to be clear, he asked me this a few months ago, not, like, yesterday.
Aren't those stock markets a hoot! Returning to discussion on the xkcd thread, one could frame your behaviour as rational in a suitable setup. For example, if you predict doom and gloom with a low enough probability then the right thing to do is still to keep your money in the market. You can fiddle the extent of the doom and gloom and probability of such till you arise at a satisfactory solution showing your clear-mindedness.
On the other hand, it would be much more fun if we just bitched about stuff like usual. Here's a question for debate: in an industry where the average income is over £100K, should I feel pity those who have just lost their jobs, or should I expect them to have planned for the inevitable and well documented downs that accompany the ups in the financial industry? Furthermore, has anyone ever been to a liquidation auction? It seems like a great opportunity to acquire serious swag.
So, how are those stock markets going to be doing today, I wonder?
Down. They'll pull the circuit breaker if it gets to about 800-100 points. Real problem is panic deposit runs on any of several banks (and deposit ratio deleveraging) and/or runs on financial stocks.
I guess I was sure enough to want to say I told you so without being sure enough to do something that might have been crazy/had hideous tax implications/etc.
Damn. You were (and are) in relatively good position to get out of US holdings and get into foreign holdings.
max
['I got out a few years ago.']
i remember deflation in Japan was kinda pretty pleasant thing
Well... Did you at least cut down on your financials exposure? Perhaps buy a few put options?
There are a number of pretty easy things that individual investors can do to reduce their exposure to specific sectors these days. If you guys were heavily invested in the US market, you could hedge a lot of the Financial sector risk with this little guy. It's a good method of hedging a potential downfall that you're unsure about without incurring a lot of tax implications or opening yourself to the unlimited potential losses and annoying margin calls of shorting.
Of course, for those who were calling disaster back in mid-March, when the credit default prices were first spiking and the financial sector of the S&P was down 40-50%, if they'd gone short on the financials, they would have had to face devastating margin calls and/or absolutely horrendous returns for over 6 months before the current sudden crash. Very few have the nerve, even if they have the idea, and there's always a surprisingly high chance it'll all go against you because the market's crazy like that.
I did move some money out, but I mostly own lots of stock purchased in the 1930s-40s for my grandmother. This means both that almost the entire value of the stock is subject to capital gains and that important lessons in holding onto stocks for a long period seem to be embedded in each share. That was bought for less than a dollar? you say.
i remember deflation in Japan was kinda pretty pleasant thing
Huh. Not how it was generally portrayed. Aside from the ZOMGDeflation!!!! response, the problem seemed to be that, in a deflationary environment (esp. one, like Japan, with a strong savings ethic), no one would spend on anything, and so the only investments that occurred came from the gov't.
>Also, now I feel like Glenn Greenwald.
You can't have him: he's married.
Mostly OT bleg:
Can anyone explain to me why the 3rd quarter estimated taxes are due 15 days before the end of the quarter, while all the other ones are due, sensibly enough, 15 days after?
It's only mostly OT because Alameida mentioned taxes. And posted on Sept. 15.
'I got out a few years ago.'
Is that something to be recommended? Putting your stock in foreign investments, that is? Any stocks in specific?
(Given that you're just a guy on the internets, I'll take the advice for what it's worth. Still, if this is becoming generally regarded as a good thing, I'd like to know.)
All that said, I'm waiting on tenterhooks for the market open. It's going to be an interesting week, and Max definitely has the right idea about where the real problems will lie.
I'm not concerned about investment banks so much. They're generally big lumps of counter-balancing positions. If they go bankrupt, their equity and debt can get wiped out to subsidize the bad assets on their balance sheets, but their assets will find a home. There's a lot of money on the sidelines, new distressed debt funds have been raising tens and hundreds of billions in the past year.
It's the retail banks and AIG that will cause shit to go down. All those deposits, and surprising amounts of them not covered by the FDIC. If a retail bank collapses, they've gotta go somewhere, and the FDIC would probably prefer to pay another retail bank to take them on rather than oversee a years-long unwinding. It may be impossible to seize sufficient assets from the bankrupt organization to cover the deposit liabilities, which leaves the FDIC on the hook (or Freddie and Fannie for the billions in guaranteed mortgage assets) to cover any shortfall that isn't absorbed by the bank's debt and equity wipeouts.
And the funny thing is, despite everything I'm saying, I'm actually pretty sanguine. I just need to get my thoughts together on why that is apart from Panglossian optimism.
though maybe the whole gay thing is just a dodge. I must say this is distinctly the vibe I was getting from a gay friend last night. I mean, he's been married to another guy for like 6 years, so if it's a front I think we can all agree he's unusually dedicated to craft. so then why so much with the attention? he just tasted my banana pudding (aka trailer trifle) for the first time so maybe he was dazed with love. and I have actually had sex with a gay man, so you never know about people. he wanted to call his mom in louisiana afterwards with the happy news.
10: My guess is the feds want to have a smaller deficit at the end of the fiscal year, which is September 30. This year it will also be the last federal financial report before the election.
I'm hoping stock markets will go up as everyone realizes that Lehman Brothers was just a parasite on the economy anyway.
Atrios:
Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.
Is that something to be recommended? Putting your stock in foreign investments, that is?
Most people have too little foreign exposure in their investments. Basically, so long as you're working, you've got a huge tacit investment in your local economy and by extension, your local stock market. So you should diversify by investing overseas. How much and where? Those are the hard questions.
Also, markets opened about 2.5% down. Not bad at all. S&P futures were only down about 3% in afterhours trading before the open today, so I'm not too worried about a bigger fall. Hooray!
OK, at 9:32 I checked - down 0.85%, not so bad. Just checked again at 9:45 - down 2.35%, which is an hourly rate of -6%.
If Citibank goes bankrupt, can I skip my mortgage payment? Just asking.
don't celebrate prematurely, po-mo. and you should know that I regularly misinterpret your handle as "po-po" and so irrelevantly associate you with the police.
Remember this?
December 14, 2006
Lehman Brothers in $8.7 billion bonus payout
Tom Bawden, New York
Lehman Brothers said it would pay its average member of staff $335,441 (£170,933) this year as it reported a record fourth-quarter profit of $1.0 billion, capping its most profitable year ever.
The US investment bank is paying its 25,936 staff a total of $8.7 billion in salary, bonuses and other benefits for 2006 on the back of a 23 per cent rise in net income to a record $4.0 billion.
Spike is trying to incite a riot, I think.
10 more minutes, another 0.5% down - an hourly rate of just -3%!
That's Dow; I know I should be looking at S&P, but I don't remember what their 9:32 number was, so I don't have a baseline for them. And there's no possible way to acquire that information. So.
BLACK PEOPLE GOT A LOT OF PROBLEMS
BUT THEY DON'T MIND THROWING A BRICK
you should know that I regularly misinterpret your handle as "po-po" and so irrelevantly associate you with the police
S'ok, apparently that happens to Sifu as well. He totally hides the joint each time I come around commenting.
Over at LGM, I said I don't want my name on this depression. Call it the Roubini deleveraging (maybe better deflation), or a Minsky moment, or Kunstler Katastrophe, depending on your short and medium term predictions. I think it is Minsky, credit dries up for a couple years.
Ya know, everybody for the last month been saying "decoupling refuted", but the rich furriners wouldn't buy Lehman. Even at very high cost, te furriners may choose to decouple from this corrupt degenerate pack of thieves. I know I don't trust us, why should China?
5: so why didn't you alert all of your invisible internet friends to that one before it went up 200% over the last year? I hate you now.
Some have fame thrust upon them, Bob.
"John McCain wants to let Merrill Lynch and Lehmann Brothers manage your Social Security. If anyone knows where they are, could you tell them that?"
Are the Democrats capable of taking advantage of this stuff? I say it's even odds.
"This is a bipartisan crisis, and our only concern is join with the Republicans to do whatever is best for the American people. Politics should not enter into this".
"Markets can stay irrational longer than you can stay solvent." ...JMK
I am not expecting a major equity crash. Shoulda been under 10K six months ago, so I don't know why this particular news would drive people sane.
I think int'l bond markets & spreads are what to watch. That will just be a slower bleed on the Amerecon, but who the fuck cares what mortgage rates are? Nobody can make loans, nobody wants to buy houses.
Banking is insolvent. When the CRE, Alt-a and options arms start hurting us in the next year, when a local/regional bank fails every week, then equities may crash.
Foreign stock markets in the past year or so have gotten hit even worse than American ones.
"I certainly don't fault Sen. McCain for these problems," Obama said, "but I do fault the economic philosophy he subscribes to." (From the other thread.)
Sounds weenieish to me.
I take it as a dark comment on our impending financial disaster that no one is willing to follow my threadjack and talk about non-gay sex with gay people.
34: It's all the same to me. I just put my small inheritance in the market last month, so I'm getting fucked six ways from Sunday. That's got to be one of them.
Heck, I'll talk about it. How? Was it any good? Did he phone home? Did you turn him straight? Did you marry him afterwards?
we're in awe of your transformative, eternal weibliche power.
In my case, a three year marriage to a woman whose sexual orientation was unknown to either of us took the fun out of the question.
34 - I totally am willing to follow your threadjack, but I have no experience. A male friend once dated a lesbian, but that worked out like not at all even a little bit good for either one of them.
How about gay sex with straight people? That I also have no experience with, but if you hum a few bars I might be able to fake it.
31:Schumer wants to freeze foreclosures, moratorium, like IIRC HRC wanted 3-6 months ago.
Fuck it. Don't pay any attention to Republicans at all.
Sorry to say it, but when 75% of Democratic economists say the proposed/actual policy is insane, evil, sure to lead to global depression and WWIV, that is the time to start gaining hope. At what point do DeLong & Krug turn on their buddy Ben, classing him with GWB & McCain? Have they ever said Bernanke done anything wrong, after 18 months of accelerating crash? "Well, not cool, but neccessary. Best can be done." Fisher-Mellon BS.
With Obama, we may never get there.
he was a super-flamboyant black guy from rural louisiana who returned to the welcoming arms of gayness afterwards but pronounced it 'fun.' together he and I threw some epic parties at the oakland hills house of his boyfriend who was a french art dealer with beautiful houses stocked with beautiful boys all across the world. it was sort of a hot tub party group sex affair but he was really taken with the ridiculous prospect of having sex with an actual girl.
Is that something to be recommended? Putting your stock in foreign investments, that is? Any stocks in specific?
My situation was is that I was out of stock in 2000-2002, and I decided there was some money to be made starting in 2003, so back in. Come late 2004, the dollar was overvalued, and there looked to be no more real (as opposed to inflation-created illusion) profits to be made, so getting out seemed the thing to do. But where? What I wanted to do was to get euro-denominated, but there seemed to no easy way to do it that didn't involve a lot of complications, so after some more thought, I went ahead and zeroed my debts instead.
Alameda is in east asia, so shifting things over to where she is physically might have been the thing to do a coupla years ago. But, as she says...
I did move some money out, but I mostly own lots of stock purchased in the 1930s-40s for my grandmother. This means both that almost the entire value of the stock is subject to capital gains and that important lessons in holding onto stocks for a long period seem to be embedded in each share. That was bought for less than a dollar? you say.
Ah. My great-grandmother (and my grandmother, actually) liquidated all that stuff (and spent it) back in the day (70's-80's). So I can see where you're coming from; I just hope that spread didn't survive the late 30's to perish now.
max
['There were far more foolish things you could have done.']
my friends from new york wanted to know what california was like, and I would say 'just like you think!' it didn't stay quite like that for long, though.
I just hope that spread didn't survive the late 30's to perish now.
you and me both, brother.
How about gay sex with straight people?
Always worked out pretty well for me.
"John McCain wants to let Merrill Lynch and Lehmann Brothers manage your Social Security. If anyone knows where they are, could you tell them that?"
Fantastic. I emailed it out to all my work friends, maybe that will have some effect. I changed "wants" to "wanted", though.
Somebud gonna come along and say "Fisher-Mellon?" Jesus, you ignorant dope.
Insane stupid paradigms conventions change, doodz. Now it isn't liquidate, liquidate. liquidate, but inflate, inflate, inflate. Monetary Keynesianism.
Should be gov't jobs, jobs, jobs based on taxes, taxes, taxes. Jobs outa deficits is just more monetary Keynesianism.
I would like to see gov't spending be about 75% of GDP for a decade, just to make us well.
Also, gay people are gay because of compelling emotional/romantic attraction to the same sex, not because of a physical inability to enjoy sex with the opposite one. Romance is about weirdly unfinished emotional business with a particular gender. (Actually, I don't really know why a lot of lesbians are lesbian, women seem more sexually flexible then men. Let's take this thread to 1000!).
I had a friend who came from Yemen who came to the US to study police science. (He ended up going into ESL teaching because police work in Yemen is pretty rough). His first day in NYC, he was set up on a hot date with a hot NYC policewoman. Beyond his wildest dreams. He never got over it.
Not to stereotype, but what Arabs say about Arabs is, "When an Arab comes to America he carries his penis on his shoulder". There are some cultural differences they have to get used to.
dan savage has been known to remark that the vulva resembles a canned ham dropped from a great height.
Apo denies it, but I am of the opinion that no genitalia are visually attractive. I admire the attempts of the great gay artists of the Renaissance and classical Greece to try to convince us that they are, but no.
Now it isn't liquidate, liquidate. liquidate, but inflate, inflate, inflate. Monetary Keynesianism.
BINGO. That's exactly what's happening. Every dollar of bad debt will be replaced with a dollar of government IOUs. The stealth inflation caused by out of control credit (which showed up in housing), will be replaced by real inflation, plus devaluation as other countries now find it too obvious to ignore.
Should be gov't jobs, jobs, jobs based on taxes, taxes, taxes. Jobs outa deficits is just more monetary Keynesianism.
You know that the orthodox argument is that taxes on anybody, including the rich, slow the economy. Obama has explicitly and publicly bought into this by saying he'd delay tax increases on the top 1% until after any recession (could be a while...). Middle class and poor do consume more than the rich, though this is unlikely to get your arguments any traction -- as you said in another thread, not having any socialist left wing any more makes a difference.
Vibe I'm getting is that despite (or maybe because) opening 300 points/3% down, today will be OK. Dow might even close up.
Echoing what's said upthread, it's the fate of AIG and others that will make the difference. Maybe we'll know my Thursday or so?
My cousin's in town from Montana - maybe I'll take him to go watch bankers drink themselves to death tonight.
Bah. If we get serious inflation I'm going to really regret keeping my money (nearly) under my mattress instead of going into crushing debt to buy a house, aren't I?
Actually, I don't really know why a lot of lesbians are lesbian
Sometimes I look around and wonder why all women aren't lesbians, because women are just so damn hot!
When I was 17, a lesbian runner decided to try walking down my side of the street, so to speak. I had a very pleasant evening, and the memory of her incredible muscles is still vivid. Anyway, the next day she says, effectively, thanks, but I'm really confused and need time to think about a lot of things. Oh, OK. At 17, I figured time to think was like 2 days, since that was the longest any scheme for easy money or free shenanigans ever took me to develop. So I called her 2 days later to ask if she had made up her mind.
Speaking of easy money, if you're capital-gains stuck in specific large caps, out-of-the-money puts with 2010 exercise date are a way to hedge. You can get at them via online brokerages. Or you can bet against something without worrying about margin calls.
42 exactly describes how California works.
31 and 6, in combination, make me want to link conservative buy & hold investing with the St. Petersburg lottery problem from the other other day. Is the expected value of long-term market capitalism infinite?
As K'thrugman reposes in R'lyeh, he dreams of deflation, not inflation. Nobody knows!
So, just got an email, dated 10:00 am this morning, from my investment advisor, and it's not inspiring a lot of confidence in his analytic or predictive skills:
The second issue is still up in the air - that is the future of Lehman Brothers. This is another case of massive short selling of a stock forcing a company to take dramatic action to stay in business. The eventual outcome should be announced later this evening. It looks like one major party to a potential sale of some of its assets will be Bank of America. The stronger financial institutions will come out of this owning very valuable business units that were purchased at garage sale prices. We will have more on this issue soon...
Or, you know, his newspaper reading skills.
I don't want my name on this depression.
bob is holding out for naming rights to the Collapse of Western Civilization.
I think the essence of sexual attraction actually has to do with smell, with other factors playing a secondary role. When one of my best friends in college came out it triggered an intense self examination regarding my own sexuality. I'd have very much liked to experiment with motss, but while I could find a man visually attractive, the smell was just a boner killer of the highest order. I'm not talking about stinking here, mind you, even fresh out of the shower clean as a whistle man smell is enfloppinating to me.
49 is completely disgusting and gross and misogynistic and needs to be redacted before it worms its way into the imaginations of the happily straight.
I take it as a dark comment on our impending financial disaster that no one is willing to follow my threadjack and talk about non-gay sex with gay people.
Bring on the hot lesbian librarians! ('You want a child, you say?')
Apo denies it, but I am of the opinion that no genitalia are visually attractive.
Vast, yawning gulf.
Vibe I'm getting is that despite (or maybe because) opening 300 points/3% down, today will be OK. Dow might even close up.
Goofier things have happened. I'm not sure the appearance of that large black hole has quite penetrated the consciousness of the Great Unwashed.
Now might be an excellent time for CN to divest himself of BoA... before people start wondering if BoA is too big to fail.
max
['Please move to the exits in a polite, orderly manner.']
re: 13
Two of my ex g/friends had lived with gay men [or gay couples] before we lived together. Both of them had had their gay roommates try to sleep with them. These guys were out gay men who self-identified as gay not bi. I'm pretty sure if you'd asked if they were attracted to women they'd have been adamant they were not. But, after a few beers, etc, etc.
Question: Atrios quotes a wire service: "This morning, Roubini forecast another 20% drop in stock prices, and reiterated a prior view that there will be no major independent broker/dealers standing before this crisis ends."
What does "independent" mean in this context? Of whom are Goldman Sachs and Morgan Stanley independent?
Yes, once the fembots and dickbots have the right pheremones, we'll all be completely obsolete.
Happy at first, until the fembots and dickbots find one another and fall in love.
63 - The infamous three beer straight.
56: Is the expected value of long-term market capitalism infinite?
Nativist!
What does "independent" mean in this context? Of whom are Goldman Sachs and Morgan Stanley independent?
I think this means they are independent of big depository banks. Merrill Lynch just became non-indendent. JPMorgan was once independent.
A surprising amount of sex between gay men and lesbians too. All queer together.
Sometimes I look around and wonder why all women aren't lesbians, because women are just so damn hot!
definitely, I know what you mean, but just empirically there seem to be a lot of women who veer wildly between being "lesbian", practicing bi, and nominally bi but actually straight based on their social circle and who they happened to run into at various times in their life. That does mean that you have a fair chance of having your girlfriend be bi-friendly these days.
Happy at first, until the fembots and dickbots find one another and fall in love.
Eventually they develop the ability to alternate pheremones at will, wooing one another from their partners; at that point the evangelistbots appear on the scene and start railing against the danger to robot marriage until their own series of sexbot scandals forces them from the stage and everyone reboots in concert. Due to increased efficiency this cycle will take a fraction of the time it takes humans.
Of whom are Goldman Sachs and Morgan Stanley independent?
The Romanoffs, the Hohenzollerns, the Habsburgs, the Hanoverians .... almost everyone, really.
70 (and 73) are brilliant. Also, the sexbot industry is just what we need to revive the economy, bringing the two themes of the thread together. Let's have an economy based on real human needs!
I think this means they are independent of big depository banks.
So does this mean that the problem of an unregulated, non-depository financial system will take care of itself in the old-fashioned capitalist way, collapse and ruin?
69:A surprising amount of sex between gay men and lesbians too.
This makes me angry. There is only so much pussy/cock to go around, and those selfish queers are wasting their hetsperimentation on each other. That's just plain wrong.
I am of the opinion that no genitalia are visually attractive
Apo does indeed disagree.
69.2 is certainly my experience. Both my ex and my next were in long-term relationships with women. College or early twenties, but still.
Your porn stash probably isn't for me.
The creative destruction people have been frustrated for too long. Their big orgasm may have finally arrived.
I wondering if they're planning to head for China to watch the fun from there?
Your porn 'stache probably isn't for me.
empirically there seem to be a lot of women who veer wildly...
Agreed. Two theories:
1. It is more socially acceptable to be lesbian than gay. Heck, there is loads of lesbian porn watched by straight men (so I'm told). Gay porn, not so much.
2. A bit of experimentation on the lesbian side of things requires less commitment than teh gay sex. As in, less pain, less chance of STDs, less ick.
Incidentally, I knew a girl who liked watching gay porn. She said she enjoyed the passion/aggression they displayed.
No need to panic here. This is not "the big one." That is later, and believe me, all but the absolutely most clueless will see that one coming.
We need to settle down and again think in the wonderful-sounding business and economic terms. Personally I find the word 'streamlining' very appealing. 'Correction' is OK but it implies something was wrong. "Asset reallocation" is good, and so is "expenditure adjustments." It sounds like going to the chiropractor or something like that.
Not 'no vacation' - staycation.
Don't think homeless - think camping.
It is not starving, it is losing weight.
And you didn't lose your job, you got more leisure time!
Come on people, go back to sleep, the glass is half full, not half empty.
Heck, there is loads of lesbian porn watched by straight men (so I'm told). Gay porn, not so much.
So you're told.
I AM A HEMI-DEMI-QUEER WOMAN AND SOMETIMES I LIKE MEN AND SOMETIMES I LIKE WOMEN AND I WATCH GAY MALE PORN AND I SWEAR I AM NOT ATYPICAL OF WOMEN! DON'T STEREOTYPE WOMEN!
apo,
Apo does indeed disagree.
Amen to that brother. I think somebody needs to ditch the cold florescents and light a few candles. Mother nature ain't no dummy.
Why indeed, I have been told. Just there, in comment number 86!
In the dark, all genitalia are beuatiful.
With the right lighting I could play the Mother Abbess in "The Sound of Music." I just know I could.
92 lead to substantial confusion for a moment as I tried to figure out how "Mother Abbess" was analogous to "skin flute."
Tripp: I just like the idea that everyone gets to join me in failure. I'm ALREADY a failure but now I can hide behind all the other people.
It's like when I got really fat RIGHT BEFORE getting pregnant. But no one remembers this now! So I just blame it on the pregnancy.
ozma,
Yeah, that's the spirit! Love is in the air. Misery loves company. It is camaraderie. "I'm not weird, I'm common!"
Way to go!!
I talked to my bank person on Friday about maybe locking in the interest rate on our loan, but b/c I couldn't get ahold of Mr. B. I decided to wait until today. "Not much can happen over a weekend," the bank person and I agreed.
Oops.
I've slept with a couple of experimenting lesbians over the years, all of whom remained lesbians. I'm just doing my part to ruin heterosexuality for everyone.
