History in the Making

Last week, for the first time, the media started making vast comparisons between September 2008 and October 1929. The words “historic” and “depression” were clearly a part of the conversation.

Money and Markets does a good job of summarizing the historic week:

If you didn't have a chance to keep up with how things played out from day to day, let me do a quick and dirty recap:

Sunday: The Federal Reserve pumped a bunch of money into the system, increased the amount it will provide in its lending facilities and further liberalized the collateral it will except in exchange for loans.

Monday: Lehman Brothers declared bankruptcy. Bank of America took control of Merrill Lynch. And AIG's fate hung in the balance.

Tuesday: The Federal Reserve denied the markets a much anticipated interest rate cut. Instead, it followed with a two-year, $85 billion loan to bail out AIG.

Wednesday: The Treasury announced a finance program where it would auction off Treasuries, separate from what it already offers. The proceeds will go to the Federal Reserve to use for "initiatives."

Thursday: Central banks around the globe decided to join the party. They declared efforts to pump nearly $250 billion into the global system to avert a financial train wreck.

Henry Paulson spearheads a new $1.2 TRILLION bailout initiative.

Friday: We learned of a new initiative, spearheaded by Treasury Secretary Henry Paulson, to put together $800 billion in a new-fangled institution and $400 billion more at the FDIC. The money will be used to take crappy assets off troubled balance sheets and grease up money markets.

Prior to this week, steps taken to stabilize the market were considered ineffective. By the looks of it, though, this week's actions tell me these guys don't want to fail in their efforts to restore order ... again. But the condition of credit markets is far from cured.

(Source: http://www.moneyandmarkets.com/Issues.aspx?The-Moral-Hazards-of-This-Weeks-Events-2287)

Current Headlines

Look at some the recent headlines generated by last week’s implosion:

Meet the Press

Here is a portion of the conversation on NBC’s “Meet the Press” from Sunday, Sept. 21, 2008 between Tom Brokaw, Erin Burnett from CNBC, Steve Liesman from CNBC, and Steven Pearlstein from The Washington Post:

MR. BROKAW:  Let's go around the table, if we can.  Steve, let's begin with you.  There's a good possibility that the credit markets will get stabilized as a result of this.  But what about the overall economy?  Is it going to get worse before it gets better?

MR. PEARLSTEIN:  Yes.  We've only seen the financial part of this, Tom.  We have seen very little economic impact of this so far, and that's till to come. And, by the way, that's going to be the phase.  We're going to have--the credit crunch is going to impinge on the real economy, and then the real economy is going to impinge back on the financial crisis.  So we're going to have a rebound effect on smaller and regional, regional banks and medium-sized banks which haven't been caught up in this yet.  They will get it when the economy goes down.  So this thing is going to ping-pong back and forth between the financial economy and the real economy for at least two years.

MR. LIESMAN:  I, I don't think so.  If I could just say, Tom, what is amazing to me is however many days we are before the election, how marginalized the candidates have become.  What's more important now is what the current administration is saying.  I think both of these campaigns are beside themselves with how--behind the scenes, how unimportant they are.  I got an angry note from one of McCain's people saying, "McCain came out with this big plan on Friday to solve the problem." Like, who cares?  What I care right now is what's going on behind closed doors across town here at Capitol Hill.

MS. BURNETT:  ...McCain had come out with something actually very similar to what was proposed by the Treasury secretary.  But it, but it does seem, when you think about it, Newsweek's cover, "King Henry," was, was the most appropriate, Tom.  And we, we--every morning I come on television, we say, "Live from the financial capital of the world." Well, today we are live from the financial capital of the world.  I mean, it truly is an experiment--some people say "socialism," some people say taxpayers will get the upside. The center of the world right now is in Washington--the Washington of today, and, and Hank Paulson is the CEO of, of the United States.

MR. LIESMAN:  A friend of mine said he was on his way back from Washington to Wall Street, and he said which is now the People's Republic of Wall Street.

Political Cartoons

Sometimes, it is the political cartoons that best capture the mood: