Everything fixed now?

We’re going to get the exact dollar totals Monday, but the Eurozone plan to backstop banks appears to be substantial. The German share alone is going to be 400 billion euros ($542 billion), it was reported Sunday.

The UK is also about to pour 39 billion pounds ($66 billion) into RBS, HBOS and Lloyds TSB. And we’re still waiting to hear what exactly the U.S. Treasury has in mind–but that it will involve spending hundreds of billions of dollars and possibly guaranteeing more seems clear.

It’s the kind of response that, if it had come a month ago, would have nipped all this end-of-the-financial-world talk in the bud. Of course, it couldn’t have happened a month ago, because nobody was scared enough.

Is it enough now? Depends what you mean by enough. Enough to keep the cash coming out of your local ATM this week? You betcha. Enough to avert a global recession? No way. Enough to someday be seen as the beginning of the end of the Panic of 2008? My sense at the moment is yes. But it’s not the kind of thing I’d want to put a lot of money on.

williambanzai7

I don’t think it is enough when you consider the estimated $60 Trillion of outstanding credit default swaps. That’s enough to roll for a few years. No one is saying what to do about this problem.
lp1

at best, it merely delays the problem, rather than fixes it, because “the fix” is being accomplished by just printing more money (its not like any of these nations have hundreds of billions of dollars in cash sitting around), and is likely to reduce the sense of urgency for saner tax/budget policies and regulations of financial markets.

The crisis was caused by an asset bubble — it wasn’t about the housing bubble, because the housing bubble was not independent of overall asset inflation, but a by-product of it.

And that asset inflation was a direct result of US tax and monetary policy starting in very early 2001, and the decision to cut interest rates (i.e. “print more money”) dramatically to prevent a recession, and keep them ridiculously low for years on end while simultaneously running massive federal deficits thanx to the Bush tax cut.

That being said, given that Europe and Asia are not dominated by laissez faire economists, its likely that the primary lesson learned by the rest of the world is that they need to construct economic firewalls to prevent the eventual meltdown of the US economy from doing what it almost did (and may still do) in the last couple of weeks. Its not going to prevent a global recession when the US finally pays the price for its irresponsible fiscal policies — all it can hope to do is limit the impact of the inevitable US depression to a global recession.
jasssem

The crisis was caused by an asset bubble — it wasn’t about the housing bubble, because the housing bubble was not independent of overall asset inflation, but a by-product of it.