Two questions:
Did Bear Sterns get a bailout when Lehman Bros. did not simply because they had the wisdom to go bankrupt first, while the government still had some good will and a desire to bail out large companies?
Is it wrong to be enjoying this because the only visible victims right now are Wall Street vampires?
It is right and proper to be enjoying this.
98: To a certain extent, yes, but a big part of Bear's business was clearing trades for other market participants, so if Bear had just shut down it might have immediately destroyed all US financial markets.
I think the government realized that one consequence of the Bear bailout is that it removed the incentives for financial firms to fix their own problems.
98: My 401(k) is also a victim. But I am enjoying this none-the-less.
If Bush had been successful in his social security reform (which McCain supports) the collapse we are currently seeing would have been substantially delayed due to the huge infusion of naive investors into the market. The vampires currently getting reamed would have been able to use the new money to get even further out on a limb before the implosion, leading to a financial apocalypse that would change the US forever. There is no way our current form of government could survive.
I don't share McManus' level of pessimism about the current situation, but in the scenario where Bush gets his SS reform I think it would be very likely, and the unraveling would be rapid - months not years.
101- Are any of the failing companies custodians of 401(k)s? I haven't heard Fidelity, the largest custodian, mentioned among the bombs. What happens when a custodian fails- are 401(k)s SIPC insured?
Did Bear Sterns get a bailout when Lehman Bros. did not simply because they had the wisdom to go bankrupt first, while the government still had some good will and a desire to bail out large companies?
Basically, yes. The Feds were willing to step in at that point, but now Paulson (who is Boss at this point - Bernacke (never can spell that guy's name right) seems to have been sidelined) is thinking the banks are playing games with him, trying to get the Fed to give them free money. Which, you know, they ARE.
The problem with that should be (sorta) obvious: if you take the stance that preventing bank meltdowns prevents depressions, then you wind up with a de facto Leave No Bank Behind Act. If you're going to do things that way, you gotta go whole hog. That strategy has broken down, and now we have a big game of chicken going to see who will flinch first.
Other thread:Well... I think they're just encouraging all the shit to come out into the open through a process of massive consolidation.
Maybe; they certainly seemed more interested in pretending everything is ok and hoping that made everything ok. But Dodd and various other people have gotten in their faces about it, so they're trying to appear as neutral towards the rich.
This credit window for banks is what allows BofA, JPM, and any of the other well-capitalized banks to take on piles of still-risky assets from any failing financial firm, including AIG, GMAC, and all the other non-banks.
But that's the thing: the banks are not trying to take on still-risky assets, they're trying to make sure they can hang on to what they've got. Pushing money just out to them just makes their balance sheets better without fixing anything. Black hole.
As those non-banks unload their assets, they're taking the losses and the true values of firms' books are becoming known, which is the essential step before rebuilding can start to happen.
Aha. From my point of view, if the banks were really forced to balance their books, they'd be broke at least four times over (not including normal credit). They're only well-capitalized in a day-to-day sense. In a healthy, growing economy, with a government unburdened by massive debt, the banks could right the ship in a coupla years if they just stop lending. That approach has obvious problems.
There's plenty of money on the sidelines, it just refuses to invest until it knows exactly what assets its buying.
There is plenty of money in T-bills (and if it tries to move, ouch), but I'm not sure where the other plenty of money is coming from.
This will make things interesting in the long run as the financial regulators are going to have a hell of a time splitting up the behemoths they're encouraging now. I expect BofA and whoever takes on a retail bank between now and the end to be forced to do regional spin-offs.
See, I'm not sure BoA is going to survive the year without large federal infusions. They seem to have become a large holding company that used to be into banking and now just owns a lot of other broken banks.
Bob: That's my Texas money to pay for Ike reconstruction you're talking about, pardner. Ike put AIG in decent hardball negotiating shape. They'll get saved.
You'd think, wouldn't you? NY state seems to want to save them.
We are now in the First Empire.
Hrmm. Seems over-dignified tho. Clown Empire, maybe.
max
['PIMCO and Vanguage are hurtin'.']
My 401(k) is so far very mildly affected but I don't really plan on needing it for 30 years and have been willing to put money in riskier funds on that basis. If it disappeared tomorrow I'd mostly wish I'd cashed it out to buy a huge TV when I left Ma Bell; given that I don't want to touch it for such a long time it's hard to think of it as real money.
People don't understand McManus. He thinks that there will be a revolution. I'm the pessimist. I think that it's hopeless.
And by "so far," I should note, I mean this year.
105: I don't think of my 401(k) as money. I think of it as my retirement date. Weeks like this, my retirement date gets pushed back. When the market goes up, I get to retire sooner...
Of course, this only makes me more pissed at the Lehman Brothers and they $335 K bonuses. Money like that could move my date up by the better part of a decade.
I've read that if Lehman was technically insolvent at the time the bonuses were paid out then creditors can actually sue to get that money back.
alameida, was that stuff in trust. Because if it wasn't, and you inherited it, the basis would step up upon her death, so the capital gains would be a lot lower.
Whoever recommended foreign stocks should be aware that the index of foreign stocks is down 25% year-to-date. Some of this is due to the recovery of the dollar, but those who have predicted a "decoupling" of the world economy from the US economy have been incorrect so far.
Fidelity is a privately owned company, entirely owned by the Johnsons. They make their money off of management fees not trading for their own account.
I will really be floored if Goldman Sachs becomes part of a a deposit bank. They have always struck me as fairly conservatively managed. I think that they have a lot of cash on hand too, but who knows.
Po-Mo was worried abou WaMu folding. I haven't been following them. What's going on there. That would be a big FDIC insured bank to fail.
It is right and proper to be enjoying this.
Amen. The more so as apparently it's gonna make interest rates go down, not up. Go bears!
SP-401k stuff is not insured, but I don't think that you can lose your stock shares or mutual fund shares. It just means that the cash is not guaranteed. But I'd really need to look into this. My guess though is that the custodians are acting in a quasi-trustee fiduciary way, but I don't know.
What's going on there.
Lots of bad mortgages.
Is it wrong to be enjoying this because the only visible victims right now are Wall Street vampires?
I don't really understand this. Is it not true that this sort of meltdown makes it harder to get mortgages, harder to sell homes, generally weakens an economy on the verge of some serious inflation issues, etc. I'm no economist, I understadn next to nothing, but have always assumed that shit rolls downhill.
What's going on there.
The bankers got out of the bankers' pen.
We might as well enjoy ourselves now, because we'll get burned soon enough.
My brother's business is doing very, very well except that he's got som unfavorable loans, and he's already had a lot of trouble refinancing. It may be the difference between success and failure, but at best it costs him many thousands of dollars a year.
Is it not true that this sort of meltdown makes it harder to get mortgages, harder to sell homes
It is harder to get divorced when you cannot sell your home.
120: See? The Republicans are the family values party.
That's a good point, Will. I just can't find a reason to enjoy this. I'm supposed to go ont he market this year, which, if it worked out, would mean selling our home and my husband's quitting a well-paying and very stable job to move to god knows where. I can't see how an economy in the shitter works in my favor here.
Is it not true that this sort of meltdown makes it harder to get mortgages, harder to sell homes, generally weakens an economy on the verge of some serious inflation issues, etc.
That's why I said "visible victims." I gather the long term consequences will be bad for a bunch of people. But we don't see that immediately.
I also have no idea how this will effect Me Me Me. My CREFF fund will take a hit, but I've got 30 years to weather that out. Will interest rates go down? If people are reluctant to extend credit in this environment, doesn't that send them up? Does it help only people with good credit like me? Molly? Do individual borrowers even matter here? Is it all about what the Fed does?
Like it or not, Rob, the rapture will be here in less than 30 years, and you're almost certain to be torn apart by wild beasts. You're probably best off liquidiating everything and spending it on booze.
Interest rates will go up, but then the Fed might announce another rate cut, which will makes rates go down.
What do Sybil Vanes go for? A pretty penny, I'd guess.
Sifu, I've been wondering about this. No income here makes that job in the middle of South Dakota look even better! Wheee!
Sybil Vanes are lazy and cannot find the time to particularize
themselves enough to individual consumers. Accordingly, Sybil Vanes are likely to be passed over, again.
Interest rates will go down, but there will be less money to lend, as well as more stringent capital requirements for lenders, so assessments of creditworthiness will become tougher. Shit flows downhill is right, IMO. Hyundais and other reliable vehicles manufactured offshore will become more expensive. I don't have much confidence in predicting the next six months as far as identifying profitable positions in the market. Holding cash seems like a good idea; 2010 puts on casinos or shopping malls still seem like a good thing.
Sybil Vane should have neighborhood thugs steal the painting, have 2 copies made to sell to distinct Japanese collectors, exchange the painting for its written provenance, sell copies+provenance, and retire to Costa Rica or Croatia.
Also, the clouds will weep blood on St Vaclav's day.
You're probably best off liquidiating everything and spending it on booze.
John is torn between his twin callings as a relationship counselor and financial advisor.
129: OTOH, many financial advisers are beginning to believe that Sybil Vanes may become an integral part of any well-diversified portfolio.
What's going on here?
Old Mother Hubbard, went to the cupboard,
to get her poor daughter a dress.
But when she got there, the cupboard was bare,
and so was the daughter, I guess.
The thing is I'm trying to figure out what the name of the age after the industrial age will be? I know what the world will look like, of course, but what will we call it?
Hmmmm. Knowing people, I'm thinking that the books will say that after the Industrial age, and the times of irrational exuberance, came the war of Iraqi aggression, which caused all sorts of problems until the age of enlightenment, when the voting franchise was restored back to those who must, for the greater good, have exclusive rights to it - the rich and those who please them.
Yeah, that's my guess, but people can be fickle. I wouldn't bet my house on the name. The events - we pretty much all are betting our houses on the events. The events are pretty much set in stone now.
The name, though, is still up for grabs.
Sybil Vanes are a high risk, but high yield investment, if we are being perfectly honest about it. In the last 3 years, SV has yielded one offspring, one dissertation, and countless zucchini breads.
The fear, as I understand it, is that credit will become unavailable at any interest rate - there will be so little liquidity in the system that no one will be willing to lend out whatever they have. IIRC, deflation contributes to that.
When Fannie and Freddie were deprivatized, the gap between Prime Rate and the market rate* narrowed, so that effective interest rates went down for the first time in awhile. But that doesn't speak much to actual availability.
As far as rooting interests go, I'm pretty sure that it makes it more likely that things will be fixed sustainably for these pseudo-banks to take a hit. We're getting a recession out here regardless, but if Wall St. survives it as-is, then the next recovery will be a fake recovery like the last one. So Schadenfreude tracks nicely with long term economic health. I hope. Regardless, the worse the economy, the better Obama's chances, and that's certainly critical for any chance this country might have in the future.
* I'm sure there's a different technical term for what I mean; but the point is that, as of 6-12 months ago, Fed rate drops stopped making much difference in credit markets, because of Big Shitpile fears. But the bailout snapped the markets out of that state.
Anyway, I don't understand why SV should be unhappy on the glorious morning after yet another Steeler beatdown* delivered in Cleveland. We've already won 25% of the games projected by preseason consensus. Just pray for Ben's shoulder to heal up.
* Even an uninspired victory over the Browns qualifies as a 'beatdown.'
Nothing quite like Tripp to put my own personal pessimism into perspective.
I know, wasn't that great? Though I ws so pissed about the non-call when Rogers took fully two steps after Ben released a 4th quarter pass and jammed his helmet into the latter's shoulder.
I presume from long experience that the Eagles will trounce the Cowboys tonight to tempt me into yet another season of heartbreak.
Hey Syb, what field are you in? Is it as grim as philosophy?
I envy you and your decent football teams. My primary rooting interest is the Vikes, but I could also make plausible cases for my following the Bears, Niners, and Raiders, in that order. Fat lot of good that would do me. For whom should I root this season?
Otto, are the Vikings to be mentioned in decent company? My guess is no.
I'm in English, rob.
Otto, Steelers!!!! The fortuitous Brady injury has opened up the division for us!
And for God's sake, not the Raiders.
I'll share my Cardinals with you. There's plenty for everyone. Lookin' like the Class of the West!
Otto, are the Vikings to be mentioned in decent company? My guess is no.
D. Smolken of Dead Raven Choir's other band Wolfmangler does a version of Grieg's "Åse's Death" under the title "Dirge for a Viking Asshole".
Sybil Vanes are a high risk, but high yield investment, if we are being perfectly honest about it. In the last 3 years, SV has yielded one offspring, one dissertation, and countless zucchini breads.
I get cold calls and spam about those Vanes all the time.
"Explosive return on investment!"
"Get in on the ground floor!"
"Hot! Hot! Hot!"
I'm not on the market for any investments that will yield more offspring, but a steady supply of zucchini bread is nothing to turn up your nose at.
I dunno, but it sounds hott.
Good luck on the market.
Walt,
Nothing quite like Tripp to put my own personal pessimism into perspective.
Thanks. Just doing my job.
Seriously, though, forward thinking and anticipation is key here. Yeah, I know, who to believe, who to believe?
Long term, think about where you are living and where you should be living. Medium term buy a gun. Short term, a sense of humor goes a long way.
The ground floor's full, baby.
Red beans and rice didnt miss her
(what could that even mean?)
No room for more people owing to the enormous blob of vanilla pudding.
Otto, are the Vikings to be mentioned in decent company?
Yes, I believe "The Nordic Team" is the preferred euphemism, should they need be mentioned at all.
I'll give some thought to lending my support to these Steelers of Pittsburgh. They seem like relatively clean-living young men. Though I remain uncertain about this "American" football conference. Such a jingoistic name; what will my European friends think?
Otto prefers the Nationalist Football Conference. The uniforms are snazzier, and the cheers better-organized.
Plus, the Steelers have Heath Miller AND Farrior!
Long term, think about where you are living and where you should be living. Medium term buy a gun. Short term, a sense of humor goes a long way..
My version -- Short term, a sense of humor goes a long way. Medium term, think how much fun it will be to learn to live without all that darn stuff. Long term, well... were you expecting not to die?
peep,
I pretty much agree, except I like my stuff, and I have kids. Darn kids. Without them I'd agree with your long term and I'd have more stuff too.
The thing is I'm trying to figure out what the name of the age after the industrial age will be?
It will float on for about another century, maybe a century and a half, on whatever mixture of alternatives to oil are pulled together. The age following it will be called the Post-Human Age by whatever evolves in the succeeding ecosystem a few hundred million years later, but we won't be calling it anything.
You can see a funny gap in the Bush administration's "sabotage the government" philosophy. If treasury worked the way Interior of Health and Human Services work, Paulson would be actively trying to drive AIG into bankruptcy.
||
According to an article about Google thinking about moving its data centers onto ships (and cooling them with wave-action generators), the cooling load for all of Google's data centers is 1% of worldwide electricity output.
That seems impossible to me, but who knows?
|>
Come on guys. It will be the McManusian Age. get with the program!
"McManusian" is hard to pronounce, unless we totally change the emphasis, making it "Mack-ma-Noo-zhan" or something.
Oh, just call it Mancusian (that's what I read it as anyway) and we can redo the revolution.
That seems impossible to me, but who knows?
If you're reading the same article I saw, I understood them to say that data centers in general (i.e., not just cooling, and not just Google's) consumed that 1%. Still surprising, but less implausible by several orders of magnitude, I'd think.
That seems impossible to me, but who knows?
I might buy the cooling load for all data centers everywhere is 1% of electricity usage, but surely not google's alone.
Putting all your data centers on ships at sea sounds cool in a sci-fi sort of way. It is a step closer to putting them all on, say, the dark side of Mercury, or maybe in an orbit that constantly keeps them on the other side of the earth from the sun. (Would that work?)
or maybe in an orbit that constantly keeps them on the other side of the earth from the sun. (Would that work?)
Depends on what you mean by "work", I guess. You could put it at the Earth-Sun L2 point, but the speed of light round trip time would make it not very useful.
I like the approach of putting them next to large hydroelectric power plants.
re: 165
That just makes me thing of guys in bad bowl-cuts swaggering about knuckle-draggingly shouting: "I'm fookin' mad fer it, me".
Well. Two more market days like today, and the end of the week could get interesting.
Could see my 4k Dow by the end of the year.
AIG may get a rest break, but there is a little hurricane season left, and the losses from Ike not calculated. Remember, what Katrina cost the Feds 50b? 75b? Ike will be worse. Refineries down gonna hurt trans to heatin oil.
WaMu or Wachovia may go down this week, which may mean a major crisis for FDIC. People may start a general bank run next week.
The economic numbers were fucking awful. Check Rittholz. I haven't gotten to Hamilton yet. The recession has barely started. You are ordering for Xmas retail...whatcha gonna do? God are we fucked.
Asian markets were closed Monday. I know what I will be watching tonight, after Terminator. CR has links to Bloomberg market futures. I don't know if we can get a 1000 drop in a day anymore, because of stops, but certainly can in a week.
What, Bernanke gonna drop a 1/4-1/2 tomorrow? That'll hurt more than ir helps.
And oh yeah, did Pakistan really fire on those helicopters?
Cheers.
Oklahoma is the place to be:
"While it looks gloomy today, it provides a real good buying opportunity," said Hasty-Grant, noting Bank of America's chance to acquire Merrill Lynch. "That's not what anybody wants to hear, but it's always good to buy low." Tulsa's Matrix Service Co. used such an opportunity to boost its business Monday in an asset acquisition from the Chicago Bridge and Iron Co., said Dollarhide.Dauffenbach said some Oklahoma investors may even realize capital gains after Monday's 504-point plunge in the Dow, since U.S. Treasury bonds also fell.
No analysts saw any tea-leaf omens for Oklahoma companies in Monday's securities troubles.
"I'm not very worried about Oklahoma at all in all this," said Dauffenbach, seeing the nation's biggest economic hurdle coming not from Wall Street, but the two-year housing crunch. "The biggest thing is we didn't have a price boom in housing and in consequence, no boom, no bust."
Texas is doing OK too. We already had our housing/CRE boom/bust in the early 80s. Ok cept for the hurricane thing.
You know what I hate, who I hate?
I know the confidence numbers went up, but check next month. What'll Congress do, send me another $300 for for my Xmas Lexus? How do you make the consumer, worker confidant relaxed with good expectation so he spends and borrows? So that industry bets on expansion?
What the motherfuckers like Krugman & Delong & Thoma dread more than anything anywhere ever.
Persistent Wage inflation. When I talk about Real Keynesianism, gov't jobs, I am really taking about pressure on wages, permanent and systemic. (Keynes handled price inflation with forced savings)
Make the couple believe, know, that their kid's lives will be a little better than their own.
174
"Make the couple believe, know, that their kid's lives will be a little better than their own."
Going to be hard to achieve if the price of oil goes to infinity.
175:Put 5 million people to work on electric transport...like tomorrow...and oil won't go there.
Oil is too neat to burn.
Actually the price of oil's dropped somewhat from the highs of this summer. And yes, the Fed is supposed to meet tomorrow and lower the prime rate; I guess they want to do whatever they can to keep money moving around.
On my end, what this means is that my banker told me today that I can lower my interest rate by .5% by purchasing 3/4ths of a point, rather than a full point. Which'll save me about $150/month, plus whatever it accrures out to over the length of the loan *and* it keeps our future mortgage well within shouting distance of our current rent, as opposed to the oh, $1k jump we were looking at just a few months ago. Saweet. And if I'm not mistaken, we're paying $100-150k less on this house than anything with the equivalent square footage is selling.
Upshot: my earnings from the community college job will be cash money, for fixing up the house and/or paying down debt. Unless the U.S. system really does just completely blow up, I'm feeling like we're doing pretty damn well, all things considered.
I don't drink. Cept for caffeine & nicotine I am pretty much sober.
Reading CR comments. A site called iTulip.
Fed Funds Spread Signals Crash ...today
What was the question anyway?
(Leash free with the dogs three hours in the deep woods today, where the rattlesnake nests sounded like chainsaws. Then lake swimming. 75, sunshine, cool N breeze. This is why I love Texas, cause it could be like this til April.)
I'm drinking some 3 buck chuck- woohoo for inferior goods!
(Actually left over from when someone brought it to a party two weeks ago.)
yay bitchphd! also, that sounds like fun, mcmanus. also also, the money was in trust, yes, BG.
The Age of McManus works better than the McManusian Age, I think, and the label will no doubt encourage countless numbers to finally mount the barricades.
Rattlesnakes?! Jesus.
B, that's great, and must come as a relief. (Unless and until the whole system blows up, of course, but in the meanwhile...that's good to hear).
rattlesnakes' nest, somebody is going to become rich
itulip and that joke about excepting the hurricane were funny
Aluminum production accounts for about 3% of worldwide electricity usage. Make sure you take that into account.
(Leash free with the dogs three hours in the deep woods today, where the rattlesnake nests sounded like chainsaws. Then lake swimming. 75, sunshine, cool N breeze. This is why I love Texas, cause it could be like this til April.)
Which lake?
Upshot: my earnings from the community college job will be cash money, for fixing up the house and/or paying down debt. Unless the U.S. system really does just completely blow up, I'm feeling like we're doing pretty damn well, all things considered.
You are doing well; shit, I'm surprised you got a loan, much less a cheap. I'd still tear out the sheetrock tho.
Rattlesnakes?! Jesus.
Not a big deal, really. King snakes, copperheads: big deal.
max
['Try walkin' into a trailer full of copperheads sometime.']
If you're in the mood for some Monday Night Fright, I recommend Yves Smith on the big 3 downgrading AIG:
The [sic] is going to lead to massive counterparty defaults in the credit default swaps market, an event we and others had warned about for some time. The CDS market was the most likely culprit to cause a systemic unwind. God help us if the authorities are not prepared.
Even though I don't know what a "systemic unwind" is, and more importantly, what the occurrence of one would mean for Joe Grad Student, I still don't like hearing someone who seems to know what she's talking about say "God help us."
Perhaps it's time to petition Megan for entry into her Agrarian Utopia. I could probably learn to bale some hay.
180: Mr. B. is currently out of two-buck chuck, and has therefore opened a very nice $20 bottle of pinot I bought back when I first discovered my now-favorite local wine store. Teh yum.
And thanks, guys. Alameida, if I send you pictures of the place once I'm able to get in it again, will you advise me on color decisions?
until the whole system blows up
long way to go until in the stores there will be only salt
hopefully that would never happen in America i suppose
i watch these fashion shows on nyctv and all these models' faces are so serious and lifeless with a few exceptions, are they required to look this cold and grim, can't they walk with a smile, look friendly
they don't look beautiful at all, i feel like my headache is getting worse looking at them
I'm surprised you got a loan, much less a cheap
VA, baby. Zero down, no mortgage interest. It's about time all those years of military crap paid off.
