What will this month be called?

[jducoeur]

A light question about a serious topic: when the historians write about the roller-coaster ride we're in the middle of, what will they call it?

I mean, every important historical event gets a catchy name, from "Watergate" to "9/11" to "Black Monday". It's clear to me that this September is one that they'll be talking about for decades to come, which means that they *will* settle on a common name for it eventually. How long it takes for such a name to arise ranges from days to years, but there's no time like the present.

So here's your chance to influence the history books. What would *you* call this mess?

Fine print: Winner will be selected by consensus of historians in 20 years. It is not guaranteed that any entrant will win. Chances of winning are directly proportional to relevance and pithiness of name, but it is entirely possible that these will not matter. Bad puns do not guarantee victory. Keep your hands inside the ride at all times.

Comments

[jducoeur]

See, I still don't get where credit has gone -- credit is created by leveraging assets.

Correct -- the problem is, to a large degree, that the assets have been over-leveraged. (Sometimes to a preposterous extent: I've taken to referring to some of these 30-fold-leveraged companies as "subprime" just to drive the point home.) Even some perpetrators have tacitly admitted that, in the fact that they are switching over to different structures that don't permit such extreme leverage.

(Assuming there isn't a bank panic -- mass psychology is a big player in all this.)

Arguably the principal issue. Most people admit that the main purpose of the bail-out is purely psychological: by providing an amorphous sense that things might get better, it theoretically helps avoid a credit panic. (Which we're hovering dangerously close to -- my general sense is that the markets are hanging on Congress, to see what happens before deciding whether to panic or not.)

Though, if our two statements are both correct, this means that the economy runs on too-easy capital, meaning that we're screwed even with the bail-out.

Quite possibly so -- the main benefit of the bail-out is that it potentially allows the air to be bled out of the mess gradually, instead of crashing suddenly in a total crisis of confidence. There's no question that things have to be unwound, though, and I suspect the choice is at best between an irritating recession and a genuine crash...

[meiczyslaw.livejournal.com]

I've taken to referring to some of these 30-fold-leveraged companies as "subprime" just to drive the point home.

From what I've been reading, 30:1 is actually a rational leveraging ratio. The companies that have folded supposedly had a 60:1 ratio.

More on psychology:

If you notice in a previous post, I mentioned that the foreclosure rate in 1999 was worse that today's -- yet does anyone remember this kind of near-panic? Much less hearing about it?

[jducoeur]

Basically true, although it all comes down to assessment of risk. While things were frothy, everyone was sure that foreclosures would be Low Low Low. Now, everyone is worried that the rate is rising and will continue to rise. That's not entirely irrational -- all those unwise ARMs are starting to tick upwards, and are gradually getting worse. So there is reason to believe that we're still basically at the tip of the iceberg, and that the rate will rise; that *uncertainty* is a large part of what's making things crazy.

But all that said: yes, a lot of people are just as irrationally worried now as they were irrationally sanguine before. Herd psychology is very powerful...