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Sep 14 2008
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2 reviews
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economics, politics, society, finance
• rgemonitor.com
Lehman collapse to be followed by the collapse of the shadow banking system...
in RGE Monitor by Nouriel Roubini
It is now clear that we are again u2013 as we were in mid- March at the time of the Bear Stearns collapse u2013 an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system.
Lehman collapse to be followed by the collapse of the shadow banking system...
I have been distracted these last few months by our moving near NYC (Milford Pa) and had thus no time left for posting comments on SU. I'm still quite much occupied but I think that the accelerating collapse of the Western financial system is something so big in term of the impact it will have on our daily lives that I have to come out of my retreat.
1. Climate change + peak resources + the side-effects of modernity are part of a process within the long time range. A financial collapse of the Western financial system is part of a process within a far shorter time frame and as such it's impact on all of us is going to obliterate our consciousness of the longer time frame crisis.
2. The effects of this financial meltdown will not be short-lived they will be felt over quite some years to come. In short we'll have more and more difficulties to access credit and hard cash will become the rule of all transactions. The direct consequence is going to be generalized deflation. The prices of all assets are going to crash because solvent buyers are rare. If you are among the lucky ones to be debt free and holder of cash you will be able soon to purchase any kind of asset or commodity for a few cents on the dollar. If you are carrying debts you're going to become the slave of the realigned financial system.
3. Whoever is at the helm of the state machinery will be left with the financial charges of huge state debts that the realigned financial system will collect before the state is able to pay for any other expense... This means that research and development, education, the maintenance of the public infrastructure and the social safety net will all suffer budgetary shortfalls. That you are called Obama, Mac Kain. Brown or Whatever will not change the parameters of this political equation.
Check here what Jim Kunstler writes about all this on his blog Clusterfuck Nation.
