EconomicCrisis.US

In the early days of the credit crisis, a few of us on Wall Street and in the media, myself included, worried that the imminent blow to the markets and economy would come, not from mortgage-related debt, but corporate debt, specifically the debt used to finance the private-equity buyout boom.

We were definitely wrong about the timing, but there’s mounting evidence we were right about the problem.

The debt piled on companies amid the decade’s $1 trillion buyout boom is coming due. The only question is about the extent of the fallout. The day of reckoning could simply be disruptive for the parties involved, or it could bring down the whole economy in much the same way bad mortgages broke confidence in the credit markets, effectively grinding them to a halt.
Read the rest of this entry »

As the credit crisis ends, a bigger one is just beginning

“The US government has a technology, called a printing press… that allows it to produce as many US dollars as it wishes at essentially no cost.” – Ben Bernanke

The US economy contracted for four consecutive quarters since October 2008, something we have not seen since the Great Depression. A V-shaped recovery is simply not in the cards because the credit crisis has caused deep, systemic damage. Having said that, if the recession ends this year, it certainly won’t be because the global economy is healthy.
Read the rest of this entry »

In the era of massive bank bailouts, Democratic Rep. Barney Frank of Massachusetts and the Obama administration are trying to tackle the problem of what to do about financial firms that become “too big to fail.”

The chairman of the House Financial Services Committee introduced a new bill Tuesday aimed at strengthening the government’s ability to deal with troubled financial firms. But the bill carefully avoids answering perhaps the most obvious — and one of the most difficult — questions: Who, exactly, is too big to fail?

“It gets very hard to decide who is in and who is out,” says John Douglas, who was general counsel to the Federal Deposit Insurance Corp. during the 1980s savings and loan crisis. “The real issue is trying to identify those institutions that are so interconnected in the economy — that their failure would be so disruptive to Main Street America — that you couldn’t allow them to go out of business.”
Read the rest of this entry »