Worst Crisis Since '30s, With No End Yet in Sight - WSJ.com

Worst Crisis Since '30s, With No End Yet in Sight - WSJ.com

The WSJ analyzes the problem as the financial markets rock and roll. This is not a pretty picture and most people think it will get worse before stabilizing. As people cast about for villains and point fingers of blame, one name seems to be missing: Alan Greenspan.

He  was the man in charge of the huge increase in borrowing enabled by the Fed's providing easy credit during the years leading up to this deleveraging.

I wonder what's being taught this week is the business schools of our major universities. Perhaps the previous teaching about 'complex financial instruments'  is tempered with some basics such as 'understand your assets and value them properly.

"Fed and Treasury officials have identified the disease. It's called deleveraging, or the unwinding of debt. During the credit boom, financial institutions and American households took on too much debt. Between 2002 and 2006, household borrowing grew at an average annual rate of 11%, far outpacing overall economic growth. Borrowing by financial institutions grew by a 10% annualized rate. Now many of those borrowers can't pay back the loans, a problem that is exacerbated by the collapse in housing prices. They need to reduce their dependence on borrowed money, a painful and drawn-out process that can choke off credit and economic growth.

At least three things need to happen to bring the deleveraging process to an end, and they're hard to do at once. Financial institutions and others need to fess up to their mistakes by selling or writing down the value of distressed assets they bought with borrowed money. They need to pay off debt. Finally, they need to rebuild their capital cushions, which have been eroded by losses on those distressed assets."

Worst Crisis Since '30s, With No End Yet in Sight - WSJ.com