187: You know how in different languages even animal sounds have different representations? Like how Americans say "ruff-ruff" for a dog barking, but Turks say "hev-hev"? Well, "systematic unwind" is how investment bankers say "kerblooie".
Credit default swaps are basically insurance for bonds. If something bad happens to a bond, then the insurance pays off. One of AIG's main lines of business has been selling this insurance. To cover their liabilities, they need a certain amount of collateral. If they get downgraded, then they need more collateral. They're already having trouble raising collateral, which is what's the triggering the downgrade in the first place.
Which lake?
I'm kinda shy Max.
also, that sounds like fun, mcmanus
Dogs are terrific, breed never barks even if they catch something, hunts cooperatively like wolves. Lady dog is smart enough to know what to do if I ask: "Find me a path" Deeted up today, last week I got ticked.
Rattlesnakes are nocturnal or dormant except for spring. If I don't bother them, walk slowly and loudly, they won't bother me. These dogs are famous for snake hunting, like everything they catch they grab by the tail and swing til neck snaps, but I have never seen it.
190 seriously made me think about enlisting, until I read 191.
192:Fed widens the swap window, then Morgan and GS loan AIG 70b = Fed bails out AIG. Kinda.
192: So I'm pretty sure I get what a CDS is, and I get how AIG is basically in a vicious cycle of downgrades and collateral demands right now, but I don't get what happens next. What is the "systemic" part?
So let's say a third party defaults on payments to a bondholder, and since AIG is now fucked, they can't pay what they owe the bondholder per the terms of the CDS. So the bondholder doesn't get money they were due. Then what? Is the endgame a bunch of bankruptcies of financial institutions? Is the deal that if A defaults on a contract to B, B doesn't have the funds to pay C, and so on into infinity?
Got Bloomberg Futures Open. Everything red.
Pink Floyd keyboardist Richard Wright died at 65.
Gonna go get Ummagumma. Set the controls for the heart of the sun Richard.
So let's say a third party defaults on payments to a bondholder, and since AIG is now fucked, they can't pay what they owe the bondholder per the terms of the CDS. So the bondholder doesn't get money they were due. Then what? Is the endgame a bunch of bankruptcies of financial institutions? Is the deal that if A defaults on a contract to B, B doesn't have the funds to pay C, and so on into infinity?
The problem is more the sheer scope of the CDS market -- it's in the tens of trillions of dollars, roughly comparable to the entirety of the U.S. stock market, only much less regulated. If AIG is the counterparty for 1% of the total (and I believe they're a much player than that), that's almost $500 billion in swaps that suddenly become worthless. These are assets that are carried on other financial institutions' books and (in many cases); if AIG's ability to pay is impaired, the other institutions are going to have to write off those assets, which will in turn impact their balance sheets. If a bunch of insurance companies owned them to hedge out risk, then those insurance companies are suddenly going to have to raise billions of dollars to keep their balance sheets to the legally mandated levels and the credit crisis spins further out of control.
189: A lot of high-fashion models look grim, like they're walking their last mile to the electric chair. I suggested that as a porno theme once but no one thought it was funny.
Read has a totally different perspective on financial problems than the rest of us. We're so upper middle class American that it's pitiful.
on other financial institutions' books and (in many cases) haven't been written down like mortgages or other holdings.
That scenario, in which the failure of a major counterparty causes everyone's books to melt down, is precisely the disaster that Warren Buffett has been hollering about (while asking for better regulation) since 2002.
Fuck Grace & Jorma.
Way I want to go out is the radio in the bathtub at the top of Gilmore's line in "Heart of the Sun"
Woe, Woe, Woe, Woe My Lord.
148 I'm not on the market for would go long on any investments that will yield more offspring, ...
Fixed.
According to the latest update at Naked Capitalism, the particular downgrades that happened today don't trigger the clauses in AIG's contracts that require it to raise collateral.
205:The rumours and speculation on AIG are crazy right now, from 1T down and Ch 11 Wednesday to CEO's son arrested for Credit Card fraud.
I should cut-and-paste everyhing I am reading, like GS or Morgan Stanley whoever holding 160B in Lehman bonds for somebody(SA?) to State of Florida having (had?) 223m in Lehman stock.
This could be the week. I though it would play more slowly, and it will, but we can also have the catastrophic moment when sentiment turns the wrong direction. We had Black Friday in 29, but the banks didn't fail until 33.
But AIG does needs 14.5 billion ASAP. And apparently they need more than that to cover by Wednesday. And the Fed moved 70 billion overnight through the expanded lending windows. And, what they're apprently trying to do is to push fund onto Sterns & Morgan so they will extend a shitload of money to cover AIG, since they can't do it directly.
They're trying to bail AIG, and WaMu (and Wachovia?) gets lost in the shuffle. Lehman is still unwinding; so tomorrow should be a bad day.
max
['Bleh!']
What's weird is that the government's actions have been all tactics and no strategy. They had a long window in between the Bear collapse and now, which was enough time to put together a plan for the banking crisis, and go to Congress for approval if they needed it. Instead they seem to be entirely reactive. (The only exception is the Fannie/Freddie takeover, but I can't see what larger strategy that fits into.)
So let's say a third party defaults on payments to a bondholder, and since AIG is now fucked, they can't pay what they owe the bondholder per the terms of the CDS. So the bondholder doesn't get money they were due. Then what? Is the endgame a bunch of bankruptcies of financial institutions? Is the deal that if A defaults on a contract to B, B doesn't have the funds to pay C, and so on into infinity?
Let's do this the simple way: Bank A loands money to person B. Person B buys stock with it. (Buying stock on margin that is.) Bank A loans money to Person C also. Person C buys some of the same stock. Meanwhile, Bank A has also purchased some of this stock. The stock starts going down. Person B is way overleveraged, and can't make payments or they get called, and they sell the stock for way less than it is worth, and they can't pay off and they're effectively broke. So they don't make the payment, the bank is out part of the loan. The stock is also going down, way down, because people are selling, and the bank is lossing money this way. They need to cover their withdrawals, so they start making margin calls. Person C get surprised by the margin call, they dump the stock, they go broke and they don't pay off. Bank A is in trouble because they are under-capitalized, so they make margin calls on a bunch of loans they would not have called in if they didn't have to. People freak out, and a run starts on the bank, and at some point, the bank goes toes up. Meanwhile, Bank D had a bunch of loans out to Bank A, and now those are worthless, so Bank D has a giant sucking hole on their balance sheet so they have to call in a bunch of loans to recapitalize their balance sheets, and the people owning on those loans go broke, so more losses there and the selling is depressing the market and so on.
That was the systemic unwinding of 1929. A stock that was valuable to a going concern in a growing economy and bull market melts down and the credit extended to buy the stock becomes a loss/liability.
The derivatives market is the same but worse, because all the different instruments have differing legal constraints and purposes, so nobody knows how many derivatives there are, who is exposed to them, and what conditions kick in if they fail. So it's entirely possible the derivatives market simply may not exist in a few weeks. AIG is insuring derivatives, may have issued derivatives, and/or may own some. If they go down, lots and lots of derivatives are no longer insured which will change balance sheets in unpredictable ways. So there's no telling what a systemic unwinding of AIG (or Lehman!) positions may actually mean, except that they're going to unwind.
The problem is, again, that companies may have derivatives on their books as assets and those assets may disappear, causing balance sheet shifts which forces firesales, dumps & etc.
This has been your entirely unhelpful explanation of the day.
max
[' I could just say: 'FALL DOWN! GO BANG! SQUEE! POOF! ZAP! BZZT! SCHLORP! Game over, insert a coin to play again.' It's the same thing, really.']
They had a long window in between the Bear collapse and now, which was enough time to put together a plan for the banking crisis, and go to Congress for approval if they needed it. Instead they seem to be entirely reactive. (The only exception is the Fannie/Freddie takeover, but I can't see what larger strategy that fits into.)
But they went for retroactive authorization. No one in Congress really wanted to bail out the capitalists, particularly when the Treasury believes in free markets uber alles, and everybody was saying everything is ok. They did their job with Bear-Sterns and that, as they saw it, should've been that.
Having a plan would require seeing a problem to fix. Moreover, all the rich people that have their ears think they are sitting on a lot of valuable assets, not a lot of worthless-in-a-firesale paper. The rich people do want to be protected. Absent the Republican contributors, I expect this administration would've been happy to pretend the whole thing wasn't happening, which would have meant no bailouts for no cadillac-driving welfare cheats. Factor in the contributors and what they want to do is to protect the face-value of a lot of worthless paper. Bail when needed, otherwise, fingers in ears.
max
['They were not so constituted as to see the derivatives market as a problem.']
Watching CNBC as overseas markets go down. The panic, rage, and ass-coverong is palpable.
Tomorrow 5%, but since everyone knows Paulson can't save everything, I am expecting 10-20% on the week. Stops & PPT create limits.
30-40% in the next month? I hate the fuckers who said GD couldn't happen again, especially the liberal economists. Thoma was celebrating the "Great Moderation" mere months ago. DeLong couldn't understand why productivilty didn't show up in wages. Krugman had to work on the inequality, and preach Ricardo at us.
I blame you guys. I won't hear excuses.
Friedman & Greenspan and names I'd have to research (Lucas?) were not just wrong, but evil. And Obama is up to his big ears in Chicago economists.
I blame you, Bob. You did it. Time to take some responsibility.
Behavioral economics? Yeah let's do some "nudging" when unemployment is at 20-30% again.
"Dark Brown Monday." You gotta love it. At least they didn't christen it "Mulatto Monday."
"Ooh, we're just academic economists, what can we do?"
When depressions and World Wars are at stake, you punch Greg Mankiw in the face on National TV.
You care.
Goodnight.
But did you punch Mankiw in the face? No, you did not.
Caramel Monday. Fuck it, they just go with Candy Apple Monday. Rarely has financial disaster tasted so sweet.
I went to Yahoo Finance, and this was the headline. "Paulson: Americans Should Remain Confident in U.S. Financial System" When the Secretary of the Treasury feels the need to say something like that, it's time to panic.
221: But what's the best way to panic? Should I run out to the street and yelp? Should I break into the corner store and loot their supply of Kettle Chips? Or is it sufficient to just sit here surfing the 'net until they shut off the electricity?
Thanks to all for the explanations of how the crisis might further unfold.
But what's the best way to panic?
Bank runs & credit defaults will heighten the contradictions.
Link over at CR listed 5 stages of Kunstler Collapse riffing off Kubler-Ross
1) Financial failure
2) Market failure
3) Gov't failure
4) Social failure (communities)
5) Personal failure (families)
1 & 2 weaken the bottom three kinds of confidence & trust. Getting to three, and then supporting it unto death energizes and strengthens 4 & 5. Robbins' movie Hand That Rocks the Cradle was a propaganda piece, but it showed the dynamic very well. Many FDR programs were ineffectual, but they somehow created an attitude, solidarity.
I want 1 & 2 discredited as quickly as possible.
I can't sleep.
This is gonna crash & burn
So like I would recommend people stop making their mortgage payments, max out credit cards and the defaults, demand your deposits in 20s. Sabotage.
Attitudes need to be reversed, and probably before Obama gets inauguarated Today Obama said that the last 8 years of policy were wrong, showing he still loves Reagan.
Attitudes from the 30s:
1) Bankers and brokers will steal or destroy your money. Only gov't (FDIC, SEC) can protect you. Regulation really doesn't help, because that banker can get your money to Costa Rica faster than the Justice Dept can catch him. And they all want to do it.
2) Private industry & markets can't or won't feed you, house you, get you a job, help when you're sick, educate your kids. All they can do is profit off you. Their promises are shit, their word is garbage, they violate contracts like they breathe.
3) Politicians and elites will fuck you over for fun unless they think you will guillotine them for doing it. Incipient revolution is a necessity.
4) Corruption and exploitation aren't faliures of capitalism, they are the definition of capitalism. There is very little incomptence.
222: Mmm, Kettle chips. The store's closed, but if I stop off for a big rock...
223: I can't sleep either. I blame you for that too. I'm prepared to extend blame to Thomas, Krugman, and de Long in the spirit of comity.
Mocha, schmoca. We need something with some character: raw umber, auburn, cordovan, mahogany -- ooh, mahogany! That way we'd have a theme song, too. By Diana Ross, no less! No, we don't know where we're going to, nor do we like the things life is currently showing us, but thanks for asking.
Anybody bet against an 8000 Dow by next June? I suppose everybody, and I have nothing legal to bet anyway. 26 years of equity growth hone. Buy & hold, my ass.
An 8k Dow would reglect my predicted 30-40% decline in the American standard of living and interestingly would also show a decently fair distrivution of those losses, since equites are largely owned by the top quintile.
But the CEO's would still be in a better position to retire than the middleclass service worker.
You can make that bet. There are Dow put options.
Buy & hold my ass.
That's a really tempting offer, Bob. How much were you thinking of asking?
Absent the Republican contributors, I expect this administration would've been happy to pretend the whole thing wasn't happening, which would have meant no bailouts for no cadillac-driving welfare cheats.
I think that one of the lessons of the Bush Administration is that when the chips are down fiscal conservatives, deficit-hawks, free-marketers, and little-government constitutionalists have no clout at all within the Democratic Party. They're purely for show. Some of them know it and some of them don't. The very few exceptions supported Ron Paul and will support Bob Barr.
Authoritarianism, war, and low taxes (and favors for the rich donors and for certain voting blocs) are the Republicans' sole principles.
Bush-Gore 2000 showed us that the same is true at the judicial level.
229:Not bargaining before a couple more months of weighted squats and lifts. Gonna add some clenches to diversify.
It was Stephen Dedalus who dreamed of the "clean old man."
Generation Awesome reacts to the McManus Event:
"Now I know what it feels like to be handed down the death sentence," said one American employee in his 20s.While he was considering enrolling in a US business school next year, "it looks like I could be leaving (Japan) like, next week," said the employee, who did not want his name used out of concern for his professional future.
Bob, not throw a damper on your big day, but it is bit unseemly to have you posting so much on this. Sort of like someone dominating the stage at their own tribute. I think more properly you should just be sitting back sipping a Tom Collins, chortling at this latest specatacle illustrating the ongoing folly of man.
233:Now you tell me, after 18 ozs of black coffee in 75 minutes.
Fill 'er up. I'd rather read anyway.
231: Bob certainly can be charming when everything's going to shit.
225.1 gets it exactly right.
Wasn't Hand that Rocks the Cradle the one where Rebecca DeMornay plays a nanny who secretly nurses the baby as a way to steal its affection? I missed the political/economic implications of that one.
Atrios sez "AIG currently down 65%..."
Woof. Glad I put all my stock in GM.
"Now I know what it feels like to be handed down the death sentence," said one American employee in his 20s.
Let me express one brief moment of the years of rage that have been building up listening to willfully ignorant idiots tell me *I'm* the crazy one.
Dear American employee in your twenties who has been living in Egypt on de Nile:
"Cry me a fucking river. No, you did not get a death sentence, you got something worse. You got a lifetime of your own personal Hell knowing that not only were you young and foolish and the victim of a massive fraud you actually contributed to that fraud and to the pain and suffering of yourself and others. Think about that for 70 years and feel all the frustration of being called "crazed" when you try to warn others based on your own hard earned experience."
Okay, that was refreshing. Now to go pick up the pieces and help people start over.
You *are* the crazy one, Tripp. You reduce the suffering of every single person on the globe to your pet theory. You think your understanding of the world is so total that every single little thing that goes wrong proves that you were right.
The thing that gets me is the timing is a wee bit off here.
Yeah, Black Tuesday was indeed a Tuesday, but I'm pretty sure this was scheduled for October, not mid- September.
I put no faith in the stars but this is human behavior and that is pretty dependable and predictable. So either this is simply a reflection of how our culture has sped up and things happen faster or we are gonna stagger along a couple more weeks before the collapse.
I'm really thinking the latter at this time.
And this is not the 'big one.' That is later. Losing some paper money won't really hurt that bad, not for awhile anyway. Losing your job hurts. Losing your house hurts. Moving in with your relatives, that really hurts. When we start losing our kids - to drugs or sickness or starvation, yeah, then we are near the big one.
So don't go completely bonkers just yet. It is too soon and there is still enough police protection to know that you will only hurt yourself.
re 225.1: The bar where faculty in my division occasionally go after work sells homemade potato chips. Amazing.
chortling at this latest spectacle illustrating the ongoing folly of man.
Oh, no, there goes Tokyo! Go, go, Bobzilla!
Absent the Republican contributors, I expect this administration would've been happy to pretend the whole thing wasn't happening
Which is exactly what they did:
" ...Ohio Republican [Mike Oxley] who headed the House financial services committee until his retirement after mid-term elections last year, blames the mess on ideologues within the White House as well as Alan Greenspan, former chairman of the Federal Reserve.
The critics have forgotten that the House passed a GSE reform bill in 2005 that could well have prevented the current crisis, says Mr Oxley, now vice-chairman of Nasdaq.
He fumes about the criticism of his House colleagues. "All the handwringing and bedwetting is going on without remembering how the House stepped up on this," he says. 'What did we get from the White House? We got a one-finger salute.'"
Authoritarianism, war, and low taxes (and favors for the rich donors and for certain voting blocs) are the Republicans' sole principles.
"Less taxes and more war" as this dumbass Colorado GOP delegate said at the Convention (before some hooker robbed him of 120K later that night).
Walt,
If I did indeed think what you say I do then I would be crazy.
What I do think, as I stated above, is that human behavior is pretty dependable and predictable, especially when taken as an aggregate such as during huge global events, events which are the result of many years of individual choices, many of them conflicting, but when taken as an aggregate average out.
Based on that hypothesis I look to history and modern psychology to form a hypothesis to make a testable prediction. Based on the result of those experiments I revise my theory. After years of that I now state my predictions with greater confidence.
I use my predictions to guide my life and the choices I make.
Is that crazy?
Tripp is more or less right this time. A lot of the people getting burned were malefactors as long as they had the chance. And when things were going well for them, they were absolutely hard-hearted and impervious to argument.
"You can't argue with success". A lot of people believe that, and when they're successful they're insufferable. Now that some of them are unsuccessful, we shouldn't let them off the hook.
Prosperity Christians combine the worst American success worship wih a vicious Armageddonist theology. When Palin was chosen, she didn't say "My God, I don't know anything about how to be President! This is terrifying!", which was what any normal person would say in that circumstance. She said "God has blessed me and chosen me for a great mission, and he will guide me unerringly".
Is that crazy?
Only if you think the advice that comes with fortune cookies is crazy.
This is human behavior and that is pretty dependable and predictable.
It's not, Tripp. I wish you'd bullshit less.
When the Secretary of the Treasury feels the need to say something like that, it's time to panic.
Hey, at least he didn't say "How much worse can it get?".
Also, I've made a heavy long bet on kettle chips due to their excellent salt balance and strong future deliciousness potential.
"Less taxes and more war" as this dumbass Colorado GOP delegate said at the Convention (before some hooker robbed him of 120K later that night).
This made me laugh and laugh. Thanks for that. Those light-up cowboy suits sure are expensive.
Everyone go to Populuxe's links in 242. A heroic Minneapolitan, not our guy but a lady, did the right thing.
I'm busy this week! Really, this is my busiest week since last winter! I simply don't have time to sell all my stock until next Monday at the earliest!
I see that it's gone down by 20% since our thread two days ago. Oh well, I never actually had that money anyway.
The story referred to in 242/248 is an instant classic.
244 is a shockingly generous reading of the general thrust of Tripp's comments. Financial disaster is making you soft, John. First you say nice things about Tripp, then you'll be singing "Silly Love Songs". It's a gateway drug.
Anyone at Lehman who was in line for a bonus (i.e. not janitorial staff) doesn't deserve much sympathy, of course. But making generalized predictions of the doom of Western civilization doesn't make you a prophet every single time something goes wrong.
245 - 246: Yeah, I overstate my case at times. I admit that.
I think most of agree on my foundational premises, the disagreement is with my predictions and how strongly I make them.
My foundational premises are these.
In our current global situation the major powers are the global corporations, although some governments such as China still retain some power, but that is decreasing.
Even though the corporations have the power, and in most cases want to use it wisely and in a restrained manner, the corporations are not totally united in this effort and are still subject to human greed. For example how many good-intentioned companies say "we don't want to off-shore but we have to because of competition." The systemic harnessing of greed and competition in this case overrides other considerations.
Globally we are in a competition to consume the world's resources as quickly and efficiently as we can. Corporations that fail at this are replaced with those that succeed.
On top of that foundation we are still subject to the foolishness of individuals who will do whatever they can to get an edge, which leads to the ups and downs along the way. Still the base trend continues.
I think most of us agree on these premises. I tend to overstate my predictions of the foolishness and the pitfalls but in my cynical estimation betting on foolishness is a lot smarter than betting against it.
I also tend to remind people of the underlying trends of globalization and where they are leading and many people, while they know that in their guts, do not want to be reminded of it. They are annoyed by the reminder.
Is that about it?
Continuing with the McManusism, DeLong et al have been pointing out forever that the American standard of living (and trade deficits) are being supported by Asians buying American bonds, etc. The Asian markets are crashing and one assumes that Asian confidence in us will be shaken. So we can expect an austerity government no matter who wins.
Someone above expressed confidence that the police are still functioning, but not all of us are confident that our improved security apparatus will not be used against us. I depends on how bad things get and who gets hurt. One suspects that the actual malefactors will not suffer much.
I said "hooker," but I really think the douchebag was robbed by Irma Vep.
Walt, I was responding specifically to Tripp's 238. I should have said so, I suppose. His point there is not what you said.
So Walt and John, I take your points. I vented some, but let that be it.
Real people, good people, are hurting because of this and venting is selfish and I hope I'm done with it.
Thank you for being good friends and reminding me of what is really important. This is sincere.
And precisely none of 253 has anything to do with the banking crisis, other than the true observation that people can really fuck things up once in a while. Lehman Bros was in a global competition to stockpile soon-to-worthless assets, a competition that they in fact won.
256: I took it to mean that the Lehman Bros employee befell Tripp's General Theory of Doom, and only if he'd listened to Tripp.. Perhaps I misunderstood.
257: Okay, now I feel bad for arguing. The whole situation is making me crazy. Comity!
Walt and John,
Oh, and now I'm sorry that I stopped being a target. Since you are friends I'll make this offer - if *you* need a target I'll go back to being a pompous prick. Only as a favor to you of course.
No, too late, Tripp. We've achieved comity now. There's nothing left to do but bonding over shared enemies. The upside of John McCain picking Sarah Palin as his VP is that it definitively rules her out for the Treasury. Unfortunately, Populuxe's Colorado Republican is still available, and newly in need of some government cash.
my gay friend has now offered to come over to my new studio and paint the walls for me. my husband, with mild suspicion 'that's weird.' just thought I'd share.
