Showing posts with label Roubini. Show all posts
Showing posts with label Roubini. Show all posts

Tuesday, February 10, 2009

Looking for stock tips in the graveyard

The problem here is not that we're going through an economic crisis.

The problem is that we're going through a profound moral and intellectual crisis which has caused us to do incredibly stupid things with the economy, which has responded in an eminently logical manner by blowing up.

That is the problem, and you couldn't hope for much better of an illustration of it -- in television terms -- than the "interview" a panel of CNBC blind men and women did Monday with "Dr. Doom" and the "Mr. Black Swan." To people with functioning brain cells and a modicum of seriousness, the interviewees are NYU economics professor Nouriel Roubini and author Nassim Nicolas Taleb, famous for his book "The Black Swan: The Impact of the Highly Improbable."

Both called the mess we're in now well before it started.

IN THE INTERVIEW, Roubini and Taleb were trying to explain things are bad, and we haven't even begun to see how bad they're going to get. The CNBC panel, upon hearing this news of an economic Armageddon (or something really close), pressed the gentlemen for a hot investment strategy.

It's like the old saying: There are none so blind as those who will not see. Unfortunately, that applies to most of the country right now.

Doubly unfortunately, that also applies to the new administration that was supposed to give us "change." The New York Times reports on how Treasury intends to rearrange the Titanic's deck chairs:

Acknowledging that Americans have “lost faith” in the government’s effort thus far to rescue the banking system, the Treasury secretary, Timothy F. Geithner, outlined a sweeping overhaul and expansion of the program on Tuesday.

The new program will attempt to marshal as much as $2 trillion from the Treasury, private investors and the Federal Reserve.

But Mr. Geithner left major questions unanswered about the workings of many components of the new plan, and officials acknowledged that they had yet to decide many of the thorniest issues.

As a result, it remained unclear whether the Obama administration would be able to attract the large volume of private investment that Mr. Geithner sketched out in his speech.

With banks and Wall Street firms buckling under the potentially trillions of dollars in unsellable assets, many of them tied to the collapse of the mortgage market, lobbying associations for the banking and financial service companies praised Mr. Geithner’s plan as bold and far-sighted.

But investors were far more restrained. The stock market dipped almost as soon as Mr Geithner began speaking, with the Dow Jones industrial average closing off 381.99 points, or 4.6 percent. And analysts and private investors said they simply did not know enough yet to make a judgment on the plan’s prospects.

Mr. Geithner’s primary goal seemed to be to instill confidence that the Obama administration has a coherent and comprehensive approach to the banking crisis, and to distance the new program from the Bush administration’s management of the first $350 billion that Congress authorized last year for the so-called Troubled Asset Relief Program, or TARP.

“The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to the public distrust,” the Treasury secretary said, in a clear swipe at the Bush administration.

“American people have lost faith in the leaders of our financial institutions and are skeptical that their government has — to this point — used taxpayers’ money in ways that will benefit them,” Mr. Geithner said, referring to how the Bush administration managed the first $350 billion that Congress approved last year for the so-called Troubled Assets Relief Program.

Mr. Geithner laid out a multi-pronged program that will include several major components:

— A Public Private Investment Fund, jointly run by the Treasury and the Federal Reserve, with financing from private investors, to buy up hard-to-sell assets that have bogged down banks and financial institutions for the past year. Mr. Geithner said the new fund, often described as a “bad bank” for holding toxic assets, would start with $500 billion with a goal of eventually buying up to $1 trillion in assets.

— Direct capital injections into banks, which would come out of the remaining $350 billion in the Treasury’s rescue program.

— A vast expansion of lending program that the Treasury and Federal Reserve had already announced, which is aimed at financing consumer loans. The two agencies had originally announced their intention to finance as much as $200 billion in loans for student loans, car loans and credit card debt. Instead the program will be expanded to as much as $1 trillion.

In a separate announcement elaborating on the lending program, the Federal Reserve said it “could broaden” the plan to include both commercial and residential mortgage-backed securities. But the Fed made it clear that no decisions had been made and said any subsequent expansion would “draw on initial experience in administering the program.”
THE PROBLEM, however -- as the guy who saw all this coming tried to inform the CNBC twerps -- is that the American banking system is effectively bust. Broke. Insolvent.

How's that for a hot tip, pally?