So yet another big dollar-pumping exercise by the world’s major central banks seems to have calmed down global markets that yesterday seemed on the verge of becoming completely unhinged. Which should give you time to read Andy Serwer’s and Allan Sloan’s fine TIME cover story on How Financial Madness Overtook Wall Street. A sample:
How did this happen, and why over the past 14 months have we suddenly seen so much to fear? Think of it as payback. Fear is so pervasive today because for years the financial markets — and many borrowers — showed no fear at all. Wall Streeters didn’t have to worry about regulation, which was in disrepute, and they didn’t worry about risk, which had supposedly been magically whisked away by all sorts of spiffy nouveau products — derivatives like credit-default swaps.
We borrowed Andy and Allan from Fortune so I could concentrate on feeding the TIME.com beast this week. I was initially slightly bothered by this division of labor, then I remembered that I really don’t enjoy writing TIME cover stories. Plus, I looked at this chart:
I know you can’t really believe anything these audience measurement services say (in the Alexa “daily reach” chart the rank order is reversed). But I choose to believe in TIME.com. And because clearly not enough of you are reading wsj.com (a pay wall will do that), I choose to link to the very good what-the-heck-is-going-on piece in today’s paper by Jon Hilsenrath, Serena Ng and Damian Paletta. An excerpt:
Debt-driven financial traumas have a long history, from the Great Depression to the S&L crisis to the Asian financial crisis of the late 1990s. Neither economists nor policymakers have easy solutions. Cutting interest rates and writing stimulus checks to families can help — and may have prevented or delayed a deep recession. But, at least in this instance, they don’t suffice.
In such circumstances, governments almost invariably experiment with solutions with varying degrees of success. President Franklin Delano Roosevelt unleashed an alphabet soup of new agencies and a host of new regulations in the aftermath of the market crash of 1929. In the 1990s, Japan embarked on a decade of often-wasteful government spending to counter the aftereffects of a bursting bubble. President George H.W. Bush and Congress created the Resolution Trust Corp. to take and sell the assets of failed thrifts. Hong Kong’s free-market government went on a massive stock-buying spree in 1998, buying up shares of every company listed in the benchmark Hang Seng index. It ended up packaging them into an exchange-traded fund and making money.