To me the interesting aspect of the housing bill is that the lenders and the FHA have to agree on some level of impairment on the loans in question. The lenders are going to obviously want as high an appraisal as possible to limit the hit to earnings.
Can the FHA possibly avoid being rolled in broken glass before they guarantee the new mortgages? Are they equipped to assess an acceptable market value that mitigates downside risk for the taxpayers?
I would hope that they would play hardball with the banks to keep from being stuck with another round of bad paper, but no one knows where the bottom is.
I'm not sure which I find more comical, a London newspaper giving recomendations on U.S. economic policy, or the New York Times giving recomendations on U.S. economic policy.
We have in fact reached a dangerous moment. We have reached the point where reality must be faced & losses must be cut. The reality is that overleveraged homeowners and overleveraged corporations cannot be saved because they are fundamentally insolvent. These are losses that have to be cut. Interest rates must be raised, and raised quickly, to keep prudent consumers and corporations from going down the toilet with the rest.
Hey, sounds like a real Kudlow Goldilocks economy we're staring at. Seriously, I heard it last week. They were all blabbering about this being a great time to BUY STOCKS. Talk about delusional.
The housing bailout bill (for and by Bank of American and Countrywide) is wrong on so many levels. If it passes we the taxpayer will be on the hook for a lot of toxic waste. It provides all sorts of disincentives for mortgage lenders and underwater buyers to tell the truth.
We need the housing pig to roll over, and quickly. The more the government trys to stick it's fingers in the market the longer this is drawn out. To get back to a healthy market (in line with incomes) many markets still need to see a 30% decline (or more in some cases). Better for that to happen quickly than for it to happen over a decade (see Japan in the 1990s).
Call your congressfolk and Senators and tell them you don't want to be on the hook for the bad decisions of others.
These recommendations--along with Shiller's and other economists--will fall on deaf ears. In my opinion, economists as a class of professionals have lost all vestiges of credibility they once had.
I believe that the root of their current professional crisis is this: instead of being vocal, thoughtful, and proactive members of our intellectual establishment they have become a bunch of whiny, reactive sad sacks trying desperately to be relevant after we could have used their "advice".
Instead of quietly working on bullshit ivory tower endeavors while the housing bubble was inflating, perhaps they should have been sounding the alarm about the imminent financial crisis. Why is it that only bloggers and passionate observers warned the public about this disaster?
This is a time of unmatched opportunity to teach Americans that financially responsible behavior is in their best interest. Let's not waste the moment and spoil it with more National debt.
JP, actually Summers call for spending within our means too - once the crisis has passed.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
My two cents: the fix (or decision to refrain from fixing) will be much more expensive than the amounts currently contemplated.
I would do the absolute minimum while (1) giving VERY careful thought to arranging a carefully targeted fix (2) waiting for some of the republicans to disappear.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Nice thought, but it would never stick. Once things get better, the politicians will override the reform. It's happened before; it will happen again.
Why is it that only bloggers and passionate observers warned the public about this disaster?
And Volcker. Don't forget him. He was, of course, completely ignored. If someone of his stature couldn't make himself heard above the ringing cash registers of the housing boom I don't think a few more economists playing Chicken Little would have made much difference.
Of course, now that the sky has fallen there aren't a whole lot of good answers.
safe_as_apartments, there were a few economists shouting warnings from the roof tops - Dean Baker, Paul Krugman, and some others.
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
CR quotes Larry- "Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
I have grave doubts that the US economy can be guided back to a stable and sustainable long-run equilibrium without major structural changes.
But, who am I to know? Where is dotCommunist when I need him?
There is now also a case for carefully designed support for infrastructure investment ... There are legitimate questions about how rapidly the impact of infrastructure spending will be felt. ...
This is at least an improvement over just printing money and handing it out via stimulus checks, but the flip side this isn't the 1930s where there was a relatively new technology (autos) that could justify a vast nationwide transportation infrastructure buildup.
In the end we kind of have to face the fact that in a country already drowning in debt and deficits, more deficits and deeper debt may not be the solution - it may be the final nail in the coffin.
Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Just remember this is what they're going to keep telling you when they print the money. "Oh, don't worry, we won't go too far with this." The people who believe this are going to be the ones that don't retire until they're 95.
"CR quotes Larry- "Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
IMO,the 90's discipline was the result of a technology explosion which occurs once every 75 years or so that increased revenues and the cutting of the defense spending during the clinton years.
safe_as_apartments, there were a few economists shouting warnings from the roof tops - Dean Baker, Paul Krugman, and some others.
I agree; I am aware that there were some as I have been following this saga for going on five years now.
My comment is about economists as a class of professionals capable of giving sage policy advice. If the profession was deeply divided over something so obvious as the housing bubble--well, I think I just proved my point.
Now that the problem is much more complex, trusting the economics profession to give us a solution is absurd.
Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established.
In other words, elect Democratic presidents and filibuster-proof Congresses for the next few decades. Well, maybe we'll get that for occasional two-year stretches. With any luck, the Republican Party will go the way of the Whigs, and be replaced by a party that values sound fiscal policy, shuns military adventurism, embraces science instead of superstition.
I'm sorry CR, with all due respect, the abomination known as HR 3221 is most certainly a bailout.
The truth here is that government/taxpayers did not cause the housing bubble, and bears no responsibility in "fixing" the problem.
The solution is to let the chips fall where they may; institutions will fall, but in the end the market will work and a floor for home prices will be found, most likely at 3x incomes where it belongs.
Anything that takes money out of the pockets of innocent taxpayers who did the right thing by not participating in the bubble, and puts it in the pockets of those who took inordinate risks, is by definition a bailout.
This is moral hazard of the worst kind. I hope HR3221 dies a slow, painful death as Congress descends into partisan warfare pre-conventions.
God bless the 11 GOP Senators who oppose it, and may their numbers grow.
The reason the gold standard was abdandoned was to allow government to spend more than they should and stimulate the economy when needed.
The goal here is for the US government to keep the easy credit flowing by replacing the now deceased sub-prime borrower with the ultimate sub-prime borrower -- themselves.
Ultimately all US debt is going to become subprime.
Again don't buy any of this "fiscal responsibility in the future" BS. If we couldn't do it 5 years ago, if we can't do it today, we're not going to be able to do it 5 years from now.
Anybody who's ever known a drug addict knows exactly what's going on here.
CR: actually Summers call for spending within our means too - once the crisis has passed.
I have to say, I am somewhat amazed.
The only part that rubs me the wrong way after actually reading the article: He says the current legislation is: insufficiently aggressive in strengthening GSE regulation and failing to increase the leverage of homeowners in their negotiations with creditors through bankruptcy reform. Increasing the "leverage of homeowners" is increasing the leverage of those who borrowed beyond their means. Not something I necessarily agree with. But kudos to him for trying to inject some sensible discussion, esp from the bully pulpit of Hahvahd.
BTW, I look forward to your comments on why the current bill will be inconsequential. (I haven't had time to follow it closely, honestly. That's why I read this most excellent blog.)
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
From what I followed of the story it seemed they were dismissed simply by being labeled as 'liberal.'
It was always apparent to we liberals that those doing the labeling were complete morons . . . or worse, motivated simply by personal greed and the country be damned.
"One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill."
Which illustrates the rotten state of contemporary GOP-led conservatism. Once upon a time Republicans were the voice for fiscal sanity and prudent, limited government. Now it's a rubber stamp party enthusiastically cheering for torture, for the wiretapping of U.S. citizens, and for a President who has spent money like a drunken sailor in a whorehouse after a nine-month submarine tour. Bush failed to recognize that was the Democrats' job.
I don't see any valid reason for trying to stop foreclosures that are the result of declining home prices. Until prices return to a proven workable range there will be no working market in this country.
I particulary do not see any reason to start another new government regulatory agency. We have already suffered enough from "Homeland Security". The system of buying, selling and financing housing worked just fine for years and years until Greenspan broke it.
Will some banks go under? sure. Some investment companies? sure. Some builders? sure. But I'd rather pay the price once now than forever and ever.
It will be interesting to see Obama's reaction to the increasingly loud calls to prune back or halt the ethanol madness, given some of his prominent supporters and major contributors. I sense another chink in the armor of Mr. "Change You Can Believe In."
My comment is about economists as a class of professionals capable of giving sage policy advice. If the profession was deeply divided over something so obvious as the housing bubble--well, I think I just proved my point.
Also, keep in mind that making predictions and prescribing policy are totally different things.
We have lots of people who can predict hurricanes, but it's foolish to go on to assume that these people know how to prevent them.
All the great advice we got from economists in the wake of the tech bust just got us the housing bubble.
What catastrophe will their advice lead to next?
There's nobody here that's demonstrated any ability to come up with solutions for making the economy better in any lasting way.
That's the big picture that everybody wants to pretend doesn't exist.
Based on their track record, the economists we have today are just a bunch of dangerous quacks.
They butcher every patient that comes to the operating table.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
This is really a joke. You cannot ask a curent Congress to bind the actions of future Congresses; the power to change is always in their hands. you must accept that politicians will always be politicians, so you can NEVER promise that something will be a one-off and then we will reform.
