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GET READY / WE ARE IN A MAJOR DEPRESSION WITH NO PLAN B
To understand where we are now ~ you must first understand the reality of what we have done to ourselves. Our structured finance system house of cards has collapsed leaving behind a multi-trillion dollar capital black hole that is bringing down the broader economy ~ with no effective Plan B : Allen L Roland
On March 18th, 2008 ~ I wrote that Wall street is a giant casino and Bear Stearn's demise is just the tip of the iceberg of a potential complete financial meltdown. http://blogs.salon.com/0002255/2008/03/18.html
Well guess what ~ it's now happening ! Today's short covering rally in no way indicates a Stock Market bottom.
Secretary of the Treasury Hank Paulson is now trying to reinflate a bubble that has already burst while we desperately need dramatic market restructuring and a plan B.
Mike Whitney, ICH, wrote an excellent synopsis yesterday on how we got here and the ramifications of our policies of deregulation and greed ~ the hallmarks of the Bush Administration. The title was This is not a normal Recession / Moving on to Plan B ~
Whitney writes that " The global economy is being sucked into a black hole and most Americans have no idea why. The whole problem can be narrowed down to two words; "structured finance".
He explains 'structured finance' as " a term that designates a sector of finance where risk is transferred via complex legal and corporate entities. It's not as confusing as it sounds. Take a mortgage-backed security (MBS), for example. The mortgage is issued by a bank (the loan originator) which then sells the mortgage to a brokerage where it is chopped up into tranches (pieces of the loan) and sold in a pool of mortgages to investors that are looking for a rate that is greater than Treasurys or similar investments. The process of transforming debt ("the mortgage") into a security is called securitization"
Mike explains what happened ~ " The disaggregation of risk ~ spreading the risk to many investors via securitization ~ was as much of a factor in the creation of "the largest equity bubble in history", as the banks lax lending standards or Greenspan's low interest rates. By spreading risk throughout the system, securitization keeps interest rates artificially low because the real risks are not properly priced.... That's why subprime mortgages had such a destructive affect on the secondary market, because ~ even though subprimes only defaulted at a rate of roughly 5 percent ~ MBS sales slumped nearly 90 percent. Why? Former Secretary of the Treasury Paul O'Neill explained it like this: "It's like you have 8 bottles of water and just one of them has arsenic in it. It becomes impossible to sell any of the other bottles because no one knows which one contains the poison."
Whitney goes on to say " This is not a normal recession, which is a downturn in the business cycle and "a period of reduced economic activity" usually brought on by a mismatch between supply and demand. (that ends in two quarters of negative growth) The present situation is much more grave; it is the utter destruction of a system that was developed fairly recently and has proven to be thoroughly dysfunctional." http://www.informationclearinghouse.info/article21280.htm
Just as ominous are the words of economist Henry C. K. Liu in his "Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy" ~ "Neoliberal economists in the last three decades have denied the possibility of a replay of the worldwide destructiveness of the Great Depression that followed the collapse of the speculative bubble created by unfettered US financial markets of the 'Roaring Twenties'. They fooled themselves into thinking that false prosperity built on debt could be sustainable with monetary indulgence. Now history is repeating itself, this time with a new, more lethal virus that has infested deregulated global financial markets with 'innovative' debt securitization, structured finance and maverick banking operations flooded with excess liquidity released by accommodative central banks. A massive structure of phantom wealth was built on the quicksand of debt manipulation. This debt bubble finally imploded in July 2007 and is now threatening to bring down the entire global financial system to cause an economic meltdown unless enlightened political leadership adopts coordinated corrective measures on a global scale."
Get ready, we are already in a major depression and there is no effective plan B in sight.
Allen L Roland http://blogs.salon.com/0002255/2008/11/21.html
Allen L Roland is a practicing psychotherapist, author and lecturer who also shares a daily political and social commentary on his weblog and website allenroland.com He also guest hosts a monthly national radio show TRUTHTALK | 
