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S**tstorm
September 25, 2008 7:38 AM   Subscribe

China banks told to halt lending to US banks. Unemployment figures climb to a 7-year high. New home sales fall to 17-year low. Ruh-roh.

Not everyone was caught so off-guard by this economic calamity and financial shitstorm. Everybody's favorite curmudgeon, James Howard Kunstler, outlined his vision of a resource-depleted and fractious America in his essay (and book) The Long Emergency in 2005. Also in 2005, James Fallows wrote a creative and intriguing essay called Countdown to a Meltdown (previously discussed here), in which a campaign staffer for a Presidential candidate in the election of 2016 writes a detailed memo outlining the paths by which America got itself into so awful a position. Is doomsday prophesy considered its own literary genre? If so, then certainly Joe Bageant would also have to be considered a member of the canon (with other curmudgeons discussed in this thread).
posted by billysumday (81 comments total) 9 users marked this as a favorite

 
China banks told to halt lending to US banks...Ruh-roh.

thatsracist.gif
posted by Inspector.Gadget at 7:41 AM on September 25, 2008 [7 favorites]


China banks told to halt lending to US banks...Ruh-roh.

thatsracist.gif


I thought it was Scooby-Doo-ist.
posted by billysumday at 7:42 AM on September 25, 2008 [41 favorites]


It's okay, we can redecorate our homes with 10 dollars worth of Sharpies and string. We're an economy of MacGuyvers.
posted by scabrous at 7:44 AM on September 25, 2008 [1 favorite]


WSJFilter.
posted by smackfu at 7:45 AM on September 25, 2008


It's okay, we can redecorate our homes with 10 dollars worth of Sharpies and string. We're an economy of MacGuyvers.

I still have all that leftover duct tape Homeland Security told me to buy. Maybe I can make it into a retirement account - duct tape can do anything!
posted by Inspector.Gadget at 7:46 AM on September 25, 2008 [2 favorites]


Looks like the rest of the world is perfectly capable of downgrading things from AAA investments even before the agencies do it. But the unravelling of the US financial system and apparent willingness of the US government to devalue the dollar to 'deal' with it is a moderately horrific thing to watch. You can buy your way out of it a few times, but one of the main problems is cheap money leading to asset bubbles. A revolving $700 billion credit line introducing more cheap money to keep the bubble inflated just a while longer reminds me of the bit in Futurama where global warming is solved just by dropping some ice from the Arctic into the ocean to cool it down "once and for all!".

ONCE AND FOR ALL.
posted by jaduncan at 7:48 AM on September 25, 2008 [7 favorites]


Well, gee, us taxpayers could save $340 million per day by getting the fuck out of Iraq, for starters.
posted by crapmatic at 7:48 AM on September 25, 2008 [21 favorites]


Thank God I decided to invest in my education. Hopefully when I enter the workforce in six or seven years this will all be sorted out.
posted by The White Hat at 7:58 AM on September 25, 2008 [5 favorites]


I still have all that leftover duct tape Homeland Security told me to buy.

You're all set then – you can make one of these to keep your no money in.
posted by mandal at 7:58 AM on September 25, 2008


Just to throw a bit of caution out there that article is awfully short on both length and reputable sources.
posted by PenDevil at 7:59 AM on September 25, 2008


China denies shunning foreign banks.

wtf Reuters...
posted by Ludi at 8:00 AM on September 25, 2008 [1 favorite]


Well, gee, us taxpayers could save $340 million per day by getting the fuck out of Iraq, for starters.

"Well... we'd like to end the war, but we can't afford to fly the troops home."
posted by fungible at 8:03 AM on September 25, 2008


Sarah Palin was introduced to General Tso's chicken yesterday.
posted by Poolio at 8:03 AM on September 25, 2008 [30 favorites]


I don't understand what you capitalists are up to. (china included there) why is the chinese bank not lending to US banks anymore, precisely?

Is there some sort of website or podcast or something that will explain all this shit to me step by step, as new shit develops, with good hyperlinked stuff on it?

