Friday, October 3, 2008

Krugman on the Abyss

This is terrifying. It is the latest NY Times article by Paul Krugman:

As recently as three weeks ago it was still possible to argue that the state of the U.S. economy, while clearly not good, wasn’t disastrous — that the financial system, while under stress, wasn’t in full meltdown and that Wall Street’s troubles weren’t having that much impact on Main Street.

But that was then.

The financial and economic news since the middle of last month has been really, really bad. And what’s truly scary is that we’re entering a period of severe crisis with weak, confused leadership.

The wave of bad news began on Sept. 14. Henry Paulson, the Treasury secretary, thought he could get away with letting Lehman Brothers, the investment bank, fail; he was wrong. The plight of investors trapped by Lehman’s collapse — as an article in The Times put it, Lehman became “the Roach Motel of Wall Street: They checked in, but they can’t check out” — created panic in the financial markets, which has only grown worse as the days go by. Indicators of financial stress have soared to the equivalent of a 107-degree fever, and large parts of the financial system have simply shut down.

There’s growing evidence that the financial crunch is spreading to Main Street, with small businesses having trouble raising money and seeing their credit lines cut. And leading indicators for both employment and industrial production have turned sharply worse, suggesting that even before Lehman’s fall, the economy, which has been sagging since last year, was falling off a cliff.

How bad is it? Normally sober people are sounding apocalyptic. ... And the people who should be steering us away from that abyss are out to lunch.
For years I've read about the Great Depression and the people who lost "everything" in the depression. I've wondered how that is possible. Well... I now find myself a victim of this crash and I can honestly report that it is easy to be a victim. It happens by stages and at each stage you think "but it can't get worse!" and in fact it does. Chances to save yourself are passed by as you continue to believe that the system can't be that faulty and that the key people can't be that corrupt/incompetent, but in fact you discover they are. It is a slow moving train wreck that has mesmerized you. You could have escaped, but you remained feet firmly planted in the ground because you simply couldn't believe that it would be as bad as it becomes. Your innate optimism has turned you into a chump. The cynical and the criminal survive. Fools like myself become fodder to the great machine chewing up the economy. Sad.

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