Could it be that we Americans are over reacting to the problems in the market? The market is very much a collaborative structure resting heavily on trust in the power of the vast American economic engine. What we are witnessing right now is the multichannel, speed-of-light, propagation of panic through the miracle of electronic communication. Wagging tongues and chin music from our esteemed news commentators as well as we, the blogging community, are only fanning the fire of panic. The USA is on the verge of freaking itself into an economic collapse.
We don’t need additional and more concise descriptions of the foolishness of the players. That’s been done. I participated in this too. Ascerbic wit and biting rhetoric needs to be turned to constructive service. The first thing that we can do as bloggers citizens is to tone down the negative buzz and quit getting each other twittered. It serves no purpose and is counter-productive.
Citizens need to start asking constructive questions and make suggestions to all who will listen on how best to minimize panic and the damage it will cause to our economy. We need to take some time from blogging to focus on communicating with our friends and colleagues and members of congress to keep a steady hand in the coming months.
We also need to start asking about the details of the financial mess. Of the “bad mortgages” we hear about, how many are actually in default vs how many are just in the category of subprime? Are the banks possibly exaggerating the size of the losses? If banks are over extended in their loans, what fraction of their subprime loans are still in good graces? In other words, exactly how is the bad debt manifested? What is the true magnitude of the thing? How many mechanisms are available to bring this thing to a survivable landing?
It is not unheard of for a company to write off as much loss as it can if it is inevitable that it must report losses. An MBA friend pointed this out to me. He worked for a semiconductor firm whose habit was to maximize the losses if it could not avoid reporting a loss. They’d throw some of the ugly furniture overboard with the trash to clean house. To what extent is this happening now?
Maybe we can raise the bar a bit by helping to ask better questions. The best questions get the best answers.
Lamentations on Chemistry 
“We also need to start asking about the details of the financial mess.”
Your dudeness, you’ve hinted at a mild indifference if not ignorance, or disinterest in business. While you shun the dismal science, I embrace it, wallow in it and hope to one day spin mere wool into gold.
What you and most of America are ignorant of, is that while the deficit in bank and IB funds is related to the plight of the US homeowner, much of this conflagration is tied to the netherworld of credit default swaps and derivatives. Since these demons may be bought in sold after the original ‘bets’ on failure are made (see http://en.wikipedia.org/wiki/Credit_default_swap), no one really knows who owns what (since they are not regulated) and which parties are related with what degree of LEVERAGE.
The economist cited that perhaps a mere 500 trillion are tied up in derivatives. Thus this bail-out could easily focus on the US home-owner if it were merely a matter of buying out some weak mortgages. Unfortunately these depreciating assets were used as the basis for leveraged bets in the derivatives markets. Hence you’ll never be able to stabilize the homes fast enough to satisfy that hyper-predatory derivatives market in such a way that it will not result in COLLAPSE. Thus Paulson is using a fire-hose to douse the market with cash to stabilize these bets in the short term so all the big banks can take evasive action.
The reality is it is a palliative only. It’s sole (ulterior motive) is to allow the elites to funnel their cash elsewhere and let the common man crash and burn.
Buy gold and silver, diversify into foreign currency.
Am I being cynical or naive if I think that some of the “Get a trash bag and a change cup so you’ll have a place to sleep and a job tomorrow” talk is akin to the focus of conservative evangelical Christians on the Second Coming? Both lines of reasoning rely on a sense of blameless apathy (the inability or unwillingness to do anything useful) and a desire to start over in a system more amenable to their goals. The problem is, lots of other people want to start over and get what they want and have less conscience to worry about how they will get it. It is a question of whom the system conjured from the wreckage would benefit – considering that this line of reasoning relies on apathy, I don’t see what’s left benefiting anyone but those violent enough to take their fill.
We aren’t going to be perfect in this life (if at all), and expecting Armageddon to nuke us all and leave no one but the perfect is rather ahistorical. Better to save what we can and hope that there will be a world in which we can make our own dreams real, or at least one in which we can go down knowing we did our best for one another.
I’m generally agree with the first comment above, but I think that there will be no “safe harbour” in the near future.
My economics teacher in Chem. Dept. of Moscow State University described the situation with Russian debts about a year before the default on Russia treasury bonds in 1998. He knew well the hidden structure of US economics, and he predicted the same for America within several years. Well, he was wrong with the time, but he seems generally right. Now US treasury bonds default is probable than ever.
No currency and no country would be isolated from such a collapse. Almost all people over the world would feel it in everyday life. So all the buyers of USA treasury debts – Europe, China, Japan, Russia, etc – were trying to prevent the collapse, even to pay a lot (in fact) to prevent it. But they seem to fail now. They’re all got enough of problems for their own countries, and they’re just exhausted. All the Central Banks together cannot now prevent the Big Crisis, they just trying to delay and soften it.
While the first commenter may be correct regarding the volume of dubious derivatives, what is unclear is the extent of residual value in the aggregate. It is like the difference between a large and a small asteroid impact. One destroys Texas. The other induces global climate collapse. How big is the problem?
I have to agree with Hap’s sentiment. To what extent is this problem magnified by public hysteria and corporate greed? It is too early in the game to understand the magnitude. of this.
Timurzil- I have a few friends who are Moscow State grads who also post-doc’d at the Zelinski Institute. I’ve seen Moscow State from across town. I had the chance to go to the top of one of those Gothic looking tall buildings in Moscow- it was near the Parliament building.