I was able to understand the TAL episode, The Giant Pool of Money, and this week's Enforcers episode finally got through to me what short-selling and nekkid short-selling were..
posted by By The Grace of God at 8:04 AM on September 25, 2008


China denies shunning foreign banks.

Phew! That's comforting, because the one thing I know is that the Chinese government never lies.
posted by Turtles all the way down at 8:05 AM on September 25, 2008 [1 favorite]


Is there some sort of website or podcast or something that will explain all this shit to me step by step, as new shit develops, with good hyperlinked stuff on it?

You're on it, I think. I was going to AskMe the same thing, but I don't think there's any nice clean source for all of this. It's messy, with varied opinions, false and true and conflicting reports and ideas, press conferences and announcements and stuff that is getting overlooked. That's pretty much what you'll find in the 2 or 3 open threads about the meltdown and McCain's shenanigans.
posted by cashman at 8:07 AM on September 25, 2008 [1 favorite]


Sarah Palin was introduced to General Tso's chicken yesterday.

Jennifer 8 Lee for president.
posted by Dr-Baa at 8:07 AM on September 25, 2008 [1 favorite]


China denies shunning foreign banks.

Man, that article was NOT convincing. Seems like some banks actually have cut off lending, but the official line from the government is "Everything is FINE!!" Something smells wrong there. Can John McCain please suspend his campaign even further and just fly to China and sort this bullshit out? He's really awesome at this crisis thing and solving our problems.
posted by billysumday at 8:07 AM on September 25, 2008


OK calm down people. As a former POW, I can assure you that things are still fundamentally sound.
posted by DU at 8:17 AM on September 25, 2008 [6 favorites]


It's not China halting lending that scares me as much as China actually calling-in the debt they hold that would freeze the blood in my helpless little citizen body.
posted by Thorzdad at 8:19 AM on September 25, 2008 [1 favorite]


Is there some sort of website or podcast or something that will explain all this shit to me step by step, as new shit develops, with good hyperlinked stuff on it?

Yes, as long as you posted that question from the bombed out remains of a bunker in 2034.
posted by DU at 8:20 AM on September 25, 2008 [1 favorite]


DU's right: this country does need a POW right now.
posted by uncleozzy at 8:21 AM on September 25, 2008


Is there some sort of website or podcast or something that will explain all this shit to me step by step, as new shit develops, with good hyperlinked stuff on it?

The Guardian did a blow by blow for last week, perhaps they will do more of the same; they also have a Wall Street in crisis page.
posted by mandal at 8:23 AM on September 25, 2008 [5 favorites]


Bloomberg says the FDIC itself may need a bailout if bank failures keep up. Another $150 billion.
posted by futility closet at 8:31 AM on September 25, 2008


Bloomberg says the FDIC itself may need a bailout if bank failures keep up. Another $150 billion.

Don't cry for us, Argentina.
posted by billysumday at 8:32 AM on September 25, 2008 [2 favorites]


Is there some sort of website or podcast or something that will explain all this shit to me step by step, as new shit develops, with good hyperlinked stuff on it?

You don't need it. It's Common Sense 101:

1. People who flaunt about how rich and successful they are and how good they are with money lie through their teeth as they smash and grab from the naive/greedy and lease/rent/borrow money that does not belong to them.

2. They must perpetuate their myth of monster success, meaning they need more money.

3. They begin to believe if they borrow enough money, that somehow, as if by magic/karma/luck, they will begin to make money of their own.

4. They borrow more heavily.

5. They continue to brag, making people jealous.

6. Jealous people start to snoop and stumble upon the truth.

7. It hits the fan.

8. Money dries up because people who were lending them money or investing with them won't give it to them anymore.

9. Everyone else gets burned.

10. It's lousy for a while.

11. Everyone cries and feels sad/scared.

12. Someone realizes it is not the end of the world.

13. Other people are blown away by the revelation! Hey, yeah, it is not the end of the world!

14. People rebuild, good times return as a result of hard work/ingenuity.

15. A group of greedy people want in on the propsperity, but do not want to have to work for it.

16. See Step #1.
posted by Alexandra Kitty at 8:35 AM on September 25, 2008 [25 favorites]


Securitized Hybrid Investment Trust Bailout Plan
posted by infini at 8:35 AM on September 25, 2008


Is there some sort of website or podcast or something that will explain all this shit to me step by step, as new shit develops, with good hyperlinked stuff on it?

