Steve Keen's Debtwatch

This week, finan­cial mar­kets tru­ly suc­cumbed to The Pan­ic. The US Dow Jones and S&P500 Indices lost 21%; Aus­trali­a’s All Ordi­nar­ies fell 16%. “Buy and Hold” gave way to “Get Out At All Costs”.

When we look back with the eyes of his­to­ry, the ninth day of the tenth month of 2008 will be the Black Thurs­day on which the world’s biggest ever spec­u­la­tive bub­ble final­ly burst.

The Stock Mar­ket Crash of 2008

Just a quick heads up to all blog read­ers that I’ll be on Chan­nel Ten’s “Meet the Press” on Sun­day morn­ing at 8am, and Chan­nel Nine’s “60 Min­utes” on Sun­day evening at 8.30pm.

You all know the movie plot: the Evil Sci­en­tist has laced the town’s water sup­ply with a poi­son. All will die unless The Anti­dote is added, and he holds the city to Ran­som. All seems lost until the Hero rides to the Res­cue with The Anti­dote. The Hero puts the Evil Sci­en­tist behind bars, and all is well (until The Sequel any­way).

Are there any par­al­lels here with Paulson’s cur­rent­ly ter­mi­nat­ed Wall Street bailout?

In my col­umn in Crikey yes­ter­day (see below) I promised to pro­vide some “back of the enve­lope” cal­cu­la­tions on why the Paul­son plan can’t work.

It’s not my usu­al stan­dard or style of analysis–just a sim­ple text-only flow­chart map­ping out of the pos­si­ble con­se­quences of a US$2 tril­lion bailout, financed by either bond issues or print­ing money–but a promise is a promise, so here it is. Since the images are quite dif­fi­cult to read, I’ve attached the Pow­er­point file as well.

Pow­er­point Flow­charts

Images from the two relevant slides

I’ve had a cou­ple of very enjoy­able chats this week with Red Symons, on the ABC Break­fast Show in Mel­bourne, and some friends have been try­ing to get me to throw some old Sky­hooks song lines into the conversation–such as “Hor­ror Movie” and the like (for any non-Aus­tralian and/or non-“Living in the Sev­en­ties” read­ers, Red was a guitarist–and played drums on the one occa­sion I saw them live, at Syd­ney Uni­ver­si­ty’s Union Build­ing in the ear­ly ’70s–and lyri­cist; here is a link for the lyrics).

I pub­lished this com­men­tary on Crikey and in the New­cas­tle Her­ald yes­ter­day; I will prob­a­bly expand on this for my Octo­ber Debt­watch Report, but here’s a “heads up” before next month–after all, with the speed with which events are unfold­ing, some­thing else might sup­plant this top­ic by then.

Welcome aboard the FF Titanic

Anoth­er day, anoth­er finan­cial col­lapse. The effec­tive nation­al­i­sa­tion of Fan­nie Mae and Fred­die Mac last week was ini­tial­ly greet­ed by the mar­ket, yet again, as The End Of The Cri­sis. Then Lehman Broth­ers teetered and final­ly fell into bank­rupt­cy. The cri­sis was, once again, alive and well.

I don’t have time to write a full blog on this myself, but here are some of the best com­men­taries to explain what’s going on that I’ve seen recent­ly.

On AIG:

http://www.nytimes.com/2008/09/16/opinion/16lewitt.html

On Lehman, coun­ter­par­ty risk, and the dan­gers of a deriv­a­tives melt­down (which an AIG col­lapse might well pre­cip­i­tate:

http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=2234

The pod­casts should now be func­tion­al. The prob­lem was sim­ple but obscure: my serv­er runs Lin­ux, which is case sen­si­tive, and the file names were all in low­er­case, but spec­i­fied with ini­tial cap­i­tals in the XML and HTML files.

I’ve suc­cess­ful­ly down­loaded and played them from the HTML. I would appre­ci­ate some­one try­ing the subcribe/iTunes update and see­ing whether they are now cor­rect there too.