Summers says: "we have more to fear than fear itself"
True, but I don't think this is helpful. We've gotten to the point where the entire economy runs on perceptions. We probably need to keep the lies going for a while to prevent total meltdown while we rework the underpinnings. Spin away Fed. Spin away NAR. Meanwhile let's go to work under the hood, shall we? (Summers' suggestions can't hurt at this point)
< . . . failing to increase the leverage of homeowners in their negotiations with creditors through bankruptcy reform . . .
Repeal that part of the 2005 Bankruptcy Act that took from judges the ability to adjust (cram down) mortgages and homeowners will have all the leverage they need to negotiate with creditors.
Would it really be just a conspiracy theory to suggest that once that 2005 Act was passed, lenders had a green light to do the dumbest things they could think of doing?
ac,there are fixes for our economic and social problems,they usually are long term,sometimes multigenerational,and the changes involved threaten entrenched interests,and involve pain for many.
Comment #1: The call to employ unemployed construction workers on infrastructure projects sounds like something from the Great Depression. You know, the CCC (Civilian Conservation Corp) where young, unemployed men were put to work building roads, bridges, and campgrounds.
Comment #2: Yah, right, more stimulus checks. Just more money to line the pockets of the Middle-Eastern oil gods and the Chinese manufactures of can't-live-without stuff sold at Wally World.
ac,there are fixes for our economic and social problems,they usually are long term,sometimes multigenerational,and the changes involved threaten entrenched interests,and involve pain for many.
Alas, even if there are, they're not going to see the light of day if they don't mesh with the 4 year political cycle.
mock turtle writes:
please foregive me for re-posting this
for those who missed it
it appears to that the original article was taken down the same day it was published
the money quote is in the middle and translaes loosely as:
"The situation in the US is much worse than we thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US."
fortis is one of the largest financial houses in the world...20th largest corp.
for you guys and gals who speak dutch the 4 para i can quote without violating etc;
De Financiële Telegraaf (dft.nl) - DFT - Ook op mobiel internet Telegraaf.nl - De website van wakker Nederland fort...se__rsquo_mel... VOTRON BLIJFT AAN NA GOLF VAN KRITIEK Amerikaanse Â’meltdownÂ’ reden geldinjectie Fortis 28 Jun 08, 09:10 door onze correspondent BRUSSEL/AMSTERDAM (DFT) - Fortis rekent binnen enkele dagen tot weken op het volledig instorten van de Amerikaanse financiële markten. Dat verklaart volgens de bankverzekeraar de serie ingrepen van donderdag om zich met €8 miljard te versterken. „We zijn op het nippertje gereed. Het gaat in de Verenigde Staten veel slechter dan gedacht”, zegt Fortis-chairman Maurice Lippens, die volhoudt dat topman Votron aanblijft. Fortis verwacht faillissementen onder 6000 Amerikaanse banken die nu weinig dekking hebben. „Maar ook Citigroup, General Motors, er begint een complete meltdown in de VS.” Fortis haalde gisteren €1,5 miljard met een aandelenemissie op. Eind vorig jaar moest het Belgisch-Nederlandse concern €13 miljard aan nieuwe aandelen uitgeven voor de overname van ABN Amro, waarvoor het €24 miljard betaalde. Lippens baseert zijn zorg op gesprekken met bankiers. „Twee maanden geleden wisten we niet dat het zó slecht gaat in Amerika. En het zal nog veel slechter gaan. We hebben een dikke matras nodig om de komende achttien maanden door te komen wanneer we ABN Amro kunnen inbrengen.”
mock turtle | 06.29.08 - 8:25 pm | #
If the US begins to focus on infrastructure at the same time the emerging markets are building, won't this add more pressure to raw materials prices? And from what I understand, US infrastructure needs are significant. Are politicians capable of designing anything "carefully"?
When all this finance - central bank- foreclosure bailout - derivatives - commodities futures - scams finally blow up, who you're going to call?
Let it be engineers not economists, please, so they can tell the difference between a mass balance and a Ponzi scheme!!
I don't see any valid reason for trying to stop foreclosures that are the result of declining home prices.
Because they are a VERY VERY expensive waste of resources! Foreclosures produce property unnecessarily vacant for extended periods, large legal, moving, and realtor transaction costs, and frequently result in property damage or community deterioration. It can easily be 20% of the property value. If the current resident can afford the place at a fair price (as opposed to the ludicrous prices of a few years ago), it's a horrific waste to kick them out, and this is the absolute WORST time to load the economy down with tens of billions in waste.
What Summers et al don't seem to recognize is that shifting bad debt from one account to another does not magically make it disappear. Moving mortgages from WAMU or Wachovia to the GSE's doesn't do a damn thing except change the lender and put the taxpayer on the hook.
There is no financial ledgerdemain that can cure a bad loan on a overvalued asset. The loss will not disappear it will just change hands.
Infrastructure spending is a good idea, but it's not going to help us in 2008. It's capital intensive, so it's not a good way to get money to unemployed/ underemployed people. Also, useful infrastructure requires planning. You can't just go build a highway tomorrow and expect it to be useful.
In general, Summers' ideas are helpful but it's like plastering a failing dam - not nearly enough.
Many in the country just had a major long ass "buy on credit" party and now they're bitching that they don't want to suffer the inevitable hangover.
Bunch of crybabies. Too bad asswipes, your party is over!!!! Time to go into detox and pay the consequences.
For those of us who didn't attend that party and saved their money year after year; it will be our turn to party now. The time is getting nearer. Start getting dressed and keep your powder dry!
Whomever wants the credit crisis to end by definition wants the banks to go insolvent. Burn the freaking house down to the foundations and start anew. My goal is to get this over prior to the new administration so they can start fresh. The credit crisis cannot end until the true value of the assets is known and everything is written down.
If the current resident can afford the place at a fair price (as opposed to the ludicrous prices of a few years ago), it's a horrific waste to kick them out, and this is the absolute WORST time to load the economy down with tens of billions in waste.
Again, repeal the 2005 BK Act and let the lenders and borrowers work it out in court. They'll both get hit, but the problems will be solved one by one.
BTW, no multi-billion dollar federal bailout bills would be required or new bureaucracy would need be created to administer the process.
Fair Economist, lets talk about fairness. You and I bought identical houses next door to each other for the same price 2 years ago. You paid your mortgage, I did not.
Why am I entitled to a new loan with a reduced principle and you are not?
Problem with cutting the ethanol plan to shreds is that it will then cut corn prices to shreds, and possibly a few other commodities with it. THen, the few states driving any growth in this country will shrivel and die with the others.
Everyone here should already have a personal/family Plan B and should have already taken concrete steps--beyond moving some money around--towards its implementation.
If you haven't, you're way behind the curve and had better get busy, instead of arguing about how the deck chairs should have been arranged.
It's been very entertaining the last couple months watching the consternation of desk jockeys who have created their wealth by placing bets on a field of losing nags.
unit472, the non payer clearly utilized his unpaid mortgage money in higher yielding oil forward contracts. his diligence pleased the potus crowd, and he deserves reward.
"...All the great advice we got from economists in the wake of the tech bust just got us the housing bubble...
What catastrophe will their advice lead to next?...There's nobody here that's demonstrated any ability to come up with solutions for making the economy better in any lasting way..."
My perspective exactly. So we now have a situation where we're like the supprised store owner facing down the robber in front of him. The robber's supposedly holding a concealed weapon in his pocket demanding all the money in the register. Only the store owner has already given in to the robber two times before. What should he do?
Collectively, we've got the same situation. Are they bluffing? We're being counselled by the experts that we better give in yet again. Last fall it was absolutely imperative for the CDO markets(and SIV's) to be saved(remember the Paulson dog and pony show?) or the world as we know would come to an end. We didn't give in, and yes the poor IB's got hammered(deservedly so) but the economy struggled through it. This past spring we were threatened again, weren't given a choice and capitulated in the BSC workout(who knows what the final cost for that will be?).
Now the shrill voices of the so called economic experts are being raised a third time- advising that we have no choice but to cave again with this new bailout package. BTW, the fourth recommendation in the article is laying the groundwork for an RTC-like bailout of the banks themselves when all of the C & D loans start to go south.
Maybe, just like the brave storeowner who's fed up with getting ripped off- we shold call their bluff on this one. Call your Congressman and tell her or him to take a pass on this bail out. We can't afford it.
So who gets the bailout-everyone who is upside down on their mortgage? There isn't enough relief for everyone. If my neighbor gets rewarded with a 30% reduced principle for missing mortgage payments, I'm going to try to do the same thing. Damn, I was stupid to make a down payment on my mortgage. I think I gonna load up on on second HELCO while I can to make my LTV at 100%. With everyone trying for the bailout money the housing market is going to be perceived as even more risker and interest rates are going to rise.
Aheadofthecurve writes:
The ethanol program will stop only when the New Jersey caucuses precede the Iowa caucuses.
Aheadofthecurve | 06.29.08 - 7:32 pm | #
I don't know where I read it or heard it - maybe you - but somewhere I heard that if NJ came first in the caucus/primary derby we'd have a 'waiter & actor subsidy policy' and not ethanol... I laughed so hard I almost fell over.
I worked in ethanol for about 4 years - you all have no idea how silly this biz is.