Try the NPR Planet Money blog/podcast, brought to you by the producers of the TAL "Giant Pool of Money" episode.
posted by Bummus at 8:37 AM on September 25, 2008 [5 favorites]


The Financial Times in-depth is also good, and not too technical for this non-economist public policy person. Here's a piece from their Economists' forum that explains why European banks are just as shaky and in need of the US bailout.
posted by athenian at 8:39 AM on September 25, 2008


...waiting for someone to chime in with the usual reassurance that China must continue propping up the U.S. or else it'll destroy its own economy (which I never really believed).
posted by wendell at 8:40 AM on September 25, 2008


...the usual reassurance that China must continue propping up the U.S. or else it'll destroy its own economy...

I'm not an economist, but it does seem like destroying us isn't in their best interest. Weakening, yes. Threatening, absolutely. But this announcement-no-wait-we-didn't-say-that really looks like a deniable threat. They don't want to start a war (yet), but they aren't averse to slipping us an anvil when no one is looking.
posted by DU at 8:45 AM on September 25, 2008 [1 favorite]


"...waiting for someone to chime in with the usual reassurance that China must continue propping up the U.S. or else it'll destroy its own economy (which I never really believed)."

Here's the opposite of that reassurance. And the German Finance Minister says You Maniacs! You Blew It Up!
posted by athenian at 8:47 AM on September 25, 2008 [1 favorite]


Try the NPR Planet Money blog/podcast, brought to you by the producers of the TAL "Giant Pool of Money" episode.

I discovered that yesterday. It's awesome.
posted by Tehanu at 8:50 AM on September 25, 2008


Aw man, national assets just went down by several thousand pairs of pants.
posted by a robot made out of meat at 8:55 AM on September 25, 2008


Sinfest weighs in...
posted by PenDevil at 8:58 AM on September 25, 2008


China denies shunning foreign banks.

wtf Reuters...


the catch is, they'll still lend you money, but it's full of melamine
posted by matteo at 9:00 AM on September 25, 2008 [6 favorites]


It's them damn Iranians. Bomb Iran. That'll fix everything.

Actually I think this economic awakening may have spared us from starting another war. Unless the shrub decides a new war would distract us from.......
posted by notreally at 9:01 AM on September 25, 2008


Vulture Investors Making Plans to Snag Weak Banks on the Cheap
posted by ornate insect at 9:08 AM on September 25, 2008


I guess we all picked the wrong week to stop sniffing glue.
posted by mandal at 9:17 AM on September 25, 2008 [5 favorites]


Q: How can I help deal with the financial crisis?

Your selflessness brings a tear to my eye. Here some simple things everyone can do:

1. Obviously, you should take the day off of work or school. Country first!

2. If you happen to live in New York and see a guy in a suit at the bar or on the subway in the middle of the day, he's probably a laid off banker that is hiding his joblessness from his wife. You should try to be his friend and let him know how great things really are. He's going to tell his still-employed banker friends about how upbeat you are.

3. If you don't live near a financial center, you should organize a march against the crisis. Come up with some clever chants to let the crisis know that it isn't welcome. Demand that congress pass laws against crises or build a fence or something.

4. If your bank still exists, walk down there and pay them a visit. Start withdrawing whatever money you still have in your accounts, then go over to another teller and deposit it back in the accounts. The appearance of action will give people confidence. I would say you should do this 3 or 4 hours a day.

4a. If you happen to keep your money in your sofa cushions: 1) good for you, and 2) you can just buy a lot of things at a store with a liberal return policy and return them later in the day. Flexing your buying power will give people confidence.

