bottom line; our standard of living is a fraud yet we easily spend billions on our entertainment gods (movies and sports); so before we blame anybody we better look in the mirror first!!!!!

Jobuck

 
At 9/15/2008 6:51 AM, Anonymous jerry said...

Out of the last 7 presidents, 5 came from the GOP. I am beginning with Nixon. The GOP/Nixon were signing the bills that were brought into law beginning in 1969. That is nearly 40 years ago.

The over-abundant spending began with Reagan, although the war in Vietnam was a significant drain, at the time, upon the economy and the psyche of Americans.

Reagan put the nation into a huge debt by the end of his term. Supply-side economics and trickle-down theory was his mantra, and it was a massive failure that has continued to permeate the two Bushes, and now McCon, ever since.

The Chicago School of economics, at the University of Chicago, was delivered to Reagan with open arms, and continued through Clinton and into the stickie fingers of Little Boy Bush. McCon just follows what the big boys in the GOP tell him what they want him to do. Just look at the number of lobbyists--conduits from the most powerful people around the nation and the GOP. The problem is that McCain is incredibly stupid.

I have not swallowed the Obama kool-aid. He is an incredible disappointment. He better get off of his Dukakis if he going to beat the McCon.

 
At 9/15/2008 9:14 AM, Blogger Louisa said...

This is all about business and Wall Street owning and running the country- they OWN U.S.. Party affiliation has little to do with it, though they love the people to keep believing that dog and pony show.

It is a cyclical phenomenon, and we have had excessive periods of greed and hubris like this before, as we did in the beginning of the 20th century - the robber barons and "Guilded Age".

I think this cycle we're in now started in Reagan era, but this is not about political parties. It did not matter which party was in control as the moral hazard and predatory finance was encouraged, aided and abetted all along the way- no matter who was in the White House or Congress.

The only "party" we have in this country is The Business/Wall St. Party. Once you accept this, everything else makes good sense.

 
At 9/15/2008 10:03 AM, Anonymous jerry said...

Louisa,

You are so right! The Partys are very close in looks and dress, but there are some fundamental differences between the members who make up these Partys. There is a difference between the Democrats and Republicans. The Republicans have evolved into extremism and pure greed, while the Democrats have evolved into a more conservative group, with progressive members. There is a difference. I do not believe that Obama is the same as McCain, or Biden the same as Palin. I believe there are fundamental differences between the two sets.

I do feel that of those two top presidential contenders, Obama is more willing to try and fix the problems with a greater interest in analyzing them, while McCain would become overly influenced by the lobbyists and Party hacks that he so proclaims to have hated.

McCain has wanted "the Ring" that had so quietly been hidden by Bilbo Baggins, he is so willing to turn into Golem. And he has.

 
At 9/15/2008 10:14 AM, Anonymous Dave said...

Is the irony lost on him that he played a starring role in causing this crisis? It's amazing how un-reflective these so-called leaders are.

 
At 9/16/2008 6:54 PM, Anonymous Anonymous said...

Louisa,

Jerry, at least Louisa got my point (kudos to her). Your "but" shows you missed the point. Congress controls the purse strings (Civics 101). Oh by the way, what party was in charge of congress the last four years and was so proactive as the housing bubble peaked and crashed? I wouldn't be disappointed if both Reid and Porter don't get reelected when there time is up. Gov't works best when it puts bounds on the self serving efforts of organizations and individuals, not as the controller of how we should live our lives. Gov't in-action is usually better than gov't in action.

Jobuck

 

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