What about us?

From Newsweek a chilling collection of photos from America in Recession. Check it out, it is seriously haunting, and almost as telling as the images from New Orleans from a few years ago. Encapsulating the stubborn, irrational(?) pride of the American people unfolds the following story, which struck me as the stuff of timeless literature:

Wall Street specialized in slicing mortgages into complex derivatives, a process that made it easy to forget that real people lay at the end of the chain. When Carlene Balderrama failed to make payments on the home (shown above) where she and her husband and their 24-year-old son lived, the bank foreclosed. The house was set to be auctioned on July 23, 2008, but just hours before the auction began, 53-year-old Balerrama killed herself with her husband's rifle. She faxed a letter to her mortgage company first, telling them that "by the time they foreclosed on the house today" she'd be dead. She wrote a suicide letter to her family, asking that they "take the [life] insurance money and pay for the house".

Apparently, given the way Mrs Balderrama died, her family did not receive any insurance money.

PS. Yes, I couldn't resist not posting. See, blogging is as addictive as smoking...

Off to the deep waters

I am going off blogging for a week or two, because dissertation requires, alas, my undivided attention. Late January always sucks.

Protecting the economy from the banks*

I was wondering a few days ago in my discussion of Obama's inauguration speech what could possibly become of the banks in Obama's brave new world. Tight regulation, capitalization and perhaps insurance for the banking conglomerates that will survive the crisis was what I had in mind. Yet I read today in the New York Times that the new administration is seriously considering nationalizing banks. I am astonished. Besides the fact that this shatters an ideological consensus of more than 25 years, it also spells out extreme government intervention in a sector that was really the pinnacle of free market capitalism. And it is happening really really fast. But again we are living in unusual times. In a sense, it has already happened in Britain with the de facto nationalization of RBS and Lloyd's. And it has happened before in the US in 1983, when Reagan and Bush Sr., of all people, nationalized the Continental Illinois National Bank and Trust company. It is also the logical conclusion of the steep decline in trust that has plagued the banking sector and that has naturally put in the brightest spot the ultimate creditor, the national government. Nationalization is, however, extremely costly and means that the taxpayers will take up all the costs and the governments all the risks. It also sets in motion the wheel of interaction between politics and economics that spells out inefficiency and corruption. Of course, at this point none of these tradeoffs seems worse than sticking to the financial panic of the last 3 months. On the other hand, I am wondering if cartelization might not be a better option.

*The quote is taken from a recent report by Mervyn King, the governor of the Bank of England.