262 - Hubby is right to watch out for those sneaky fuckers.
What I do think, as I stated above, is that human behavior is pretty dependable and predictable, especially when taken as an aggregate such as during huge global events, events which are the result of many years of individual choices, many of them conflicting, but when taken as an aggregate average out.
Isn't this roughly what Hari Seldon came up with?
I can't resist, but the dogs will give you some relief soon.
The second crisis of legitimacy is a crisis of intellectual legitimacy. Since the 1970's government regulation of markets has been in disrepute, and the answer which was adopted was a stochastic monetary theory, derived from Mundel-Fleming, which essential argues that monetary policy is better than fiscal policy which is better than regulatory policy. Therefore, all other things being equal, downsize fiscal policy, or treat it as a net loss, and focus on monetary policy....StirlingThis theory has a problem, and it is one reason why a good Liberal like Krugman has been acting like a cheerleader for failure in Ben Bernanke. That problem is that there is no such thing as pure monetary policy per se. All monetary policy is regulation plus monetary policy, and it has a structural reality, that is money from monetary policy, contra the equations, does not appear everywhere all at once to everyone, but to some before others. With these factors taken into account, monetary policy is no better than, and can often be worse than, fiscal policy as a means of stimulus.
We are thus facing a crisis of currency, because it rests on a politically illegitimate system, one accepted by the participants for their own short term interests, and a crisis of intellectual legitimacy. Both of these run across the political spectrum.
Mundell was the kind of name I was looking for in #211.
(PS 236:Right. The Cradle Will Rock? Mercury Theatre movie.)
mrh: Isn't this roughly what Hari Seldon came up with?
Good observation. Yeah, I read a lot of SF, especially Heinlein and Asimov, during my formative years.
I didn't totally drink the koolaid but I can tell a lot of it did stick with me in one way or another.
When Hazel Stone posts here I think of "The Rolling Stones." I'm not sure if that is who she references but that is who I think of.
You can imagine the feminist reaction to my mentioning Heinlein. Wow.
For managing the business cycle, monetary policy is better than fiscal policy. This has been the close to the universal experience of all governments in the Western world. At some point, monetary policy doesn't work (Keynes' "pushing on a string"), but
Bernanke has been an effective head of the Fed in that he has staved off the collapse of the banking system so far. If Andrew Mellon were in charge, the system would have collapsed already. He has been ineffective in that the government has not done much to solve the underlying problem of banks with bad balance sheets.
The names you're looking for back in 211 are Lucas and Prescott (who De Long once described as "failing the Turing test".)
You can imagine the feminist reaction to my mentioning Heinlein. Wow.
Jesus Christ.
I think "Raw Umber Monday" would've been genius.
You can imagine the feminist reaction
Huh?
Is the feminist reaction against Heinlein any stronger than the "not a libertarian fundamentalist" reaction, or the "not a militarist crypto-authoritarian" reaction or the "not batshit insane" reaction?
I read Heinlein as an adolescent, too. Also Niven, who is even worse. The politics blew past me, like the Christianity of Narnia. I still think the gadgets are cool.
I still find it hard to believe that there was actual politics in Niven, though I'm not planning on rereading it to find out.
I only ever read one Niven book -- a Ringworld book -- and what I mostly remember was the ridiculous excuse he used to get crypto-furry sex into the picture.
Oh wait, maybe there was one other one... set in a big zero-gravity oxygen cloud or something? I don't actually remember the plot of that one.
I'm imagining the feminist reaction to your mentioning Heinlein. It isn't very interesting.
Lucifer's Hammer was pretty openly racist. His version of Inferno has political content. He also wrote some authoritarian fantasy with Pournelle that I can't remember.
His crazy politics started coming out in the 90s when he was close with Gingrich. Someone on this blog has already linked to Niven's crazy proposal to reduce use of emergency rooms by illegal immigrants by spreading false rumors about ERs in Spanish.
The crypto-furry stuff came on much stronger in his later stuff, leaving it more or less unreadable. His early stuff is kind of neat though. Also, you're thinking of The Integral Trees, whose plot I can't remember either but think was a typical boy leaves home and comes of age.
Jesus Christ.
You know, Tripp, on this very board are real live feminists, not in-your-head castrating MacBeth witches, who have read Heinlein and would be willing to discuss him. I know this because I've seen them discuss him before.
273b - That's, uh, "The Integral Trees", I think? I haven't actually read it.
I still find it hard to believe that there was actual politics in Niven, though I'm not planning on rereading it to find out.
Depends on the Niven! I think the weird right-wing politics mostly come into the books via his frequent collaborator Jerry Pournelle, but Niven's personal politics are pretty unsavory. Let's see, there's "Oath of Fealty", which is all about how corporations are super awesome and will take care of us productive people in the forthcoming libertarian u/distopia. Also, a book I talked about last time Niven came up, "Fallen Angels", which is mostly wanky fan-service but features as the antagonist an evil alliance of greens, New Agers, and the Christian Right to hold back our noble engineering heros. Global warming is a myth, see, used by these anti-technology reactionaries to shut down human ingenuity.
From the afterword: Item: Despite all the talk of global warming, there is just as much scientific evidence for the coming Ice Age. Experiments have failed to detect solar neutrinos in the quantities expected, and astronomers tell us that we are going into a new period of minimum solar activity. The last such prolonged period was known as the "Maunder Minimum," and coincided with what has come to be known as "The Little Ice Age." Moreover, archeologic evidence shows that in the last Ice Age, Britain went from a climate a bit warmer than it enjoys now to being under sheet glaciers in considerably less than a century. Thanks, Larry! Your great-grandfather would be proud.
His version of Inferno has political content.
I picked up Inferno when I was 13 or so--inspired to do so, as I remember, by having recently read "Nightcrawler's Inferno" (X-Men Annual #4)--and I'll always remember that it was the first time that I recognized propaganda while I was reading it.
30-40% in the next month? I hate the fuckers who said GD couldn't happen again, especially the liberal economists. Thoma was celebrating the "Great Moderation" mere months ago. DeLong couldn't understand why productivilty didn't show up in wages. Krugman had to work on the inequality, and preach Ricardo at us. I blame you guys. I won't hear excuses.
Bob, I was yelling about the circuit breaker back in 1987.
But what's the best way to panic? Should I run out to the street and yelp? Should I break into the corner store and loot their supply of Kettle Chips? Or is it sufficient to just sit here surfing the 'net until they shut off the electricity?
Serious mode: get your money out and pay off your debts, credit cards first. Don't depend on the future value of equities that you own. (And if you do leave them parked, expect losses. In a coupla years those losses may be recovered, but do not count their current value on your balance sheet. Dump them or forget it and hold them for the long (long long) term.) You want to pay off the credit cards because the most likely situation if the problems get really bad is that you can't use the cards for anything, but they'll still be coming after your ass with a hammer if you don't pay. (That's much more likely than the situation of having a useless card that you never have to pay off on.)
Otherwise, it's like prepping for a hurricane: have some folding green money on hand (and maybe some metal coins), in case the credit system blips out for a while. (In a real hurricane, you'd figure on going at most a week without being able to acquire food or water or power, so you'd keep the pantry stocked up, and have the ability to cook food sans power.)
Anything more than that would require a total lifestyle change which you probably can't afford. It also might not do you any good, since there would probably still be trouble in the boonies, it's just a different kind of trouble.
So any panicking should be done with calm and deliberation. What is most likely to happen is that a bunch of banks will wind up being owned by somebody else and your bank will have a new name (or maybe three or four new names) and they won't give you any damn loans. In the interval, there may be a blip or two where you can't get all of your money out of the bank at once. As long as you aren't being chase by creditors that's no big deal.
Now, if El Jefe Busho gets up on TV and announces he's committed 101st Airborne to Georgia (or the Ukraine) to repulse Russian aggression and that unit is engaging Russian combat troops right now and that further the United States will defend Georgia (or the Ukraine) to the death, what you should do is this: RUN! RUN MOTHERFUCKER! RUN!
I think that one of the lessons of the Bush Administration is that when the chips are down fiscal conservatives, deficit-hawks, free-marketers, and little-government constitutionalists have no clout at all within the Democratic Party.
Ayup. Calling them populist tho would still overdignify them. Crazy Clown Fascists!
"Less taxes and more war" as this dumbass Colorado GOP delegate said at the Convention
Maybe our militias can fight Iraqi militias!
(before some hooker robbed him of 120K later that night).
They really should consider putting that hooker in charge of Treasury. She, at least, would know what she was doing, and she'd certainly know when she was getting cheated.
Now that some of them are unsuccessful, we shouldn't let them off the hook.
Well, I've been listening to those assholes tell me I was dumb for at least a decade for saying all this crud would work out very badly, so to hell with them.
max
['The Dow holds steady, awaiting the next bomb.']
I think it's kind of funny how steady the Dow is holding - it's like everyone is afraid to move it even a little up or down, or it might come crashing down. Is volume low, I wonder?
Also, oil is plummeting. For you people with portfolio questions, I recommend that you buy actual barrels of oil and hold on to them for a year or two.
Sadly, you can't actually store crude oil that long in barrels. It grows fungus. My friend who bought a lot of oil at $130 is sort of pissed these days.
Also, Dow volume doesn't look noticeably low.
Is no one recommending munitions?
I assumed that everyone already had a large stockpile of ammunition...
Sadly, you can't actually store crude oil that long in barrels. It grows fungus.
Ziploc bags?
DS is always ready with the mot juste.
I think it's kind of funny how steady the Dow is holding - it's like everyone is afraid to move it even a little up or down, or it might come crashing down. Is volume low, I wonder?
Might be, but it looks like nobody went into sell mode, until just a little while ago. 14:18 - up 30 points from a 99 point drop.
You know, the brokers might very well be holding back sell orders from the little people, and holding them until the afternoon when everything gets dumped at once.
max
['Also, the SEC banned naked shorts again - I don't know whether that's gone into effect or not.']
Fed says no rate cut. So much for the steady Dow.
"Naked shorting" sounds kinda hot.
287:For managing the business cycle, monetary policy is better than fiscal policy.
See, I disagree, very strenuously with even this. IIRC, Keynes had his guys burying and digging trunks of cash during recoveries & booms.
I know the politics is hard, Keynes told an MP "welcome to the stratosphere", but the problem is switching on a dime once the pushing on a string fails.
In any case, Keynes thought full employment, and not 95% e'en though that last 5% is very hard & expensive, was necessary to avoid contractions.
289 was me, and I retract it instantly.
Ok, the "Great Moderation" was a fact. Sorta. But i certainly need to develop better arguments against monetary Keynesianism.
Michael Perelman has posted today a chapter from one of his books about "fictitious capital". Somebody else wanted the last two decades of GDP revised because the bubble numbers distorted history.
This event should cause economists to revisit finance, asset sector inflatiion, and monetary Keynesianism, and question their relation to real growth & output. I personally think the metrics have been fucked for thirty years.
I gots more reading to do.
But we have years of experience that Keynes didn't have. (Plus, burying trunks of cash is monetary policy, not fiscal.) Monetary policy is easier to tune in response to the business cycle. There some forms of fiscal policy that are automatically countercyclical -- unemployment insurance, for example -- that are a good idea. But fiscal policy actively managed by government officials is harder to get to work. In a sufficiently big crisis, of course, it's worth it, but most of the time it's probably not.
If something is a good policy goal (infrastructure spending, say), then we should do it all the time, irrespective of the business cycle. Stabilization of the business cycle should be considered a separate matter.
Krugman, according to EOTAW: "Ben Bernanke and (I think) Hank Paulson understand we could have another Great Depression if we work at it hard enough. I think Phil Gramm might be just the guy to do it."
Newberry gets oracular. I am not sure S & I are on the same page;if so I would be on the first sentence.
And it isn't as if Newberry was my only source. When I read Minsky or many of the post-Keynesians it all seems familar.
unemployment insurance, for example -- that are a good idea
Keynes didn't like umemployment insurance. The point for Keynes was not to add money/liquidity to the economy but to add and sustain jobs.
It was at least as much, if not more, about egalitarianism and distribution of political power as about nominal output.
I gotta go read my blogs, and the Perelman doc.
I recognize that you read widely on the subject. I just want to warn you to take Newberry with a grain of salt. He writes with the kind of utter conviction that makes him very convincing. He likes to take a few facts, and tie them up in a neat package with a little bow.
On the other hand, this quote from Perelman is, I suspect, completely true:
The crises will become more violent if the distribution of income becomes too lopsided, leaving investors flush with money, while consumers are relatively strapped. Massive amounts of money will flow into speculative ventures, creating bubbles. In effect, a market which is supposed to be a wonderful feedback system to inform capitalists about the needs of society, takes on logic of its own.
Walt,
Great quote, thanks for finding it.
295:It is a great quote.
Look, I'll always defend Newberry, while recognizing that he is on an edge. I think he has an understanding and committment to a radically liberal political economics that is in the background of much of his writing.
For instance, as far as I can tell, he has always been at best indifferent to the safety net & transfer programs (just got back for hilzoy yelling about health care). For years I worried that this showed callousness or bad priorities. I have seen him brush aside questions about his liberal credentials when asked about the welfare state, to return to his themes of finance and power. He doesn't like to directly argue about it.
Yet it has gradually affected my thinking, to where I now in broadest principle, tho not passionately in practice, oppose the New Deal & Geat Society because they are a safety net for the plutocrats. I think even Marx & Engels supported transfer payments and Bismarckianism. It is very unusual to find anyone left of center who doesn't settle.
So it is now not only cool to find anti-welfare state liberalism in Keynes & Minsky, it raises my opinion of Newberry a couple hundred percent.
295:And if you need a little explication
Unlike like welfare capitalism, the gov't doesn't give the worker the money to buy healthcare, profits & power going upward.
Unlike socialism, you don't (necessarily) make healthcare part of the gov't.
You get the worker the wages to buy healthcare.
It is so radical it is barely thinkable, that capital & wealth, while remaining a capitalist system, can be so evenly distributed as to eliminate the political power of capital.
The economy may be collapsing, but Science keeps moving forward.
In fact, it sound visionary in a bad sense, and that's the thing about Newberry that I don't trust.
And it can be done very simply if understood.
Today, as Lehman employees walk out of the skyscraper, they immediately walk into a gov't job at say the minmum wage, being twice or much more than the current minimum wage. Say 50k a year, annualized, until they find something better.
How big a difference would that make to the NY economy? What are the other implications of it?
300:Visionary?
Exactly how well have the other systems worked at ending war & inequality?
It retains individual freedom, and it creates a labor pool for common good projects.
And I am not speaking for Newberry, and I hope I didn't give that impression. Not speaking for Keynes or Galbraith (check out what JKG wanted after WWII) or Minsky either. Maybe I don't understand them at all,
None of the visionary schemes have worked. Newberry isn't the first visionary.
The Treasury Department is considering putting AIG under a conservatorship, according to Bloomberg.
AIG has hired the same bankruptcy lawyers that Lehman hired on Sunday.
Markets were up today. And The Fed is going to bail out AIG. There will be no systemic collapse. Does that mean we've made it through the McManus Event unscathed, or that it wasn't really a McManus Event?
Maybe, but you can't read much into a single day's market movements. It's also not clear what the Fed is going to do.
Intriguing, Brock. Does your gut manage a mutual fund that I could invest in, by any chance?
Wow. The latest development is that the Fed is going to take an 80% (!) stake in AIG in return for an $85 billion loan.
311:Yeah, I just read that too. Shareholders wiped out.
Legal? Shareholder lawsuit? Who is gonna profit from the coming dismemberment?
310: so, Walt, how much would you like to invest in my fund?
10
"Can anyone explain to me why the 3rd quarter estimated taxes are due 15 days before the end of the quarter, while all the other ones are due, sensibly enough, 15 days after?"
Actually the second quarter estimated taxes are also due 15 days before the end of the quarter. So on average they are due at the end of the quarter.
311: I think they're just diluted. The board of a company can dilute existing shareholders. (I presume existing shareholders can sue if the dilution is clearly not in their interest, but there's no way they would win here.)
312: Hold on, let me see how much I can get from the Fed.
So, Brock, you think all this is good news, or just indifferent? Looks like an "event" to me, and like Reagan & Bush tax cuts, will give us hurt for decades with no easy escape. At Thoma's, there are serious economists who would rather have the crash.
Wait...I don't talk to Republicans.
I didn't say this was "good news", Bob, I said we avoided systemic collapse. Which means it's news that's much less bad than it could have been. Those economists you refer to were willing to risk systemic collapse, I guess, in order to avoid a bailout. It's hard to say that's wrong, but it's certainly a big risk.
All I'm saying is that this week is shaping up to be significantly less catastrophic than a lot of people worried as of Sunday night (myself included). That's a good thing.
My main worry this decade, actually since Norquist, was that Republicans would find a way to move every localized or systemic economic catastrophe (or security event) onto the structural deficit.
"Socialized risk" doesn't really describe it.
Next up, Washington Mutual.
You know, I used to think Carville's joke about wanting to come back as the bond market in his next life oversold the power of the bond market, but I think I was wrong about that. Fannie and Freddie's bond holders get bailed out. Now AIG's bondholders get bailed out. I presume Bear's bondholders got bailed out too. That only leaves Lehman bond holders to be the only ones to suffer.
Ha. I was right, they were going to bail AIG.
All I'm saying is that this week is shaping up to be significantly less catastrophic than a lot of people worried as of Sunday night (myself included). That's a good thing.
Well, it has delayed a systemic unwinding, but at the cost of increasing the chance of systemic collapse (by increasing the risk of USG defaulting).
Yet it has gradually affected my thinking, to where I now in broadest principle, tho not passionately in practice, oppose the New Deal & Geat Society because they are a safety net for the plutocrats. I think even Marx & Engels supported transfer payments and Bismarckianism. It is very unusual to find anyone left of center who doesn't settle.
Unemployment insurance doesn't exist due to the goodness of heart of liberals (although it is sold that way for political purposes), it exists to keep unemployed people from burning down the factories that just laid them off. Because those factories are major capital assets and it would be a waste to see them destroyed, not to mention it is bad for bidness to have people starving in the streets.
Sure. I'm not sure how to get to the anarchist part fo what you're talking about.
But we have years of experience that Keynes didn't have. (Plus, burying trunks of cash is monetary policy, not fiscal.) Monetary policy is easier to tune in response to the business cycle. There some forms of fiscal policy that are automatically countercyclical -- unemployment insurance, for example -- that are a good idea. But fiscal policy actively managed by government officials is harder to get to work. In a sufficiently big crisis, of course, it's worth it, but most of the time it's probably not.
Except we don't have experience Keynes didn't have. Keynes was talking about how to get off the floor after a systemic collapse. He was talking about using fiscal policy to hire warm bodies to do makework (at the worst) like burying bottles in the ground, and then having someone else come along and dig them up. The abandonment of active fiscal policy in favor of monetary policy was part of the Friedmanite changeover, but it was also due to diminishing returns.
However, part of the R economic scheme has been maintaining passive Keynesism, while handing out the goodies to the wealthy. (Socialism you don't have to pay for!) And the Great Moderation was a joke, to put it e'er so politely.
Might be, but it looks like nobody went into sell mode, until just a little while ago. 14:18 - up 30 points from a 99 point drop.
Aha, so they're saying everyone was counting on bailing out AIG and Lo! The bankers angels sang.
max
['Time for a sucker rally!']
but at the cost of increasing the chance of systemic collapse (by increasing the risk of USG defaulting).
Are you being serious? I guess it increases the chance of that, but only Infinitesimally.
Ok, after reading 308 comments about AIG at Calculated Risk, 250 of which were chaff, I am still completely lost. I won't even bring feelthy words like "warrants" onto this upstanding blog, since I have no idea what a "warrant" is. Could be about assfucking.
Latest word there:NYT has retracted its story. Deal is not yet finalized.
Rumour:This appears to be Bernanke's. Paulson wanted to let them die.
Update Done Deal CR
And what, while I was reading the 308 comments, ~650 more comments were posted on two new threads?
You know, I used to think Carville's joke about wanting to come back as the bond market in his next life oversold the power of the bond market, but I think I was wrong about that. Fannie and Freddie's bond holders get bailed out. Now AIG's bondholders get bailed out. I presume Bear's bondholders got bailed out too. That only leaves Lehman bond holders to be the only ones to suffer.
The bond market is a) fucking gigantic and b) more or less funds the daily operation of most levels of government. Of course it's going to have a lot of clout.
A warrant is a kind of call option: it's the right to buy a share in a company. The difference from a regular call option is that a new share is created. So the Fed would be given 4 times as many warrants as there are currently shares in the company. When the Fed exercises those warrants, they would own 80% and existing shareholders would be reduced to holding 20%. (If the Fed never exercises the warrants, then existing shareholders would be unaffected, but that would only happen if AIG shares ended up being close to worthless. The Fed could also sell the warrants someone else without exercising them.)
Warrants are usually a sweetener on top of a loan. The government got warrants as part of the Chrysler bailout, and made a lot of money from them.
Will somebody, ideally somebody who knows (Walt? Max? Snark? PMP? Other?), explain what is going on with AIG? I get Lehman. And I certainly understand Freddie and Fannie. But I'm totally in the weeds on AIG.
320
"... Now AIG's bondholders get bailed out. ..."
Is this clear? Are all the bond holders going to be senior to the government loan?
AIG was a major player in supplying credit default swaps (CDSes). Banks have been using CDSes to make risky debt less risky. If AIG went under, then all of those CDSes go away, and banks suddenly have to take large losses to account for the fact that their not-so-risky debt is suddenly risky.
327: Well what happened, see, is you never really wanna keep your banks an your investment firms an your insurance companies an such all together in one place, cause if one of em starts comin down with a case a brokeness they'll all catch it together. That's why whenever any a my GSEs get sick I just take em outta the tank an put em in a little fishbowl like so.
AIG is legendarily financially opaque. But it's a big insurance company; they charge premiums, take on obligations to pay, and invest the money from the premiums so that in theory they come out ahead. Along with the obligation to pay is an obligation to keep enough money on hand so that they can pay - no one wants the insurance company to go bankrupt.
It looks like some of the insurance they wrote was against bond defaults; when those defaults became more likely, their insurance contracts probably required them to raise more money to ensure they'd be able to meet their obligations. Having to raise more money makes it harder to do so, the downward spiral commences.
In the end, the Fed made a loan secured by a bunch of AIG's assets at an interest rate that is worse than a lot of people have on their credit card, in exchange for 80% of the company. This should move AIG from the "has to sell right now" category into "can gradually sell over two years" category, letting them get higher prices for the stuff they have to sell. Anyone who owned stock in AIG, probably including your 401(k), just got fucked.
