Home
Archive
Columnists
Video
Blogs
Discuss
About
Search
Donate
Advertise
Advertisement
Advertisement
Advertisement
Advertisement
Register to Vote: Rock the Vote, powered by Working Assets Wireless
Advertisement
  • AlterNetYour turn

Support AlterNet
Do you value the information you're getting from AlterNet? Please show your support with a tax-deductible donation.


Feedback
Tell us how we're doing.

Shock Therapy on Wall Street: What's Next?

By Danny Schechter, AlterNet. Posted September 26, 2007.


The debt crisis is more significant than most people think, and is causing panic in high places.

Share and save this post:
Digg iconDelicious iconReddit iconFark iconYahoo! iconNewsvine! iconFacebook iconNewsTrust icon

More stories by Danny Schechter

Get AlterNet in
your mailbox!

 
Advertisement

Institutions and human psychology lead financial markets to bounce back and forth between exuberant greed and catatonic fear. Times of fear generate high unemployment. Times of greed are likely to be times of destabilizing inflation.
- Economist Brad DeLong

On September 19, the US stock market received a gift from the Federal Reserve Bank in the form of a half percent interest rate cut, twice the amount most analysts expected. The move followed another week in which the debt crisis rolled over financial institutions worldwide and people's lives like an out of control freight train.

Why?

There is panic in high places. They know this crisis is far more serious than most of us realize, and that the interest rate cut will not address the subprime problem or bring relief to the millions facing foreclosures and a tighter economic noose around their necks.

It will, say many financial wizards, lead to higher inflation, which is a way of making our money worth less. The dollar's status as a currency took another whack.

One analyst in the New York Times called it "shock therapy," the very term writer Naomi Klein explores in her new book on "disaster" capitalism showing the link between the shock therapy once doled out in mental hospitals, shock and awe bombing, shock interrogation techniques whose aim is to "disorient" prisoners and shock strategies used in economic policy that has devastated so many countries in which it was tried.

Now it has come home to the US - the country that has been exporting it overseas. On a recent Democracy Now show, Klein explained:

The history of the contemporary free market was written in shocks…. Some of the most infamous human rights violations of the past thirty-five years, which have tended to be viewed as sadistic acts carried out by anti-democratic regimes, were in fact either committed with the deliberate intent of terrorizing the public or actively harnessed to prepare the ground for the introduction of radical free-market reforms.

The only difference here is that, so far, there have been no serious reforms proposed and the market is anything but free. With its interest cut, the Fed bails out and rewards the very institutions that were profiting on ill gain profits from predatory lending.

In some countries, people are starting to stir. Americans remain too caught up in the primaries and the war on one end, and the new wave of OJ mania on the other to take action against the looting of their pocket books. We are becoming a shell-shocked nation.

A CHEER FOR THE PEOPLE

We saw customers at a credit-starved mortgage bank in London lining up in the streets to pull their money out and the Bank of England pumping money in just a day after warning others, in the name of "moral hazard" rules, not to bail out lenders.

The Times of London carried a cheer by Libby Purves for those demanding their money arguing, "salute the queuers for their nerve, patience and admirable impermeability to patronizing advice." For how dare the stuffed suits, financial and political (and indeed journalistic), use expressions like 'Don't panic' and 'Keep calm'. The withdrawers are perfectly entitled to choose who looks after their lavishly pretaxed savings. Some of them actually need money right now - like the chap on the news who wanted to pay his builder - and others just prefer not to rely on an institution that goes begging to the 'lender of last resort'.

By their presence on the streets, most of it not at all panicky in demeanour, the queuers utter a resounding raspberry to the financial industry and its political masters. It is time someone did." (When Will Americans do something similar? One weak but promising shift in the political wind: Obama's recent speech on Wall Street.)

"EXTRAORDINARY" SAYS THE ECONOMIST

The world's top business magazine The Economist noted:

A century ago, the depth of a banking crisis was measured by the length of the queue outside banks. These days, financial panics are more likely to be played out through heavy selling in share, bond or currency markets than old-fashioned bank runs. That makes the sight on the morning of Friday September 14th of a queue of people waiting (patiently in most cases) to take their money out of Northern Rock, a wounded British mortgage bank, all the more extraordinary.

Digg!

See more stories tagged with: debt crisis

Danny Schechter writes a blog for MediaChannel.org. He is the author of "Embedded: Weapons of Mass Deception: How the Media Failed to Cover the War on Iraq" (Prometheus).

