October 12, 2008
Recession, Depression?
Those of us with snow on the roof shudder when the “media” bandies the words “recession” and “depression” to characterize the economic turmoil last week -- when world stock markets nosedived and some financial institutions collapsed.
Been there, done that -- after the Black Friday of 1929 -- followed by the 1930’s “Great Depression.”
(Click here for "Why Great Depression," Feb. 25, 2003)
Yesterday, G-7 finance leaders -- from the seven largest governments -- gathered at Washington, D.C., to hold hands and try to stabilize the world banking system.
That is -- beg the United States to pour in gobs more of taxpayer money to fend disaster.
President Bush welcomed them and declared:
“All of us recognize that this is a serious global crisis, and therefore deserves a serious, global response.”
He emphasized that Congress had already poured $700 billion dollars into a rescue plan by the Federal Housing Finance Agency.
This alphabet office has seized the government-chartered Federal National Mortgage Association (Fannie Mae) and the Federal Mortgage Corporation (Freddie Mac.)
Let’s hear it for alphabet soup!
(Click here to also see last week's column)
PAULSON’S NEW APPROACH
Treasury Secretary Henry M. Paulson now proposes a new approach to the global melt-down of bank home-loans. Governments would buy stock in banks – without voting rights.
One supposes he might next sell the Brooklyn Bridge to China.
The Lehman Brothers venerable investment firm was thrown to the wolves, but this merely whetted the appetite of bargain hunters in markets worldwide.
MEET WITH FOREIGN LEADERS
Several other meeting between Paulson and 20 other international financiers was held Saturday afternoon. Including in these “working groups” were China (with a huge trading balance with the United States), and Russia (with large sales of oil and natural gas to Europe.) 
European leaders continued to meet on Sunday to shore up European banks.
Paulson last month told Congressional representatives it was "better to buy up assets rather than institutions."
Now he says,
“We can use the taxpayers’ money more effectively if we develop a program to buy equity in financial institutions instead of troubled assets.”
CUSTOMER HARDSHIPS
Friday’s huge sell-off of stocks – particularly banks and investment firms – stunned the world’s lending institutions. However, individuals face hardships.
Major credit card companies have already begun reducing the amounts customers can borrow – and raising interest rates and penalty fees.
Businesses – particularly automobile companies and dealers – have already begun reducing inventories and attending costs.
General Motors announced it is trying to merge with German-owned Chrysler.
Paulson declares:
“It is clear to me – and every member of the Group of 20 industrial nations – that never have all of us been more dependent on each other and interconnected. Growth or strength in any of these nations helps all of us. Weakness hurts all of us!”
LEHMAN BROTHERS MISTAKE
Dominique Strauss-Kahn – managing director of the International Monetary Fund, declares:
"The private sector cannot restore confidence on its own. Macroeconomic policy measures by governments will not restore confidence on their own."
He implied that the collapse of Lehman Brothers last month was a mistake that spooked the U.S. stock market.
“Piecemeal measures on financial markets will not restore confidence on their own.”
He and other finance ministers pledged to rebuild the market for “securitized” assets such as mortgages that are blamed for the present financial crisis.
When the New York stock exchange opens tomorrow morning, we shall see.
Fasten your seat belt and hold onto your hat.
By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist
