Nervous traders on the trading floor in the midst of one of Wall Street’s most historic weeks

Things are looking grim down on Wall Street. Rather than trying to explain the chaos myself, I’ve chosen two articles that will do it better than I can. Suffice it to say that what is easily noticed is that the credo in American capitalism seems to be “privatize the profits, socialize the losses” as several companies have been rescued by the United States government and more rescues are bound to come.

From The World as we Know it is Going Under:

Things got worse after the markets closed. Washington Mutual, America’s fourth-largest bank, announced that it had started the process of putting itself up for sale. The Wall Street Journal reported that both Wells Fargo and the banking giant Citigroup were interested in taking over the battered American savings bank.

And then came the announcement that would dominate all of Thursday’s market activities: Morgan Stanley — the venerable Wall Street institution and one of the last two US investment banks left standing — had lost massive amounts and was fighting for survival. Media reports were saying that it was even in talks about a possible bail-out or merger. Rumor had it that possible suitors might include Wachovia or China’s Bank Citic.

China?

“Folks,” economist Larry Kudlow, a host on the business channel CNBC begged his viewers that evening, “let’s not let this magnificent country go down!”

In fact, it really does look as if the foundations of US capitalism have shattered. Since 1864, American banking has been split into commercial banks and investment banks. But now that’s changing. Bear Stearns, Lehman Brothers, Merrill Lynch — overnight, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants left standing. Despite tolerable quarterly results, even they have been hurt by mysterious slumps in prices and — at least in Morgan Stanley’s case — have prepared themselves for the end.

“Nothing will ever be like it was before,” said James Allroy, a broker who was brooding over his chai latte at a Starbucks on Wall Street. “The world as we know it is going under.”

and from Worst Crisis Since ’30s, With No End Yet in Sight:

“This has been the worst financial crisis since the Great Depression. There is no question about it,” said Mark Gertler, a New York University economist who worked with fellow academic Ben Bernanke, now the Federal Reserve chairman, to explain how financial turmoil can infect the overall economy. “But at the same time we have the policy mechanisms in place fighting it, which is something we didn’t have during the Great Depression.”

Fed and Treasury officials have identified the disease. It’s called deleveraging, or the unwinding of debt. During the credit boom, financial institutions and American households took on too much debt. Between 2002 and 2006, household borrowing grew at an average annual rate of 11%, far outpacing overall economic growth. Borrowing by financial institutions grew by a 10% annualized rate. Now many of those borrowers can’t pay back the loans, a problem that is exacerbated by the collapse in housing prices. They need to reduce their dependence on borrowed money, a painful and drawn-out process that can choke off credit and economic growth.

The residents of the Magenge Mapya Charcoal Camp in Tanzania face an uncertain future — the trees they rely on to make charcoal are being cut down to plant oil-producing plants for biofuels

Roughly a century ago, the Ottoman Empire was considered “the sick man of Europe” because of its poor economy, backwardness, and misrule. Today, the continent of Africa and in particular the sub-Saharan part could rightfully be considered the sick man of the world. Disastrous economics, shoddy rule, violent wars, and the plague of HIV have left a once promising continent the failure of the world.

Decade after decade of foreign aid have not been able to lift Africa out of its mire. Even the so-called “benevolence” of wealthier states has left a situation best described in dependency theory as: “the way in which resources flow from a “periphery” of poor and underdeveloped states to a “core” of wealthy states, enriching the latter at the expense of the former”. This exploitation continues today as Africa is now being utilized for the sake of biofuel production at the expense of locals. Der Spiegel reports about this new exploitation in Green Gold Rush: Africa becoming a biofuel battleground. An excerpt:

The consequences of this boom are dramatic. Experts agree that the worldwide push to grow energy plants is on overwhelming factor in the global explosion of food prices. According to one study by the World Bank, as much as 75 percent of the increase could be attributable to this change in the types of crops being farmed. Many farmers in industrialized countries are more than happy to accept government subsidies for corn or rapeseed, but this comes at the cost of the cultivation of wheat, potatoes and legumes.

Oil plants are not competing with intensively farmed land in Africa — yet. Investors argue that the land they are using is uncultivated or underused. But rising food prices and population growth will also increase pressure in the southern hemisphere to convert unused land to agricultural use.

With every story of exploitation comes a story of hope and this time it’s from Google. The IT giant is planning to bring broadband internet to the African continent (plus other underdeveloped areas) in partnership with financial institutions. It’ll cost roughly $750 million US and will be called 03B Networks.

Some would suggest that sum of money could be put to better use through irrigation schemes and trade education. Whether this is true or not, it’s much less exploitative to bring others the wonders of communication then it is to buy up land to use for the production of biofuels.

Manhattan’s Upper West Side

The 1980s was the era of junk bonds and Michael Milken. The 90s saw the dot.com bubble and made investors learn phrases like “e-commerce“. This decade has been the decade of real estate and in particular real estate speculation.

Like the previous two speculatory crazes, the real estate frenzy in the USA has ended and has fallen with a big thud. And like the previous bubbles some individuals have made out quite well in this latest one. New York Magazine takes a look at the 6 Most Impressive Flips in Manhattan. Here’s one of them:

15 Central Park West
How can a list like this not include this megaflip haven? To wit: This spring, a venture capitalist paid $13.8 million for a unit the seller bought just two months previous for $6.9 million, according to trade publication the Real Deal; a 29th-floor apartment — picked up for $7.3 million — went for nearly $14 million; and a cable mogul who bought his 36th-floor spread for $7.34 million is now on contract for somewhere near its $12.5 million price tag.

read the rest of the article here

Big ideas with big money backing them couldn’t turn these sites into winners

It was only a little over a decade ago that we were told the internet would completely revolutionize how we would shop, read, interact, learn, invest, and smell. Maybe the order was a tall one and maybe the internet didn’t replace our traditional methods of doing all of these things, but it certainly has given us more options. The 1990s saw the proliferation of websites devoted to e-commerce of one sort or another as well as e-applications. These resulted in the dot.com boom that became a dot.com fizzle as everyone tried to tap into this new online market for their products and services. From Homer Simpson and his Compuglobalhypermeganet Systems to The Onion’s e-graters.com, everyone was taking a swipe at the hysteria.

Some sites have managed to survive and thrive, ebay.com and amazon.com being the two most notable.

The Business Pundit lists for us the top 25 Internet Startups that didn’t make it. All your favourites are there, including pets.com, etoys.com, and the spam-friendly lycos.com.

Speaking of which, whatever happened to these guys?