The greatest fears I have about the financial crisis don't involve the banks, analysts, or Wall Street, the "economy," or even the fate of the U.S. From what "experts" have been saying, this recession may hurt pretty badly, but it's not going to last more than two or three years tops. It's probably not a Depression and it's definitely not the end of the world. It's just a steel toe to the balls: vomit, stomachache, and pissing blood.
I'm really afraid of the consequences of the spreading global crisis, specifically the destabilizing effects the crisis could have on the developing world and on the current strains of unrest and instability that were already skating on a razor's edge. If the connection between economic woes and political destabilzation aren't totally clear to you, consider how Germany emerged from the Great Depression. Or, in other words, here's the chain:
Credit markets freeze (we are here) --> Businesses cannot access credit and slow/fail --> Microbreweries fold --> People become frightened by the lack of quality beer and the economic outlook --> People stop spending and push their money into low risk investments like treasuries --> As investment and spending shrink, so does the economy = Global economic recession --> Recession means there's less demand for cheesecake --> Less jobs --> Social unrest --> Political destabilization --> The Office gets cancelled --> Pandemonium
Or this:
Back to emerging markets: One example that warrants some attention is China. As a starting point, the Chinese financial system is a little more insulated than most other financial systems. China has generally rejected the American model for how to run a financial system, they have $2 trillion in currency reserves, and their banks don't appear to hold the same volume of toxic assets. Nevertheless, they cannot escape the economic impact of our crisis, specifically the fact that their entire economic growth model is export-oriented...and...uh, no one's buying anymore (let alone buying arsenic-based teething rings, plutonium headphones, and turpentine toothpaste.) But long story short -- China's stability is entirely premised upon their social contract: As long as we the CCP keep increasing wealth and filling your pockets, You the people will not require freedom or democracy. What happens if the recession is deep and long enough (the way yo mama likes it) to disrupt that growth? I mean, in some respects, China's growth was built on the back of American credit. We borrowed lots and lots of money and bought a bunch of Chinese shit, and the Chinese took the money and grew at incredible rates. Currently the credit markets are frozen and it's clear that excessive debt is our biggest problem -- now what?
And the list goes on. As demand shrinks and oil prices fall, what happens to the oil exporting countries who depend on oil revenues ? What happens to Russia's currently autocratic stability when oil no longer oozes rivers of cash across Moscow? What happens to Hugo Chavez when his Latin Communism is no longer possibly through the generosity of Hummer owners? Iran's budget is 80% funded by oil revenues, what's next? (Actually, my hope is that these three irritating governments take an enormous bitchslap and are forced to stop operating under the curse of oil.) What happens to Saudi Arabia if the House of Saud no longer has the cash to placate the Wahhabis? What happens when radical Islam is finally reinforced by sustained economic discontent (caused, incidentally, by Americans)? Realistically, of course, China and India will continue to drive demand for oil...but the price drop should still have serious effects.
And it's not just the developing countries, what about Europe? Paris's 2005 riots were substantially about high levels of unemployment among the disaffected African and Middle Eastern youth. What happens when unemployment spikes across the board? The UK was even more debt ridden than the US. Since about a week ago, Iceland's economy has basically imploded -- it doesn't exist anymore. Its banking system was like 8 times GDP, and now it doesn't even exist anymore - it was seized by the government and is now desperately seeking funds for a bailout. Iceland is on the verge of default, which will have a definite impact on the quality of life for Bjork for years to come. In short, Iceland will be Argentina. And, since fantastic news doesn't travel alone, it appears that similar rumblings are taking place in Hungary, Ukraine, the Balkans, Romania, Turkey, and Pakistan (oh dear god). Although I'm getting a little out of my depth at this point, it even seems like the whole Euro and EU experiment are facing extraordinary stresses and are conceivably at risk. (I can't argue too in-depth about this one, but I think you can just try and imagine handing this bailout under a complicated version of the Articles of Confederation.) Europe is an experiment in globalism and multiculturalism to much greater extent than the US, or at least with a mix of far more volatile populations. What happens when a good economy can no longer placate the populations?
