Comprehending the Incomprehensible

What is it like to live through a revolution?  Do you appreciate what's happening in the midst of change or is it only in hindsight that you truly understand how comprehensive the change actually was?  A few pieces of news and an op-ed today in the Washington Post finally brought the magnitude of this recession home to roost.  The idea that we could possibly emerge from this economic crisis looking much like we did going into it seems increasingly unlikely.

First, the news that Citicorp has agreed to essentially be nationalized with the federal government converting its preferred shares to common stock and upping its holding to 40 percent is almost incomprehensible.  It's not just that the US is nationalizing one of its banks, but Citicorp is a global institution.  Presumably the federal government will act much like a private equity investor- get the institution functioning again, stream line, and sell off.  Depending on how Washington does it, there will certainly be repercussions throughout the global financial community.  

Second, and perhaps more remotely, is this report in Business Middle East.  The Gulf's raft of Islamic banks have taken a big hit in the past year due to the downturn in the real estate market in the region.  Because Islamic banks' operating principles dictate that they underwrite loans with tangible assets, many of them are directly exposed to declining home values in the Persian Gulf.  While this has prevented these banks from the same kind of exposure to structured products (like CDOs) that banks globally are facing, it still exposes a significant vulnerability to this system of banking.  It would appear then, that it's not only traditional banking models that needs to be rethought but also more recent innovations like Islamic banking.  Going back to the theme of this blog entry, it's hard imagine how a new vision for banking evolves, especially one that it is likely to be an across the board effort.

One last thing for today- I'd recommend this op-ed.  It does wander a bit, but the observations of Edmund Wilson might definitely be worth perusing.