Liked this story? Get top stories in your inbox each week from AlterNet! Sign up now »


Advertisement

 

Comments Turn comments off sitewide Give us feedback »
Comments closed.
The comments for this story have been closed. Thank you to everyone who participated.
View:
The US consumer is being crushed
Posted by: Gegner on Sep 27, 2007 11:15 AM   
Current rating: 4    [1 = poor; 5 = excellent]
under a mountain of debt. Rising prices due to a drop in the value of the Dollar will only make a bad situation worse.

This net reduction in purchasing power will force the consumer to cut back, which in turn will 'shrink the economy, which will result in job cuts as business slows down due to lack of demand.

A recession is, by definition, a time when market imbalances correct themselves (find/restore) eqilibrium...but that didn't happen during the last two 'downturns', instead the Fed 'inflated' their way out of them...postponing any true market correction.

Failure to allow the markets to correct only makes the need to correct more dire.

Worse, we have little with which to correct our current imbalances with. Our manufacturing capacity has shrunk so much that is is unable to meet the needs of our nation.

Since we can't make what we need for ourselves, we are forced to import those goods...which will only serve to make a bad situation worse.

The 'other shoe' is that it's not in the interests of US commerce to re-establish a manufacturing base here.

The offshoring of US jobs has provided the capitalist with a dual benefit...a cheaper, more profitable workforce that is also their new customer base!

As we can see from the stock markets, the devastation of the US economy has affected US companies not at all...their 'growth' is being provided by the new markets our former jobs opened up for them.

The real kick in the head is how this has all been supported by credit card/home equity debt. We literally financed our own demise...not that we had much choice in the matter.

Crime of the century doesn't even come close to what has been perpetrated upon the hapless US consumer/worker.

[« Reply to this comment] [Post a new comment »] [Rate this comment: 1 - 2 - 3 - 4 - 5]

Shocking!
Posted by: CJC on Sep 27, 2007 11:19 AM   
Current rating: 4    [1 = poor; 5 = excellent]
It also is shocking that no one has yet made a comment.
We're all eager to rant and rave about foreign policy and the idiocy of GWB, but when there's news about something likely to affect us all in the short run, no one has anything to say.

In my household, a quite ordinary one, a young couple with a child has decided not to become first-time homeowners just yet, worried that prices may fall and/or jobs be lost and they'd be saddled with payments that would seem unaffordable (even with support from the older generation) and might be more than the property was worth. So they've decided to rent again, for the time being. They just came from San Francisco, which is even more overpriced than the Boston area where they are now settled. Of course renting is counter to conventional wisdom, about which, by the way, JK Galbraith roundly criticized.

Are the real estate agents (Boston area) talking about this? Inventory is going up but prices are not falling yet. It seems that no one is paying much attention.

Meanwhile pop up ads about cheap mortgages are everywhere on the internet.

Paul Krugman has reminded us from time to time in the past few years that our financial/economic system is rickety and we could experience an Argentina-type meltdown any time.

Are either Congress or the bevy of Presidential candidates talking about rescinding the Bush tax cuts as one way of addressing our increasing income disparities? Not that I'm aware of.

It's good for many of us that the stock market is holding its own this week, but the USD falling to parity with the Canadian dollar is not good news for most Americans.

It's shocking that we're not paying more attention.

[« Reply to this comment] [Post a new comment »] [Rate this comment: 1 - 2 - 3 - 4 - 5]

Shocking! Who's rating?
Posted by: CJC on Sep 27, 2007 2:46 PM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
Who is "rating" my comment a '3' but not commenting?

Especially, if you're taking some exception with what I wrote or how I wrote it how about writing something yourself?

I'm still amazed that at the end of the workday here in EDT there are still only 2 comments. The economy affects us all.

What about the huge deficits and the spending on our two military actions and the tax cuts to the very rich?

Has no one read this piece?

[« Reply to this comment] [Post a new comment »] [Rate this comment: 1 - 2 - 3 - 4 - 5]

RON PAUL IS THE ONLY CANDIDATE WHO UNDERSTANDS THE ROOT CAUSE
Posted by: poppop_schell on Sep 29, 2007 4:00 PM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
During the recent hearing of the FED, Ron Paul was courageous in calling the FED an immoral agency which devalued the dollar, caused inflation and was a tool fo the financial elite. It drove up the price of housing so the poor couldn't afford their own home. HE SHOWED HIMSELF A TRUE PROGRESSIVE.

He promises to stop federal deficits and eliminate the FED. I am running for NC's 12 Congressional District to help Ron Paul get this done.

http://www.ronpaul2008.com
http://www.schellforcongress.com

[« Reply to this comment] [Post a new comment »] [Rate this comment: 1 - 2 - 3 - 4 - 5]