Fair Economist, lets talk about fairness. You and I bought identical houses next door to each other for the same price 2 years ago. You paid your mortgage, I did not.
Why am I entitled to a new loan with a reduced principle and you are not?
The proposal is basically an (inferior) replacement for nixing the current special exemption from cramdowns extended to some residential property mortgages. Your neighbor went bankrupt (blew his assets and couldn't pay his debts; otherwise he wouldn't qualify for the program). Therefore, his debts are reduced to what he can pay, including cramming down his mortgage. That's how BK works.
Insofar as it's not equivalent to BK I agree it's not fair. The result will be moral hazard and everybody taking payment holidays. I think the fact that this plan got through and cramdowns failed in spite of a similar public reaction shows who's running the show in Washington - big corps, banks in this case.
Andy, you have to think in terms of 'sustainability' and 'survivability,' and in every sense of the words.
If, for example, the world economy is about to take a deflationary nosedive, you must be prepared to conserve (hoard) your assets.
Beyond that, I'm not going to talk about my plan because: first, it would be of no use to you as every plan must be tailored to individual/family circumstances; second, it would reveal too much about how I operate.
For several years, economists have told the American people that a painful adjustment will be need to bring the trade/fiscal deficits back into balance. Now that this is finally happening, these same economist are running with their heads cut off. What did these guys expect?
American meltdown' reason money injection Fortis 28 Jun 08, 09:10 by our correspondence clerk BRUSSEL/AMSTERDAM (DFT) - Fortis count markets within some days up to weeks on complete collapsing the American financiële. That explains interventions of Thursday to the serial according to the bank insurer to reinforce itself with €8 billion. „We are on the nippertje ready. It goes in the United States much more badly than thought, Fortis-chairman Maurice say lip paunch, which continues that top man Votron stays on. Fortis expect bankruptcies under 6000 American banks which have cover now little. „But also Citigroup, General engines, there start complete meltdown in the US. Fortis picked up yesterday €1,5 billion with aandelenemissie. End previous year had Belgisch-Nederlandse the concern €13 billion to new shares spend for the adoption of ABN AMRO, for which the €24 billion paid. lip paunch bases its care on conversations with bankers. „Two months suffered did not know we that the zó go badly in America. And it still much will go more badly. We have to a thick mattress necessary the coming eighteen months pass when we can introduce ABN AMRO.
"I think the fact that this plan got through and cramdowns failed in spite of a similar public reaction shows who's running the show in Washington - big corps, banks in this case."
I agree. I would bet the Federal Housing Finance Regulatory Reform Act of 2008 is simply a S&L redux-a place where BofA can transfer their bad debts so they can recapitalize. You wanna bet how much of that bailout will be used in California?
mp writes:
Andy, you have to think in terms of 'sustainability' and 'survivability,' and in every sense of the words.
I'm deleveraging like crazy right now...should have my car paid off soon. Then, I could cut expenses to the bone and live super cheap (could furlough my student loans also in the event of a job loss.) If things get really bad and I lose my job, it might be just the right push...I could get my arse out of the desert and back to the beach in SoCal where I belong! If I'm going to under or un-employed, might as well do it where it's not 112 degrees. Being single with no kids and no house has its advantages...mobility.
I'm not sure which I find more comical, a London newspaper giving recomendations on U.S. economic policy, or the New York Times giving recomendations on U.S. economic policy.
JD | 06.29.08 - 7:47 pm | #
Perhaps the Wall St Journal giving advice on U.S. economic policy (editorial pages that is, Greg Ip can advise all he wants)
Andy, I find it useful to think about life as being like flying an airplane. Beyond the normal workload, you always have to be thinking about where you're going to put down if everything shits out.
And aside from looking for other traffic, that's one of the reasons a good pilot is always making the time to look out the window.
I think the above article also qualifies as a dangerous "moment". For the FED perception is everything.
Currently oil is up about a buck and a half in asian trade.
I don't know what's funnier... watching white-collar manager-class people in denial, or watching them making plans for the Apocalypse, secure that their backyard veggie garden will feed them. They'll do anything but admit they're going to have to live like the average working-class or strapped-poor American has for the last 30 years. No, not them. They're SPECIAL. And they're already picking out the funky straw hats they think they're going to be wearing on pleasant dewy mornings in the tomato garden...
Tom Stone writes:
ac,there are fixes for our economic and social problems,they usually are long term,sometimes multigenerational,and the changes involved threaten entrenched interests,and involve pain for many.
Tom Stone | 06.29.08 - 8:43 pm | #
I agree. Unfortunately, we've become accustomed to instant gratification. What is long term? Is that like next quarter? The next rebate check? The American public, CEOs, and Congress have the attention span of a goldfish. We're learning that these glorified CEOs, this priviledged class of individuals for the past 25 years, have no special executive skills at all. None. I blame them more than the government for this economic mess.
With oil supplies running out with the consequence of suburbs and exurbs likely to become ghost towns, one long term project should be investment in light rail and high speed trains...which would require the right of emminent domain.
It would be nice if we could all work from home, but that's not practical. As has been mentioned before, a public works project like the CCC to build light rail in medium and large cities along with an Apollo like mission to develop alternative energy would take generations, but we need to get started now.
Coinciding with the prophecies of doom from The Royal Bank of Scotland, Fortis, Barclays, and Roubini is the evangelicals' prophecy of earthquake-related mayhem on July 8, 2008 in San Diego.
what exactly is the "strategy" for protecing yourself against what is ultintily an unknowable, gven the power of taxation and governement to expropriate? The basics like no debt etc. are template fordeflationary environemnt, but the performance of all asset classes offered paltry returns. The yeild droped into the 1ish percent range. The stock market tanked. Gold at the time was fixed. commodities at the time were not investable. So I wonder just how great is any plan. Does your plan contemplate the federal government employing an argentina/brazil like bank holdiay overnight devaluation? how does one guard against that evne if youa re below the FDIC limits if that even means anything. There is no safe harbor other than maybe investing at GS, where they have an inside line. Note that Mittel just appointed to GS board and Then AccelorMittel rumored to be potentially taking a tsanke in rio tinto for iron ore. talk about cabal..
"Many of the critics have labeled it a $300 billion bailout - it's not. The cost will only be a small fraction of that amount, and the bill will probably be inconsequential."
If the bill is inconsequential, then why do it at all? IIRC, the agencies will guarantee mortgages refinanced 15% below the original amount. The government should demand a fifty percent discount in bubble states, nothing less would be fair to the taxpayer / guarantor.
Are we going to see Barney Frank raise the three hundred billion dollars of guarantees into three trillion? I would not be suprised.
CR, I think you are playing devil's advocate here.
"Moltke's main thesis was that military strategy had to be understood as a system of options since only the beginning of a military operation was plannable"
Ok so what exactly is the starting point: I assume it is cash in the mattress or gold bars hidden in the backyard? Both have sever drawbacks...particularly the cash in the backyard...interesting analogy, why is it everyone deferes to military strategy. sun tzu tactics without strategy is the surest way to failure strategy without tactics is the slowest way to success. Perhaps you could share with us how one should think about a starting point. WOuld be interested to hear.
why should people who have acted in an intelligent maner bail out a bunch ;of clowens? They can count cant yhey? They know how much they make, and based on that know how much they can pay for a mortgage
BTW, FHA on top of "no money down", now offers $1,000 cash back at closing to homebuyers.(In Florida) They must have realised by now that their buyers move out when their refrigerator breaks down.
From the bill:
"Those rates reflect CBOÂ’s view that mortgage holders would have an incentive to direct their highest-risk loans to the program, and are
based on the expectation that the underwriting standards established for the new program would be less restrictive than those currently in place for FHAÂ’s single-family loan-
guarantee program, thereby allowing FHA to insure loans with a greater risk of default. More-restrictive underwriting standards would lower the subsidy cost of the program but
at the expense of reducing the number of borrowers able to participate."
Calculated Risk writes:
safe_as_apartments, there were a few economists shouting warnings from the roof tops - Dean Baker, Paul Krugman, and some others.
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
Yes, and also Barry Ritholtz and Bill Fleckenstein and THIS site, plus a few others. But it was mainly on the blogs, not the MSM.
The economic problem was recognized in 2004 by a few mentioned above, that this 'recovery' was a fake driven by MEW and excessive credit. But, as you pointed out, those who did speak up were politicized, called unpatriotic, pessimists, and were swiftboated. Larry Kudlow (the greatest story never told) comes to mind, but there were plenty other 'expert' economists who demonized those that had the facts on their side. Sometimes the facts are just liberal, I suppose.
I sure wish there was some way to hold those folks accountable...like the guillotine (just kidding, sort of). But no, just like the hawks that led us to Iraq and have zero credibilty, these economists are still given a slot on TV, or are looked to for answers from the MSM, which further erodes any confidence in the old media. Jim Glassman of Dow 36,000 fame still writes for Bloomberg. Go figure.
On the bright side, we now have google.
For the next 30 years it will be easy to find anything a public official, media hack or academic said, wrote, or did for the last 10 that turned out to be insane .
"I assume it is cash in the mattress or gold bars hidden in the backyard?"
