Disaster Movie Gets a Sequel, With Subtitles - It is beginning to feel a lot like 2008 all over again -
It is beginning to feel a lot like 2008 all over again. But it’s not the same.
As markets tumble — the Dow Jones industrial average fell 5.6 percent on Monday — it is instructive to hear from someone who knows a thing or two about a financial crisis: Henry M. Paulson Jr., the former Treasury secretary.
And he turns out to be more sanguine about the United States, after the Standard & Poor’sdowngrade, than some other voices being heard amid the tumult.
“While the players in Washington certainly haven’t performed at AAA level, I would certainly take U.S. Treasuries over other AAA sovereigns any day,” Mr. Paulson told me.
Yes, there has been much hue and cry over S.&P.’s cut in the credit rating of the United States. But the credit rating downgrade almost seems like a bad joke considering what happened in the bond market: Treasuries rallied as yields fell on Monday to their lowest levels since 2009. In other words, investors felt Treasuries were a safer — yes, safer — bet after S.&P. downgraded them than they were before. (What does that say about S.& P.’s credibility in the bond market?)
The downgrade may point up the enormous challenges facing the country — persistent unemployment and the possibility of slower economic growth is a hard truth that may ultimately force the cost of borrowing to rise for the nation over the long term.
But the downgrade is almost a sideshow compared with the real reason that stocks started falling Monday morning, before panic set in and the momentum of the market took over: the intractable problems in the European Union, which look a lot more like the United States banking crisis circa 2008 than what’s happening on this side of the Atlantic now.
Pretend for a moment that countries like Greece, Spain and Italy are our banks in 2008. They are close to insolvent. (And the actual banks in Germany, Britain and France that are supposed to be strong are horribly undercapitalized and are holding too much debt from countries like Greece, Spain and Italy — all countries that truly may not be able to pay it back in full.)
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