pbs doc: inside the meltdown
Cheerful viewing. This is the recent PBS Frontline Documentary on the financial implosion. It’s got some heavy hitters, and I like it in some regards. My main criticism of the piece however is the focus on the problem as one of illiquidity–i.e. the implosion or the problem in question is in the banking sector. Rather the central core of the issue seems to me to be a deflationary-debt cycle which funneled through the financial sector via the shadow banking system of credit default swaps, collateralized debt obligations, mortgage securities, and all the rest. That the banking sector had so insanely over-leveraged itself is a serious systemic problem, but combined with a deflation of the American consumer (which then activated all their potential losses, toxic assets, and obligations post-losses, i.e. “the gig is up and gone” element to all this) becomes a dark dangerous and quite scary brew.
I’m not sure how (or if) this would have all gone down minus the deflationary-debt consumer cycle–it’s hard to separate them as one of but not the only main factor in the over-burdened debt of the consumer was via the irrational exuberance of the housing bubble (others include increased costs of education and health care)–but that’s all a what if game at this point. Perhaps the connecting thread through both sectors was the over-assumption of debt.
The documentary ends with the question about how much money it will take to bail out Wall Street and whether newly installed President Obama will be the guy to fix it. Whatever he can or can’t do on that front, the central issue is not illiquidity (although that is certainly making matters much worse) but insolvency. I don’t see how insolvency gets fixed through restoring bank to bank lending. As proof, AIG got a second round of bailout money Sunday.
All the money that is being spent on propping up what I think is a dead system (cf illiquidity/TARP I & II) nor neo-Keynesian demand side stimulus packages should in my opinion rather be spent on protecting and caring for lives through the transition period after the fall. The GOP only offers tax cuts and the Democrats only offer Big Gov’t spending. They both are offering 20th century solutions to what is in my mind a 21st century problem.
Anyway enough of my yabbering on, cue the sneak peak of the film… You can (and should) watch the full episode here.