I’ve spent most of the day alternatively playing with my son and resisting the efforts of those online to depress the crap out of me. I keep teetering between the idea that my past two articles in my “positive economics” series are correct, and the feeling that maybe I should just let go let the darkness consume me as well.
I’ve been toying with it, if you’re on my GTalk list, you know what I’m talking about.
“sorry. may be slow to respond. i blame the recession.
Of course, I’m joking, but if you believe the dire picture that’s being painted
over the last couple of days, we’re all headed to the stone age, and we need to all hone our haggling and bartering skills, because the money we make will soon be worthless piles of paper.
I spoke to a longtime friend of mine that’s now in the banking and mortgage business. More specifically, he does foreclosures on mortgages – he’s been talking about what happened last week for the last two or three years (maybe even longer). Even though it’s probably an asshole move to a friend of that calibre to talk shop on the weekend, I just asked him point blank when the end was.
“A long, long ways away,” he said. “At least, until property prices return to what they should be and the market becomes stable.”
He also had some interesting thoughts on the bailout. I’m not personally comfortable with the bailout, because I’m of the opinion that this is somewhat of a market correction, and interfering with that hasn’t seemed to help any (as I predicted it wouldn’t last week).
“I’m not a fan of it, this partial bank nationalization that’s going on, honestly,” my friend told me. I’m also not a fan of banks buying banks. But i’m much more a fan of nationalization and mobility towards monopoly than I am of a banking system collapse.”
I’m still curious on the connection between the investment banks and the consumer banks. I’ve not had that one exhaustively explained to me, and the one time I came really close to understanding it, I was talking with Jim Harper of the CATO Institute, and he was of the opinion (from anecdotal evidence collected by the Intsitute) that the two were divorced enough that there wouldn’t be a systemic impact on commercial and consumer lending.
My friend disagrees, however.
“That’s only partially true, in things I’ve seen,” he explained. “One thing that we’ll have a big problem with is the short term business loans that most companies use to operate, like the ones that only go from 14-45 days. They’re most often used for payroll and such. Companies that take out the loan now tend to pay it back pretty quickly.”
He then, in the way my friend does so well, explained the nightmare scenario.
“However, one company running the risk of not being able to pay their employees for two weeks is something that’s pretty unacceptable,” he said. “That happens to one large corporation, well, can you imagine the panic? I mean, pick any large company it could happen to, and then watch the reactions.”
“Imagine the new worry: Not ‘will my job be there?’ but instead ‘can they get the loan to do payroll?’
Now, before you all start panicking, this isn’t me changing my overall tone in coverage of this. I wanted to press him for more details, but I’m guessing he got tired of me abusing our friendship and logged off to go zone out in World of Warcraft or something, so I didn’t get permission to cite his name on this, nor did I get the chance to have him explain the likelyhood of the scenario.
Given the fact that I’ve known him for more than a decade, I can tell you a couple things about him: he’s very prone to seeing the worst case scenario (though he calls it being a realist), he’s the most logical person around (before he was a banker, he was one of my mentors as a coder and hacker), and doesn’t make authoritative statements about things where he’s generally unsure of what he’s talking about.
Most importantly (and perhaps startlingly), he’s been predicting the week we had this week to me for the last two or three years.
You can choose to look at this one of two ways, thus, since I put a fair amount of stock in what he has to say:
- This is going to be a long winter, so store your nuts. Preferably in a cellar below your log cabin in the middle of the uncharted forests.
- Or, this will end, and there are what appears to be some termination conditions on this crisis, and they will eventually be reached.
Thoughts on any of this?