No, no, NO! I am not saying that! YOU must evaluate your own 'stand' and determine the starting point. Gold may be good for you, but not for someone else. Your 'position' and 'situation' determines your starting point.
However, the starting point you select must allow maximum flexibility.
it's a f'n bailout to those of us waited/waiting for the bubble to pop when after being told the most dumb-arse things from the agents a few years ago that the RE prices will keep on rising... send some money to first time buyers if you want to really save this mess...
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
Why do we have liberal vs. conservative economists?
It sounds to me like people are more focused on politics than economics.
You can make the same argument about people arguing either way about global warming.
IMO it doesn't do much for the credibility of either side.
I guess when it comes down to it if economics is simply a vehicle for expressing political ideology rather than a science that deals with real actions and outcomes, we have our explanation as to why everything now is so screwed up, no?
My paternal grandparents fled the dust bowl of Oklahoma and Southwest Missouri during the thirties, Grapes of Wrath style, to pick cotton in California. I'm sure everyone has family (or personal??) stories with the Great Depression.
I'm wondering whether the Depression going on in places like Detroit and the dying rust belt are harbingers of things to come all over the U.S. If so, where will people migrate to pick cotton, so to speak?
Or, as I've suspected for several years, these housing, financial, and economic crises we face are the final nail in the structural adjustment coffin that's turned the U.S. into a complete third world economic model: an extremely concentrated wealthy and powerful ruling class and everyone else declining in living standards, fighting each other tooth and nail for jobs paying half what they made a decade ago. No need for vast migrations. Just vast slums of decaying sprawl everywhere. Sound about right?
I guess when it comes down to it if economics is simply a vehicle for expressing political ideology rather than a science that deals with real actions and outcomes, we have our explanation as to why everything now is so screwed up, no?
"They should also recognise that no one can afford to be too picky about the timing or source of capital infusions and rapidly complete the review of regulations that limit the ability of private equity capital to come into the banking system. "
Is he suggesting that we allow the dark lords of financing (PE) to participate in bank ownership? Scary!
How about Huffington Post, CR? I am sure they must have realised what was going on. They always do. And how many liberal economists realised what was going on with Nasdaq in the late 90`s? Maybe you could come up with a chart. Good luck!
My paternal grandparents fled the dust bowl of Oklahoma and Southwest Missouri during the thirties, Grapes of Wrath style, to pick cotton in California. I'm sure everyone has family (or personal??) stories with the Great Depression.
My paternal grandparents also fled the dustbowl of South Dakota in the 30s and ended up in NJ. My grandmother always said they should've gone the direction everyone else went - which I think was Cal. - but they went east. Anyway, my grandfather was 47 -- my age -- with 4 out of 6 kids still living when they moved to a place they'd never been before. Of course, back then, people had their wits about them.
I implore people to do some kind of planning, any kind of reasonable planning
One of my Plan B's might be to follow you around mp, but I must confess Conjure creeps me out just a bit. My other Plan B involves a space ship. Other than that, I can't think of anything. Drawing a total blank. So I'll just tend my garden and see what grows.
Not only is it a bailout, but the bill rewards the least-deserving borrowers and their lenders-- it is geared to force taxpayers to refinance around 400,000 payment-option ARMs that begin to recast next year. These are borrowers who will get instant, tax-free equity in homes where they never paid a penny of principal. These aren't struggling homeowners but people who engaged in willful speculation of homes worth over $650,000. It bails out their banks, too-- the program is voluntary so the banks will tap their riskiest loans, the ones most likely to default. A haircut for these banks is a lot better than a foreclosure.
The FHA is already floundering under its existing portfolio (over $4 billion in unexpected losses this year) and will require a direct appropriation next year for the first time in its 74 year history. The FHA will not be able to manage the program-- the CBO says 35 percent of the refinanced loans will still default! This thing is a train wreck and will not inspire "confidence" but quite rather the opposite.
CR-- you admire Dean Baker's analysis on housing, you should check out what he says about the bill, he calls is a bailout: "Barney Frank's bailout would mainly benefit banks" The Meltdown Lowdown (No. 6) | The American Prospect
And, we're up to 16 GOP Senators opposing and we still have a White House veto threat against some of the spending elements.
The market will find a bottom for housing and that is the solution.
My unsolicited TA take last Friday, that I'm staying with until proven invalid, is that crude (esp. the etf USO) gave a key reversal signal, good for at least a short term top.
USO gapped up above previous day's high, climbed up 2-2.5%, gave up most of the day's gain closing under the previous day's high, all on lighter volume. In candlestick charting it's called a shooting star doji or inverted hammer. Short term tops can always roll into intermediate tops or long term tops, but I'll settle for a 10% pullback. I have no position, btw.
Well boob the first part of planning is realizing "hey, I need a plan"
Me? I am a speck on the economic ladder, just a rung above food stamps honestly.
When I first stumbled on this blog and Ben's blog I figured I was so far down that there would be no way to plan for what is coming.
Then I realized having a series or layering of survival plans for me and my family is a big if not biggest survival step out there.
I have 0 credit card debt, and lined up 3 layers of babysitting, applied and was accepted for low income housing, enrolled in school, and switched my employment to accomodate the school schedule. The kicker? school and work will be across the street. saves lots of gas dollars.
I also have lined up 3 places to share living quarters with if it all goes to pot and I am facing homelessness.
Stocking up the pantry a bit at a time each grocery trip, getting in physical shape, and quitting smoking.
That and trying to develop mental strength and ability to be stoic.
Poor people plans.
But you know what? i am a very large leg up on the people around me that have a bit more on the asset side.
So sit down one of these nights with a favorite beverage and play what if.
What assets do I have?
What abilities do I have?
What are my tolerances for uncertainty and discomfort?
What if I lose my job?
What if I lose my living quarters?
How can i stretch my food budget longer and thinner than my son can stretch a booger?
That is where your plan starts. It will (or should) change as the factors in the world change, or come about as you anticipated, but you have to start somewhere.
Sorry, rambling, but I am tired of the people I live near crying and sniveling about not having enough to plan, so I vented. (not saying you were doing that, just using your post as a mental cleansing point)
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
Why do we have liberal vs. conservative economists?
It is called back up, one set of economists will get a fixation on something and not notice that they have become full of it. Their opponents notice that they are becoming full of it and propose alternatives. Eventually the alternatives will replace the first set and the cycle repeats. Therefore checks and balances happen and the human race advances.
Baker SD made me start thinking about 'electric farm tractors' - something that popped into my head driving out that way (going over the Buffalo Ridge from S Minnesota to Sioux Falls & seeing all the wind turbines out that way).
Why the hell ship all that electricity to the city - use it right there.
Probably makes more sense to build electric farm tractors than it does to make electric cars. Tesla's cost what? $100K? Big farm tractors & harvesters price in that range (tractors less, harvesters more) frequently - probably not a huge problem to make a $100K electric farm tractor.
Plus they LOVE weight - actually add weight to the front of tractors all the time so they don't flip when plowing - so battery weight not a huge issue.
And they don't have to go that far - usually - though somebody trying to plant or pick 2000 acres in a hurry might argue.
"send some money to first time buyers if you want to really save this mess..." CM
Excellent idea. We should snuff all the people who bought homes into the bubble, by giving money away to those who were frugile and didn't buy into the frenzy.
And that's how we should handle any future bubbles. Give money away to those that did NOT participate so they can (after the pop) buy in and stabalize it.
Those that now buy into any bubble are screwed, and those that don't get rewarded. It kind of opens up a new way of thinking about where to invest. When something starts to go up too quickly, people would get out so they be the ones to receive the money if it pops. It's kind of a self-balancing mechanism.
Ok so what exactly is the starting point: I assume it is cash in the mattress or gold bars hidden in the backyard? Both have sever drawbacks...particularly the cash in the backyard...interesting analogy, why is it everyone deferes to military strategy. sun tzu tactics without strategy is the surest way to failure strategy without tactics is the slowest way to success. Perhaps you could share with us how one should think about a starting point. WOuld be interested to hear.
Get your family prepped for draconian budget cuts...
Create a highly liquid emergency fund to tide over until FDIC can cover the bank deposits, assuming that's possible.
Shelter the investment assets and realize that everyone's going to take a hit here.
Go back to what your skill set is. Physical, hands-on, what can I do skill set.
Prepare to work with others to accomplish what's needed. Barter skill sets and move forward.
dryfly writes: Probably makes more sense to build electric farm tractors than it does to make electric cars.
Not only does it make sense it's exactly what the country needs for something like sustainable farming. So of course it'll be done only when it's too late, or after that. But I've read a lot of people advocating similar ideas on the doom&gloom'R'US The Oil Drum. I bet the vast majority of people don't know electric farm tractors exist. Maybe this could be your investment legacy.
My paternal grandparents fled the dust bowl of Oklahoma and Southwest Missouri during the thirties, Grapes of Wrath style, to pick cotton in California. I'm sure everyone has family (or personal??) stories with the Great Depression.
Not quite the Great Depression, but maybe worse. My parents left Vietnam as boat people with 3 kids under the age of 8, and my mother pregnant. For two years, we lived in a refugee camp in Indonesia, where my younger brother was born; there my parents learned the true meaning of hunger, resolve, and resourcefulness. Strangely enough we landed penniless in the reddest of red states, in a city that is heavily divided by the politics of race.
