Cliff’s Notes for the crisis
If “you don’t quite understand this whole financial crisis,” don’t “feel sheepish,” says David Leonhardt in The New York Times. Unfortunately, “many people who are in the middle of the crisis” don’t either. Here’s a stab, though: Starting in 1998, people began buying U.S. houses; Wall Street found a way to make the mortgage business “a global one,” bringing in investors worldwide; seeking higher profits, banks “goosed their returns” through leverage and subprime loans; and low interest rates fed a bubble where banks and homeowners made risky bets on ever-rising prices. Well, “bubbles lead to busts,” and “busts lead to panics.” But so does “uncertainty,” so maybe the panic is “partly unfounded.”
Crisis as Greek tragedy
The collapse of Carlyle Capital and Bear Stearns has all the makings of a “modern-day Greek tragedy,” says Loretta Napoleoni in the Chicago Tribune. The “roots of all tragedies” for the Greeks lie “in men’s uncontrollable passions,” and for Bear Stearns and Carlyle Capital the fatal flaws were “greed” and hubris. Believing they were “omnipotent” gods, they haughtily passed on the “chance to avoid disaster” when their subprime “house of cards” started shaking. The Federal Reserve and JPMorgan are trying to play the part of the “deus ex machina,” rescuing Bear “against all odds.” But at this point, even the “chorus” in the markets knows the “script.” And the script is a tragedy.