[Pen-l] Black Friday

[Louis Proyect <lnp3@xxxxxxxxx>]

Counterpunch Weekend Edition
October 10 / 12, 2008
Run on the System
Black Friday

By MIKE WHITNEY

Stock markets across the world are in a state of hysteria. The tidal 
wave of sell-offs, which began when Henry Paulson announced the Bush 
administration's $700 billion bailout plan for the sinking banking 
system, has swelled into a global tsunami racing round the globe. Shares 
fell sharply across Europe and Asia for the fifth straight day following 
a 679 drop on the Dow Jones.  Nearly $900 billion was wiped off the 
value of U.S. equities in just one trading day. The Chicago Board 
Options Exchange Volatility Index, the "fear index", soared to a record 
64.  Credit markets remain frozen. Libor, the London interbank offered 
rate, nudged up slightly on Thursday night, signaling even greater 
resistance to lending between the banks. Until there is relief in the 
credit markets, stocks will continue to slide. But trust has vanished. 
The 50 basis points rate cut that was coordinated with foreign central 
banks has had no effect. The market is being driven by fear and pessimism.

White House press secretary, Dana Perino said Thursday that President 
Bush will address the country on Friday morning:

    "He will assure the American people that they should be confident 
that economic officials are aggressively taking every action to 
stabilize our financial system. The Treasury Department is moving 
quickly to use new tools to improve liquidity, which is the root cause 
of this problem."

Bush still believes that the problem is "liquidity" rather than 
"insolvency". When liabilities vastly exceed assets, liquidity does not 
help. The bad banks need to be closed so the good ones can be 
strengthened with capital injections.

New York Times columnist Paul Krugman said, "Last month, when the U.S. 
Treasury Department allowed Lehman Brothers to fail, I wrote that Henry 
Paulson, the Treasury Secretary, was playing financial Russian roulette. 
Sure enough, there was a bullet in that chamber: Lehman’s failure caused 
the world financial crisis, already severe, to get much, much worse."

Lehman's credit default swaps, (the derivatives which Warren Buffett 
calls "financial weapons of mass destruction") are  "unwound" on Friday. 
It could be a "non event" or it could trigger another sell off; it is 
impossible to know. If tens of billions of dollars are drained from 
already weakened balance sheets in counterparty deals that have turned 
sour, the market will react violently. Wall Street is on tenterhooks 
waiting for the news from Lehman.

There is general agreement among economists about what needs to be done 
to stabilize the financial system. The banks have to be recapitalized, 
all deposits have to be guaranteed (beyond the $100,000 FDIC limit) and 
additional stimulus has to be provided to increase consumer demand. 
Otherwise the United States is on the lip of another Great Depression. 
Too much time has been wasted on Paulson's failed  bailout for G-Sax and 
his friends on Wall Street. Buying the bad assets of underwater banks 
does not fix the problem. The banks need capital so they can resume 
lending and transmit credit to consumers and businesses.

full: http://www.counterpunch.org/whitney10122008.html

---

BLACK FRIDAY Lyrics

Artist: Steely Dan (Buy Steely Dan CDs)
Album: Katy Lied

When Black Friday comes
I'll stand down by the door
And catch the grey men when they
Dive from the fourteenth floor
When Black Friday comes
I'll collect everything I'm owed
And before my friends find out
I'll be on the road
When Black Friday falls you know it's got to be
Don't let it fall on me
When Black Friday comes
I'll fly down to Muswellbrook
Gonna strike all the big red words
From my little black book
Gonna do just what I please
Gonna wear no socks and shoes
With nothing to do but feed
All the kangaroos
When Black Friday comes I'll be on that hill
You know I will

When Black Friday comes
I'm gonna dig myself a hole
Gonna lay down in it 'til
I satisfy my soul
Gonna let the world pass by me
The Archbishop's gonna sanctify me
And if he don't come across
I'm gonna let it roll
When Black Friday comes
I'm gonna stake my claim
I'll guess I'll change my name
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