Officials working to prevent "a complete meltdown of the financial systems" - 20-Sep-2008 - Generational Dynamics

Generational Dynamics Web Log for 20-Sep-2008

Officials working to prevent "a complete meltdown of the financial systems"

Congress and administration officials are working through another weekend to try to find a way to prevent a systemic financial crisis.

According to the NY Times story:

"September 20, 2008
Congressional Leaders Stunned by Warnings
By DAVID M. HERSZENHORN

WASHINGTON — It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.

Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.

“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”

Although Mr. Schumer, Mr. Dodd and other participants declined to repeat precisely what they were told by Mr. Bernanke and Mr. Paulson, they said the two men described the financial system as effectively bound in a knot that was being pulled tighter and tighter by the day.

“You have the credit lines in America, which are the lifeblood of the economy, frozen.” Mr. Schumer said. “That hasn’t happened before. It’s a brave new world. You are in uncharted territory, but the one thing you do know is you can’t leave them frozen or the economy will just head south at a rapid rate.”

As he spoke, Mr. Schumer swooped his hand, to make the gesture of a plummeting bird. “You know we’d be lucky ...” he said as his voice trailed off. “Well, I’ll leave it at that.” ...

Lawmakers in both parties described the meeting in Ms. Pelosi’s office on Thursday night with Mr. Paulson and Mr. Bernanke as collaborative, and that they were prepared to put politics aside to address the needs of the American people."

According to several commentators on Friday, a major issue being address is a possible worldwide panic on money market funds. Furthermore, the effects of the Lehman Brothers bankruptcy are still being felt.

From the point of view of Generational Dynamics, there are three important points:

I've written often about a concept from generational theory known as the "regeneracy." It refers to a point in the generational cycle where civic unity is regenerated for the first time since the end of the previous crisis war (WW II in our case).
What we're seeing now is the first signs of the regeneracy. This situation is so serious that political bickering has been sharply reduced, though not yet eliminated. Once an actual panic occurs, then the real regeneracy will occur.
(For information about the term "regeneracy," see "Basics of Generational Dynamics.")

The situation is also so serious that Fed Chairman Ben Bernanke, Treasury Secretary Henry M. Paulson Jr., and even President Bush are no longer saying "the fundamentals are sound."

I don't know what they're going to try to do this weekend, but there's nothing they can do to prevent a worldwide financial meltdown. The huge credit bubble is leaking now, and nothing can prevent a complete financial collapse. Maybe they'll figure out a way to postpone the crisis again, but they can't stop it.

I'll repeat what I've been writing for the last six months:

I've estimated that the probability of a major financial crisis (generational stock market panic and crash) in any given week from now on is about 3%. The probability of a crisis some time in the next 52 weeks is 75%, according to this estimate.

Things must be very close now, and I could probably increase the "3%" figure to about 10%.

A big sign of how close things are is the major "crash upward" in several of the world's stock markets -- 6% in two days on Wall Street, 8% in Europe, and 26% in Russia. (20-Sep-2008) Permanent Link
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Generational Dynamics Web Log for 20-Sep-2008 Officials working to prevent "a complete meltdown of the financial systems"

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Generational Dynamics Web Log for 20-Sep-2008
Officials working to prevent "a complete meltdown of the financial systems"