Poof!

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There is a wonderful saying in Spanish, "eramos pocos y parió la abuela", which translates literally as, "there were only a few of us and grandmother gave birth" and means, "it was the last straw". Obviously the English version gives none of the surreal exasperation of the Spanish original.

This saying comes to my mind constantly when I put the economic news alongside the geopolitical stuff. So many calamities taken all together become a thing to itself, the quantity turns into a quality, something called a "tipping point".

Tipping into what? That is the question. DS

Nouriel Roubini says:
I now see the risk of a severe and worsening liquidity and credit crunch leading to a generalized meltdown of the financial system of a severity and magnitude like we have never observed before. In this extreme scenario whose likelihood is increasing we could see a generalized run on some banks; and runs on a couple of weaker (non-bank) broker dealers that may go bankrupt with severe and systemic ripple effects on a mass of highly leveraged derivative instruments that will lead to a seizure of the derivatives markets (think of LTCM to the power of three); a collapse of the ABCP market and a disorderly collapse of the SIVs and conduits; massive losses on money market funds with a run on both those sponsored by banks and those not sponsored by banks (with the latter at even more severe risk as the recent effective bailout of the formers’ losses by theirs sponsoring banks is not available to those not being backed by banks); ever growing defaults and losses ($500 billion plus) in subprime, near prime and prime mortgages with severe known-on effect on the RMBS and CDOs market; massive losses in consumer credit (auto loans, credit cards); severe problems and losses in commercial real estate and related CMBS; the drying up of liquidity and credit in a variety of asset backed securities putting the entire model of securitization at risk; runs on hedge funds and other financial institutions that do not have access to the Fed’s lender of last resort support; a sharp increase in corporate defaults and credit spreads; and a massive process of re-intermediation into the banking system of activities that were until now altogether securitized. READ IT ALL

Tipping point: Coming to grips with failure in the Middle East

David Seaton's News Links

Today, UN Secretary General Kofi Annan said, "If I were an average Iraqi, obviously I would make the same comparison, that they had a dictator who was brutal but they had their streets, they could go out, their kids could go to school and come back home without a mother or father worrying: 'Am I going to see my child again?' The society needs security and a secure environment for it to get on. Without security, not much can be done - not recovery or reconstruction." There is a moment when failure becomes 'official', a moment when Paul Krugman asks, "How do you ask a man to be the last to die for a bully’s ego?" This moment is called the "tipping point", when people start running for the doors. Many Americans have trouble realizing how bad things really are at this moment; the American managerial class, mostly lives cocooned in the comfortable banality of the suburbs, . But in the Middle East, where rich and poor... they are all of them staring death and chaos straight in the face, every day... for them, all this is all very real. At bottom I think both Americans and the people of the Middle East thought the USA was much more powerful than it really is. All of us still lived with the image of the omnipotent America of the 1950s and 1960 in our heads and together we are having to face the truth. Only facing that truth is a much more serious business in the Middle East than in an American suburb. DS

Mideast allies near a state of panic - Los Angeles Times
Abstract: Instead of flaunting stronger ties and steadfast American influence, the president's journey found friends both old and new near a state of panic. Mideast leaders expressed soaring concern over upheavals across the region that the United States helped ignite through its invasion of Iraq and push for democracy — and fear that the Bush administration may make things worse. President Bush's summit in Jordan with the Iraqi prime minister proved an awkward encounter that deepened doubts about the relationship. Vice President Dick Cheney's stop in Riyadh, the Saudi capital, yielded a blunt warning from the kingdom's leaders. And Secretary of State Condoleezza Rice's swing through the West Bank and Israel, intended to build Arab support by showing a new U.S. push for peace, found little to work with. In all, visits designed to show the American team in charge ended instead in diplomatic embarrassment and disappointment, with U.S. leaders rebuked and lectured by Arab counterparts. The trips demonstrated that U.S. allies in the region were struggling to understand what to make of the difficult relationship, and to figure whether, with a new Democratic majority taking over Congress, Bush even had control over his nation's Mideast policy. Arabs are "trying to figure out what the Americans are going to do, and trying develop their own plans," said Sen. Jack Reed (D-R.I.), one of his party's point men on Iraq. "They're trying to figure out their Plan B." The allies' predicament was described by Jordan's King Abdullah II last week, before Bush arrived in Amman, the capital. Abdullah, one of America's steadiest friends in the region, warned that the Mideast faced the threat of three simultaneous civil wars — in Iraq, Lebanon and the Palestinian territories. And he made clear that the burden of dealing with it rested largely with the United States. "Something dramatic" needed to come out of Bush's meetings with Iraqi Prime Minister Nouri Maliki to defuse the three-way threat, Abdullah said, because "I don't think we're in a position where we can come back and visit the problem in early 2007."(...) Expressing deeper unhappiness with the United States, leaders from Jordan, Egypt and Persian Gulf countries told Rice during her trip to an economic development conference in Jordan on Friday that the U.S. had a responsibility to solve the Israeli-Palestinian conflict, which they and many analysts viewed as the key to regional stability. Amr Moussa, secretary-general of the Arab League, urged greater U.S. action, warning that the Middle East was becoming "an abyss…. The region is facing real failure." READ IT ALL