FT.com / In depth - ‘I made a mistake,’ admits Greenspan

The Financial Times about the credit crisis that today seems to spread to the industrial sector as well. The stock market is going down, down, under.

FT.com / In depth - ‘I made a mistake,’ admits Greenspan: "Alan Greenspan, the former Federal Reserve chairman, said on Thursday the credit crisis had exceeded anything he had imagined and admitted he was wrong to think that banks would protect themselves from financial market chaos.

“I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders,” he said."

The $700 billion Wall Street Bailout

I got this message today.

Helge

Monday, September 29, 2008, Bill will be interviewed by Neil Cavuto on Fox News. The interview topic will be the $700 billion Wall Street bailout plan and how it will affect the average American. Tune in to hear Bill's perspective on this growing financial crisis.

The show will air live at 6:30 P.M. Eastern Time.

Check your local listings for time and channel in your area.

Jessica

What should we learn from Hyman Minsky about Financial Crisis?

Does the Current Financial Crisis Vindicate the Economics of Hyman Minsky?

Frank Shostak writes:

The currently observed turmoil in financial markets, which is believed to have been ignited by the collapse of the subprime mortgage market, has recently brought to prominence the ideas of Hyman Minsky (1919–1996), a prominent member of the post-Keynesian school of economics.

Many commentators are of the view that Minsky's framework of thinking accurately anticipated the current financial crisis.

While most mainstream economists are of the view that economic busts are the outcome of various external shocks to the economy, Minsky held that, even in the absence of such shocks, the capitalistic economy has an inherent tendency to develop instability, which culminates in severe economic crises.

The key mechanism that pushes the economy towards a crisis is the accumulation of debt. FULL ARTICLE

Helge: This is the shock therapy of economic growth. I've to check out what Minsky has to say and comment more later. The signs are here...

According to Minsky, the financial structure of a capitalist economy becomes more and more fragile during the period of prosperity. In short, the longer the prosperity, the more fragile the system becomes. Minsky argued,

In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.[2]

This framework of thinking comprises the essence of what Minsky dubbed the "Financial Instability Hypothesis" (FIH).

Subprime fallout: Preparing for the next financial crisis | vox - Research-based policy analysis and commentary from Europe's leading economists

Helge: I'm watching. Is it going to happen? How deep is the banking crisis going to cut in economic growth? What kind of actions should companies and privates take? This week Citigroup announced that they will lay-off 45 000 employees to decrease its operating expenses. That's a huge number of people. What did Merril Lynch do? I guess the crisis is getting closer.

Subprime fallout: Preparing for the next financial crisis | vox - Research-based policy analysis and commentary from Europe's leading economists: "To reduce the chances of another subprime-like crisis without stifling innovation, financial market regulators should work to increase standardization of securities, especially derivate instruments, and encourage their trade on organised exchanges.

There is a natural tendency for financial regulators and supervisors to fight the last battle, looking for systemic weaknesses revealed by the most recent crisis. It happened after the 1987 stock market crash, during the Asian crisis, and again following the LTCM collapse. And it seems almost certain to happen again this time.

So, while it is surely important to examine the specific problems involving banking system off-balance-sheet activities, the quality of collateral used to back commercial paper, and the manner in which ratings are used, I believe that we need to look further."


Stephen Cecchetti
Barbara and Richard M. Rosenberg Professor of Global Finance at the International Business School, Brandeis University, formerly Executive Vice President and Director of Research at the Federal Reserve Bank of New York.

Helge: I learned today that banks are not willing to lend money to each others. Is there a cut-throate race for life and death starting?