So for 28 years they busted their ass (15+ hours/day for 7 days a week) and saved every discretionary penny the earned to buy "things that produced stuff" (dryfly, some people do get "it") or education (30 years combined of college), never once asking for a government handout or complaining about taxes. On the eve of their retirement, they've saved more than enough to live comfortably anywhere(preferably not in the US, but Vietnam is much much worse). Instead, they continue to work, not for themselves, but to make sure that the four of us don't get swept away in this madness.
Sorry for the OT rant, but it kind of saddens me that two non-educated college people (which evidently is a "code word" these days for racist or ignorant), who came to the US penniless not knowing a word of English, get "it", while most Americans are still clueless about the bitter medicine that they need to take.
Maybe we should just threaten to monitize the debt. Yup, paid you all off today. Hurry up we're all going to the bank on Monday to trade our green ones in for pink ones. ou'll need your proof of U.S. Citizenship to exchange cash and convert your acoounts to pink ones. Oh, you can't make it to the bank by Monday from Tehran, Dubai, and Mecca? That's a damned shame. Don't tell me we're powerless.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Nothing like them fiscally responsible 90's. Veritable victorian age of financial restraint at both the individual and public level.
Apparently "fiscally responsible" means "a levered credit boom in technology" and "fiscally irresponsible" means "a levered credit boom in real estate." Good thing there wasn't any relationship between the two.
I really don't think he's got a clue what to do. The idea that we can alter the price of oil is absurd; that is NOT in our power. And pumping more money into the system won't solve the SOLVENCY problem, as Roubini has said. The US is in for a excruciatingly painful lesson and it richly deserves it in my opinion. It should be painful enough for the lesson to stay learned for decades the way the Germans learned about inflation from their experience in the 1920s.
During the Depression, my father was already in CA, to be specific in San Diego, and was working in a restaurant as a cook. He escaped the depths of the Depression by having been very frugal with money and having been at the same job for many years when the Depression hit. He became the owner of a restaurant by the late '30s. He also lived with relatives until he could buy his own place (he never had a mortgage, always paid cash for his houses).
"Many of the critics have labeled it a $300 billion bailout - it's not."
OK CR.
So it isn't a $300 billion bailout. But it is a bailout. If it wasn't, then why would it be needed?
Furthermore, the cost of said bailout is currently unknown. Those estimates of costs and such along with $1.85 will get you a Grande coffee at Starbucks.
I personally am pretty incensed at the bailout. I pay taxes. I get no home mortgage deduction, I get no capital gains exception. I get no FHA Secure financing, or help from Hope Now Alliance. I get no cancellation of debt discharge taxes. I just get reamed, year after year, because I refuse to purchase a home for my family that is grossly overpriced.
Not being a bank or IB, I don't get access to the easy funds from the Fed. But I get to watch as inflation rips up the value of my savings and salary.
All crimes committed against decent citizenry by none other than the government itself. In broad daylight no less.
A lot of people chose to avoid the financial calamity because they recognized a bubble, and sounded the alarm. What do such people get? A medal and a stick up the rear?
Government officials love to talk about family values, the "definition" of "family", and yadda yadda. But in reality the government is doing all it can to burn real families at the stake, while honoring, rewarding, and glorifying the speculators and idiots.
If I loan a chunk of money to my drug-addicted jobless deadbeat friend, can I expect the government to come and buy the debt for $0.85 on the dollar? No? Then let the lenders shove it up their asses. Seriously. Let them shove it up their asses. I wasn't calling for government intervention when I saw the credit and housing bubble years ago. I sure don't want the government intervening now.
"We're from the government and we're here to help."
Seriously, tell the lenders to stick it where the sun don't shine.
Guys how does it work in this country when it comes to studying economics? Is it something like:" Those of you who had a rough childhood or are on antidepressants take two steps to the left". I am kind of confused. I thought economics was some sort of a science. I didnt know it had something to do with ones mental problems. Live and learn, I guess.
Instead of knocking the hot air out of the ballon, Summers wants to pump even more hot air into the ballon, making an even greater blast when the ballon bursts.
Well, we spent roughly a half century horsing around propping up a central system of fiat money, one shouldn't expect such, er, bankrupt thinking to disappear overnight. Let's have us a solution of central fiat money to fix stuff.
Nobody knows how the endgame plays. But at least let's call it an endgame, shall we?
I thought economics was some sort of a science. I didnt know it had something to do with ones mental problems. Live and learn, I guess.
Yeah, you can do math out the wazoo but at some level, I tend to equate it to Hari Seldon's math from Asimov's Foundation Trilogy. Trying to predict the behavior of masses of people with mathematic certainty.
Just too many different takes on the same set of circumstances:
I'll check up on it in the next day or so. Wasn't aware that Dad Moltke did anything great since I have little interest in 19th century German history.
Of course, I'm not French...
How many words in the essay would you like?
BTW...this newfangled clock of yours. Precisely how is it different from its earlier version again?
Economics is a "science" the same way intelligent design is a "science". How much of a science can it be when they make up numbers to satisfy the predetermined outcome of their "experiment"?
If you didn't have a "rough childhood", I wouldn't go taunting those who did. You wouldn't like the schooling they'd give you. Left? Probably. The right never gave them anything (not even an MBA from Harvard).
We are just one political event (Iran) away from 200+ oil and a stock market crash.
Not to mention an monster currency crisis if the dollar resumes it's downward spiral.
We'll get to see an interesting test of various theories regarding markets coming up -- will the markets really dictate monetary policy in the end?
Is the Fed's control really an illusion that's maintained only in times of prosperity?
The markets know that nothing builds character like a good deflationary depression.
Nothing wrong with Joe Six Pack that a few years fighting to survive on the streets won't fix up right quick.
Might even turn him into a good moral God-fearin' man of the sorts who contributes to social order, not tears it down for his debauches and indulgences.
All these economists have lost touch with reality and morality having hidden behind their ivory walls and platonic ideals of academia.
Sure they mean well, but their naive idealism makes them the ideal puppets of those dark forces lurking in the shadows.
Set the land afire with the purifying flames of deflation.
"Sorry for the OT rant, but it kind of saddens me that two non-educated college people (which evidently is a "code word" these days for racist or ignorant), who came to the US penniless not knowing a word of English, get "it", while most Americans are still clueless about the bitter medicine that they need to take."
No apologies necessary, insofar as I'm concerned. Your "rant" is very much "on-topic."
This piece by Summers is disgusting - where is the penance, the contrition the recognition of a system gone wrong for a loooong while now ? instead, its another bailout without a shadow of a doubt - but smothered with systemese lingo to put the necessary distance between the now and the final steps - when the govt has to take enough of the insolvent institutions into their embrace, make enough holders of their as whole as possible for them to trust the whole shebang again..
And who will pay for this ? not the totally poor - they have no money - not the really rich - they are the ones OWED the money and who will be made partially whole - it will be the ones in the 100K to 2M assets ( excluding the housing distortions) bracket ).
The gall of it all is what's getting up my nose most of all - YOU screw it up and I pay ? NO WAY !
And I surprised at CR at this:
I haven't commented very much about this housing bill. Many of the critics have labeled it a $300 billion bailout - it's not. The cost will only be a small fraction of that amount, and the bill will probably be inconsequential.
I don't doubt that it is inconsequential but these guys in Congress have got to get real - ignoring what they are doing since its inconsequential is no doubt good for my blood pressure and my wallet but its NOT good if we really want to fix the system. They have to stop pretending to patch the system but instead admit that it broke for the all reasons so familiar to the reader of this blog - a govt heavily in debt and going to continue to be so; a populace with really poor balance sheets - an education system that seems to denigrate excellence - a corruption of the civil service political neutrality ideals in all branches of the bureaucracy and most of all an Empire mentality that is quite unsuited to the parlous financial state we are in. If people won't think with their morality at least they can think with their wallets.
. . . ignoring what they are doing since its inconsequential is no doubt good for my blood pressure and my wallet but its NOT good if we really want to fix the system.
K, ignoring them is good for the blood pressure, but not so good for the wallet. They do it and we pay for it. The banking system will be saved. Cost is no object to them.
Which is why I'm going to have another drink and listen to more Pink Floyd.
That John Williams interview keeps showing clips of paper bills printed. That's M1 (plus checking and savings accounts)- his chart showed M1 contracting, as well as rising rapidly during the double digit inflation of the seventies/early eighties.
M3 has been shown by many analysts to not correlate well with anything, including inflation. Also, the interviewer probably avoided asking Mr. Williams about his consumer price level statistics, which show the U.S. having been in a contraction for several decades. His statistics are invalidated by simply looking at tax receipts. He's a total fraud.
Tough crowd tonight. If anyone is currently on anti-depressants please don't skip them.
As far as planning goes the best plans start with no debt and having savings that you don't need to keep in an account. The ultimate hedge is a good education or skill set as you should be able to earn it back faster than those who simply fell into wealth(real estate). I think a lot of people went into the Depression with little more than a job and came out the other side pretty good as long as they held that job. Perhaps a Depression will create something of a meritocracy?
mp writes:
"...you have to think in terms of 'sustainability' and 'survivability,' and in every sense of the words. If, for example, the world economy is about to take a deflationary nosedive, you must be prepared to conserve (hoard) your assets."
