"a fish, a barrel, and a smoking gun"
for 23 November 1998. Updated every WEEKDAY.
Cap'n Credit Crunch


[rockstar 'Jeez, you can sleep anywhere'
odd places in which i've fallen asleep:

Nobel prize, schmobel prize:

Pretty much anyone you ask would

agree that you'd have to be, as

they say, dumber than a barrel

of hair to bet money on global

economic stability. But as you

may have heard, this is exactly

what major banks, investment

houses, and other assorted gangs

of idiots did when they forked

over hundreds of millions of

dollars to Long-Term Capital

Management and other hedge

funds, which in turn bet the

multibillion-dollar farm on

arcane equity and currency

derivatives to win, place, and



Instead, LTCM won a trifecta of

bubkes, with global

repercussions, including a

sudden collapse in stock prices

and a massive

good-money-after-bad bailout

engineered by the Federal

Reserve. Of course, the banks

were only too happy to play

along, since the bailout

resulted in their acquisition of

90 percent of LTCM and any

future returns as it "unwinds"

its positions. However, this

situation brings up the

question: Do you really want to

buy the rental car that just

left you stranded by the side of

the road?


More important, the sudden

stock market deflation and

leading indicators, such as

declining exports and a consumer

savings rate that was actually

negative in September, led Fed

Chairman Alan Greenspan to drop

interest rates three times in

seven weeks. This unusual series

of moves has us asking,

What the hell else might Alan

Greenspan be trying to engineer?


[ the couch at nineup.com during two separate rock shows, the purple onion, SF during several different rock shows (not drunk), ]

If you weren't either too young

or too rich to need credit in

the early '90s, you may

snarlingly remember Fed Chairman

Alan Greenspan as Cap'n Credit

Crunch. (And since random,

unconfirmable anecdotes are the

engine of our credibility, we can

tell you that one Suckster got

his very first credit card

during the last recession -

mid-1990, only to see his

slightly less-than-obscene 16

percent interest rate shoot up

to 24 percent within two years;

all without ever making a late

payment.) Why? Because the banks,

keen on profit margins that

distinguish bankers from mere

mortals, had just made exactly

the same mistakes the banks are

making again now. Their bets on

real estate, in particular, had

turned seriously rank, and their

answer to the problem was to get

much-needed money from the one

group they could always count on

to be too ashamed to chisel

them: consumers.


As James K. Galbraith narrates

the chain of events in his new

book Created Unequal: The Crisis

in American Pay, Greenspan's

response to the recession of

1989 and 1990 was to drop

interest rates dramatically. He

dropped them so fast, in fact,

that banks suddenly found they

could make more money by not

lending to businesses and by not

lowering (or even raising) rates

on consumer debtors. During this

time, banks also invested

heavily in long-term Treasury

bonds, the rates for which fell

more slowly than the Fed Funds

rate did. The banks saw the

Fed's willingness to lower rates

so quickly as an opportunity to

profit from Alan Greenspan's

labile personality.


[the Kommotion, SF during the three mile pilot, van goghs daughter, tina age 13 show (neither drunk nor high, despite speculation),
the floor of rockstar's mom's house, with company over,

To get an idea of the situation,

one can imagine a silent-movie

pantomime: An enormously fat

banker is dressed in a

three-piece suit, with a chained

pocket watch tucked neatly into

a fob and mustache-ends waxed to

fine points, and the disheveled

Mr. Greenspan holds his hand

lower and lower and lower,

indicating the Fed Funds rate.

The banker quickly catches on

that Greenspan is so eager to

please that he will continue to

lower interest rates without

even a hint that the banker will

agree to ease lending policies.

And so the banker waits, until

the spread between the pitiful

interest rate he pays depositors

and the interest rate he is

making on government-guaranteed

investments begins to narrow, as

the long-term rates naturally

decline. Finally, the banker

nods his assent, a gesture of

promise that he will begin

lending again. And so our

nebbish Greenspan starts raising

rates again. But surprise! Now

the banker waits until interest

rates rise to a "profitable"

level. As the economy begins to

recover, more or less on its

own, bankers sit on the

sidelines, entering lucrative

"sub-prime" markets by loaning

at high rates to losers with bad

credit histories instead of

loaning to businesses.


Fast forward to 1998, when

sub-prime lending is now a huge

business and less risky overall

than loaning to Brazil,

Malaysia, and Russia. (Let the

IMF handle that.) As the signs

become clearer that the pesky

business cycle might once again

be backpedaling, we learn from

the Wall Street Journal that the

sub-prime market is now growing

to include the retarded.


[ a dublin pub (not drunk), well, rockstar has slept in almost every taxi i've seen him in.  so there.  ]

"'Robbie doesn't know the

difference between $7,000 and

$70,000,'" the father of one

mentally disabled credit-card

debtor told the Journal. It

turns out Robbie works at Taco

John's in Newton, Iowa, but

nevertheless was allowed to run

up US$4,000 in credit debt,

without understanding the

concept of revolving credit. "I

get a little confused," Robbie

said to the Journal.


And so do we. Banks are afraid

to lend to businesses - which

are less risky than the hedge

funds that just mowed their Q3

profits like a lawn - but they

have no trouble throwing credit

cards at the mentally disabled.

The Fed engineers a bailout of a

hedge fund but is afraid to

tamper too much with the

international financial system.

Some say the stock market is

headed for 10,000. And our

Suckster's credit card interest

rate? It's standing firm at 21



All we can say is: If all this

shit stinks, and it does, then

we're not out of the bear's

woods yet.

courtesy of LeTeXan

[Purchase the Suck Book here]