Yes, I'm totally seeing the worst case, and I hope that none of this stuff comes to pass. But it looks like even if the most calamitous moment of financial crisis has passed, we are far from done. Hedge funds are beginning to unravel under the pressure of investors pulling out funds, and that appears to be the next sector to be hit. It just doesn't seem like the unwinding is complete yet...which means that the recession that has set in is not getting any better anytime soon. So yes, I suppose I am a hyperbolic doomsayer...but I know enough to know a little fear. That's all. (This financial ranting may end once I get lulled back into a TV coma by my cable box which arrives on Wednesday.)
(h: Are you seeing the effects of the crisis showing up in you or your classmates interviews for jobs? I know that anecdotally there are offers being rescinded and stuff, and that some of my old classmates can't find jobs...but are you seeing it happen down south?)
13 comments:
Yeah definitely. Firms here and in Atlanta are skimping on positions and have cut summer classes way back. I know a least a few 2Ls who are having trouble getting jobs, and I damn near struck out here (all the "big" "prestigious" (they're so uppity here, but outside of like 50 miles, no one has ever heard of ANY of them) firms apparently didn't like me, but I'm going to the small trial attorney firm that way my top choice anyway, so f- them).
We also got the "accept your offers as soon as possible" blah blah "gloom and doom" blah blah "offers being rescinded" letter from Career Services the other day too.
Stuff has definitely tightened up. Throw in the gas crisis a few weeks ago, and we're just about to break out our leathers and feathers.
- h
Ha! I don't think I've seen that before. The feel of that whole sketch was definitely h-ian. I think you've found your Halloween costume.
So does that mean you're both staying in TN?
That's the plan. She may have to do a year in Atlanta during my 3L year though. Hopefully I should be able to swing an easy schedule so I'd be there at least 3 or 4 days of the week.
After that, though, it's back here. School Board elections in 2014, here I come!
- h
Speaking of Financial Crisis, here's an awesome headline from Fark today:
"Journalist-assaulting, swan-wearing lunatic has solution for Iceland's economic woes"
h: Ambitious. By that time, I'll already be, uh...wait, I'll be how old in 2014? Um...32? Oh. Yeah, I'll probably be in prison.
Hsien: That is an awesome headline. But after reading what she says, I think she's basically right...despite the discrediting photo of her they chose to use.
HJL,
It's interesting that you point to the dropping oil prices. A mere two months ago, weren't you bemoaning the fact that the greedy oil companies had raised profits so much that we needed a windfall profits tax? But now the oil companies are losing money. If you supported punishing them when they were flush with cash, should we not then help them when they aren't? Perhaps a nifty bailout of some sort? Or do we only punish profits but not help those suffering losses?
Now, as promised, my fourteen predictions of an Obama presidency. I mean these not as doom and gloom for my side, but merely a prediction, which I'll return to a year from now, two years from now, three years from now... and so on. Merely so that I have the satisfaction of gloating when correct.
1.) Election Day: Whether or not Obama wins, various cities experience civil disturbances, with some rising to the level of riots.
2.) Foreign Affairs:
a.) Upon the death of Castro, Hugo Chavez installs a puppet government in Cuba, or takes outright control of the country, probably something similar to Nasser and the U.A.R.
b.) Within the first six months of an Obama presidency (and possibly before inaguaration day), Israel launches a strike against Iran's uranium enrichment facilities.
c.) Russia moves forces against Belarus or the Ukraine.