I'm following my 2 hypothetical homeowning families who each had 10% equity as of May 1. Family 2 is paying their mortgage and RE tax, while family 1 is 'staying in', not paying either, but saving the total, and in 11 or so months will get to look at their equity and the trend of prices, and decide whether to use the cash to get current and stay, or keep the cash , go rent, heal their credit dent and buy later in a lower-priced market.
Wondering which family will have done the best job of conserving assets?
frankly, I do not feel so bad about the most recent homebuyers who made no investment and act like and are treated like its "their home" they are losing.
I do not feel too bad about the mortgage brokers now out of work as they ripped the system for 3-4 years. Dont feel ssorry for the banks and lenders.
I feel for the folks who played by the rules (followed the sprit of the law and letter of the law) and are about to get screwed under any scenario either by higher taxes, deflated dollars, deflated home prices.
For infrastructure investment targeted on short-term stimulus ...
how about federally guaranteed loans/grants/programs for energy efficiency home-improvement...expand the weatherization program by a factor of 100X? Might help the price of oil/gas a bit, too.
Are the stats wrong? Is the data faulty? Are our interpretations of it wrong? Is the FED doing the right thing? Must bailouts continue to prevent a systemic collapse? Ultimately only time will tell. Thanks for all the links guys, keep em coming, i need more info even if it contradicts.
Here's my take, the FED will not raise rates anytime this year and creative bailout or much needed stimulus, depending on which side of the camp one is on will be employed and deployed continuously until there is a recovery in financials or there is a systemic collapse whichever comes first.
What this means is a dollar value decline that continues. Maybe we will see an intervention but it's too early to tell now. So do what you have to. And good luck in all that you do.
My personal suggestion would be to hand over the Fed, the Treasury, and the US budget to a Star Chamber composed of the heads of the top ten IB's and banks on Wall Street. At least that way, we know they aren't bribing congress.
And, just make Cheney VP for Life and Secretary of War (don't laugh, kiddies; go google War Department. It wasn't that long ago).
And make it mandatory for every citizen earning less than one million a year to hand over everything they have to the Star Chamber for redistribution.
Take away or recover from all the 'isms' A to Z. That's the answer. All the isms take away your liberty, enslave you, even kill you. But there's the agents and true believers who operate within their group of followers, adhering to their their tribal ways and prejudices.
Now we know communism doesn't set us free because the powerful use the social organization in this belief-system as a way to dominate the masses. Where is Zionism or the Neo-cons taking us now? What will socialism give us? Impoverishmant and tyranny. Why do we believe in systems that take our liberty and freedom away?
All of the isms destroy democracy for the sake of narrow goals and social stratification or a toxic class system. Who are the believers in the Project for a New American Century? Will this project give us liberty? Think about the ideas and fanaticism that are deconstructing and destroying America and the hope of majority rule.
""Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
They still ran big deficits in the 1990s (except at the very end), once you subtract the big surpluses from the Social Security trust fund.
Anyway, this kind of advice is naive at best. It's akin to suggesting to an addict that it's okay to take another shot now as long he promises to be good five years from now.
Summers has no ideas and is more of the problem rather than the solution.
When I was in college my father told me about the Great Depression. Said that while money became worthless, the flip side was prices deflated to affordable levels so you could survive even with a worthless currency. As fate would have it, I'm completely in cash these days waiting for prices to crash. Hope my old man was right.
dryfly,
Another alternative to the electric tractor is the hydrogen tractor... you use elctricity from a wind turbine to split water and you collect the hydrogen (there is a little company down in Algona, Iowa, that will sell you a Ford engine converted for hydrogen). Of course, handling a gas like hydrogen is no simple job. Ammonia also has potential. (NH4 has more hydrogen than hydrogen does).
mp wrote: However, the starting point you select must allow maximum flexibility.
And for me that means borrow all the money you can at long term rates that you can and will be able to service, move it off shore to countries that have real money and don't punish savers, then wait for the democrats to pull an Argentina and inflate the long term debt away. Count the votes...savers maybe 20% of votes...people up to their ass in debt...maybe 80%...a democratic or republican president (economically mostly the same) and certaining a veto proof demokratic congress and guess who their going to use the tube of KY on...the savers.
El Cliffo wrote:
Coinciding with the prophecies of doom from The Royal Bank of Scotland, Fortis, Barclays, and Roubini is the evangelicals' prophecy of earthquake-related mayhem on July 8, 2008 in San Diego.
Speaking as evangelical who appreciates a little bit of symmetry in my doomsday, I think it'd have a much nicer ring to it if it was moved back a month.
Well aren't we a little spot of sunshine in this June gloom.
The ethanol program will stop only when the New Jersey caucuses precede the Iowa caucuses.
The ass cannot even say it out loud. "Inflation concerns" fer cryin' out loud.
I'd say the best course is to do the opposite of whatever someone who cannot even say "inflation" suggests.
The more these clowns try to stop this the worse it will get.
I think the solvent of choice will be Vodka.Cheap Vodka.
To me the interesting aspect of the housing bill is that the lenders and the FHA have to agree on some level of impairment on the loans in question. The lenders are going to obviously want as high an appraisal as possible to limit the hit to earnings.
Can the FHA possibly avoid being rolled in broken glass before they guarantee the new mortgages? Are they equipped to assess an acceptable market value that mitigates downside risk for the taxpayers?
I would hope that they would play hardball with the banks to keep from being stuck with another round of bad paper, but no one knows where the bottom is.
All of these suggestions for avoiding dire consequences are too little too late.
Win-Win: hire recently unemployed realtors to administer "the much debated housing bill".
Fifth, punish the savers and spendthrift, force them to spend to prop up the economy.
Above $417K, the real estate market is dying....with the help of the GSEs.
There are serious incentives for homeowners who are current in their loan payments, but upside down in value, to walk away....
FNMAE announced they will let buyers be eligible for loans 2 years after a short sale.
Oh and Chuck.... any other short sale advice? I'm sure the bill from Indymac will arrive shortly.
I'm not sure which I find more comical, a London newspaper giving recomendations on U.S. economic policy, or the New York Times giving recomendations on U.S. economic policy.
It sounds like:
This is a program for addressing problems?
Someone please reassure me that I am wrong and there is really a lot of substance here.
Thank you for the new thread CR -- over 300 posts on the last one. Edginess indicator is definitely up.
We have in fact reached a dangerous moment. We have reached the point where reality must be faced & losses must be cut. The reality is that overleveraged homeowners and overleveraged corporations cannot be saved because they are fundamentally insolvent. These are losses that have to be cut. Interest rates must be raised, and raised quickly, to keep prudent consumers and corporations from going down the toilet with the rest.
Solvency is the real issue... so let our wise Bank of Bernanke hold all the dangerous stuff.
Funny. He doesn't mention anything about the Wright B Model.
Hey, sounds like a real Kudlow Goldilocks economy we're staring at. Seriously, I heard it last week. They were all blabbering about this being a great time to BUY STOCKS. Talk about delusional.
The housing bailout bill (for and by Bank of American and Countrywide) is wrong on so many levels. If it passes we the taxpayer will be on the hook for a lot of toxic waste. It provides all sorts of disincentives for mortgage lenders and underwater buyers to tell the truth.
We need the housing pig to roll over, and quickly. The more the government trys to stick it's fingers in the market the longer this is drawn out. To get back to a healthy market (in line with incomes) many markets still need to see a 30% decline (or more in some cases). Better for that to happen quickly than for it to happen over a decade (see Japan in the 1990s).
Call your congressfolk and Senators and tell them you don't want to be on the hook for the bad decisions of others.
I agree skeptictank. Why should The prudent 97% pay for the mistakes of 3%?
If you ask me, Summers' list is missing a call for spending within our means. And I mean both at the personal and national level.
But no one asked me.
These recommendations--along with Shiller's and other economists--will fall on deaf ears. In my opinion, economists as a class of professionals have lost all vestiges of credibility they once had.
I believe that the root of their current professional crisis is this: instead of being vocal, thoughtful, and proactive members of our intellectual establishment they have become a bunch of whiny, reactive sad sacks trying desperately to be relevant after we could have used their "advice".
Instead of quietly working on bullshit ivory tower endeavors while the housing bubble was inflating, perhaps they should have been sounding the alarm about the imminent financial crisis. Why is it that only bloggers and passionate observers warned the public about this disaster?
This is a time of unmatched opportunity to teach Americans that financially responsible behavior is in their best interest. Let's not waste the moment and spoil it with more National debt.
JP, actually Summers call for spending within our means too - once the crisis has passed.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Best to all.
My two cents: the fix (or decision to refrain from fixing) will be much more expensive than the amounts currently contemplated.
I would do the absolute minimum while (1) giving VERY careful thought to arranging a carefully targeted fix (2) waiting for some of the republicans to disappear.
1 is merely a ploy for distribution of
wealth
2 just means more inflation since the treasury will be printing these dollars instead of deferring from other areas.
Infrastructure investment is to Keynesian. Take Hayek or Friedman style approaches.
