Frontrunning: June 14

Tyler Durden's picture
  • Kyrgyz crisis tops Russian headlines for four days, rest of world couldn't care less (Russian Scoop)
  • America's municipal debt racket (WSJ) - Notable as the household sector's holdings in munis surpass $1 trillion for first time ever (Z1, p.64)
  • Fed to conduct first test auction of bank CDs (WaPo)
  • Carry-on charging Spirit Airlines grounds all flights through June 15 as pilots go on strike(Bloomberg)
  • BP stock lower as the firm faces containment deadline as Obama seeks escrow (Bloomberg)
  • Cost of fixing Fannie, Freddie at $140 billion, $1 trillion worst case (Bloomberg)
  • Morgan Stanley: Just say no to double dip (Morgan Stanley)
  • John Paulson takes ex-SEC bigs on board (Post)
  • Liquid assets: Bordeaux 2009 futures sell 700 cases and hour, freeze computer (Bloomberg)
  • America's crisis of confidence (Newsweek)
  • Cliff Asness: Hedge Funds may face different tax increase (Bloomberg)
  • Rehashing an old known - European debt burden falls heavily on France and Germany (NYT)
  • BP largest shareholders cut stake as price falls (Telegraph)
  • Apple's secrecy irks Congress (Politico)
  • Jeff Skilling's jailhouse interview (Fortune)

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trav7777's picture

Frontrunning, bitchez

Joe Shmoe's picture

The economist JK Galbraith, in his book The Great Crash 1929, outlines what happened during that event.  While it's interesting (almost quaint) to see just how simple the financial system was then, the impact and duration of the Depression was obviously profound.  Galbraith offers only a chapter on the Depression, saying it's much harder to examine the causes of the Depression than the causes of the Crash.  I agree.

But, he offers that the Depression hit so hard because it began against the backdrop of a "fundamentally unsound" US economy.  He listed five weaknesses (in his words):

1. "The bad distribution of income" (Unequal by his, 1955, standards...)

2. "The bad  corporate structure" (here he refers mostly to the web of trusts and funds that have shared and leveraged ownership of companies an each other) 

3. "The bad banking structure"  (mainly, that what seemed acceptable practice to banks during the boom of the 20s, was obviously absurd level of risk when seen through the perspective of the 30s).

4. "The dubious state of foreign balance" (They had a trade surplus then...)

5. "The poor state of economic intelligence" (they knew so little then, by today's standards).

So, from my perspective, by this definition, we still have a 5 for 5 "fundamentally unsound economy."  Our current crisis occurs against a vastly more complex economic system:

We have worse income distribution, they'd never even dreamed up CDSs or like derivatives, the banks are in worse shape now, we are a debtor nation, and our economic knowledge, though deeper, is perhaps (to be fair) not adequate to govern all unintended consecuences of Keynesian (100 year old) policies.


Anyone else see these 5 weaknesses differently?  Leo?  What other weaknesses aren't covered here. 

I'm brining this all up because I want to continue to convince myself of how bad things are.  I don't want to be wed to the bear scenario, unless the data warrants...

I remain convinced of troubles ahead, and this dip into the history books helped.

Tyler, I posted this in a couple of places on ZH this morning, sorry if that's overdoing it but I found this interesting.  Also, how can someone submit an article to ZH?  I couldn't find that info on the site.  Thx


SteveNYC's picture

Excellent post.

<sarcasm on>

Now, while we really appreciate your research and efforts, I think it must be understood that we have been blessed with Ben Shalom Bernanke, the foremost "expert" on the Great Depression. Ben knows so much about the Great Depression of yesteryear, that, regardless of the complexity of the current financial system, the horrid state of finances at all levels of the country, the banker corruption, the political ineptness, and so on, he can prevent the next one with a wave of his magic wand.

Thank you, but we are in the best of hands.

<sarcasm off>

Gunther's picture

  1. A financial bubble that burst already

  2. Commodity prices going up due to shortages, making price controls impossible

  3. High cost of complexity; something is designed in one country, produced cheaply in the next with materials from the third and marketed costly to stupid consumers in the fourth

  4. possible economic warfare

edit: The numers shoud start with"6," the automatc numbering does not permit that.

centerline's picture

Nice post Joe.  Macro level view doesn't lie.  The details are designed to obscure this.

doublethink's picture


More From The Ministry of Truth


Fed's Bullard says strong global recovery under way

TOKYO (Reuters) - A strong global economic recovery is under way, and is unlikely to be thrown off course by European debt woes or the improbable event of the bursting of an asset bubble in China, a top Federal Reserve official said on Monday.




gtown2007's picture

good frontpage for interesting financial news articles

doublethink's picture


Welcome Back Jack; We See You


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