It's more or less bankruptcy, but drawn out over a longer period of time.
329 and 331 are very helpful. Thanks to both of you.
For what it's worth, some private equity guys offered to buy some of AIG earlier this week. AIG turned them down because they didn't want to sell a controlling interesting in the company. The terms that the Fed just gave AIG are considerably harsher.
I am not even completely sure if it is a check or a credit line, a credit line AIG can use to keep their ratings up and borrow elsewhere.
And someone said Ben & Hank were trying to handle this while keeping the dollar up and not costing the taxpayers any money.
In any case, I am very tired
333:I am not so sure that we have bought anything yet. If AIG borrows the money at the outrageous rate and fails to pay it back then the Fed gets the assets.
So it may be a good deal for AIG.
335: No! Don't be! I just moved my fish to the bathtub because of you.
So it may be a good deal for AIG.
An interesting idea of a good deal, to sell 80% of the company for a loan as opposed to, you know, money.
337: Well I feel a little more appreciated now. A little.
I cannot fucking believe they're bailing out AIG. This is the first one where I feel like they're doing it to save cronies, not because it's the only way they can figure to prevent another GD. Maybe I'm just suffering from bailout fatigue.
I'm pretty sure we've spent enough on bailouts to build the modern electrical grid that I've been told we can't possibly afford.
Hmm. 331 makes me feel maybe better. But I'm still skeptical.
338:watermoccassin, read the NYT article in 324. It is clearly a collateralized loan. The Fed has not bought 80% of AIG yet. Do I need to cut-and-paste, guess so.
"authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) " No check written yet.
"The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries."
If we simply bought 79.9%, why is it called a collateralized loan? If we own 80% of the fucker, wy are we demanding repayment to ourselves? Why don't we just sell the subs ourselves to cover the loan?. I think the article is very unclear.
I am not even sure AIG goes bankrupt. It has some very healthy subs to sell.
AIG is very Republican connected. One of the rumours is that management has been skimming funds off state subs, and had to hide the books at all costs to keep from going to jail.
I'm pretty sure we've spent enough on bailouts to build the modern electrical grid that I've been told we can't possibly afford.
You have to understand, a really spectacular war coupled with top-notch cronyism are very expensive propositions. That said, my cronies would have come much cheaper than this lot. And I'd have skipped the war and rebuilt New Orleans with enough left over to construct you your little grid. But that's just me.
bob, you're having the time of your life, aren't you?
bob, you need to learn to fucking read.
The Fed made a collateralized loan. In exchange for the Fed loaning AIG money, AIG gave the Fed 80% of the company. Or warrants to purchase 80% of the company, which is the same thing. From page two of the NYT article:
Under the plan, the Fed will make a two-year loan to A.I.G. of up to $85 billion and, in return, will receive warrants that can be converted into common stock giving the government nearly 80 percent ownership of the insurer, if the existing shareholders approve.
342
"If we simply bought 79.9%, why is it called a collateralized loan? If we own 80% of the fucker, wy are we demanding repayment to ourselves? Why don't we just sell the subs ourselves to cover the loan?. I think the article is very unclear."
That's where the warrants come in. They give the government the right to buy 80%. So if AIG just has a liquidity problem which the loan gets them through then the goverment can take 80% of the upside. If AIG goes bust anyway then the warrants will be worthless.
AIG gave the Fed 80% of the company. Or warrants to purchase 80% of the company, which is the same thing.
Really? Same thing? I thought warrants had to exercised or something. A warrant is a stock in hand?
I have to think that there's more to that "AIG turned down private equity" story than we've heard, because it doesn't make any sense.
Specifically AIG's CDS contracts required them to post more collateral if their senior debt was downgraded, which was imminent, and would drive them into bankruptcy.
The $85 billion sounds like a collateralized line of credit. In return for opening the line of credit, AIG gave the government an 80% stake. So the government didn't buy it; they were given it in return for even allowing AIG to borrow money.
I think you have it wrong. I think the asshole at AIG systemic-shock blackmailed Bernanke into getting a deal that gives him time to sell some subs and pay back the loan.
And the warrants won't be called. More corrupt than you think.
From the web site of the Federal Reserve:
The U.S. government will receive a 79.9 percent equity interest in AIG
The CEO of AIG is expected to be fired. If the warrants are above water, and the government doesn't execute them, I will personally lead the rioting.
348:"Line of credit"
So maybe the Fed got 80% for 5 dollars?
And if AIG does borrow, sell some good and shred some waste, pay the loan back, get smaller and healthy, one year from now the US Gov't will take ownership anyway?
Ya think so?
The CEO of AIG is expected to be has been fired.
Bloomberg:
AIG gives up a 79.9 percent stake to the government and senior managers including Chief Executive Officer Robert Willumstad, 63, will give up their jobs. Retired Allstate Corp. CEO Edward Liddy, 62, will be New York-based AIG's new leader, according to a person familiar with the plans, who declined to be named because the change hadn't been announced. Allstate is the biggest publicly traded home and auto insurer in the U.S.
350:In fucking warrants, which is certainly an "interest" but is not yet ownership.. Why warrants?
I think you may riot, Walt. But maybe all this will be an Obama administration decision.
344:Ari, I don't watch any sports.
This, and Fine Art, and philosophy is what I do for fun.
Ya think so?
Given that two hours ago you didn't know what a warrant was, I think it's fair to say that you have no idea what the hell you're talking about, but are just getting off on the prospect of disaster per usual.
The US Government took warrants for Chrysler stock when they bailed them out in '79, and ended up selling them at fair market value. Chrysler tried to talk them out of it, but failed.
I expect the Fed to sell their shares. Attaching warrants to a loan is not that unusual, and is exactly how the Chrysler bail-out was structured.
356:I think you need to think about the politics of an Obama administration taking possession of a newly healthy largest Insurance company or wrecking the shareholders.
I am not getting off on the prospect of disaster here, because I don't necessarily see one. AIG is not a wrecked company, just needs time and a loan.
I am apparently more cynical than you are.
Here is a Time article that gives a decent overview.
357:Why Walt? At 8 1/2 points over Libor, if the loan gets repaid, it is not as if the Fed didn't make money on the deal. Just to punish the shareholders?
Chrysler thought the same in 1983 as you do now, bob, and got publicly reamed for it. Maybe Obama will be more business-friendly than Reagan was, but that seems pretty far-fetched.
I have to think that there's more to that "AIG turned down private equity" story than we've heard, because it doesn't make any sense.
It seems pretty foolish in hindsight, but if AIG thought that they'd be able to either get a better deal or strongarm the rating agencies into not downgrading them as much as quickly, it's not totally implausible. Still a horrible idea, but at least you can see how they might make that decision. Gambled and lost.
Maybe Obama will be more business-friendly than Reagan was, but that seems pretty far-fetched.
Is ari still around? No comment.
Goodnight.
Given that the Fed has punished the shareholders of Fannie, Freddie, and Lehman Bros, why is it so far-fetched?
||
Armsmasher's band rocks. No, more than rocks; it honks.
Becks and Matt F honk too. As do PGD, Sir Kraab and Napi. Thanks, D.C.! See ya next time.
|>
I believe it was the end of Winter Quarter 2000 when I walked into Kent Hall to go check the posted answer key for the Gen Chem final, with the thought that looking at the key might jog my memory of my own answers enough that I would be able to leave town with a rough sense of how I had done on the final.
As I stood there examining the posted sheets, I sensed a presence behind me. I turned around to find that I had been boxed against the display case by three people who looked put together yet just a bit off. They started ranting about how I had to support someone by the name of Lyndon LaRouche in the upcoming election. I had not heard of this man previously. They shoved some literature in my hands. I hoped that if I were accommodating they would quickly be on their way. But they persisted for a few minutes more. They told me about "the derivative bubble," and how it was all going to blow, and how many trillions of dollars were up in the air. This was the first time I had heard of derivatives. Of course, they felt strongly that only LaRouche could fix the derivatives problem.
So yeah, it now kind of challenges my sense of the way the world works that those crazies turned out to be—at least partially—right, and that they were way ahead of the curve on this issue. I mean, I'm used to thinking I can safely ignore the ravings of obvious nutjobs who approach me on the street; am I going to have to start taking the crazies seriously?
Stopped clock, blah blah...
367: Here are ~15,000 words just published by LaRouche if you want more.
A sample:
Since the aftermath of the Napoleonic wars, the center of all credible threats to a British empire with Habsburg appendages trailing after, has been the United States of America's role as a bastion of the kind of alternative expressed by the intentional design of our Federal Constitution, its Preamble most notably. It is on exactly this point, that any competent understanding of the causes for the rise and fall of the U.S. auto industry depends, and that absolutely. There can be no competent psychological understanding of the recent crisis of that auto industry, and of the cure of that sickness, from any different standpoint
But every once in a while you get a nugget like this:
In the U.S.A. today, for example, the typical standard of mental behavior in nearly all social classes, is the desire to be overheard saying what will be accepted among the members of the social grouping to which one's ego is appealing for recognition and affectionate stroking. Such people do not recognize their behavior for what it is: They are, in effect, being efficiently "brainwashed."
Actually, I rather like Unfogged.
Uh, I could use some "affectionate stroking." Huh-huh, huh-huh.
I'm no investment banker, but it looks to me like the way to ride out the market turmoil is to put all your money in sharks in formaldehyde.
360
"Why Walt? At 8 1/2 points over Libor, if the loan gets repaid, it is not as if the Fed didn't make money on the deal. Just to punish the shareholders?"
No, to avoid giving the shareholders an undeserved gift. And the government certainly needs the money.
Contemporary pickled sharks still don't come close to the classic pickled sharks of the great Renaissance masters. The artists of today short-circuit the long apprenticeship period and jump immediately to major pickling projects, and it shows.
372 is the very embodiment of liberal, ivory-tower condescension. Next you'll be saying that Thomas Kincade's Pickled Jesus Lizard isn't real art.
367: Careful there Otto. Do you really *want* to wake up from the Matrix? You better think about this.
Joking aside, when I first read a college history book and saw how slightly different and so much a superset it was of my high school text I had a similar feeling.
The problem is there really are a bunch of loonies out there. I've seen them. I've talked to some of them. Recently. The major cases are easy to spot once you learn a bit about mental illness.
Then you get the borderline cases. The eccentrics. Those who seem to make sense but sometimes not.
So the problem is who to believe, who to believe? If you can find someone, usually older, with knowledge and wisdom whom you can trust then suck them dry.
I place great credence into the scientific approach as well, meaning the respected published journals have been properly reviewed to where you can trust what they see. Usually a lone wacko doesn't get very far with them. Away from them a lone Wacko can do some amazing things, even starting his own religion that lives on past his death. Not Christ. Hubbard.
Don't believe it all, or even any of it, but be willing to consider it.
If you can find someone, usually older, with knowledge and wisdom whom you can trust then suck them dry.
Apo? Wait, no cockjokes.
I exercise & eat right so my Golden Years can be useful to the young & callow. I live to serve.
Apparently people are now buying credit default swaps on US Treasury bonds.
Just to make 376 clearer: some investors are now sufficiently worried that the US government might default on its bonds that they are taking out insurance against the event.
376: I only barely understand what that means, but my bare understanding says that sure doesn't sound good.
376/377: what's the cost of the swaps? (Surely extraordinarily low?) And where did you see this? I have time to read unfogged but not the financial press, beyond front page headlines. I'm actually surprised this isn't a front page headline.
380: Treasury swaps, via Naked Capitalism.
They've been doing that for a while, though. I also admit to not understanding entirely how it's a good idea, given that the USG can always inflate its way out of this, and that if the USG is not making payments on its debt, the odds of the dude who sold you the CDS being fucked are also pretty high.
Agree with 382.
Anyways, looking at the AIG deal, it appears the Treasury can exercise the warrants with the approval of the stockholders. It is unclear how much the warrants will cost or who gets the cash from the treasury. So Treasury doesn't own AIG, they just took the rights to buy AIG. To me that looks like a backstop for the stockholders; if the company goes down, they at least hold 20% of a going concern.
At the front end is the weird part; AIG gets a revolving line of credit for a really high interest rate, so they can sell themselves out without imploding. At that rate tho, if they borrow the whole thing, they would wind up owing more than the company is worth in fairly short order. (Thus the backstop above.) So I'm guessing the AIG board thinks they can get out from under by selling themselves off before they go so far in the hole with the Fed that the warrants needs to be exercised.
The problem is, is that this doesn't do what you want, which is to reassure the market that the AIG financial insurance functions won't go under, while also discouraging asset price-depressing fire sales.
This is really the deal they should have done with Lehman. They should've just taken over the AIG financial insurance functions for cash (thus helping AIG with its liquidity crisis and eliminating the systemic collapse failure mode).
They got no strategy here, Walt!
max
['Our elite people are way behind the curve here.']
I agree it's all tactics, no strategy.
If people are starting to worry about US government bonds, that means that China is no longer going to fund our lifestyle and negative trade balance by buying bonds, right? And then there will be ripple effects. So we can expect Obama to be in charge of managing the austerity.
We're still in the McManus even even if the world economy doesn't collapse entirely.
383: But what do you think the chances are of AIG raising capital through selling off some of its good assets, then spinning off the Financial Products division into a "bad bank" with backing from that new capital? Then AIG would need to repay the government on the new debt, but it would have some time and would no longer face massive mark-to-market losses.
As for the credit default swaps themselves... I bet they're priced way too high right now, so a fully-capitalized "bad bank" would ultimately be fine. It's just a question of how much worse those prices get in the meantime and who would provide the necessary liquidity (probably the government, as you said).
There is no way that the aggregate consumption of US citizens does not go down in the near future, and for some time after that. That is not an avoidable event. Americans have had a large part of their net worth disappear. Even Megan McArdle can tell you what happens then.
There is no way that the aggregate consumption of US citizens does not go down in the near future
So you're saying net win, right?
As long as my consumption doesn't go down. If I am forced to consume one Cheetoh less, then revolution!
Oh sure, you say revolution now, but wait until you actually try to accomplish it without the tangy life-sustaining fuel of those Cheetoes. You'll barely be able to lift the corner trash can above your head, let along light it on fire and throw it through the store window.
Fuck, you're right. I better invest in spring-loaded trash-can-flingers while I still can.
There is no way that the aggregate consumption of US citizens does not go down in the near future
Real consumer expenditures have dropped for the last two months, with durable goods taking the biggest hit. The safest time to make a prediction -- when it's already coming true.
No link, the post is over at Angry Bear, but the Fed hit up the Treasury for 40B today. I guess they have gone thru their 912B reserve.
some investors are now sufficiently worried that the US government might default on its bonds that they are taking out insurance against the event.
ummm, who are they insuring themselves with? The Chinese central bank?
I thought the traditional means of doing this was burying gold and jewels in the back yard.
But what do you think the chances are of AIG raising capital through selling off some of its good assets, then spinning off the Financial Products division into a "bad bank" with backing from that new capital?
I don't think they can spin it the bank bits. Nobody wants to own a financial insurance concern that is liable for some ungodly amount of money when a collapsing market demands huge payouts. I don't see where the capital would come from in the first place. Unfortunately that's the part you want to save to save the rest of the market, so it seems to me the only possible purchaser(s) are the Feds.
Then AIG would need to repay the government on the new debt, but it would have some time and would no longer face massive mark-to-market losses.
I think that's what they're trying to do here; in a credit crunch, I don't see how that works, unless they can find a rook to take a lot of subsidiary units off their hands at quite good prices. Worse, they wind up selling off the parts that make their balance sheets look good and keeping the sucky bits.
As for the credit default swaps themselves... I bet they're priced way too high right now, so a fully-capitalized "bad bank" would ultimately be fine.
They probably are priced too high, but someone who paid for insurance is going to want face value.
So we can expect Obama to be in charge of managing the austerity.
Yes; expected that.
We're still in the McManus even even if the world economy doesn't collapse entirely.
What Walt said, but also, the world banking system is collapsing. The world economy is losing the subsidies the world banking system was giving, so the various economies will collapse to their real world value, but that real world value isn't nothing, it's just not near as large as anyone believed it was.
Even Megan McArdle can tell you what happens then.
If she (and say, Tyler Cowen?) had any shame, she'd be running around going 'I WAS WRONG! I WAS REALLY REALLY WRONG!' but of course, no. It's Bill Clinton's fault!
max
['Which, sadly, is somewhat true.']
392: That's why I'm destined to become a highly paid media pundit starring on the Someguy Show on CNBC, and you'll only ever be known to the world by a three-letter acronym.
you'll only ever be known to the world by a three-letter acronym.
That's not fair - I know what the acronym stands for.
Of course, not even CNBC would let him have a show with that name.
in a credit crunch, I don't see how [asset sell-offs] works, unless they can find a rook to take a lot of subsidiary units off their hands at quite good prices.
Well, that is a good question. But at least there are people with plenty of liquidity like Berkshire Hathaway and GE who might be interested in airplane leasing as a business. It won't bring in bubble prices, but it's not doomed to be a fire sale either.
[The credit default swaps] probably are priced too high, but someone who paid for insurance is going to want face value.
But since they're priced too highly, they currently appear as gigantic liabilities on the balance sheet. Given that AIG provided insurance for a properly diversified set of bond issues, then that too-high pricing ensures that the actual liabilities entailed by the default swaps are lower than the number on the balance sheet since there's little chance of one flukey default happening and producing a liability far higher than the current default portfolio size. IOW, AIG will have to pay out defaults on the one or two insured bond issuances that actually go belly-up in the next 3-5 years, but they'll have capitalized that "bad bank" entity to match the current market prices that expect four or five defaults. The real problem is that credit default prices could continue to move against them for a while, or they might have way too much exposure to one or two banks that could bankrupt the Financial Products subsidiary if they collapse.
All this relies on AIG being able to raise enough liquid capital in addition to whatever equities and treasuries are on their current balance sheet to be able to capitalize a spin-off "bad bank" enterprise, or some similarly walled-off internal division, so it may all be a moot point. You're right that if prices continue to move against AIG, someone's going to have to take over that division (probably for nothing or even an IOU from AIG) to keep the rest of the company solvent. I wouldn't be surprised if Berkshire Hathaway does it, but the only other possibility would really be the Fed.
Aw dudz is the crash thread dying? Ain't as if the news has stopped. I know some might not want this to become a wonky econblog, but hey the econblogs are getting hitcounts ya wouldn't believe.
Think about it. "McManus Event Prolonged" or McManus World?" Or "Look out below?"
We can get back to cockjokes when the depression's over. I probly need to watch Sullivan's Travels or an early Shirley Temple movie.
But is Bernanke right? A whole lot of fake bank-generated money is disappearing (securities that were backed up by nothing). Doesn't it just make sense to replace the fake money with government IOUs, in order to avoid a deflationary crash?
We can get back to cockjokes when the depression's over.
Some of us may not have that long, bob.
not even CNBC would let him have a show with that name
Coming up at 7, The Pretty Goshdarned Delightful Market Report.
400:Fuck if I know. People are still writing books about the Great Depression. I go back & forth on Bernanke, he is one of the top authorities, but he has an ideology.
FDR laid out a smorgasboard. People are starting to talk about a few, like the Gov't buying bank stock and buying mortgages. Remember growth was terrific 33-37, just from a low, very low baseline.
My favorite FDR moves are high taxes and public works.
Bernanke wants to reflate with monetary policy precisely to avoid the fiscal or regulatory moves like unemployment insurance or SS and SEC. Do I hope he is wrong & fails? Yeah.
I think the problem is with either pretty or delightful, Apo. Currently the market is neither.
The Durham Farmer's Market was both last Saturday. Tomatoes! Big as boxing gloves!
My favorite FDR moves are high taxes and public works.
If we get cool murals in the Post Offices again, I'm for it. A performance artist in the lobby doing an interpretive dance on the greed of Wall Street, not so much.
public works
HR 616: To authorize the Secretary of the Interior to conduct a feasibility study on the construction of a ladder to the moon.
I think if we end up in the Great Depression II, monetary policy alone can't get us out of it. But it's plausible that mild inflation could forestall it. Particularly in this instance, inflation will push up the nominal price of houses, which will cut the risk of default.
The other thing that needs to happen is that government needs to take over the outstanding bad mortgage paper. They should figure out what the stuff is worth long-term, and then buy everyone out. Part of the problem is that nobody can do business with anyone else because no one knows what anyone's holding, and nobody can sell the stuff even though it has a nonzero value. If the government takes it off their hands (at its true value, not at a markup), that solves the underlying problem in the banking sector. Already Volcker is calling for something like this, so the idea is out there.
But at least there are people with plenty of liquidity like Berkshire Hathaway and GE who might be interested in airplane leasing as a business. It won't bring in bubble prices, but it's not doomed to be a fire sale either.
Sure, if they have time. That's the problem with the painful interest rate they imposed.
But since they're priced too highly, they currently appear as gigantic liabilities on the balance sheet. Given that AIG provided insurance for a properly diversified set of bond issues, then that too-high pricing ensures that the actual liabilities entailed by the default swaps are lower than the number on the balance sheet since there's little chance of one flukey default happening and producing a liability far higher than the current default portfolio size.
Ok, I think we wound up talking past each other. I keep thinking of AIG as an insurance company (which is wrong - see futher down) and insurance companies are cranky conservative entities that have precomputed actuarial sheets so they can stay on the safe side of this kind of stuff.
So as far as bond insurance goes, they would/should be fine under normal conditions; in the current market, they'd would probably be taking a bath but not a company-wrecking one.
What actually happened is that the big conservative insurance company is still fine, except for the giant malignant cancer that has developed, where they decided they would also get into the investment bank business. In particular, they decided to be a second party to the derivatives issued on mortgages. (That's where the CDS come in!)
I was talking past you (my fault) because I still have a hard time thinking that a sensible insurance company would DO SOMETHING THAT INCREDIBLY STUPID. Becoming a third-party in a triparty derivative I can sorta see; regular bond insurance I can see; taking a fucking flyer on some set of mortgages of an unknown quality when the corporate entity in question doesn't have access to Fed backup is just fucking ridiculous.
You're right that if prices continue to move against AIG, someone's going to have to take over that division (probably for nothing or even an IOU from AIG) to keep the rest of the company solvent. I wouldn't be surprised if Berkshire Hathaway does it, but the only other possibility would really be the Fed.
I don't see how prices cannot continue to move against them. They are a big, healthy insurance company with cancer, but the emphasis is on big. BH could take them if they could really ditch the investment bank but I don't see how they can do that legally without the Treasury doing it for them. And if they did do that, they don't need to be bought.
Essentially what they really need is for someone to take the mortgage banking liabilities off their hands, which sort of reminds me that we did some of that for the insurance companies after 911 and that would be the sensible thing to do here rather than go the bailout route.
