Good Times

Ezra points to this article on the credit markets:

“If you only watch the stock market, where the Dow was recently up more than 250 points, you might get the mistaken impression all is well with the world on the Tuesday after the latest Black Monday.

But, as has often been the case during this crisis, credit markets are singing a different tune. Overnight dollar Libor rates more than doubled to 6.875%, as banks hoarded cash for the quarter end amid signs the financial crisis was spreading. It’s more than a little ironic that while investors are buying banks’ stocks — shares were up sharply across the sector — banks themselves were unwilling to buy each others’ shortest term debt. Banks are so desperate for funds that they paid 11% for $30 billion in overnight funds from the European Central Bank, up from 3% just Monday.

Sure, a second round of dollars from the ECB and a 28-day injection of funds from the Fed helped calm the worst panic (indeed, the ECB’s $50 billion offer drew just a bit more than $30 billion in bids, and the rate fell back to 0.50%; while fed funds are now trading at 3.0% rather than the 7.0% high we saw them at earlier), but we’re a long way from normal. Lena Komileva, economist at broker Tullet Prebon, notes the premium for overnight liquidity is “out of control,” making it hard for central banks to instill confidence in the future.

In short, credit is frozen, in part because institutions are hoarding liquidity for the end of the quarter. Monday’s Epic Fail on Capitol Hill would seem to be hurting too — except credit was worsening even before the $700 billion bailout bill died, notes Brian Reynolds, chief market strategist at WJB Capital.”

I would imagine that a lot of stores would normally be preparing for the Christmas shopping season by laying in inventory round about now. And I would imagine that that will be a lot harder to do if they can’t get credit.

Good times.

Here’s Dan Riehl’s take on it all:

“While no one should want a major meltdown of the American and world economies, there is a common sense rationale for simply allowing it to burn. I see people going on about a trillion dollars in value lost. But in any real sense, that value wasn’t really there. (…)

Some of the alarmists out there might want to take a moment to consider all the ramifications here. It may sound harsh, but the Great Depression produced many things – one of them was called the Greatest Generation.

The great economic boom of the last few decades propped up by dubious credit has produced a generation or two that thinks enough is never enough and if one can’t earn it, than you either borrow it, or the government in the form of hard working taxpayers should make sure you get yours in the end.

I’m no financial expert. I realize that without some plan there will be serious pain. But I also know pain is unavoidable in life. And any government that would have its citizenry believe that isn’t the case simply isn’t telling them the truth.”

Personally, I’ve always preferred the idea of trying to make myself as decent as possible, rather than waiting for catastrophe to do it for me. But if people’s lives have to be destroyed in order to produce a new “Greatest Generation”, I hope that people like Dan Riehl, who think that this sort of character-building through national catastrophe is a good thing, are disproportionately represented among them. After all, as he and his family settle in for the night in their minivan, Dan Riehl would be able to console himself with the thought that it’s all for the sake of the greater good. Most of us, not having had this callous and idiotic idea in the first place, would not have that comfort available to us.