Understanding the Subprime Crisis

Here are some other links that have caught my eye:

My prediction: deflation will continue through 2008 and 2009. The economy will continue to contract as consumers reduce consumption (and increase saving, which they must do) and businesses scale back operations so they fit the new, lower personal consumption environment. This will be a slow process, though, as the Fed and Treasury have worked mightily to obfuscate prices, and drag out the bubble deflation. Eventually, Helicopter Ben will say enough is enough and start to (finally) mail freshly printed greenbacks to households. Now we will switch from a deflationary environment to an inflationary environment, China will complete it’s transition out of the dollar, and we will get real, honest-to-God 70s style stagflation. And then we will wait for the next Volker.

I suggest reading the whole post.

Considering that Wall Street firms spend all day dealing with the market, they have been slow to understand just how vulnerable they were to it. Companies like Lehman and, earlier, Bear Stearns saw going public as an excuse to take on more risk and act more recklessly, when in fact becoming a public company makes caution more important, since the margin for error is smaller, and the punishment for failure swifter. Now that the government has acted, Wall Street (or what remains of it) may yet be able to regain investors’ confidence. But long-term survival really depends on remembering the fundamental truth about playing with other people’s money: it’s a lot of fun until they suddenly decide to ask for it back.

(Emphasis mine.)

**And on a related note, thanks to newley.com reader Paul D. for pointing out a NY Times article providing the backstory on how “The Giant Pool of Money” came to be.

–> What about you? Got some good links to share? Leave them in the comments or email me (newley AT gmail.com)