Think about it. "McManus Event Prolonged" or McManus World?" Or "Look out below?"
World's Biggest McManus, Laydeez...
Doesn't it just make sense to replace the fake money with government IOUs, in order to avoid a deflationary crash?
Truly, a slogan for the ages. 'We secretly replaced their regular monopoly money with Folger's Treasury bills... let's see if they notice....'
Bernanke wants to reflate with monetary policy precisely to avoid the fiscal or regulatory moves like unemployment insurance or SS and SEC. Do I hope he is wrong & fails? Yeah.
I'm not sure Benanke is thinking that far into the future. Really, I've been wondering if they're trying to tank the Bush Administration and/or the McCain campaign.
max
['Thought Republicans were incompetent, but couldn't prove it? Guess what?']
one knows what anyone's holding, and nobody can sell the stuff even though it has a nonzero value. If the government takes it off their hands (at its true value, not at a markup)
How would the value be established? Any value would have to be a prediction of the risk to the income stream of the bond, which seems to have eluded the guys who got paid to do just that.
I've been wondering if they're trying to tank the Bush Administration
Bush really, really doesn't need any help.
409.1:It won't be inflationary, but reflationary, trying to counter deflation. We are already, well, we are rapidly moving toward deflation. The commodity price drops are not good news.
409.2:I think it is gonna happen, (and is happening): both the gov't buying the toxic waste and buying the mortgages.
There goes your health care, says Ezra Klein
Morgan Stanley wants to merge with Wachovia!
But it's plausible that mild inflation could forestall it. Particularly in this instance, inflation will push up the nominal price of houses, which will cut the risk of default.
Depends on how overpriced houses are - if they were 100% overpriced and prices fell 50% you'd need 50% inflation to catch up... which would be about 12% inflation to get to get rid of the ratio mismatch in 4 more years. I don't think mild inflation is enough.
If the government takes it off their hands (at its true value, not at a markup), that solves the underlying problem in the banking sector.
What I thought they should do back in March, given the unpredictabilities inherent in the derivatives situation would be for them to just strip everybody of all the urban mortgages, reset the prices (say, minus 60% for Los Angeles, minus 20% for St. Louis), issue new clean mortgages, and spin those new clean mortgages back out to the banks in the same proportions as the originals. The derivatives get stripped away and folded into nothing at the same time.
So you'd have a set of way leaner banks, but they'd have clean mortgages.
But at this point, that's still too aggressive.
max
['So black hole.']
There is also a paranoiac over at Ezra's who noticed the the economy tanked just before Clinton got elected, boomed for Shrub, and is tanking now.
Leninist and evil as I am, this is why I wanted a full fucking crash. Without one, we peons will pay pay and pay and not get nothing.
411 - I don't think it's that hard. I think they did it badly because it was in the interest of their annual bonuses to not do a good job.
416- I don't know. There are a bunch of liar loans that are just junk, and a bunch of resets that could be modified and a whole bunch where the underlying collateral value has eroded so as to wipe out whatever equity was there, and more. The loans were written by a veritable army of mortgage brokers who are now flipping burgers. Sorting the wheat from the chaff would take years. And does one modify a performing loan, just to be fair to the guy who is doing the right thing?
Oh. TED is fucked. And last time I checked, the overseas markets were all red again.
I think they will fo everything in their power to keep the Dow above 10k this week. But read Setser, foreign money is pulling from anything with any risk, and into treasuries(LOL). It's all global.
If Dow goes under 10k Friday, what, Ben gonna emergency lower a quarter? May never stop going down. I was predicting an 8k dow next summer, but looking overseas, it could happen before the election.
Ain't I cheery?
409
"The other thing that needs to happen is that government needs to take over the outstanding bad mortgage paper. They should figure out what the stuff is worth long-term, and then buy everyone out. Part of the problem is that nobody can do business with anyone else because no one knows what anyone's holding, and nobody can sell the stuff even though it has a nonzero value. If the government takes it off their hands (at its true value, not at a markup), that solves the underlying problem in the banking sector. Already Volcker is calling for something like this, so the idea is out there."
I think this is mostly wrong. I don't see that it helps for the government to buy the stuff unless it overpays. It is not true that nobody can sell, you can always sell at some price. If it was simple to determine true value then you could just require everyone to mark to true value. Of course this might reveal many banks are actually insolvent but in that case so would selling to the goverment at true value. I expect the real intent is for the government to bail everybody out by overpaying.
Coming up at 7, The Pretty Goshdarned Delightful Market Report.
Perfectly, not Pretty. I can see I'm going to have to go back to full pseud.
If the government takes it off their hands (at its true value, not at a markup), that solves the underlying problem in the banking sector.
Thing is, nobody even understands where the mortgages are now. They're all sliced and diced eight ways from Sunday into fancy computer-designed securities. Everybody owns titles to some odd part of the cash flow from a pool of mortgages, or else has written insurance on some part of it, etc. It's not just that regulators didn't put any restrictions on the asset types, it's that they don't even know what the assets are. Even for individual homeowners, it's unclear who you would renegotiate your mortgage with.
But the core of what you're saying is right on -- the key is getting all the ridiculously misvalued debt out of the system, avoid that nasty debt deflation spiral. In the Depression, the Federal Home Owners Loan Corporation went around reappraising properties and buying up the mortgages at their "proper" deflated value. They actually sold them at a profit some years later too.
416
"I don't think it's that hard. I think they did it badly because it was in the interest of their annual bonuses to not do a good job."
I think you are wrong, it is very difficult to value a lot of the stuff which is why it's so illiquid. Suppose the value depends in part on clauses in the establishing documents which were badly drafted by some hungover first year associate and which have never been tested in court. How do you confidently assign a true value?
Perfectly, not Pretty.
You know, if I'd spoken it instead of typing it, I'd have said it correctly. Yikes. I may be too old to be president.
Is this whole mess really about people needing liquidity? Because I've got a really nice food processor that will liquify any goddamned thing you want. You'll be able to drink your mortgage-backed securities through a straw by the time I'm done with them. So if you have any assets that need to be more liquid, just send them my way. My fees are reasonable.
There is a real problem with liquidity now, sure. But quite a bit of the "problem" was too much liquidity before, which led to the real estate "bubble". Single Family Residences are still "overpriced" in some markets, and prices will slide further. Sucks to be you, property owner, bond holder or Wall Street trader.
So if you have any assets that need to be more liquid, just send them my way. My fees are reasonable.
I think that was a spring thing; the big thing for fall will be using various forms of financial paperwork for home heating.
max
['Put some more stocks on the fire...']
320
"You know, I used to think Carville's joke about wanting to come back as the bond market in his next life oversold the power of the bond market, but I think I was wrong about that. Fannie and Freddie's bond holders get bailed out. Now AIG's bondholders get bailed out. I presume Bear's bondholders got bailed out too. That only leaves Lehman bond holders to be the only ones to suffer."
Not according to the WSJ :
"Ordinarily, bondholders are better protected from losses than stock investors. But the events of the past two weeks have shown that they are vulnerable, too. The Federal Reserve's rescue of AIG doesn't protect the company's bondholders. That's because the deal, which consists of a high-priced loan to the company from the government, requires AIG to pay the Treasury before current bondholders. If AIG can't raise enough cash by selling assets, bondholders won't be fully repaid.
As a result, despite the Fed lifeline, some AIG debt is changing hands at just 40 cents on the dollar, less than half of the price one week ago. Now that Lehman has defaulted on its debt, its senior bonds are worth as little as 17 cents on the dollar, traders say."
To make that argument work, the Fed has to actually default on the debt. Somebody is going to make a lot of money on AIG's bonds.
427
"To make that argument work, the Fed has to actually default on the debt. Somebody is going to make a lot of money on AIG's bonds."
The Fed puts up the $85B, AIG makes good on its counterparty commitments then goes bust leaving the bondholders out in the cold.
If the financial markets suffer total annihilation, AIG will be worthless. We are nowhere near total annihilation yet.
Someone holding AIG bonds who waits (patiently) for AIG assets to change hands will likely make a lot of money. If they don't make a lot of money, it's because things are so bad that all financial paper is worthless, but in that situation they'll be too busy with other issues to care.
AIG stockholders are in a bad position.
max
['Bad enough that there's no real point in liquidating.']
Hmm.
Wall Street surged higher Thursday, with the Dow Jones industrials up more than 400 points after a report that the federal government is considering creation of a repository for banks' bad debt. CNBC said Treasury Secretary Henry Paulson is considering creation of an entity like the Resolution Trust Corp. that was formed after the failure of savings and loan banks in the 1980s. Investors were cheered by the notion of a huge federal intervention like the establishment of RTC to acquire the real estate debt that has hobbled financial institutions and led to the intense volatility in the markets this week.
So, this hasn't happened yet, obviously. If it does, though, I'm not sure I approve of all these institutions just getting to pile all their bad debt from shoddy lending practices onto the federal government and then walk away. In fact, it kinda seems like a sure-fire way to hobble the budgetary options of an incoming administration.
But I'd like some of the folks with better understanding of this to explain it to me a little better, as I really have no idea what I'm talking about here.
430
"But I'd like some of the folks with better understanding of this to explain it to me a little better, as I really have no idea what I'm talking about here."
It's a bailout. The government would buy the stuff for more than it is worth. Otherwise there is no point. Naturally this appeals to anyone holding a bunch of the stuff.
Well, that much I understand. I meant the implications of it.
They could acquire it at something approximating its true value. (Which no one knows exactly, since nobody knows how far housing prices are going to fall or how many people are going to default, but it's possible to make an intelligent guess.) What the market needs is certainty, and the government could provide it.
Or it could be a pure socialize-the-risks-privatize-the-profits maneuver. It's hard to be sure.
The banking crisis is driven by the fact that no bank knows what any other bank is holding, and no outside investors know what the banks are holding. So nobody wants to invest money in the banks. The banks are holding large amounts of assets that have plunged in value, but no one is sure by how much because nobody wants to buy those assets. If the government buys the assets, then everyone knows what the banks are holding, and which banks are still solvent.
Since we've reached the Q&A portion of the show, here's mine. Surely Paulson and Shalom Bernanke have every reason to push the really calamitous stuff off until after the election, or, better yet, until the new guy takes the oath of office. Given that, aren't we likely only scratching the surface of this horror show? And if so, what's going to happen in November or January? Should I be putting all of my money in alpacas, the only genuinely safe investment I know?
"In fact, it kinda seems like a sure-fire way to hobble the budgetary options of an incoming administration."
Well, duh.
435: To a certain extent, I'm sure that's true, which explain why all of their actions have been tactical rather than strategic. But there is real danger that the whole US banking system could fall over before November, so there's a limit as to how much they can procrastinate.
So, this hasn't happened yet, obviously.
The RTC was fairly minor (remember, at the time, the FDIC bailed out a lot of depositors).
If it does, though, I'm not sure I approve of all these institutions just getting to pile all their bad debt from shoddy lending practices onto the federal government and then walk away. In fact, it kinda seems like a sure-fire way to hobble the budgetary options of an incoming administration.
I struggle coming up with a short version of this (there's a long version of this! really really long!), but basically, yes, adding all that debt to the balance sheet while letting various financial fuckheads off the hook really sucks, but I tell ya, having the American financial economy totally collapse is way way way worse for federal balance sheets. And this thing could get much much worse.
But I'd like some of the folks with better understanding of this to explain it to me a little better, as I really have no idea what I'm talking about here.
Should we have a new thread here? We're kinda down in the weeds here.
max
['On the other hand, this is both painfully boring and agonizing, so maybe Labs can gay it up some more.']
I assume the plan was to wait, but events, dear boy...
http://www.epolitix.com/mpwebsites/mparticles/mparticledetails/newsarticle/events-dear-boy-events///mpsite/10778/
Surely Paulson and Shalom Bernanke have every reason to push the really calamitous stuff off until after the election, or, better yet, until the new guy takes the oath of office.
I don't think Bernanke does. His term lasts until 2010 as Chairman.
440: But he's a Republican, appointed by a Republican, and beholden to Republicans. From those facts I infer not good things. And wait, do you suddenly believe in civic virtue?
Given that, aren't we likely only scratching the surface of this horror show?
If you mean, are there any secret liabilities hidden that could surface and destroy everything? Um, yes, and no. Yes, what you're hearing is behind the curve because it is primarily related to real estate and we're past the point where the real estate problem has catalysed a lot of other stuff, so things will get worse. On the other hand, the truly catastropic stuff is unlikely to happen.
And if so, what's going to happen in November or January? Should I be putting all of my money in alpacas, the only genuinely safe investment I know?
Only if you own an alpaca farm, otherwise you'll have to nuzzle with them through the winter while they shit all over your rugs.
max
['And then go way upthread where I laid out how to survive.']
My belief is that his technocrat cred is pretty high. (I think DeLong likes him for example.) Nothing done so far strikes me as insane, given the circs. I don't think anyone wants a blot as large as this could be on their resume. And it's not like he's going to have trouble finding his next job, so he doesn't really need the Republican backing.
And wait, do you suddenly believe in civic virtue?
Unless a neocon, I assume that Republican Jews are just Jews living in error because they have not heard the Good News about Obama.
Since we have the phone lines open, I'm calling in to say to Max and everyone else this is NOT boring and thank you very much for netting this out for me and others.
This is sincere. I mean it. I don't trust the propaganda from the government and I don't trust the BS from the news anymore so I'm counting on you people which if you were born when I was you would know is a really bizarre state of affairs where I trust a pseudo-anonymous person on the internet more than I trust government or journalists.
Look, if we can really take the bad paper, toxic waste, whatever, replace it all with Treasury loans at a penalty interest rate (so the careless guys get punished), and pay the interest on the new debt by raising taxes on the rich, then I think we're sorta OK, considering. We might be on the way to that.
In other news, fucking LB has got me checking out fucking Megan McArdle regularly, just because I'm so fucking horrified. Something about the suave aplomb and tone of authority with which she retails sheer bullshit, stuff that five minutes of googling will tell you is off. Her latest:
Whatever your opinion of the Bush tax cuts, it is indisputable that they made our tax base more progressive: the rich and very rich now pay a higher percentage of the total tax take than they did before Bush took office.
That is NOT the definition of progressive.
Oh, also, for reasons touched on upthread it is by no means easy to replace the toxic waste with government paper. It's all wrapped through the financial system. If possible, it's best to let some of the shit hit the fan and go to market so people really understand what's toxic, what's not, what's truly worthless and what has a marked down value.
But Wall Street really doesn't want that, as shown by the hysterical rejoicing that met rumors of an RTC-like entity today.
checking out fucking Megan McArdle regularly
That will actually make you stupider over the long term, PGD.
433
"They could acquire it at something approximating its true value. (Which no one knows exactly, since nobody knows how far housing prices are going to fall or how many people are going to default, but it's possible to make an intelligent guess.) What the market needs is certainty, and the government could provide it."
Fine then acquire at half true value. There is absolutely no reason for the government to pay full price.
434
"The banking crisis is driven by the fact that no bank knows what any other bank is holding, and no outside investors know what the banks are holding. So nobody wants to invest money in the banks. The banks are holding large amounts of assets that have plunged in value, but no one is sure by how much because nobody wants to buy those assets. If the government buys the assets, then everyone knows what the banks are holding, and which banks are still solvent."
Of course any solvent bank could assuage these fears just by disclosing its holdings.
433
"Or it could be a pure socialize-the-risks-privatize-the-profits maneuver. It's hard to be sure."
It's easy to be sure what all the people lobbying for it would like it to be.
There is absolutely no reason for the government to pay full price.
That's my gut feeling as well, but again, I have practically no understanding of finance.
Fine then acquire at half true value.
In part, isn't the problem is with the idea of "true value" at the moment? Given an absence of hysteria, "true value" is X, but given total hysteria, "true value" is some much smaller Y.
You guys are arguing in circles. There is no way to establish "price" or "value". And the RTC precedent doesn't apply, because most of the real estate was commercial, not residential. Commercial real estate has a value based on the potential income stream. Not so with residential. Unless one were to start with some value based on what it would cost to rent the property, based on prevailing rents in the area. Once the value of the underlying collateral is established, a loan and therefore the income stream could be extrapolated. You may send my Nobel Prize in the mail.
453: All of that is subject to a series of expectations. If I tell you that downtown NYC is about to be hit by a series of Russian nukes, the expected income stream of that bit of commercial real estate amounts to nothing. If I tell you, "Oops, just geese," the expected income stream changes again.
445: Oh my goodness.
I assume that it's correct that McArdle catches a lot of crap because she's a woman. I make this assumption because I am aware of all Internet traditions, and abusing women is one of them.
Also, I have to admit, I almost never read comments at her site.
So I'm fully willing to accept the idea - promoted here and elsewhere - that she catches a lot of unjustified crap. That said, I have seen a lot of abuse hurled McArdle's way, but I don't think I've seen any abuse that was unjustified on merit.
That's really awful, PGD. Just awful.
Risk is part of the equation, yes. Non standard risks such as described can be insured against. I forget if the owner of the World Trade Center won his lawsuit that there were two events that fateful day, doubling his insurance payout.
445, 455: She's incredibly stupid. Or she plays the part of the incredibly stupid person with convincing zest and all the right props. Has anyone ever made a compelling counterargument? If so, I've never seen it.
Unless one were to start with some value based on what it would cost to rent the property, based on prevailing rents in the area.
In fact, TLL, this is a very common metric, no? The government doesn't have to get it perfect - a lowball-but-not-horrible valuation would suffice, I'm thinking.
No? If memory serves, you actually know something about the subject matter in play here, so I'm prepared to listen and learn.
Given an absence of hysteria, "true value" is X, but given total hysteria, "true value" is some much smaller Y.
Tim, the entire point of the exercise is to douse the hysteria. So "true value" needs to be defined as something sufficiently higher than X to make the recipient not bitch too much, and sufficiently below Y to make sure the taxpayers aren't screwed too badly.
That strikes me as a rough description of the AIG, FRE and FNM situations, anyway - heck, even the Bear Stearns situation. And I think the Fed and Paulson did the right thing with those.
this is a very common metric
Not very common, but not so far out of line so that even I could remember it as a tool. More common for residential is recent sales comparables, which is a terrible way to value property, as it feeds the greater fool theory.
435: I'm working backward here reading the comments here, but I'll take a crack at this one:
All of the evidence is that the house is on fire, and Bernanke and Paulson are doing whatever they can to douse the flames. They aren't thinking ahead to November, because they aren't in a position to know what's going to happen next week.
I get a good vibe about Bernanke - unlike Greenspan, there's no reason to suppose he's politically motivated. And with Paulson, we've reached a stage where what's non-calamitous for Goldman Sachs is non-calamitous for the country, and vice versa. Because I trust him to do right by the investment bankers, I trust him to do right by the country.
More common for residential is recent sales comparables
I visited a neighbor's open house over the weekend, a bit surprised at how much they were asking. The realtor indicated he expected the house to sell for 10-15% less, but listed it at that price because of the comps. (He didn't say it, but the implication was that the owner demanded it be listed that way.)
He told me that the comps were way off, because they were, like, six months old.
TLL: ? They value mortgages the same way they value commercial real estate -- as a series of cash flows from the mortgages. Residential mortgages have two risks: the risk that someone will prepay, and the risk that someone will default. They can't know the default rate with any certainty, so they should just make pessimistic assumptions. They don't care how much the houses are worth, except in so far that affects the default rate.
A potentially bigger problem is that the cash flows from the debt are split up between lots of claimants. If the government can consolidate the claims (since they're all bad), then that's not an issue.
And with Paulson, we've reached a stage where what's non-calamitous for Goldman Sachs is non-calamitous for the country, and vice versa. Because I trust him to do right by the investment bankers, I trust him to do right by the country.
Hell, when you look at some of the deals that Paulson's been doing lately, he's acting like an investment banker. A very good one, with the best damn credit in town, who wants to make a certain buck where he can. And he's doing it on behalf of the government.
The Fannie/Freddie deal and especially the AIG loan were done at impressive interest rates and terms, and look like they could turn profits in the long run.
462
"... They don't care how much the houses are worth, except in so far that affects the default rate."
This is just wrong, the loss after default depends on how much the house is worth relative to the loan amount.
457
"She's incredibly stupid. Or she plays the part of the incredibly stupid person with convincing zest and all the right props. Has anyone ever made a compelling counterargument? If so, I've never seen it."
She's not incredibly stupid, she just isn't as smart as she thinks she is so she gets in over her head a lot. She also has ideological blind spots. Neither of these problems is confined to incredibly stupid people.
460
"... And with Paulson, we've reached a stage where what's non-calamitous for Goldman Sachs is non-calamitous for the country, and vice versa. Because I trust him to do right by the investment bankers, I trust him to do right by the country."
I don't think the interest of Goldman Sachs and the country are identical or even necessarily closely aligned.
Tim, the entire point of the exercise is to douse the hysteria.
This is, in fact, the point I was trying to make.
She's not incredibly stupid
Well, she's pretty stupid, and the gap between her actual intelligence and her belief in her own rightness seems to be greater than just about anyone else I've ever read, so that's something.
If you're not convinced on the stupidity end, here's her reply on the Bush tax cut thing after, errr, someone pointed out that "progressive tax cut" is not defined the way she seems to think it is:
Look, the top rate went from 39.5 to 35; the bottom from 15 to 10. Any way you dice that, it's a bigger cut for the poor than for the rich. The ratio of the top to the bottom is higher. The take from the top is higher, both as a percentage of tax taken and as a percentage of their income.
Unpack that statement. She's confused on the difference between marginal and average, confused on how the U.S. tax system works, and is leaving out the changes in the capital gains and dividend tax rates that resulted in many of the top-end benefits of the Bush tax cuts. She gets paid to write about economics, this is one of the major economic policy issues of the last decade, and she doesn't understand the necessary concepts at an Econ 101 level, doesn't understand the insitutions, and doesn't understand the basics of the policy itself. This is after years of being paid to write about it.
Her understanding of economics is about at the level of a really vulgar Marxist type. Except instead of annoying everyone at the local Revolution Books, she's writing for Atlantic, because unlike Marxism her ideology fits in comfortably with the power elite.
McMegan also only talks about income tax, and not social security tax, etc.
She's incredibly stupid for someone who make her living at what she does.
She has mastered the idea that success comes from networking, impression management, and knowing who to blow, which I first encountered among smart people around 25 years ago and which seems to be a fundamental truth for those who have reasonable chances of success in this world.
468
That's mostly evidence that she doesn't want to admit she was wrong another trait not confined to incredibly stupid people.
mostly evidence that she doesn't want to admit she was wrong
I don't see that as being any more or less likely than that she simply doesn't understand it. The rest of your comment is, of course, correct.
The rest of your comment is, of course, grammatically-incorrect.
Fixed.
And of course I mess up the .html. Dammit.
