One of my life’s ambitions is to be on This American Life. Now you can do the next best thing. NPR’s excellent Planet Money podcast is looking for people to talk about their personal economic situations; the hosts, joined by my co-author Simon Johnson, will talk about how you fit into the global economy and the financial crisis. It’s all explained here.
Day: October 21, 2008
Why Banks Won’t Lend – My Theory
Some people have said that Americans go to hockey games to see fistfights and go to NASCAR races to see car crashes. This thought occurred to me over the past few days while reading The New York Times online. If there were a New York Times index, it would indicate that the financial crisis is over. I can’t recall the last time a financial crisis-related story was at the top of the home page. (Today’s Fed intervention into money markets may have been on top, but by the time I got there the lead story was Kirk Kerkorian selling stock in Ford.) Instead, we’re back to the presidential election and Iraq. For a while there, it seemed like we might have the car crash to end all car crashes in the financial system, with banks failing left and right. Now, it looks like we’ve just got a boring old recession, where millions of people will lose their jobs. Move along.
But even if the multi-car pileup has been averted, the cars are still just barely limping around the track. The problem seems to be a lack of fuel – credit, in this case. Andrew Ross Sorkin in that same New York Times points out that banks are taking their money and stuffing it into a mattress instead of lending it to companies. (Yves Smith at naked capitalism says that consumers are doing the same thing, which, while personally wise, is not the best thing for the economy.) Now, banks only make money by lending money. So why aren’t they lending?
Sign of the Apocalypse: The TED Spread Gadget
Back in the glory days of 1999-2000 (I was in Silicon Valley at the time, and for us that was the real boom, not this housing thing everyone else likes to talk about), otherwise reasonable people would spend an inordinate amount of time checking stock tickers on their computers. It was probably one of the things, along with email, that first made the Internet a mass phenomenon. (For you kids out there, no, we didn’t have YouTube.) Well, in a perverse, bizarro-world echo of those times, now you can track the TED Spread using a Google gadget (you can add it to your iGoogle home page, or, I believe, to Google Desktop). So now you can distract yourself at work worrying about the fate of the financial system, without even having to go to Bloomberg.
By the way, it’s at 2.56, down from 4.64 on October 10. So the first battle is going well, although there are many more to fight.
(Thanks to Planet Money for catching that.)
The Baseline Scenario 