3 this is simply a result of #2 and other foolish subsidies.
safe_as_apartments writes: Why is it that only bloggers and passionate observers warned the public about this disaster?
What's even worse is that the quote-unquote experts, who denied such crises would occur, have total impunity to give advice on what to do now.
"...once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Oh yeah like any of us will live long enough to have another Republican Congress.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Nice thought, but it would never stick. Once things get better, the politicians will override the reform. It's happened before; it will happen again.
The solution for insolvent banks is bankruptcy.
Let the chips fall where they may.
Why is it that only bloggers and passionate observers warned the public about this disaster?
And Volcker. Don't forget him. He was, of course, completely ignored. If someone of his stature couldn't make himself heard above the ringing cash registers of the housing boom I don't think a few more economists playing Chicken Little would have made much difference.
Of course, now that the sky has fallen there aren't a whole lot of good answers.
-Jaso
safe_as_apartments, there were a few economists shouting warnings from the roof tops - Dean Baker, Paul Krugman, and some others.
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
Best Wishes.
CR quotes Larry- "Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
I have grave doubts that the US economy can be guided back to a stable and sustainable long-run equilibrium without major structural changes.
But, who am I to know? Where is dotCommunist when I need him?
Oh yeah like any of us will live long enough to have another Republican Congress.
Just like 2001 - 2006, when the national debt doubled under a REPUBLICAN Congress and a REPUBLICAN president.
oops.
There is now also a case for carefully designed support for infrastructure investment ... There are legitimate questions about how rapidly the impact of infrastructure spending will be felt. ...
This is at least an improvement over just printing money and handing it out via stimulus checks, but the flip side this isn't the 1930s where there was a relatively new technology (autos) that could justify a vast nationwide transportation infrastructure buildup.
In the end we kind of have to face the fact that in a country already drowning in debt and deficits, more deficits and deeper debt may not be the solution - it may be the final nail in the coffin.
Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Just remember this is what they're going to keep telling you when they print the money. "Oh, don't worry, we won't go too far with this." The people who believe this are going to be the ones that don't retire until they're 95.
The reason the gold standard was abdandoned was to allow government to spend more than they should and stimulate the economy when needed.
Be prepared for more .... " Adding liquidity when needed".
"CR quotes Larry- "Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
IMO,the 90's discipline was the result of a technology explosion which occurs once every 75 years or so that increased revenues and the cutting of the defense spending during the clinton years.
.
It's going to take a bit more than this for us to climb out of Grover Norquist's bathtub. If climbing out is possible.
safe_as_apartments, there were a few economists shouting warnings from the roof tops - Dean Baker, Paul Krugman, and some others.
I agree; I am aware that there were some as I have been following this saga for going on five years now.
My comment is about economists as a class of professionals capable of giving sage policy advice. If the profession was deeply divided over something so obvious as the housing bubble--well, I think I just proved my point.
Now that the problem is much more complex, trusting the economics profession to give us a solution is absurd.
What does FHA have to say about the housing bailout bill?
Infrastructure spending + a long and deep recession = ( CCC + WPA ) ?
Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established.
In other words, elect Democratic presidents and filibuster-proof Congresses for the next few decades. Well, maybe we'll get that for occasional two-year stretches. With any luck, the Republican Party will go the way of the Whigs, and be replaced by a party that values sound fiscal policy, shuns military adventurism, embraces science instead of superstition.
I'm sorry CR, with all due respect, the abomination known as HR 3221 is most certainly a bailout.
The truth here is that government/taxpayers did not cause the housing bubble, and bears no responsibility in "fixing" the problem.
The solution is to let the chips fall where they may; institutions will fall, but in the end the market will work and a floor for home prices will be found, most likely at 3x incomes where it belongs.
Anything that takes money out of the pockets of innocent taxpayers who did the right thing by not participating in the bubble, and puts it in the pockets of those who took inordinate risks, is by definition a bailout.
This is moral hazard of the worst kind. I hope HR3221 dies a slow, painful death as Congress descends into partisan warfare pre-conventions.
God bless the 11 GOP Senators who oppose it, and may their numbers grow.
The reason the gold standard was abdandoned was to allow government to spend more than they should and stimulate the economy when needed.
The goal here is for the US government to keep the easy credit flowing by replacing the now deceased sub-prime borrower with the ultimate sub-prime borrower -- themselves.
Ultimately all US debt is going to become subprime.
Again don't buy any of this "fiscal responsibility in the future" BS. If we couldn't do it 5 years ago, if we can't do it today, we're not going to be able to do it 5 years from now.
Anybody who's ever known a drug addict knows exactly what's going on here.
CR: actually Summers call for spending within our means too - once the crisis has passed.
I have to say, I am somewhat amazed.
The only part that rubs me the wrong way after actually reading the article: He says the current legislation is: insufficiently aggressive in strengthening GSE regulation and failing to increase the leverage of homeowners in their negotiations with creditors through bankruptcy reform. Increasing the "leverage of homeowners" is increasing the leverage of those who borrowed beyond their means. Not something I necessarily agree with. But kudos to him for trying to inject some sensible discussion, esp from the bully pulpit of Hahvahd.
BTW, I look forward to your comments on why the current bill will be inconsequential. (I haven't had time to follow it closely, honestly. That's why I read this most excellent blog.)
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
From what I followed of the story it seemed they were dismissed simply by being labeled as 'liberal.'
It was always apparent to we liberals that those doing the labeling were complete morons . . . or worse, motivated simply by personal greed and the country be damned.
"One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill."
Which illustrates the rotten state of contemporary GOP-led conservatism. Once upon a time Republicans were the voice for fiscal sanity and prudent, limited government. Now it's a rubber stamp party enthusiastically cheering for torture, for the wiretapping of U.S. citizens, and for a President who has spent money like a drunken sailor in a whorehouse after a nine-month submarine tour. Bush failed to recognize that was the Democrats' job.
Pass the Mozillo Housing Bailout bill is a 'solution'?
Here's mine: allow any additional oil and gas production on US land to be royalty free for as long as oil is above $100/barrell.
Suspend air quality requirements for refined motor fuels.
Make the first $10,000 in interest on bank savings tax free.
I don't see any valid reason for trying to stop foreclosures that are the result of declining home prices. Until prices return to a proven workable range there will be no working market in this country.
I particulary do not see any reason to start another new government regulatory agency. We have already suffered enough from "Homeland Security". The system of buying, selling and financing housing worked just fine for years and years until Greenspan broke it.
Will some banks go under? sure. Some investment companies? sure. Some builders? sure. But I'd rather pay the price once now than forever and ever.
It will be interesting to see Obama's reaction to the increasingly loud calls to prune back or halt the ethanol madness, given some of his prominent supporters and major contributors. I sense another chink in the armor of Mr. "Change You Can Believe In."
this infrastructure spending rally is scary for the simple reason that money will be spent investing in a living arrangement that has no future.
trains: no planes, autos
YouTube - James Howard Kunstler: The tragedy of suburbia
Vtcodger,there IS substance to these proposals! The bad news is that the substance is a mix of smokable LSD and crack cocaine...
My comment is about economists as a class of professionals capable of giving sage policy advice. If the profession was deeply divided over something so obvious as the housing bubble--well, I think I just proved my point.
Also, keep in mind that making predictions and prescribing policy are totally different things.
We have lots of people who can predict hurricanes, but it's foolish to go on to assume that these people know how to prevent them.
All the great advice we got from economists in the wake of the tech bust just got us the housing bubble.
What catastrophe will their advice lead to next?
There's nobody here that's demonstrated any ability to come up with solutions for making the economy better in any lasting way.
That's the big picture that everybody wants to pretend doesn't exist.
Based on their track record, the economists we have today are just a bunch of dangerous quacks.
They butcher every patient that comes to the operating table.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
This is really a joke. You cannot ask a curent Congress to bind the actions of future Congresses; the power to change is always in their hands. you must accept that politicians will always be politicians, so you can NEVER promise that something will be a one-off and then we will reform.
Summers says: "we have more to fear than fear itself"
True, but I don't think this is helpful. We've gotten to the point where the entire economy runs on perceptions. We probably need to keep the lies going for a while to prevent total meltdown while we rework the underpinnings. Spin away Fed. Spin away NAR. Meanwhile let's go to work under the hood, shall we? (Summers' suggestions can't hurt at this point)
Anybody who's ever known a drug addict knows exactly what's going on here.
Spot on. So where are the adults to do an intervention?
Ultimately all US debt is going to become subprime.
Yeah, and when that loan fails, who is going to be the bargain bidder scooping it up?
< . . . failing to increase the leverage of homeowners in their negotiations with creditors through bankruptcy reform . . .
Repeal that part of the 2005 Bankruptcy Act that took from judges the ability to adjust (cram down) mortgages and homeowners will have all the leverage they need to negotiate with creditors.
Would it really be just a conspiracy theory to suggest that once that 2005 Act was passed, lenders had a green light to do the dumbest things they could think of doing?
ac,there are fixes for our economic and social problems,they usually are long term,sometimes multigenerational,and the changes involved threaten entrenched interests,and involve pain for many.
This is really a joke.
"I really need this 8-ball to get through the weekend, but I promise - it'll be the last one."