A smart person who didn't want to admit they were wrong could find a way to defend themselves that didn't reveal a lack of understanding of the income tax system.
Not gonna post on her any more, I'm wasting everyone's time, most of all my own.
I'm overexcited and a little thrilled because my boss asked me to write a minor speech for his boss. White collar work corrupts your soul.
Back to talking about the crazy markets.
To clarify, she's not incredibly stupid for a fast-food worker, a supermodel, a warehouseman, a TV news broadcaster, etc. She's not even incredibly stupid for an elementary schoolteacher. For a writer who writes about technical subjects in a (once-) prestigious publication, she's unbelievably stupid.
458
"Tim, the entire point of the exercise is to douse the hysteria ..."
A trusting view which I do not share.
They value mortgages the same way they value commercial real estate -- as a series of cash flows from the mortgages
Sorry Walt, so many moving parts. I was talking about the houses, not the mortgages. And if one is going to do some loan modifications, which I think is in the cards for most, then one had better have a good idea of the underlying value of the collateral. it is not in anybody's interest to try and make the borrower pay the contract as written, too many will just walk away, especially if they feel like they are supporting some one else's bailout.
The rest of your comment is, of course, grammatically-incorrect.
As is using a hyphen in that sentence.
The rest of your comment is, of course, grammatically-incorrect.
As is using a hyphen in that sentence.
I'm glad Sir Kraab caught that, and I agree that it's doubly important to other comments commented singly. No hyphens between adverbs and adjectives people!
"The only successful example of dealing with a financial crisis is Sweden, which did not try to prop up troubled banks, but instead nationalized them, wiping out equity, brought in new top executives, and recapitalized them."
Naked Capitalism.
No hyphens between adverbs and adjectives people!
Stanley is W-lfs-n Lite®.
Just keep buying style manuals until you find one that say's you're right, folks. What a bunch of crap.
Well, fine then. Comment I just left on Krugman's blog.
If they're going to go this far, then I think they should do it the right way: strip the lenders of both the residential and commercial mortgages and the mortgage-backed securities in toto (in urban areas, issued after 2000, plus all mortgages with new loans attached after that date), reset ALL the mortgages to sane price levels for the area they are in. So LA mortgages issued in 2006 take a 60% hit; the new prices are based on the old prices + current rents @ 1 to 1, adjusted on a zipcode basis, so that new houses are priced similarly to older houses.
People with old mortgages go untouched. New mortgages get smaller, and equity sinks in similar proportion. We try to put people who have been foreclosed in the last 18 months back in the houses with a new mortgage, if we can. If we cannot, the feds take possession of the foreclosed home, ala the old RTC.
Then we spin the new mortgages back out to the banks in proportion to the confiscated value.
Many of the existing securities/derivatives may be owned to other banks or Fannie and Freddie, so those just go away; for the rest, we replace them with bonds (or some other standardized instrument) in amounts proportional to the price of the new mortgages. Fannie and Freddie ditch the old guarantees and replace them with new ones. Also, we tell the municipalities to reduce their tax assessments to the new price, while providing them funding (in amounts that decrease yearly) to tide them over.
The point of this is that it shouldn't require new liquidity, except to feed the municipals. The banks take a big hit in one go, but then their balance sheets are uncontaminated. The homeowners get cheaper and smaller mortgages (with lower monthly payments) that are more properly sized to the rest of the economy and they stay in their homes and keep the money moving through the system. Granted some people may get off quite lightly for buying too much house or whatever, but they're going to be paying for all these bailouts for years anyways, so someone getting a piece of free house is not exactly bothersome to me. The banks will kvetch, but they get cleaned up and there is a functional economic enviroment for the banks to operate in.
We take one-time GDP hit, but we wouldn't have to wait five years for house prices to fall or inflation to catch up, as all the loose paper that got created over the last coupla years would be vacuumed up. That looks like a win-win-win to me.
max
['I'm thinking of the Swedish model of bank nationalization, but using it just for the real estate segment.']
485 is absolutely brilliant.
What I like about it is that, right now, the gov't is holding all the cards. The banks et al. can cry all they want about the unfairness of lopping 60% off the value of LA housing, but the bottom line is that, if the Feds don't fix it, then the banks all fail.
I take JBS's point that the banks have an active desire to socialize the costs (as opposed to fixing the system), but I think that, as long as the gov't shows a willingness to allow at least some of the banks to fail, then the rest will fall into line.
Here's a shocker. The US is now bailing out money market funds.
But that was obvious, right? Or, very likely both (1) the easiest and least risky "bailout" so far, and (2) the most necessary. (1 is certain, 2 far less so, since god only knows what really would have happened had the govn't *not* stepped in for any of these cases. We can only guess.) The whole money market industry was teetering on the verge of implosion. Everyone knows the Reserve Primary Fund 'broke the buck', and many others *hadn't* only because they've all locked up customer withdrawals for the full 7 days (the maximum period allowed by law). Which of course pisses clients off and scares the shit out of them. So there was little question a run on assets would occur as soon as withdrawals were again permitted.
This "bailout" is just a temporary money-market FDIC, basically.
Or, wait, was 487 sarcastic?
Hey! I know what kids. Let's all go shopping!!
489: Yes, last time there was a fear of economic crisis it was our patriotic duty to shop. Especially for automobiles, for whatever reason, if I recall the advertisements correctly. And now I'm in the market for a car, and yet no one is offering any more Patriotism Discounts or even special America-First Financing. We need some Presidential leadership on this issue; I want speeches!
Wow. The kitten just walked across the keyboard and--no shit--produced the sig below.
I'm easily impressed at 4:30 am.
No, it wasn't sarcastic -- I didn't expect it. I couldn't decide the right one word description, so I went with "bailout", which makes as much sense as any. I don't know why you put it in quotes.
I don't know why you put it in quotes.
Most likely because I've been sitting at my desk for about 28 hours now. I can't think of any other good reason. Consider yourself lucky I didn't also put quotes around "necessary", "implosion", "clients", "money market" and "permitted". That's the sort of thing I do in times of crisis.
445: David Brooks was quoting McCardle approvingly in the New York Times, and Greg Mankiw said on his blog that David Brooks nailed it.
Brooks' column today was beyond stupid, even without the McMegan quotes.
I know, and Greg Mankiw is in charge of teaching 900 Harvard undergraduates introductory econ.
Brooks' column today was every day is beyond stupid
It's instructive to look at Krugman in comparison to Brooks today.
The grownups are working together to try to craft a solution. The conservatives? They just fling shit:
The current financial crisis is centered around highly regulated investment banks, while lightly regulated hedge funds are not doing so badly.
WTF?
501: I know. I just can't bear to read him most of the time.
We're going to need regulators who can anticipate what the next Wall Street business model is going to look like, and how the next crisis will be different than the current one. We're going to need squads of low-paid regulators who can stay ahead of the highly paid bankers, auditors and analysts who pace this industry (and who themselves failed to anticipate this turmoil).
Yeah sure, David. But maybe you've noticed that there wasn't a financial crisis of these proportions between the Great Depression and the Great Deregulation? It turns out that the right kind of regulations -- like keeping commercial and investment banks separate -- can anticipate disaster even if they can't predict that the precipitating cause will be mortgage-backed securities.
Oh, God, Megan McArdle and David Brooks together in one big shit cocktail.
I was going to post some choice BS from Megan's posts on the financial collapse -- surprisingly, it turns out that the collapse demonstrates that *effective regulation is impossible* -- but I didn't want to inflict it on people. But here's a quote from a comment that I left on one of her regulation threads:
Tons of people have been warning about the dangers of derivatives for years and the need to more closely monitor and regulate them, led by such well-known socialists as Warren Buffet. The entire system of structured finance monitoring was fully privatized and handled by basically unregulated ratings agencies that had hopeless conflicts of interest due to financial ties to the securities issuers. You might think it would be pretty easy to do better than that, but sorry, Hayek proved that it would be impossible back in the 1940s and Megan is here to regretfully explain it to you.The argument that better regulation was politically infeasible is especially annoying. First, it's obvious -- it didn't happen, so it must not have been politically easy to do. We don't need an "econblogger" to tell us this. Second, a big reason it was politically difficult is the thoughtless libertarian-lite ideology Megan and others have been pushing for decades. (It's not a coincidence that for 50 years after it was put in place our financial regulation system was stodgy but worked pretty well to create stability, and then starting in the mid-late 80s we get a go-go era marked by big financial blowups every decade or so.). The fact that most of our political and economic establishment was in the tank for Wall Street and thoughtlessly dismissive of regulation is not a reason to be thoughtlessly dismissive of regulation.
Her response to this is just like her response to the problems in Iraq. I shall now use the failure of my ideas to demonstrate, once again, the shallowness of all those who posit alternatives to my ideas! My superior thoughtfulness has been demonstrated yet again!
The snottiness, the faux world-weariness, the pretenses to understanding.... just amazing.
The current financial crisis is centered around highly regulated investment banks, while lightly regulated hedge funds are not doing so badly.
HOW CLUELESS do you have to be about how Wall Street works and financial regulation is set up to make a statement like this?
You know, I'm pretty clueless about Wall Street and financial regulation, I certainly know less than Megan. What gets me about her writing is that I know I can't rely on any of the facts.
She had a post a day or two ago on rent stabilization and control in NYC -- she was horrified that 70% of the apartments in NYC are stabilized or controlled (almost all of those stabilized), and tossed off a line about how new entrants into the housing market are competing for 30% of the apartments. And that's just nonsense -- rent stabilized apartments probably turn over somewhat slower than they would in the absence of stabilization, but they absolutely turn over. I've rented, and then moved out of, three myself.
So I can't read her financial posts, because I don't know enough to know when she's going to say something casually insane like that. It makes everything she writes useless. (I read her anyway, because it seems like insight into what people like that think. But not for information.)
If Mankiw is a major economist, and if he's pitching in to support question-begging winger ignoramuses and lightweights like Brooks and McMegan, doesn't that mean, in effect, that when the chips are down there's no economics profession, and that the field is so thick with predators and blind ideologues that we should just regard them as highly-skilled mercenary advocates like lawyers? -- as possessors of valuable knowledge and power who can never be trusted?
Reminds me of Bullwinkle trying to pull a rabbit out of a hat, only to pull either a lion, tiger, rino or Rocket J. Squirrel. "Don't know my own strength" and several other excuses, none of which seem to address the problem. Structured finance vehicles really are a good idea and help over all liquidity, but when everybody is slicing and dicing the credits so that no one is really sure what is left, it does not take much to pull the whole thing down. Keeping investment and commercial banks separate may not be necessary, but regulation on the default swaps is.
doesn't that mean, in effect, that when the chips are down there's no economics profession, and that the field is so thick with predators and blind ideologues that we should just regard them as highly-skilled mercenary advocates like lawyers?
Yes.
Consider yourself lucky I didn't also put quotes around "necessary", "implosion", "clients", "money market" and "permitted". That's the sort of thing I do in times of crisis.
If you can use scare quotes when those around you are failing to use theirs....
field is so thick with predators and blind ideologues that we should just regard them as highly-skilled mercenary advocates like lawyers?
New financial products, such as the structured finance deals that led to the current mess, are often reaction to regulation that inhibits growth. Everything rolls along fine during the initial phase, and money is made. Then the smart guys start seeing the cracks, or at least the ways to exploit the new product for even more personal profit, and the speculation takes over.
But I don't think any regulatory system would be able to pre-emptively anticipate future financial innovation well enough to have regulations in place, so you get a system of all that is not compulsory is forbidden. Now maybe slow to no growth is better over the long run than boom and bust, but then again if I really knew I would be a PhD.
The structured finance deals are not a reaction to regulation that inhibits growth. They are in fact a response to a deregulation: the government made it legal in the wake of the S&L crisis.
485
Among other problems with this I don't think the numbers work. If you reset all mortgages to the value of the collateral you create far bigger losses than people are anticipating even now.
Walt, I think your emphasis is on the wrong syllable. Regulations typically follows innovation, usually after a blowup that "no one anticipated". Deregulation does not occur because everyone thinks financial panics are fun, but because there was some sort of structural impediment to growth, or competition, or both. But that doesn't necessarily mean the regulation was "wrong".
485 is absolutely brilliant.
Thank you very much, sir, I appreciate, although I expect it will have no effect.
What I like about it is that, right now, the gov't is holding all the cards. The banks et al. can cry all they want about the unfairness of lopping 60% off the value of LA housing, but the bottom line is that, if the Feds don't fix it, then the banks all fail.
The long and short of it is, is that they (Treasury and sadly, Congress) are fixated on propping up existing prices. Apparently the theory is that home prices are just right and we just aren't printing enough funny money to make things ok. My argument is that the investment banks (&etc.) created way too much funny money and effectively bid home prices far beyond where they reasonably should (in a market with sane credit creation policies). So home prices must (and will!) come down. Ergo: we cut to the chase.
I take JBS's point that the banks have an active desire to socialize the costs (as opposed to fixing the system), but I think that, as long as the gov't shows a willingness to allow at least some of the banks to fail, then the rest will fall into line.
If what I have seen is correct, the banks are in for somewhere between 4 trillion and (potentially) 47 trillion dollars of bad debt. Meanwhile, various people seem to see the RTC as a liquidity push operation, similar to having the Fed by treasuries. But any liquidity they push out that way will go straight to bank balance sheets and disappear. (Black hole!) And the banks will still be holding bad debt. And the extra debt taken on that way will push up the chances of USG default, and will do nothing to pump the circular flow of the real economy.
So it's not going to work, not because it's morally wrong, but because it is way too late and way too far behind the curve.
max
['And thanks again, BTW.']
Among other problems with this I don't think the numbers work. If you reset all mortgages to the value of the collateral you create far bigger losses than people are anticipating even now.
People may not be anticipating very large losses, but they are going to be getting very large losses, particularly if the foreclosure chain reaction really gets going, since a foreclosure is a 100% loss.
max
['Do dah.']
I have to say that max is awarded a full heebie-geebie on this thread. We cannot simultaneously hold up housing prices and fix the credit mess. Of course, I suppose we could just have the Federal Government take all of the bad paper and tear it up, and everyone who has not yet been foreclosed gets title to the house they are in, but a big fat tax bill.
So home prices must (and will!) come down. Ergo: we cut to the chase.
Exactly. I don't see why this is so difficult to see. It's not going to be fun for people who had been given crazy ideas about houses value investments, but it's the only thing that makes sense.
I don't think any regulatory system would be able to pre-emptively anticipate future financial innovation well enough to have regulations in place, so you get a system of all that is not compulsory is forbidden. Now maybe slow to no growth is better over the long run than boom and bust
I like you and all, TLL, and you're smarter than the McArdle's of the world, but the ideological presuppositions of market fundamentalism have completely infected your thinking. "Financial innovation" is a propaganda term designed to make it look like structuring a new security is like inventing a better mousetrap; it's not. It's a new form of speculation, usually with other peoples' money in some sense or other. Nor is the job of the regulator pre-emptively catering to whatever speculators might possibly come up with in the future, it's setting sensible rules of the game and making sure "innovation" only happens within those rules. Does a referee have to pre-emptively anticipate all possible innovations of the players? You conclude by assuming the connection between speculation and growth that is the whole point at issue.
And yes, I know new forms of insurance and hedging can be beneficial as well, but that's not an argument for uncontrolled speculation.
516
"... since a foreclosure is a 100% loss."
No. If a $500000 mortgage defaults and the lender forecloses then the lender gets to sell the property. So if the sale nets $300000 they lose $200000 or 40% not 100%.
Whoops -- misplaced possessive apostrophe, a terrible SWPL sin.
BTW, the bankruptcy bill is also affecting this stuff. The fact that the draconian new bankruptcy laws force homeowners to keep paying the mortgages in bankruptcy is lessening the incentive for banks to negotiate, and for consumers to avoid foreclosure.
We cannot simultaneously hold up housing prices and fix the credit mess.
I don't follow this point. If the crises was brought on by a collapse in housing prices, how would pushing them down further help? I understand max's solution in 485 as a long term fix for overvalued housing that is most merciful to homeowners, but I don't see how it is forced on us by the logic of the credit crises.
It is not difficult to see, soup. But it is politically expedient to talk about "supporting" falling home prices. Dot com bubbles are one thing, as they affect only the "investor class" (please ignore your 401k) but real estate bubbles affect all homeowners, and they will vote their pocketbook. I guess we don't have to worry about the Big Pile of Money anymore.
521
"BTW, the bankruptcy bill is also affecting this stuff. The fact that the draconian new bankruptcy laws force homeowners to keep paying the mortgages in bankruptcy is lessening the incentive for banks to negotiate, and for consumers to avoid foreclosure."
I know you guys all hate the bankruptcy bill but it basically has nothing to do with this.
Another question: apparently this is not a McManus event, but what would the full McManus look like?
If the world ended, how would we know? What failure would cause the total collapse of the economy? A crash of the dollar? Insolvency of the federal government? Can these things actually happen? What would an endless cycle of deregulation and bailouts do to the economy? If deregulation in the financial markets lead to the collapse of the dollar, would Megan admit she was wrong?
The bankruptcy bill has actually been bad for home lenders because people are paying their credit cards before they pay their mortgage.
506
"You know, I'm pretty clueless about Wall Street and financial regulation, I certainly know less than Megan. What gets me about her writing is that I know I can't rely on any of the facts."
I find this sort of thing unconvincing. If McArdle had leftie politics I doubt you all would be much bothered by her errors. Blog posts in general are unreliable. Look at Yglesias, a smart guy but incredibly sloppy in his blogging.
522. The collapse in housing prices partially caused by the artificially inflated priced being paid by people with no money down and no way to pay the loan once it reset. So I move into a $1,000,000 house, but it hasn't cost me one red cent, but I signed a piece of paper saying that I will pay the $1,000,000 over time. I make my first year payments of $1,000 per month, but when the loan resets and I must pay $5000 per month, what a surprise, I can't! So I try to refinance, but no one is buying that crap anymore. And since there are no more liar loans available, I can't sell the house for $1,000,000. Or even $800,000. What is the real value of this house?
What is the real value of this house?
Does it have a pool?
Simple answers to simple questions, Rob: No.
I know you guys all hate the bankruptcy bill but it basically has nothing to do with this.
yes it does. You're right that it had nothing to do with causing the crisis, but now it's inhibiting bottom-up efforts to reduce housing prices by renegotiating mortgages, and it encourages walking away from the house. Not the most major issue now, just pointing it out.
ideological presuppositions of market fundamentalism have completely infected your thinking
Hard to avoid. And you're right, it's always OPM. But a strictly cash economy would be pretty dismal. Barter? I hardly knew her!
What is the real value of this house?
One of the things I like about the Irvine Housing Blog is that it estimates the real value of the houses it profiles, comparing it to rentals and the unsold stocks of new houses and foreclosures. It suggests a concrete floor for prices (still a third lower), coming in a couple years, and shows why.
What is the real value of this house?
One of the things I like about the Irvine Housing Blog is that it estimates the real value of the houses it profiles, comparing it to rentals and the unsold stocks of new houses and foreclosures. It suggests a concrete floor for prices (still a third lower), coming in a couple years, and shows why.
527: I think there's a real difference there. I'm sure Yglesias makes mistakes, but I can't think of a post of his that demonstrates a fundamental misapprehension of how what he's talking about works. The 'new renters are competing for 30% of the rental stock' is straight-out false, and believing it would lead you to totally misunderstand the effects of rent stabilization on the NYC rental market (which to the best of my knowledge, aren't good. Gradual destabilization of everything, gradual so as to avoid hardship to current renters, is probably the best outcome.)
And it doesn't make sense as a typo or a moment of confusion -- it's so obviously wrong that someone who thinks that's a possibility shouldn't be opining on the NYC rental market. If she's doing stuff like that in her financial posts (and she does it reasonably consistently in the posts where I know enough to check her facts), I can't safely rely on her at all as a source of information.
Insolvency of the federal government can't happen as long as they borrow in dollars. If people decide that the numerical value of house prices can't fall, then the dollar will fall in value instead. This may cause people to lend us less money, which may cause economic collapse; I think we'd recognize it.
I also wonder very much how max's plan would affect me. I just bought a house in an urban area, it's probably worth a bit less now than it was when I bought it, and is probably going to be worth notably less in a year. However, it will still probably be worth more than my mortgage. What happens to my mortgage? What happens to the money that I have in my bank account that my bank then lent out to someone else so they could buy a house?
I think someone should start scripting a movie about a gated community inhabited entirely by people who contributed to the financial meltdown but succeeded in getting out in time with tons of money.
I see them hiring PhDs as house servants and gardeners.
No, I'm never heavy-handed.
Shearer is equating Yglesias's spelling errors to McMegan's gross misunderstandings of theory and misrepresentations of fact. Shearer is capabbel of making sense, but his sniping is not marked by any sense of proportion. He dislikes us and his primary goal is to put us in the wrong, if possible making us lose out tempers.
Watch this:
Fuck you, Shearer!
Shearer's happy now, because he just won. I'm always looking for ways to bring joy into others' lives, even the least among us.
You're a giver, JE. Maybe you should revisit the no relationship policy.
President Bush today expressed confidence in the Federal Reserve Chairman's handling of the financial disaster: "Heckuva job, Bernie," he said.
But a strictly cash economy would be pretty dismal. Barter? I hardly knew her!
yes, financial regulation --> back to the barter economy...love it...have you considered a lobbying career? I realize you're kidding here, but the capacity to make these arguments with a straight face is a lucrative skill.
Look at Yglesias, a smart guy but incredibly sloppy in his blogging.
He can be. He's nowhere near as bad as Megan for the reasons people said above -- a lot of the time she just truly doesn't understand what she's talking about at a very basic level -- but beyond the misspellings Matt sometimes makes slapdash assertions without a real sense of the depth of the counterarguments.
I do think that blogging encourages intellectual sloppiness, especially for people who make lots of short posts and don't treat posts as essays. With Megan you get that intersecting with someone who I think really does have very limited analytic capacity or tolerance for research, although she's a gifted propagandist.
538
"Shearer is equating Yglesias's spelling errors to McMegan's gross misunderstandings of theory and misrepresentations of fact. ..."
Yglesias doesn't just make spelling errors, they are just one manifestation of a general carelessness which makes him unreliable. He also makes numerous sloppy errors like saying less when he means more which reverse or confuse his meaning. And he makes factual errors as for example here :
"... One person dies for about every 415,000 vehicle miles traveled."
He also says in the above linked post:
"... We just take it for granted that most Americans will make almost all of their trips via the most dangerous possible way of getting around. ..."
This is obviously wrong but will get excused as hyperbole while similar exaggeration by McArdle will be taken as proof she is a moron.
