October 1st, 2008

Detective Reese

Financial Crisis Continued

Since my previous entry about the capital markets I have collected some more links I wanted to share that I think provide some useful information about the ongoing financial and economic crisis. I also wanted to try to put the currently proposed rescue package (for more info see link section at the end) into perspective but I didn't know how to do it. But when I earlier this morning came across an excellent article in the New York Times things got much easier since it in my view touches the core of the problem, the importance of trust. I only have to add some points for emphasis and I also bolded some passages. You can find the original article here.

October 1, 2008
Lesson From a Crisis: When Trust Vanishes, Worry
By DAVID LEONHARDT

In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.

Collapse )

Hopefully, this article made it clearer why some action is needed in order to restore confidence. The plan doesn't have to be perfect but it is necessary to do something. I'm glad that the originally proposed plan got altered and just like everybody else I have further ideas for change. But the more time passes before something happens, the less impact it will have because to produce a psychological impact you need some element of surprise and display decisiveness that unfortunately isn't present right now, so some the potential positive effect already got squandered. I also don't think this will totally solve the problem (which is just too big) but it should make things more manageable and buy some time for further measures that are needed.

Here now some more links where you can find additional information. If you're interested in the subject I can only encourage you to have look. I will update the first entry with all collected links some time later. As always, if you have further questions, please be free to ask, I will do my best to answer them or provide you with further links.

The basics of the proposed $700bn plan by the US Treasury.
Q&A: US $700bn bail-out plan

A number of valid objections against the proposed plan.
US rescue deal: Sticking points
Collapse )