3.) Economic
a.) Under pressure from unions, Nafta and Cafta are both revoked, and increased tariffs are enacted both by the U.S. and foreign countries. The effects are similar to Smoot-Hawley.
b.) The Bush tax cuts are not reenacted or made permanent. Obama refers to this merely as a repeal of previous tax cuts, although it increases taxes on almost all tax paying Americans (including those making less than $250K).
c.) Employment reaches 12% on the East and West Coasts, and 15% or higher in the Midwest and Rust Belts. Obama faults the wealthy and employers for failing to accept his offer of a $3,000 tax cut to hire a $50,000 worker.
d.) Small business growth declines 30%, as small businesses are forced to close due to increased cost from unionized employees.
e.) The DJIA does not top 12,000.
Other Fun Stuff:
a.) The government takes over 401(k) accounts, aggregating them with social security. They sell this program by declaring that the 401(k) accounts will be valued at their pre-Sept. 1 rates. The stock market falls further.
b.) National Health Care is passed. Support is mobilized as a "do it for Teddy (Kennedy) idea"
c.) At least 6 new justices to the D.C. Court of Appeals (the one that handles regulatory issues) are appointed.
d. At least three new justices are appointed to the Supreme Court, who share Obama's belief that "we need [justices who've] got the heart, the empathy, to recognize what it's like to be a young teenage mom. The empathy to recognize what it's like to be poor, or African American, or gay, or disabled, or old." The traditional view of justice is a blindfolded person weighing legal claims fairly on a pair of scales. Obama wants to remove this blindfold, and have judges rule with whom they empathize the most. These new judges, coupled with the old standby's vastly expand the "penumbras" of the Warren Court. After all, as Obama stated (after he called the Constitution "fundamentally flawed"); "the Warren Court, it wasn't that radical..." it "never ventured into the issues of redistribution of wealth..." These new judges state that the Constitution guarantees a right to welfare, and "economic justice" which is wondefully loosely defined.
f.) The fairness doctrine is re-enacted. Talk radio stations drop by 60% in the first year.
RS
Preface: What is the problem? Can't you stop those initials?
Preface 2: You began by discussing how you would gloat over "disaster" because you (and your ideology) were right. This is not a game of pride for me. I'm not engaging. You didn't actually say anything.
That better be your version of satire. I will only discuss substantive and thoughtful politics and policy with you. If you would like to continue trading rhetoric and flame each other with thoughtless bullshit and fantases, I would be glad to join in as long as we agree that's what we're doing. Otherwise, just tell me to flip on Limbaugh and I'll get what you're selling.
A.) Why do you continue to conflate me with Rush Limbaugh. I listen to his overblown pomposity only if incredibly bored. I'm obsessed with The Teaching Company right now actually. Unless you're referring to the Fairness Doctrine prediction. Which I think is just stupid. But it was really easy to predict, which is why its in there.
B.) I like initials. And putting things in fun organizational catagories, e.g. a.), b.)
C.) You're right actually. If what I predict comes to pass, I shouldn't gloat. And hopefully you know me well enough to know that I wouldn't gloat. I spoke in error, and I apologize.
D.) The oil company thing was a satire. Mainly. Although I'm struck by how you were bemoaning excess oil company profits mere months ago, and are now bemoaning the effects of a drop in oil prices.
E.) I believe my predictions will come to pass based on history and current world conditions. I see Obama excacerbating, if not outright being the cause, of many of these conditions. What do you predict for an Obama presidency?
RS, formerly of SJC, CA, later of PHX of AZ and NYC of NY, and now of StL of Mo and a lover of initials.
i see you've changed the blog name again
A) Unreasoned fear-mongering and the mix of ideology + partisanship.
B) No, I meant my actual initials. HJL. Not the use of initials. Don't you remember what happened when I used your real name on this blog? (HAHAHAHA. Ah, mothers...)
C) Just checking. I hate when my own "side" does this too.
D) It's more complicated than complaining about oil prices being high or low. It's not "liking and disliking" high and low oil prices. These violent swings in oil prices have a lot of consequences with many threads. The principles and issues underlying windfall profits and energy dependence/independence/policy are not the same as those underlying geopolitics and OPEC. I'm not "bemoaning" falling oil prices. I'm pointing out the looming problems.
