I don't think I'm overstating the situation. What those of us who watched the world-wide capital markets saw Monday-Wednesday of this week was the beginning stages of a panic, the likes of which have not been seen in decades, if at all.
Thursday, rumors began to circulate that Something Was Going To Be Done. The markets recovered a bit. Thursday night into Friday morning, the big news came out: $50 billion to guarantee various mutual funds, a 10 day ban on all short selling (not just the abusive sorts that have contributed so much to the present predicament), the Fed opening the monetary floodgates to lend directly to financial institutions and the centerpiece of it all, the unveiling of a new Resolution Trust Corporation-like entity to hoover up all of that bad debt out there, allowing corporations to put their books right with a few strokes of the pen--not to mention a healthy dose of the taxpayers' money.
Folks, Paulson and Company may call this what they like, and Congress can treat them as heros until the cows come home, but this is market manipulation. It's just out in the open this time.
Will it work? After all, it seemed to work out OK during the S&L crisis. After all, that crisis occurred when the savings and loans started lending money into a real estate boom, only to get caught up in the collapse of the boom. (Sound familiar?)
I doubt that we will be so lucky this time. It isn't the 80s/90s any longer. Our manufacturing base is gone in large part, our government's finances are in far worse shape now than then and I suspect that our overseas money lenders aren't going to be all that interested in financing our financial arson habit forever. (And there are some folks, like Senator Richard Shelby of Alabama, who insist on noticing that the emperor is running about the house nekkid as a jaybird.)
Add to that the opinion of some that we are only about 1/3 the way through the necessary write downs of the accumulated bad debt (and thus less than 1/3 through the financial pain), and this looks to be only an intermission in the Panic of 2008.
Most others, from Alan Greenspan and most of Congress to our two
Who's right? We'll see. Actually, I hope that Greenspan, Congress and candidates are correct. I hope we're not seeing the collapse of the global financial system. I hope that I don't have to finish raising my kids in a depression.
But I'm unconvinced.