October 7, 2008

CRASH TALK OCTOBER 7

CRASH TALK


Annie Shattuck and Eric Holt-Gimenez, Common Dreams - Rising food prices are proving deadly for the world's poor. Reeling under a combination of speculation, high oil prices, agro fuels and a weak dollar, one in every six people on earth are going hungry this year. Fully half the world is now at risk of hunger and malnutrition. The current financial crisis that threatens to spread globally can only mean disaster for the world's poor. The crisis is not limited to the developing world. In the United States food stamp enrollment is at an all time high. The 35 million people living below the poverty line-now joined by the 50 million near-poor are turning to the nation's food banks in record numbers. There, pickings are getting slimmer, as food programs strain under a combination of high food prices and shrinking donations.

Unfortunately, the unprecedented $700 billion Wall Street bailout will do nothing to alleviate this festering disaster-in fact, it may make things worse. The bailout will increase the U.S.'s national debt to over $11 trillion, calling into question the very creditworthiness of the U.S. Treasury. Debt and uncertainty will further drive down the value of the dollar. A weak dollar means high food prices to consumers because when the dollar decreases in value it takes more dollars to buy the same quantity of food. Though a low dollar might initially stimulate exports, a falling dollar will send food prices steadily upwards. Food prices have already increased 127% since the dollar began to lose value in 2001. The conservative CATO Institute estimates that up to 55% of this year's increase in rice prices was caused by the falling dollar alone.

Los Angeles Times - The state budget approved only weeks ago is already falling into the red, and lawmakers may be forced to return to Sacramento this month to make emergency spending cuts and take other measures to keep California from running out of cash. The financial pressures on the state are numerous. Revenue is dropping precipitously as the economy falters. The global credit crunch may make it impossible for officials to obtain billions of dollars in short-term loans that they typically rely on at this time of year. And a federal judge on Monday put the state on notice that it may need to spend as much as $3.5 billion more on prison healthcare in this fiscal year than lawmakers had planned.

Dean Baker, Prospect - Remember way back to last week when it was going to be the end of the world if Congress didn't pass the bailout package? Remember the Washington Post's account in which Treasury Secretary Henry Paulson told President Bush, "there is no Plan B."

Well, it looks like the Fed has discovered a Plan B. It turns out that the Fed can buy commercial paper directly from non-financial corporations needing credit to maintain operations. This will keep the credit markets working even if the zombie banks aren't up to the task. In other words, the threat of a complete meltdown in the absence of a bailout was nonsense and the media once again got taken for a ride by the Bush administration.

Of course, relying on the central bank to dish out credit to corporations is not ideal, but neither is it ideal to overpay for $700 billion of junk assets on the books of troubled banks. Too bad that the media didn't spend more time focusing on the options available, instead of selling President Bush's bailout package.

James McCusker, Everett Herald, WA - Modern market systems can trace their origins to seaborne commerce. And the sea could be a fierce disciplinarian. It had no tolerance for character flaws and delivered severe, even cruel, punishment to the unprepared, the careless, the lazy and especially the arrogant, whose hubris blinded them to the reality of risk. Markets are amazingly similar. The language of the sea continues to salt the rhetoric and the analytical language of today's financial markets. Companies and stock offerings are still launched. Ventures still sink. Bonds are floated; portfolios are sometimes under water. And now, of course, we have bailouts. . .

There are at least three things that we should consider in the wake of this financial meltdown. The first is whether the federal government should be the Grand Exalted Bilge Pump Operator for bailouts or, instead, whether a mandatory, privately-funded insurance fund, along the lines of the Federal Deposit Insurance Corporation should be imposed on the financial industry.

The second is the need for a government-funded risk assessment agency that can help both investors and regulators to figure out the exposure of financial firms, large and small, to risk. The complexity of today's financial instruments make that process technically demanding, and the ratings agencies have proved themselves inadequate to the task, quite possibly because of their financial dependence on the firms and the industry they rate.

The third is to figure out what the capital requirements really are for firms that combine investment banking, brokerage and banking. If Congress is determined not to restore the Glass-Steagall wall between banks and stock underwriting, the least we can do is to update the regulatory environment needed to ensure the stability of the large financial operations that are, in a very real way, too big to fail.

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