Here’s One For The History Books

Don’t panic, Kevin’s got it under control – our banks are as safe as houses he reckons (pardon the pun).

There’s no escaping the fact that this week has been a week from hell and will probably go down in the history books as exactly that.

Australian shares had their worst day since the crash of 1987, losing more than 8%, as mounting recession fears sent equity markets tumbling around the world.

The benchmark S&P/ASX-200 stock index recorded its biggest one-day loss in its 16-year history, dragging the value of the main share index below $1 trillion. The broader All Ordinaries recorded its worst day since the October 1987 crash.

– ASX-200 loses 8.3%
– Stocks plummet 16% for the week, worst since 1987
– Value of ASX-200 falls below $1 trillion
– European markets plunge on opening

It gets me back to people like John K. Galbraith, who, as far back as 1998 issued a stern warning that was all but ignored:

“This is the warning of the present time. We had a slight indication of that in August and September [ Long Term Capital Management crisis in 1998] . It’s a warning that everybody should have in the back of her or his head. The effect of the speculative collapse is something which economists have not yet, even to this day, fully appreciated, because it is not the collapse that causes the trouble, but the further effect on investment, and also the further effect on consumer spending.”

A very large part of our present consumer spending is based on debt creation, credit cards, or the impression given by stock market gains or real estate gains.

If and when the end comes, the economic effect will be the drying up, the slump, in consumer expenditure and, of course, the economic effects of that.”

I guess now we are likely to learn what he meant by ‘if and when’

Malcolm Maiden expressed his astonishment today:

“The continuing sharemarket crisis is like nothing I have reported on, and I have witnessed some doozies: the long, painful market slump in the seventies that followed the 1973 OPEC oil price shock, the October 1987 market crash, the Long Term Capital Management crisis in 1998, the 2001 meltdown and the World-com-Enron crisis that followed, and 9-11, to name some of the highlights, or lowlights.”

This is one is different because it is more than a year old, and there is still no clear picture about how it is going to be fixed.

The slump induced by the OPEC oil shock was also a slow burn, but Fed boss Paul Volcker eventually sterilised inflation by controlling money supply. The market slumps in 1987 and 1998 were much shorter in duration, and were solved essentially by liquidity injections.

The crisis was self-inflicted, and allowed to run its course, and the World-Com-Enron crises were also allowed to work their way through the markets ahead of accounting reform.

Already in this crisis we have seen liquidity injection of unprecedented magnitude, a raft of bank rescues, unprecedented co-ordinated central bank rate cuts this week, and the nationalisation of failed operators in the US, Britain and Europe, including Fannie Mae and Freddie Mac, the groups which between them finance half of America’s $US12 trillion mortgage market. None of it has so far unblocked what are, in essence, crucial global financing arteries

I’ve got to admit, as someone whose been expecting the worst for some time now, even I’m a little stunned at the sheer ferocity and magnitude this crisis.

It makes me wonder how politicians and business leaders can claim that they never saw this coming. I guess Galbraith’s observations of the 1929 Crash , in part, answers that question”… “Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.”

Sharemarket in free fall…

This time it’s serious. Below 4000 points.

Snakes and Ladders

We go up, and then we go down.

I was just having a chat to one of the managers here at the insurance company I am currently working for.

His comment is that investors just do not know who has the bad debts out there, and until all of the debts come out in the wash, we will just not know how low the markets can go. And the money that the central banks have injected into the system and the interest rate cuts this week seem to have had very little effect on confidence.

His other comment is that the worry now in the US is over the insurance companies – as the worries over the investments and saving banks (in the US) seems to have passed.

As we have been saying all week – it’s not pretty out there.

It’s a bit like a game of snakes and ladders. Now where is the ladder to get into the attic?

Weekend Wonderland

Welcome to weekend wonderland! 

The thread where we can discuss anything we like and catch up over the weekend.

Our thoughts go out to Shane who’s nursing his whippet back to health.  We also welcome our new movie reviewer Kevin, and rumour has it – renowned commentator on all things Iraq war related and financial markets – John McPhilbin will be making an appearance!

Tonight, I’m planning to have a quiet night at home and watch Ironman the movie – just released on DVD, probably over a glass or two of red and a bowl of spag bog!

Today’s music is a favourite contemporary singer of mine, she’s like “Billy Holiday meets the Shirelles”.  Enjoy now before she dies. 

Thanks to everyone for your positive feedback, suggestions and contributions to blogocrats so far. It’s amazing what we’ve all been able to achieve in such a short time.

Have a great weekend everyone!  

Lemon Tree: a bitter sweet film

Lemon Tree is another foreign languages film which is well worth the cinema trip.

According to Eran Riklis, the Israeli director,

Lemon Tree is a simple story about people who find themselves fighting over matters that could have been resolved quite easily if they would just listen to each other.

…this is really a film about solitude as it is reflected in the lives of two women …

Hiam Abbass plays Salma Zidane, a Palestinian woman who fights to keep her lemon grove from destruction by Israeli security because it is next to the Defence Minister’s house. Her performance is even stronger than her role in The Visitor. Rona Lipaz gives an equally sensitive performance as the Minister’s alienated wife Mira Navon. Both neighbours have children in the United States, one at Georgetown University and the other is a kitchen-hand planning to study IT. Not hard to guess which is which.

The film has its male villains, represented by the politician Israel Navon (Doron Tovory) and the local Palestinian power-broker Abu Camal (Makram Khoury). However, there are several sensitive male charactisations: the lawyer Ziad Daud (Ali Suliman), Salma’s surrogate uncle and fellow lemon cultivator (Tarik Copty) and the Israeli guard Quickie (Danny Leshman).

The film is about the things that unite as well as those which have created walls, both literal and figurative, in the Middle East. Make sure you see Lemon Tree if you possibly can.

Kevin Rennie

Original post at: Labor View from Bayside