Tuesday, October 28, 2008

""securitization" of assets and "safe" financial derivatives"

This is Kevin Phillips on Huffington:

"Worse still, the policies that Paulson and Bernanke did implement at such staggering cost have only begun to do their full long-term damage, which will probably come in a round of even more serious inflation. Together, the Treasury and the Fed have spent or loaned over a trillion dollars in financial-sector aid. As set out by economist Brad Setser of the Council of Foreign Relations, besides steering $950 billion into the U.S. financial system ($500 billion sent over by the Treasury), the Fed has provided still another $450 billion of dollar liquidity to European central banks to spread around on that continent. This decision by the United States to be the lender of last resort, in tandem with Washington's late September and October scare rhetoric about U.S. and world economy seizing up unless Congress passed the Paulson-Bernanke bail-out plan, has internationalized the crisis and made the U.S. dollar the pretended currency of the rescue instead of the vulnerable currency of the underlying problem. Something similar happened back in August 2007, when for 4-5 weeks a flight to "safety" and U.S. treasury debt buoyed the U.S. dollar. September and October have brought this result on an even larger scale."

I have a problem with Phillips. I think that I agree with some of what he says in this post, but not for the same reasons. I find him a maddeningly imprecise writer.

Take this:

"That means stuff like collateralized debt obligations (CDOs) and credit default swaps (CDSs), innovations we now know to have spread toxicity, opacity and paralysis."

Now, come on. I spend a lot of time trying to understand and explain these investments. Calling them "stuff" and then not explaining them doesn't help. Instead, it leads to a lot of people complaining about investments that they haven't even tried to understand. We need clarity, not a plethora of polemics.

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