E) Some of those were 50-50 shots no matter who wins the Presidency, like Israel and Russian military action. Here's why I don't touch some of the economic stuff: No matter who wins, there will be deep economic pains. I guarantee you right now that there are going to be right-wing commentators who are going to try and pin all of the impending economic fallout on some strawman liberal policy. Employment is going to fall, and it's not going to be because of lapse of the tax cuts. It's the natural result of this downward cycle we've been circling for a year.
But despite what misgivings I may have about Obama...I believe with all of my mind, heart, and soul that it is better for the world if he wins this election. Hands down. Without dogma or doubt.
New numbering system:
1.) You note that some of my predictions are 50/50 shots, such as Israel and Russia. Which means that you believe that one, if not both, are likely to take place. You’ve noted that you think Obama is a tough S.O.B., at least on terrorism. Do you honestly believe that Obama is better equipped to deal with these situations as they arise? Even Sarkozy doesn’t believe that. Indeed, reports indicate that Sarkozy views the candidates stance on Iran as “utterly immature” and comprised of “formulations empty of all content…”
2.) Economy: An Obama presidency has been a “sure thing” for a while now (although I still think it’s a ball game). Frankly, I think the market has already factored in an Obama victory. The market is forward looking, and is in retrenchment in part because it anticipates a hostile business environment under an Obama administration. The good news is that it is already factored in to the market, and so if Obama wins, we won’t have a massive downward trend on November 5th. More importantly however, under an Obama administration, the economy won’t recover. Things will still be bad under a McCain administration, but a nightmare under Obama’s.
3.) You state that you believe an Obama election would be better for the world. This is a troubling statement. Less so because even Sarkozy thinks Obama is a ninny, and more so because you seem to be reflecting a European world view, that America, like France, Germany, and Italy, is just another member of the world community. Yes, I used the word ninny.
I disagree. America is an exception and is exceptional. It is the “shining city on the hill.” In this country, we have the highest standard of living in the world. We’ve freed millions of people from oppression, appearing not as conquerors, but as liberators. Why has America been so successful? Individual freedom. Life, liberty and the pursuit of happiness. The freedom to pursue those things we hold dear, to use our ambitions, to go as far as our talent, our intellect, and our work ethic can take us.
Europe punishes those that earn too much. Obama seeks to. Remember that over 90% of the top 5% of earners in this country earned their money themselves, they didn’t inherit it. By putting a punitive tax on those who have earned their success, earned their money, in order to spread it to others, Obama punishes those who have succeeded, to give to those that haven’t.
Our forefathers sought to escape Europe and the rest of the world.
The words of Jefferson are apropos here: “To take from one because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to every one of a free exercise of his industry and the fruits acquired by it.” Jefferson and his fellow founders escaped Europe. You, and Obama seem to want us to emulate it.
America must earn and strive for its exceptionalism. It is not inherent in our soil or in our genes. It is a product of many things, the components of which are not as simple as any single ideology would like to make them.
Sarkozy? Ok.
I know you're a smart guy, but dude, you're flailing.
1) When's the last time you visited Europe and had any basis to reflect on how badly Europe has failed? What do you actually know about Europe? Actually.
2) The idea that the market is impounding an Obama victory and thus reflecting a lower value ignores everything that's happening in the market. The market is taking 900 point swings on a daily basis. It is not functioning. Nobody is watching the stock market as a meaningful indicator of anything right now. Don't manipulate the facts. More importantly, if you watch the 3 month treasury spreads compared to the 3 month LIBOR rate, you become aware that the credit markets remain remarkably frozen. We can get into that if you want, but that has nothing to do with Obama. THAT is why the markets are going crazy. I don't care who you're reading that is telling you that the stock market is "impounding" an Obama victory, it is partisan hackery. Please stop shoveling it at me.
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