> "The credit system appears as the main lever of
> overproduction and overspeculation in commerce solely
> because the reproduction process, which is elastic by
> nature, is here forced to its extreme limits, and is
> so forced because a large part of the social capital
> is employed by people who do not own it and who
> consequently tackle things quite differently than the
> owner, who anxiously weighs the limitations of his
> private capital in so far as he handles it himself."
>
> -Karl Marx, Capital Vol. 3
JAMES WOLFENSOHN: But I happen to think that he (Greenspan MB) was one of the best heads of the Fed that there were. But I think he was blindsided by this. I don't think he had, for whatever reason, any sense of the enormity of the potential disaster that was facing him. I think that traditional economists were looking at the question of interest rates, of inflation, they were prudently going about their business for the other members of the board of governors. They would come into the meetings, they'd move it by 0.25 per cent, they'd move up or down, they'd give some sphinx-like comment to the congressional committee and the markets would move a little bit either way, and that was the game the game was played since Volker. Volker, if you remember, when he was head of the Feds, had this problem of uncertainty in the markets he took rates up to 30 per cent, 35 per cent to try and break the inflationary cycle. Alan didn't see that coming. There was very modest inflation. What was happening was that you had an expansion of credit at a level that was unsustainable because the credit quality was being expanded in a way that the new credits that were being added, as is now clear, were simply not tenable and so when the thing, the house of cards came down, there was no base there and the top, which were all these mortgage bank securities, all of a sudden had no value. You couldn't get a bid for these mortgage bank securities. So, banks were writing off $5 billion, 10 billion, 15 billion and some of the major banks, institutions in New York which were one in particular which was worth $270 billion is if today worth $100 billion in the market and this is not atypical of what's been happening in Europe or in the whole banking system.
KERRY O'BRIEN: Could this have come at a worst time for America in terms of its place and its reputation in the world? China goes ahead economically in leaps and bounds while America tries to recover from the perception, if not the reality, of a foreign policy disaster in Iraq, with serious structural economic problems at home?
JAMES WOLFENSOHN: Well I think the United States is not in its best moment. We've had a period of Bush in which the public deficit has gone from $US6,000 billion to $US9,000 billion. So, if you talk about debt, the national debt in the United States has expanded exponentially partly because of the war but not solely because of the war.
Secondly, you've seen a huge belief in the expansion of India and China and we're now seeing that belief is being materialised as they enter the markets, as China enters and so on but China and India today still have a less than a half in GDP than the United States, maybe it's a third of the GDP of the United States, which is roughly 14 trillion and they together maybe 4. So, in terms of the economic power in the world today, and in terms of the place that China and India need, and the world needs, it's US to import.
Now you can wipe off the United States and you can say, you know, they've managed it badly, but God forbid it really gets tough in the United States because the impact will not allow people in China and India and exporting countries to stand back and say well you see they've screwed up because it will affect them and I think it is the interconnection between the United States and the rest of the world, in a sense, still a dependence on the United States which we yet have to assess
full: http://www.abc.net.au/7.30/content/2007/s2205214.htm
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Greenspan got blind sided; but people like Dean Baker saw the speculative housing bubble coming. The fact is that Greenspan allowed the Fed to lend/print more money than the U.S. working class could back up in created value.
Again, as Wolfensohn said: Alan didn't see that coming. There was very modest inflation. What was happening was that you had an expansion of credit at a level that was unsustainable because the credit quality was being expanded in a way that the new credits that were being added, as is now clear, were simply not tenable and so when the thing, the house of cards came down, there was no base there and the top, which were all these mortgage bank securities, all of a sudden had no value.
Mike B)
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