5. If you see people using an ATM to take money out of their bank account, confront them. They are undermining confidence in our financial system. I'll write up some simple phrases that you can use to ridicule them into putting their money back into the bank.

6. Go to a store where shoppers use carts - grocery store, Wal-Mart, Target, etc - and toss extra items in peoples carts. Sometimes they'll put them back, but often they will buy them. And that's going to help get this economy back on track.
posted by milkrate at 9:31 AM on September 25, 2008 [41 favorites]


Thanks god you posted this because I had missed the news of economic problems completely!
posted by GuyZero at 9:41 AM on September 25, 2008


Time for a new currency...
posted by Blazecock Pileon at 10:04 AM on September 25, 2008


if china is going to stop lending us money, are we going to stop sending them every job we have?
posted by sexyrobot at 10:08 AM on September 25, 2008


CNN: Bailout Foes plan protest. Sounds like people are planning on bringing their old junk to wall street. Heh.
posted by delmoi at 10:09 AM on September 25, 2008


Charney said the government should "put Main Street first" by ensuring that taxpayers have an ownership stake in the companies that benefit from the bailout plan.

Stopping a Financial Crisis, the Swedish Way

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

posted by Blazecock Pileon at 10:21 AM on September 25, 2008 [14 favorites]


It's ok, because Jeffrey Rowlands has our back.
posted by TomStampy at 10:33 AM on September 25, 2008 [1 favorite]


That strategy held banks responsible...

That sounds suspiciously like regulation and/or socialism both of which are...VERBOTEN!
posted by DU at 10:37 AM on September 25, 2008


Everybody chill the fuck out.

We are China's biggest customer. They do not want to see us stop buying toasters from Wal-Mart. They are firewalling their currency just like every other bank worldwide is doing this week.

The economy is like the flu. Every now and then, you get really sick and feel like you want to die. Occasionally, you really do die. But that doesn't mean you should go live in a cave.
posted by Cool Papa Bell at 10:43 AM on September 25, 2008


Inspector.Gadget : I still have all that leftover duct tape Homeland Security told me to buy. Maybe I can make it into a retirement account - duct tape can do anything!

How to Macgyver a roll of duct tape into financial prosperity

[Method 1]

1.) Unroll a piece of duct tape three feet long
2.) Carefully wrap tape around brick
3.) Store taped brick in back seat of car
4.) Lob taped brick through window of jewelry store
5.) Steal jewelry.

[Method 2]

1.) Unroll a piece of duct tape three feet long
2.) Carefully wrap tape around valuable piece of artwork
3.) Tie duct tape into bow
4.) Sell valuable artwork with duct tape bow.

It really is as easy as that.
posted by quin at 10:45 AM on September 25, 2008 [1 favorite]


Speaking as a European, I think it's a great idea for US banks to be bailed out with vast sacks of taxpayer cash, largely because the large number of European banks with big US operations will benefit from the bailout, while I as a non-US-taxpayer won't have to bear the long-term cost. Thanks, guys!

Seriously, though, I think it's extraordinary that a deal seems to be close that will let Hank Paulson (one of the people who as MP of Goldman has been a friend colleague and golf partner for the leaders of these banks for thirty years or more) decide ON HIS OWN how much to pay for the distressed assets on his mates' books. It's like the return of the Secaucus Seven Hundred Billion.

I am trying to come up with a metaphor to describe what a massive old-pal slush fund this is, but I just can't.
posted by athenian at 10:49 AM on September 25, 2008 [5 favorites]


I am trying to come up with a metaphor to describe what a massive old-pal slush fund this is, but I just can't.

I can.
posted by DU at 11:04 AM on September 25, 2008 [1 favorite]


Aaaah. This is not good.
posted by lunit at 11:06 AM on September 25, 2008


I am trying to come up with a metaphor to describe what a massive old-pal slush fund this is, but I just can't.

how about: Cozy as a rat king? (includes picture!)
posted by sexyrobot at 11:07 AM on September 25, 2008


oh god, sexyrobot. oh god. i could have gone my whole life...

anyone got some bleach i can pour into my eyes? some forget-me-now pills, perhaps? my kingdom for a magician.
posted by nosila at 11:26 AM on September 25, 2008


nosila, I'll make those bad visions go away for you. And it'll only cost $700,000,000,000.

