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Fallout: The Financial Crisis

Government not straight about crisis

Marketplace Staff Oct 10, 2008
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Fallout: The Financial Crisis

Government not straight about crisis

Marketplace Staff Oct 10, 2008
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TEXT OF INTERVIEW

Bill Radke: The world’s richest countries will discuss cooperating on interventions as the G-7 meeting convenes today in Washington. The government has already done plenty of intervening — coordinated rate cuts, buying up bank’s bad assets, committing to buy company’s commercial paper. I asked money manager Bill Fleckenstein how much confidence he’s got that these moves will help.

Bill Fleckenstein: About zero confidence, because we spent 20 years creating this insane financial system and allowing too much leverage to be piled up everywhere as we went through two bubbles. And the government can’t make it go away — this bailout package was not going to solve the annoying problem, and the fact they tossed in $150 billion of the pork just shows politicians really had no grasp of what it was they were trying to do in the first place.

Radke: Well, government officials have said, OK, but this is not the time to let the free markets run. This is about giving the system confidence and some liquidity right now.

Fleckenstein: Right, but you don’t want to see innocent people get hurt. They handled Lehman Brothers, Fannie Mae, Freddie Mac and AIG in a sensible fashion, but they’re not being straight with the public when they say, well if we do this, everything will be OK. And the idea that we should buy bad mortgages, that’s nonsense. Everyone’s all for capitalism until the losses show up, and then we want socialism. That’s not going to work.

Radke: So how bad do you think the situation’s going to get?

Fleckenstein: Well, I’ve been saying for years now that when we got to this point after the credit bubble/real estate bubble blew up, we’d have the worse recession in 50 years. Now people are starting to uttethete words depression. I hope it doesn’t get that bad, but if you understand how warped the upside was, you can see thathete danger is the economy doesn’t have a very goounder piningng underneath it, and I’m quite concerned about how weak the economy can ultimately get.

Radke: Money manager Bill Fleckenstein in Seattle. Bill, thank you.

Fleckenstein: Thanks for having me.

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