Apparently the House and Senate have come to an agreement on the stimulus package. I just received this alert but can’t get over seeing $789 billion and the words “scaled back” in the same sentence. While accurate it is still hard to fathom.
Richard Hoey, chief economist for the Bank of New York Mellon Corporation, speaking at the Managed Funds Association Network conference in Key Biscayne, Fl. earlier this week, gave his take on the current economic crisis and the stimulus package.
Hoey says a stimulus package needs to be big, fast and well designed. Of the current package he said two out of three is not bad and predicted it would pass.
“We had a collapse of credit discipline,” Hoey said of the crisis. He described the problem as an “ambiguity about implied guarantee of risk,” pointing out how quasi public/private institutions like Freddie Mac and Fannie Mae created an assumption there would be a government backed guarantee and in the end there was for everyone except Lehman.
Hoey said that nobody believes there is a guarantee for hedge funds but “The market believed Lehman was so big that it would create a total meltdown.” On Sept. 15 the “row boat went over Niagara Falls leading to a severe recession.”
Hoey said that there are two types of recession: an inventory recession and the more serious debt/deflation recession, which we are in. He predicted a trough to the recession somewhere at the mid-point of 2009 but expects the recovery to be weak.
[...] that Canada is the only industrialized nation to not face a single bank failure, not to mention government intervention and bailouts, in the financial or mortgage sectors. Also, he mentions that the World Economic [...]