At least until the next rat king problem...
posted by darkstar at 11:57 AM on September 25, 2008


Not to derail too much, but I gotta question that bears repeating in this somewhat related thread. I personally know no hardcore conservative republicans. I just don't. So when my mother in law, who does, mentioned yesterday that one of these crazies actually told her with a straight face that the fucking ACLU is responsible for the financial meltdown and subsequent crisis. Her claim, I swear to GOD, is that the ACLU has filed so many lawsuits against banks, to not foreclose on the homes of the poor and disadvantaged, that it has tied up the financial industry in the bind it currently finds itself. Blame the liberals, evidently. Has anyone heard anything as crazy as that shit? 'Cuz that one has just thrown me. It's like the time that I heard that the kid in the Michael Jackson commercial died while drinking Pepsi while he ate poprocks. I just don't get it.
posted by msali at 11:57 AM on September 25, 2008 [2 favorites]


Is this really happening, or is Wall Street just stealing all of my money?
posted by plexi at 11:58 AM on September 25, 2008


While we can no longer swap debt with China, we have begun to swap bullets with Pakistan.

S**tstorm, n'deed.
posted by Slap*Happy at 12:01 PM on September 25, 2008


pakistan has the worlds largest wimax network...probably have quite the advantage when it comes to communications.
posted by sexyrobot at 12:10 PM on September 25, 2008


we have begun to swap bullets with Pakistan.

Oh, that is bad. I bet our bullets cost more than theirs.
posted by elwoodwiles at 12:22 PM on September 25, 2008 [2 favorites]


Is there some sort of website or podcast or something that will explain all this shit to me step by step, as new shit develops, with good hyperlinked stuff on it?

1. Print green paper.
2. Trade green paper for white paper.
3. Wait 6 months for the real collapse.
posted by Rafaelloello at 12:22 PM on September 25, 2008


Somebody set us up the bomb!
posted by Vindaloo at 12:30 PM on September 25, 2008


A lot of people are worried because of a simple typo. They think this is a 700 billion bailout. It's not. It's a *bale-out*. By Christians. It's a 700 billion Christian Bale-out. Batmans will save us. Get it straight. Stop worrying.
posted by storybored at 12:58 PM on September 25, 2008 [2 favorites]


On preview: Batmans will save you too Vindaloo.
posted by storybored at 1:00 PM on September 25, 2008


Soviet ideology led Moscow into Bankruptcy, now its Washington's turn.
posted by Fupped Duck at 1:02 PM on September 25, 2008


Shooting in Pakistan too?

This is Bush saying "Look at me, John McCain! I can do two things at once, I'm a real president. Drive the economy off a cliff AND start a war with an ally, all at the same time? No problemo!"
posted by athenian at 1:04 PM on September 25, 2008


The pakistan thing was flares. They sent flares up to warn that the planes were nearing/crossing over the border.
posted by cashman at 1:10 PM on September 25, 2008


Ah this is a great topic!

When looking at the economic relationship of China and The United States we've always observed paradoxes and not just unsolved mysteries, but the passive acceptance of a relationship that causes material (to introduce an accounting phrase) harm to one of the players.

For example, recently I've seen some totally fascinating dead tree research from Lombard Street Research; specifically, their analysts estimate that China earns from 2% to 4% on their US Dollar reserves. These are typically invested in US Treasuries to support our deficit. Let's run with the low end to present a conservative case (and this is acceptable as US inflation rates have been very low for a protracted period of time).

When these profits (paid in US Dollars) are repatriated to China losses of as much as 10% are incurred, due to exchange rate variations, bid/ask spread and transaction costs. Meanwhile China is experiencing a relatively high inflation rate between 6% to 7%.

Put it all together, we see the actual return on China's enormous US Dollar Reserves could be a loss of roughly 15%!

