See no crisis

We watched the Fox News Saturday morning money shows to see how they’d spin the economic news of the past week. Wow.

They’re still asking whether viewers agree with “some Dems” that the U.S. economy is in a recession — as though the loss of 63,000 jobs in February is the fault of a few liberals shooting off their mouths.

Those employment figures include 38,000 new government jobs, so non-government employment actually shrank by 101,000 last month.

Apparently the Fed doesn’t think this is a politically manufactured crisis:

The global credit crisis plunged to new depths yesterday as persistent fears over the collapse of a large financial institution caused funding markets to dry up and forced the US Federal Reserve to make available up to $200 billion (£99.3 billion) of emergency financing.

The Fed said that a “rapid deterioration” in the credit markets in recent days had prompted it to begin a series of fresh cash injections in an effort to shore up the balance sheets of America’s stricken banks. Unemployment also shot up in the US last month, adding to the gloom. US stocks tumbled, dragging the Dow Jones industrial average down 138.40 points to 11.902.00. Treasury prices jumped and the dollar fell to record lows.

Bankers said that the moves underscored the deepening severity of the crisis, which was triggered last June by the collapse of the American sub-prime mortgage market and has got progressively worse since. One senior banker in London said: “This is the beginning of the real credit crisis and it’s not going to end without a major casualty.”

Sources said that the present crisis was triggered by cash-strapped banks starting to get tough with their hedge fund clients by making margin calls on loans and drastically raising interest rate payments overnight. The move has pushed the funds into the panic-selling of assets, mostly AAA-rated US mortgage securities, and several are thought to be on the brink of collapse. One of them, Carlyle Capital Corporation (CCC), said yesterday that overnight it had received “substantial additional margin calls” linked to its souring investments in US mortgages.

Thornburg, the US mortgage lender, exacerbated investor jitters when it said that it did not have enough cash to meet $610 million of margin calls. Last week Peloton, a London hedge fund, collapsed after it became unable to meet the banks’ demands.

Bankers said that the problem was related to a perceived increased risk surrounding the AAA-rated prime mortgages and to the consequences of dangerous overleveraging of the funds themselves. In the case of Carlyle, its CCC fund had leveraged its assets by $30 for every $1 of its own cash.

“The whole industry was created by cheap debt,” the banking source said. “It was really all just an illusion.”

What’s happening to the economy is what would happen to me if I ran up thirty times my assets on credit cards and put it all into high-risk investments — except that the government wouldn’t bail me out.

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