Crisis update: the big picture and the story-telling

In this article, we start with the larger-scale phenomena and then turn closer to story-telling. The British economy has suffered huge losses that we have not had a chance to address. On March 6, we pointed out an underemphasis in the media on existing trade losses that have occurred in year one of the contraction of GNP (not year one of various panics). Now we learn that China’s trade has followed Japan’s down the tubes to Depression-level losses. China is the third-largest economy in the world and it’s exports fell 25.7% in February, as its imports also fell 24.1%.(1)

Then we learn from Obama’s comrade(2) David Brooks at the New York Times what has happened with international investment:

“Stock market declines are destroying $23 trillion in wealth, according to Lawrence Lindsey. Auto production is down by two-thirds since 2005. In China, 20 million migrant laborers have lost their jobs. Investment in developing countries has dropped from $929 billion in 2007 to $165 billion this year.”(3)

Those are the important facts of recent days.

We also have the story-tellers coming out in force. First it was Citibank that said it made money in January and February, by some undisclosed formula. Then GM said it would not seek its next federal bailout payment while some smaller banks returned their federal relief money.(4)

Then in a different vein, we had Warren Buffet argue for a free market solution to the banks’ problems, a further loosening of regulation, not tightening. It seems the capital requirements are at fault.(5)

Underlying possible stories of bank success are the huge actions already undertaken by Bernanke to assume risky tasks not previously in his ken. Akerloff and Shiller call the situation of the banks easy because they can do “haircut loans” arranged by Bernanke.
Bernanke’s role is the confident and pumped up backstop of capitalism. Bernanke is already playing one con game and then along come various story-tellers to soothe the public. As long as the underlying con game works, everyone can go home believing what she or he wants about this period of the crisis. There are even instances where there is a strange synergy of story-telling, such as when Senators McCain and Shelby say some banks should go under and then Citibank suddenly issues good news.



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