In Dollar terms we're talking roughly $300B a year, perhaps as much as 8% to 10% of GDP (these things vary due to many factors including, but not limited to the uncertain nature of Chinese reporting, exchange rates, etc).

Very curious, its never really been very clear why they've put up with this situation for so long, but one good guess would be relative economic performance, which we've discussed before. In other words, all other things being equal, the US economy simply outperforms (on a long term basis, of course), all other contenders. So that's a very real possibility. Even in bad times, we suck less!

Another possible answer is the lack of a reasonable currency alternative. Remember, many, many factors are evaluated when a nation such as China considers where to store it's (hard earned) loot: economic performance is but one. Security and stability is another. Of course stability has multiple dimensions including at least political and (currently Metafilter's favourite topic it would seem), economic stability.

Well, until recently the Euro hasn't had the depth but then looking at economic performance we see that in 2005 The Eurozone expanded at about 1.6% compared to 3.6% in the United States. Looking forward (and I apolgise for spotty data here but I don't have time for proper details) we see The IMF predicts The US will outperform The Eurozone in 2008 and 2009 - specifically, 2008 US growth of 1.7% and Euro Zone growth of 1.4%, 2009 US growth of 0.8% Euro Zone growth of 0.7% (of course these estimates don't factor in the current excitement).

So in terms of economic performance the United States was (during the period in review) a clear winner. And based on what we know now the winner looking forward.

Of course there isn't an pan Asian currency yet, but I've mentioned before that I've long believed such a currency would make the most sense for a US Dollar replacement.

Only problem is, creating a new, viable currency system doesn't happen fast and nor does it happen inexpensively.

The Euro is just now coming into it's own, as much as it is for all intents and purposes the Deutsche Mark rebranded and spread continent wide. The Euro is a very solid, very stable currency, with strong and highly disciplined central bankers behind it. But even so, many previous attempts at creating a single currency in Europe failed for various reasons, so odds are one won't dramatically emerge in Asia in a relatively short period of time.

Unless, of course, one of the extremely unlikely, extremely distasteful worst case scenarios is realised and Asia has to. Until then ... well, I'll be looking for the news on my Bloomberg.

Guys I'm on biz in Amsterdam for a few day and don't have the time this evening (at least) to pursue this and some of the other economics threads in detail ... will try to revisit this weekend if not sooner.
posted by Mutant at 1:40 PM on September 25, 2008 [8 favorites]


A lot of people are worried because of a simple typo. They think this is a 700 billion bailout. It's not. It's a *bale-out*. By Christians. It's a 700 billion Christian Bale-out. Batmans will save us. Get it straight. Stop worrying.

But how do you know you're getting Batman-era Christian Bale, and not, say, Machinist-era Christian Bale? Cause that'd be bad.

Swing Kids-era Bale would be kinda neat, though. Cause hopefully we'd get Vinnie, too. And if we had Vinnie, then maybe he could bring along Doogie Howser. And if there's anyone that can fix all of our problems, it's NPH.
posted by inigo2 at 1:42 PM on September 25, 2008


"Little Women Christian Bale, you and I waltz obscenely close in plain view, while Reign of Fire Christian Bale saddles the horses. It's a hard ride across the moors, and then we're just one-hot air balloon ride from freedom!"

And if there's anyone that can fix all of our problems, it's NPH.

No, he is evil now. If anyone needs a death ray, I hear he is the guy to call though.
posted by Tehanu at 1:49 PM on September 25, 2008


Bale-out the Wall Street? Pat loves the idea!
posted by Free word order! at 2:36 PM on September 25, 2008


darkstar: that would be a huge load off. lemme write you a check.
posted by nosila at 2:54 PM on September 25, 2008


NPR's Planet Money answers: "Where did all the money go?" (podcast)
posted by Tehanu at 2:55 PM on September 25, 2008


jaduncan -- "Looks like the rest of the world is perfectly capable of downgrading things from AAA investments even before the agencies do it."