Note the neat thing in that post, though, down at the bottom. It's a correction of his math error, something still absent from the McArdle post I was talking about.
similar exaggeration by McArdle will be taken as proof she is a moron.
I don't think so; I haven't seen people carping at that kind of exaggeration from McArdle.
535
"I think there's a real difference there. I'm sure Yglesias makes mistakes, but I can't think of a post of his that demonstrates a fundamental misapprehension of how what he's talking about works. The 'new renters are competing for 30% of the rental stock' is straight-out false, and believing it would lead you to totally misunderstand the effects of rent stabilization on the NYC rental market (which to the best of my knowledge, aren't good. Gradual destabilization of everything, gradual so as to avoid hardship to current renters, is probably the best outcome.) "
But McArdle wasn't fundamentally wrong here, she was just overstating her case. The rent rules do favor current residents over newcomers and do lead to higher rents in the unregulated portion of the market.
a general carelessness which makes him unreliable.
Speaking of carelessness, I find your own unwillingness (or inability) to italicize what you quote very annoying. Half of the time I can't immediately distinguish your remarks from whatever you're quoting and the other half of the time I don't bother trying.
But she was overstating her case with a fantasy percentage, and one that it wasn't clear was a fantasy. Stabilization and control don't literally take any apartments off the market at all. They slow down turnover of some, but not all, of the apartments to which they apply: that is, some stabilized apartments are great deals, that it's tragic to leave, but plenty aren't.
Framing the issue in terms of new entrants to the market competing for 30% of the rental stock isn't just the wrong percentage -- there isn't a right number that could be substituted for it. Someone who read that post, not knowing anything about rent stabilization, and thought that there was a meaningful sense in which rent stabilized apartments were now off the housing market would have moved from total ignorance to active misapprehension if they relied on her post.
In terms of rent stabilization, I know enough to know sort of what she meant, so I can use my own judgment. There are plenty of financial topics, though, where I don't know much, and believing that her posts were even overstated representations of reality could leave me fundamentally confused if they were as messed up as the rent stabilization post and I took them seriously.
542: James, do you not see that the 415,000 figure is quoted out of context if you fail to include the correction? That ain't fair play.
"... We just take it for granted that most Americans will make almost all of their trips via the most dangerous possible way of getting around. ..."
Can you articulate the problem with this? Is this misleading because, well, "they could be taking trips in a burning TNT truck, which would be much more dangerous." Or are you getting at something else?
"they could be taking trips in a burning TNT truck, which would be much more dangerous."
That's what I assume he meant. You don't need 'burning TNT truck' -- motorcycle works fine.
LB is right, Shearer's being a little obtuse. The rent stabilization figure is typical of what I see her doing in economics areas I know something about -- just serenely stating, with an air of total confidence, these whoppers that make it clear she doesn't understand the issue at all. She has the combination of not being very quick on the uptake at all, but having a very high opinion of her own intuitive understanding, and the combination leads her to be totally out of her depth a lot of the time. Yglesias really is quick on the uptake, but he does get sloppy and careless.
No. If a $500000 mortgage defaults and the lender forecloses then the lender gets to sell the property. So if the sale nets $300000 they lose $200000 or 40% not 100%.
If the sale nets... the sale doesn't net because the houses aren't moving at the going price. Say's law doesn't work at the bottom. It's perfectly possible to have the 'at any price' value go negative, which doesn't work, because we don't have negative money, so the value is zero. (Although we do have quasi-negative money in the form of debt, but that's not the same thing.) Right now, the banks have a large number of foreclosed houses that they cannot move so their real value is zero, plus the maintainance costs. Which is a drain on the banks, which is part of what's killing them.
I don't follow this point. If the crises was brought on by a collapse in housing prices, how would pushing them down further help? I understand max's solution in 485 as a long term fix for overvalued housing that is most merciful to homeowners, but I don't see how it is forced on us by the logic of the credit crises.
It isn't particularly merciful for the homeowners; they lose equity. Basically TLL is correct; the only solution to the problem of all the mortgage-based debt instruments floating around is to tear them up, and start over. Banks are in the business of making loans, and so they need to be liquid, which means we have to relieve them of their debts (a foreclosure is effectively a debt for a bank) and make them liquid again, which means they have to have cash flow.
At the same time, the real economy is suffering from issues of dislocation (people have to move out!) and collapsing credit. Basically, many people have too expensive mortgages that they can't get out from under at anything other than a loss, so they're rather take bankruptcy. I want the people to stay in the houses and spend money and I want to put the banks back into the black, so I have to have some way of fixing the problem of the debt instruments. Otherwise we ride this roller coaster all the way to the bottom, the water pours out the hole in Say's law, and everybody loses their mortgage (it costs too much) and has to move, and the banks get nothing.
I guess it is non-obvious that I want to slightly undershoot the market value of the houses in this economy; then people will start buying and selling houses again, because, whoa, dude, I could move up! And then value of the houses will climb to a going value.
max
['It's a big shit sandwich and everybody gets to take a bite.']
That's what I assume he meant. You don't need 'burning TNT truck' -- motorcycle works fine.
I think Yglesias' formulation of "most dangerous possible way" includes motorcycle riders, right?
LB is right, Shearer's being a little obtuse.
"is", nit "is being". It's a way of life.
Sorry, LB.
DeLong has just explained that any attempt to distribute the pain fairly would bring down the economy and hurt everyone.
"Now we wouldn't want that to happen, would we?" says the enforcer with an evil grin.
Tom and Daisy **always** win.
"So we beat on, boats against the current, borne back ceaselessly into the past. ..."
If the sale nets... the sale doesn't net because the houses aren't moving at the going price. Say's law doesn't work at the bottom. It's perfectly possible to have the 'at any price' value go negative, which doesn't work, because we don't have negative money, so the value is zero. (Although we do have quasi-negative money in the form of debt, but that's not the same thing.) Right now, the banks have a large number of foreclosed houses that they cannot move so their real value is zero, plus the maintainance costs. Which is a drain on the banks, which is part of what's killing them.
It's not at all clear that this is the case. It seems like foreclosed houses are piling up because mortgage servicers are very understaffed and because banks are still hesitant to really price them to sell.
I'm also still curious what you envision happening to someone who bought a house that has declined in value somewhat, will probably decline more, but still has significant equity. Does my mortgage get torn up too?
550
"If the sale nets... the sale doesn't net because the houses aren't moving at the going price. Say's law doesn't work at the bottom. It's perfectly possible to have the 'at any price' value go negative, which doesn't work, because we don't have negative money, so the value is zero. (Although we do have quasi-negative money in the form of debt, but that's not the same thing.) Right now, the banks have a large number of foreclosed houses that they cannot move so their real value is zero, plus the maintainance costs. Which is a drain on the banks, which is part of what's killing them."
You don't know what you are talking about. Lots of foreclosed homes are selling. The prices have dropped a lot but not to zero. See here.
In August, about 8,800 of the 19,366 homes sold in Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego counties were in foreclosure, according to San Diego-based MDA DataQuick.
Insolvency of the federal government can't happen as long as they borrow in dollars. If people decide that the numerical value of house prices can't fall, then the dollar will fall in value instead. This may cause people to lend us less money, which may cause economic collapse; I think we'd recognize it.
In that situation you can get massive inflation; everyone tries to dump dollars and no one is buying and then the USG defaults and the currency blips and they have to start over.
We must avoid this at all costs.
I also wonder very much how max's plan would affect me. I just bought a house in an urban area, it's probably worth a bit less now than it was when I bought it, and is probably going to be worth notably less in a year. However, it will still probably be worth more than my mortgage. What happens to my mortgage? What happens to the money that I have in my bank account that my bank then lent out to someone else so they could buy a house?
We do this Soviet-style: if the house existed in 1999 (or 2001, date not important), we take your old mortagage, tear it up, take a standard mortgage and stamp it with a big red number equal to the '99 value. The standard mortgage should be prefigured for interest payments. Then we shrink your equity proportionally. Then we hand it back to you. Any other loans you have on the house go away. Any second house you bought on spec goes to the government, and the loans on it go away, along with any bankruptcies you might have. Whoosh. Your monthly payment is lower, your tax payments are lower, your equity is lower, and your salary stays the same, unless you get canned which is what we're trying to avoid.
The bank takes the mortgage back and gets regular payments from you, which should make them happy. Any debt instruments they issued based on your mortgage go away and are replaced with bonds (or something) or simply disintegrated, depending.
Let us pretend you have a lot of money in REITs. In that instance, you will probably lose half your money (if you haven't already). However, 50% of a going concern beats the shit out of 85% of nothing, since in the latter case, you lose all your money.
And if someone wants to come along and buy your house for more than the mortgage, yay!
max
['Go for it.']
547
Can you articulate the problem with this? Is this misleading because, well, "they could be taking trips in a burning TNT truck, which would be much more dangerous." Or are you getting at something else?
I was thinking of Yglesias's favorite bicycling which is about 10 times as dangerous (in terms of fatalities per mile) as cars. As LB points out motorcycles are even more dangerous (and Yglesias was ranting about cars which do not include motorcycles).
Actually, max, why wouldn't there be an opt-out? If the terms are right, then anyone who opts out will, by definition, not be a bad mortgage - the books are still cleared of all (potential) bad debt, but you're not messing with a lot of people who are in good shape (my house is still probably worth double what we paid for it in 2001, in an urban area, with good terms and a reasonable amount of equity).
You could get cute with the terms to exclude cases like mine, or you could leave it up to the borrower who, presumably, knows whether or not she is screwed.
557: For bikes, don't you need to do the math on cardiovascular fitness, reduced heart disease, and so forth? Without that, it's wildly dangerous. With that, I have no idea whether the health benefits are insignificant compared to, vastly greater than, or comparable to the risk of trauma.
We do this Soviet-style: if the house existed in 1999 (or 2001, date not important), we take your old mortagage, tear it up, take a standard mortgage and stamp it with a big red number equal to the '99 value. The standard mortgage should be prefigured for interest payments. Then we shrink your equity proportionally. Then we hand it back to you. Any other loans you have on the house go away. Any second house you bought on spec goes to the government, and the loans on it go away, along with any bankruptcies you might have. Whoosh. Your monthly payment is lower, your tax payments are lower, your equity is lower, and your salary stays the same, unless you get canned which is what we're trying to avoid.
The house sold for $400k in 2000. I bought it for $650k in 2008, with a $200k mortgage, so I have 70% equity in my house. The value of my house is now decreed to be $400k, so my mortgage gets ripped up and I get a new one for $276k?
Jesus. This plan makes me want to immediately convert all of my assets into cash in a non-US currency, which seems like it goes against the "averting collapse" thing.
10 times as dangerous (in terms of fatalities per mile) as cars.
BS without age adjustment. Auto fatalities kill young people, drunks, and the people they smash into, to lowest order. Most bicycle fatalities are too young to drive.
I'm about to have a 10-mile ride home, as fast as traffic this time of day. I have four stoplights and go mostly along a bike path.
559
For bikes, don't you need to do the math on cardiovascular fitness, reduced heart disease, and so forth? Without that, it's wildly dangerous. With that, I have no idea whether the health benefits are insignificant compared to, vastly greater than, or comparable to the risk of trauma.
It is difficult to do this in a sensible way because there are alternative safer ways of obtaining some or all of these benefits (which are uncertain in any case). Taking injuries into account as well I very much doubt that biking is a net health benefit.
(my house is still probably worth double what we paid for it in 2001, in an urban area, with good terms and a reasonable amount of equity).
You could get cute with the terms to exclude cases like mine, or you could leave it up to the borrower who, presumably, knows whether or not she is screwed.
Because I forgot to mention it? I had something like that in mind, but I am going off the assumption that most prices are going to compress, so most people will take the new mortgage. Also, if we attempt to run the clock backwards and put people back in their old foreclosures with new mortgages, they can refuse.
Further, the standard mortgage here should have a clause about about being able to miss several payments for the over the next two years. (Maybe by rolling back equity by an equivalent amount.)
Any houses the feds take over should rented out to people living in tent cities.
max
['Krugman didn't approve my comment. How sad.']
Calling the health benefits of fitness uncertain seems goofy -- on a case by case basis, they're uncertain, but so's the risk of a traffic accident. Over a population, they're pretty clear. And what's unsensible about netting them out? Clearly, the safest person gets plenty of exercise indoors, on a treadmill, and rides public transportation, but why wouldn't you net the health benefits of biking with the risk of injury.
(I say this as someone who finds the risk of injury intolerable -- I like biking, but I won't ride on NY streets. The idea of being sandwiched between traffic and parked (and double parked) cars terrifies me.)
I hurt my knee biking in early 2004 and it hasn't been right since.
What happened? A fall, or some kind of overuse injury?
A crash. (It's not a "fall" if you don't hit the ground, right?)
I definitely would expect biking to be a net health hazard on a population-wide basis. Especially if we restrict ourselves to city populations.
561
... Most bicycle fatalities are too young to drive.
This has not been the case for some time. In 2006 only 14% of 770 deaths were under 16s. As compared to 67% of 1003 deaths in 1975. See here .
I admit that I don't have any idea of the comparative magnitude of the fitness-related decrease in morbidity/mortality and the trauma related increase, and I'd guess that you're right that the net is more injuries than the fitness can balance, but I'd bet that there's at least some offset. Bike commuters generally look fit as anything.
Of course, at the population level, it's complicated by the fact that the more people on the road biking, the safer it gets.
Further, the standard mortgage here should have a clause about about being able to miss several payments for the over the next two years. (Maybe by rolling back equity by an equivalent amount.)
I am willing to bet that any loan modifications that include a principal reduction will include an equity sharing provision upon sale up to the amount of the previous indebtedness. In other words, my $450,000 mortgage on my house now worth $300,000 has a reduction to $300,000 of principal, but if I sell it two years from now for $350,000 I would only net $25,000 with the balance going to the bad debt that was written off.
568: OK, that's the good James. I take some of it back.
He still dislikes us and only posts to make us look bad, however.
collapse, disaster..
and now i read MSNBC 'the chaotic week ended with market soaring up'
strange
bicycling which is about 10 times as dangerous (in terms of fatalities per mile) as cars
How much of that is a result of being hit by cars?
564
Calling the health benefits of fitness uncertain seems goofy -- on a case by case basis, they're uncertain, but so's the risk of a traffic accident. Over a population, they're pretty clear. ...
Actually they aren't. There is certainly an association between being healthy and being fit but the cause and effect could be the other way around. There are also possible confounding factors like class and obesity. To reliably estimate the health benefits of exercise you really need large randomized trials which I don't believe have been done.
Here in SF, the biggest hazards to bicyclists are Muni buses (public transportation) and taxicabs.
The house sold for $400k in 2000. I bought it for $650k in 2008, with a $200k mortgage, so I have 70% equity in my house. The value of my house is now decreed to be $400k, so my mortgage gets ripped up and I get a new one for $276k?
So you paid 450k up front and got a loan for the rest? Wild. Anyways, see JRoth. There's no point in messing with your mortgage. Except on the real estate tax assessment front. Anyways, in that situation, the mortgage value would compress.
max
['So a new mortgage for about 120k.']
Here in Oxford there's usually at least one cycling death a year. There was one directly outside my office pretty recently. A big part of that is i) the fact that a lot of the students ride like idiots and ii) narrow old streets being shared with buses and delivery vehicles.
Sen. Dodd:
"What you heard last evening," he added, "is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly."
The democrats will do what they're told without quibbling, bargaining, or making demands. The Republicans will handle this situation. Charlie Brown abides.
Obesity is not really a compounding factor of fitness, it's usually taken to be an aspect of fitness.
Of course, at the population level, it's complicated by the fact that the more people on the road biking, the safer it gets.
I also have the sense that risk per mile decreases the more miles someone rides (I have heard that there's a big dropoff for people riding 3000+ miles per year -- which I would believe. The two years I rode that much my reaction time on a bike was much faster).
If that's true it's another reason why you would expect to see fatality/mile decrease with incentives to increase ridership.
I get your point, James, and I betcha, entirely ex recto, that the fitness benefits (or even the environmental benefits) of cycling don't come close, mortality-wise, to making up for the problem of accidents. Bicycling is dangerous.
But gosh, James, the item you cite doesn't mention bicycles at all, and is headlined: "Death By Trainlessness". It's about trains vs. cars. In the context of the actual item that he wrote, the error seems trivial. His thesis in that piece wouldn't be modified at all, even if he wrote with more precision.
Contrast this with McArdle or Brooks, whom some of us are accusing of fundamentally misunderstanding their subject matter.
I accuse Brooks of being slyly and efficiently dishonest, whereas McMegan combines misunderstanding and a rigid though opportunistic ideology.
In 2006 only 14% of 770 deaths were under 16s.
The populations are not comparable is the point you're pretending to miss. Bicycle riders skew to young men compared with drivers. Correct for the population disparity and subtract kids from the cyclists before claiming to compare rates honestly.
The claim is like "red cars are more dangerous than white ones."
For a typical sober driver (speeds x% of time and runs every fifth yellow), which commute home is safer?
In fact, I think that this way of thinking about vehicle fatalities is pretty limited. After distraction/incapacitation of the driver, I bet the distribution of injuries is very localized at dangerous stretches of road or dangerous intersections. It has been a longtime frustration of mine that speed cameras get posted for revenue generation rather than for safety. The large roadside memorials for fatalities are a more effective reminder to ease up on the gas and watch for a blind curve, and authorities are trying to ban those in some places. Signs and road improvements happen where busybodies whine, not where it will have an effect on safety. A google maps mashup of insurance or ambulance records on fatalities would be neat, but the relevant safety data is not public.
So you paid 450k up front and got a loan for the rest? Wild. Anyways, see JRoth. There's no point in messing with your mortgage. Except on the real estate tax assessment front. Anyways, in that situation, the mortgage value would compress.
The numbers have been multiplied by a scaling factor, but the ratios are right. For added fun, it's a stated-income loan, so there's no way for someone else to verify that I can actually make the payments.
To some extent there's no point in messing with my mortgage, but on the other hand if you're offering to reduce my indebtedness by $100k, I'll take it.
And again, if it looks like this is going to happen then I'm going to move all of my savings into cash euros. That's not good for avoiding a collapse.
McMegan combines misunderstanding and a rigid though opportunistic ideology.
A McMegan sounds like a vegan burger from McDonald's that secretly has added some beef fat for flavor.
I am willing to bet that any loan modifications that include a principal reduction will include an equity sharing provision upon sale up to the amount of the previous indebtedness. In other words, my $450,000 mortgage on my house now worth $300,000 has a reduction to $300,000 of principal, but if I sell it two years from now for $350,000 I would only net $25,000 with the balance going to the bad debt that was written off.
Works for me. I'm perfectly happy to bend on the details, excepting the key point of keeping people in their houses if at all possible, and not penalizing regular people more than the banks. I don't mind saving the banks, I don't mind saving the financial system, but I do mind trying to save the banks at the risk of immoliating the entire country.
The numbers have been multiplied by a scaling factor, but the ratios are right. For added fun, it's a stated-income loan, so there's no way for someone else to verify that I can actually make the payments. To some extent there's no point in messing with my mortgage, but on the other hand if you're offering to reduce my indebtedness by $100k, I'll take it.
That's the point. A typical mortgage is for the value of the whole house, and you pay in however much to start with. Reducing the value of the house reduces the value of the money previously paid in, but oh, well, that's going to happen anyways. Size of the loan, size of the equity, size of the indebtness all shrink.
Nouriel and I are on the same page! (Reg. may be required.
And again, if it looks like this is going to happen then I'm going to move all of my savings into cash euros. That's not good for avoiding a collapse.
Capital flight! If they didn't do the plan, why would you be keeping your savings in dollars anyways? See what I said about getting Euro-denominated several days and many comments ago @ 41.
max
['Where's McManus?']
A google maps mashup of insurance or ambulance records on fatalities would be neat, but the relevant safety data is not public.
I am not sure this is true. I do know that State Farm regularly releases its top-10 most dangerous intersections report, and IME it's always accurate (meaning, it accurately flags intersections that I know to be absolutely astronomical in crash rates). The depressing thing is that it has not seemed to result in the city doing a lot to modify said intersections.
On another note, I have just barely managed to follow the thread of the mortgage discussion, and am mostly relieved not to have been buying in a region where housing prices were so extremely high to begin with. Boston, DC, California...yikes, what a mess.
[Also, technology marches backwards: If only there were a kill file for Unfogged discussions of that upsettingly irresponsible writer. I vote with my feet and never, ever read her, and I wish to goodness there was less oxygen being given over to her output.]
If they didn't do the plan, why would you be keeping your savings in dollars anyways?
Well, most of my expenses are in dollars, right? Why take exchange risk/hassle if I don't have to?
I accuse Brooks of being slyly and efficiently dishonest
You want to know who's a real up-and-comer in the world of sly and efficient dishonest pricks? Michael Gerson.
Yeah, my theory is that Gerson is for those for whom Brooks is too Jewish.
Both have that creepily meticulous grooming.
I have to admit that I do appreciate when our names are distinguished, although I don't think we're often confused. Seems like McArdle would be fine too
Sorry, Megan, but it doesn't work without the egan part. We could substitute pork fat so that we could offend Muslims and Jews, if you'd like.
Individually completely confused at times, I'd say, but seldom confused with one another.
I believe that according to the Unfogged Stylebook, one can also say "Good Megan" and "Bad Megan."
Well, most of my expenses are in dollars, right? Why take exchange risk/hassle if I don't have to?
Ok. Why would you have to? (Why would you have to if they do the RTC plan?)
I have to admit that I do appreciate when our names are distinguished, although I don't think we're often confused.
You could call yourself nageM.
max
['O'Megan!']
I meant that Emerson's 594 sounds fair. 595 always sounds silly to me, and also not agreed upon within Unfogged. Still, I kindof like that is more often Ms. McArdle's name that is modified.
I've occasionally referred to you as Megan FTA, but I suppose that's obsolete now. Pie Megan would work.
Ok. Why would you have to? (Why would you have to if they do the RTC plan?)
I don't want to be on the losing end of wholesale repudiation of financial instruments (hence selling assets), and if the plan is for the US Government to buy up all the worthless stuff there's probably going to be a subsequent bout of moderate-to-serious inflation (hence non-USD).
In British slang 'Pie Megan' would be universal understood as 'greedy, fat Megan'.
Also:
http://www.youtube.com/watch?v=deonok4QMq8&feature=related
No, no, no, it's "phony Beatlemania". Phony Beatlemania has bitten the dust. WAMU is the sixth largest bank in the US. What could possibly go wrong with WAMU?
I definitely would expect biking to be a net health hazard on a population-wide basis.
My intuition says this is wrong, but I also think it would be incredibly hard to pin down.
I definitely would expect biking to be a net health hazard on a population-wide basis.
My intuition says this is wrong, but I also think it would be incredibly hard to pin down.