Crap I really should ignore Metafilter finance threads sometimes!

Yeh, ratings agencies are interesting creatures and occupy a special place in the financial ecosystem (I say this as an alumnus from one of the majors that shall go unnamed).

A point that many folks, including financial types miss is that credit ratings - from any agency mind you - typically are based on both forward and backward looking datasets.

In other words, to arrive at a credit rating - be it on a Sovereign, a security issued by a sovereign, or even the tranche of a CDO - both historical and forecasted data is used. A significant driver of the resultant rating is the relative weighting assigned to each set.

I'm not arguing the US totally deserves it's AAA or Aaa rating (S&P and Moody's ratings system respectively), but the point is as we know markets measure expected performance across the horizon, and as a distinct (largely, we'll come back to that later) dataset, divergence between markets and agency ratings is commonly observed. We can't and shouldn't read too much into these differences. They just are.

Another factor skewing the perceived disparity between the markets view of an entity's credit worthiness and the assigned rating is cycle. Ratings agencies typically review credit ratings NOT in real time but at discrete intervals; quarterly, semi-annually, etc. So lots of things can change between NOW and the day the ratings are calculated.

This only makes sense; after all, how would many folks feel should Experian review your personal credit rating the day before payday?

And what did I mean by distinct?

Well, one class of Credit Risk models (Structural) tend to look at the obligor's balance sheet; in other words, assets & liabilities and determine not only ability to pay but also the probability of default.

However newer models, in particular those derived from work done by KMV tend to look not only at the balance sheet but also information obtained from the stock market.

So the market can move - sometimes significantly! - before the ratings agencies react.

Finally, I've said before my personal opinion is a US downgrade is likely, and (at times at least) the ratings agencies seem to agree.

But it won't be the end of the world! After all, we've seen sovereign downgrades before; Canada was downgraded in 1995, and Japan in 1998.

A historical sidenote, 'cause all you folks know I just love the history of finance: Japan credit rating was actually lower than Botswana or Estonia after the downgrade!!

So it could happen to the United States, American could get lose it's AAA (Aaa) rating. What it would mean is a completely different topic.

Hey interesting post there billysumday - thanks again!!
posted by Mutant at 2:58 PM on September 25, 2008


It seems far more likely we're getting American Psycho-era Christian Bale. After all, Patrick Bateman was an investment banker. And we don't seem to be in for a good end.
posted by wildcrdj at 2:58 PM on September 25, 2008


In Dollar terms we're talking roughly $300B a year
I suspect you have conflated total Chinese profits with the return on their dollar holdings, or perhaps an extra zero slipped in. I believe total dollar holdings are in the region of half a trillion for each of the Chinese and Japanese.
Also, remember that exports are only 20% of the Chinese economy, so while not a drop in the ocean, a decline in US purchasing would not devastate the Chinese.
posted by bystander at 3:49 PM on September 25, 2008


Is this really happening, or is Wall Street just stealing all of my money?

Both! It's a desert topping and a floorwax!
posted by stavrosthewonderchicken at 4:45 PM on September 25, 2008 [2 favorites]


Thank goodness the economy is basically sound.
posted by flabdablet at 9:09 PM on September 25, 2008


matteo writes "the catch is, they'll still lend you money, but it's full of melamine"

Man I didn't mind when they were killing babies on the home front1 but they've contaminated White Rabbit the bastards! Where the heck am I supposed to get my white rice toffee fix now!? I say we mobilize the CFIA and nationalize the factory.

[1] Actually I do mind, the whole situation makes me want to roll up in a ball in the corner and cry. But the over the top outrage requires the indifference.
posted by Mitheral at 9:11 PM on September 25, 2008


Mutant: Not that I disagree about the possibility of a sovereign downgrade *eventually*, but I meant the US financial sector and issued low risk tranche CDOs being artificially boosted in value by the state rather than the state itself.
posted by jaduncan at 4:25 AM on September 26, 2008


Mmm...smells like fundamentally strong.
posted by darkstar at 12:13 AM on September 28, 2008


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