Comment #1: The call to employ unemployed construction workers on infrastructure projects sounds like something from the Great Depression. You know, the CCC (Civilian Conservation Corp) where young, unemployed men were put to work building roads, bridges, and campgrounds.
Comment #2: Yah, right, more stimulus checks. Just more money to line the pockets of the Middle-Eastern oil gods and the Chinese manufactures of can't-live-without stuff sold at Wally World.
ac,there are fixes for our economic and social problems,they usually are long term,sometimes multigenerational,and the changes involved threaten entrenched interests,and involve pain for many.
Alas, even if there are, they're not going to see the light of day if they don't mesh with the 4 year political cycle.
mock turtle writes:
please foregive me for re-posting this
for those who missed it
it appears to that the original article was taken down the same day it was published
the money quote is in the middle and translaes loosely as:
"The situation in the US is much worse than we thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US."
fortis is one of the largest financial houses in the world...20th largest corp.
for you guys and gals who speak dutch the 4 para i can quote without violating etc;
De Financiële Telegraaf (dft.nl) - DFT - Ook op mobiel internet Telegraaf.nl - De website van wakker Nederland fort...se__rsquo_mel... VOTRON BLIJFT AAN NA GOLF VAN KRITIEK Amerikaanse Â’meltdownÂ’ reden geldinjectie Fortis 28 Jun 08, 09:10 door onze correspondent BRUSSEL/AMSTERDAM (DFT) - Fortis rekent binnen enkele dagen tot weken op het volledig instorten van de Amerikaanse financiële markten. Dat verklaart volgens de bankverzekeraar de serie ingrepen van donderdag om zich met €8 miljard te versterken. „We zijn op het nippertje gereed. Het gaat in de Verenigde Staten veel slechter dan gedacht”, zegt Fortis-chairman Maurice Lippens, die volhoudt dat topman Votron aanblijft. Fortis verwacht faillissementen onder 6000 Amerikaanse banken die nu weinig dekking hebben. „Maar ook Citigroup, General Motors, er begint een complete meltdown in de VS.” Fortis haalde gisteren €1,5 miljard met een aandelenemissie op. Eind vorig jaar moest het Belgisch-Nederlandse concern €13 miljard aan nieuwe aandelen uitgeven voor de overname van ABN Amro, waarvoor het €24 miljard betaalde. Lippens baseert zijn zorg op gesprekken met bankiers. „Twee maanden geleden wisten we niet dat het zó slecht gaat in Amerika. En het zal nog veel slechter gaan. We hebben een dikke matras nodig om de komende achttien maanden door te komen wanneer we ABN Amro kunnen inbrengen.”
mock turtle | 06.29.08 - 8:25 pm | #
ac,the way we are going the 4 year political cycle will soon be a dim memory.
The State of California is already classified sub-prime debt. Check out the recent double tax free bonds yielding 6%.
If the US begins to focus on infrastructure at the same time the emerging markets are building, won't this add more pressure to raw materials prices? And from what I understand, US infrastructure needs are significant. Are politicians capable of designing anything "carefully"?
mock turtle ... does not compute too many vowels. Perhaps Vanna White could help me out?!?!
Although the "Wheel of Fortune" might as well be a policy tool for the Rs... except with no "Bankruptcy" wedge on the corporate wheel.
When all this finance - central bank- foreclosure bailout - derivatives - commodities futures - scams finally blow up, who you're going to call?
Let it be engineers not economists, please, so they can tell the difference between a mass balance and a Ponzi scheme!!
I don't see any valid reason for trying to stop foreclosures that are the result of declining home prices.
Because they are a VERY VERY expensive waste of resources! Foreclosures produce property unnecessarily vacant for extended periods, large legal, moving, and realtor transaction costs, and frequently result in property damage or community deterioration. It can easily be 20% of the property value. If the current resident can afford the place at a fair price (as opposed to the ludicrous prices of a few years ago), it's a horrific waste to kick them out, and this is the absolute WORST time to load the economy down with tens of billions in waste.
Spot on. So where are the adults to do an intervention?
Ultimately any intervention is going to come from the markets.
We're already starting to see this happen. Don't think for a second the Fed wanted to keep rates were they were last time the got together.
These guys are dying for another bender.
"Capitalism without failure is like Christianity without Hell."
--Warren Buffett
Reccurent stimulus checks = a true welfare state?
I can see the headlines now: Entire U.S. population on welfare assistance from the govt.
What Summers et al don't seem to recognize is that shifting bad debt from one account to another does not magically make it disappear. Moving mortgages from WAMU or Wachovia to the GSE's doesn't do a damn thing except change the lender and put the taxpayer on the hook.
There is no financial ledgerdemain that can cure a bad loan on a overvalued asset. The loss will not disappear it will just change hands.
Schwarzenegger still clueless on housing.
http://www.marketwatch.com/news/story/schwarzenegger-california-housing-crisis-ease/story.aspx?guid={A0B4BBA5-E149-4A33-850C-2285B8EADF9F}&dist=msr_1
Recovery by 09. Ya. Frickin idiot.
I don't see any valid reason for trying to stop foreclosures that are the result of declining home prices.
Sounds like somebody's income and pet projects don't depend on property tax revenues.
Infrastructure spending is a good idea, but it's not going to help us in 2008. It's capital intensive, so it's not a good way to get money to unemployed/ underemployed people. Also, useful infrastructure requires planning. You can't just go build a highway tomorrow and expect it to be useful.
In general, Summers' ideas are helpful but it's like plastering a failing dam - not nearly enough.
CR said:
Solvency is the real issue, and I'm not sure about the solution.
And the truth is, NOBODY is.
Many in the country just had a major long ass "buy on credit" party and now they're bitching that they don't want to suffer the inevitable hangover.
Bunch of crybabies. Too bad asswipes, your party is over!!!! Time to go into detox and pay the consequences.
For those of us who didn't attend that party and saved their money year after year; it will be our turn to party now. The time is getting nearer. Start getting dressed and keep your powder dry!
Whomever wants the credit crisis to end by definition wants the banks to go insolvent. Burn the freaking house down to the foundations and start anew. My goal is to get this over prior to the new administration so they can start fresh. The credit crisis cannot end until the true value of the assets is known and everything is written down.
If the current resident can afford the place at a fair price (as opposed to the ludicrous prices of a few years ago), it's a horrific waste to kick them out, and this is the absolute WORST time to load the economy down with tens of billions in waste.
Again, repeal the 2005 BK Act and let the lenders and borrowers work it out in court. They'll both get hit, but the problems will be solved one by one.
BTW, no multi-billion dollar federal bailout bills would be required or new bureaucracy would need be created to administer the process.
Fair Economist, lets talk about fairness. You and I bought identical houses next door to each other for the same price 2 years ago. You paid your mortgage, I did not.
Why am I entitled to a new loan with a reduced principle and you are not?
Problem with cutting the ethanol plan to shreds is that it will then cut corn prices to shreds, and possibly a few other commodities with it. THen, the few states driving any growth in this country will shrivel and die with the others.
AltA resets peak this August. I guess that's the logic behind the widely anticipated 2H recovery that drove the bear market rally. Can't wait!
Everyone here should already have a personal/family Plan B and should have already taken concrete steps--beyond moving some money around--towards its implementation.
If you haven't, you're way behind the curve and had better get busy, instead of arguing about how the deck chairs should have been arranged.
Just need another injection, huh Ahhnold!
What....you mean these 'economic asshat geniuses' finally realize that America's 'Sustainable Consumerism' is bigtime illusory ?
America needs to morph from its fat lazy complacency to some time tough times which builds character and separates the chaff from the wheat.
My plan is to hike to southern MN where there's some sharp well respected dude and camp out on his property... i'm sure he's planned.
It's been very entertaining the last couple months watching the consternation of desk jockeys who have created their wealth by placing bets on a field of losing nags.
Signed,
Joe Six Pack
Here's some more upbeat analysis from the Bank for International Settlements.
BIS slams central banks, warns of worse crunch to come - Telegraph
There seems to be a consensus building that we are well and truly hosed.
unit472, the non payer clearly utilized his unpaid mortgage money in higher yielding oil forward contracts. his diligence pleased the potus crowd, and he deserves reward.
have a personal/family Plan B
Help me out mp, I am starting to get worried!
OT
I would first of all like to see US/EURO farm subsidies axed. Good start for commodities!
OT
Is it just me or is the atmosphere around the markets got some serious static charge waiting to be earthed...
"...All the great advice we got from economists in the wake of the tech bust just got us the housing bubble...
What catastrophe will their advice lead to next?...There's nobody here that's demonstrated any ability to come up with solutions for making the economy better in any lasting way..."
My perspective exactly. So we now have a situation where we're like the supprised store owner facing down the robber in front of him. The robber's supposedly holding a concealed weapon in his pocket demanding all the money in the register. Only the store owner has already given in to the robber two times before. What should he do?
Collectively, we've got the same situation. Are they bluffing? We're being counselled by the experts that we better give in yet again. Last fall it was absolutely imperative for the CDO markets(and SIV's) to be saved(remember the Paulson dog and pony show?) or the world as we know would come to an end. We didn't give in, and yes the poor IB's got hammered(deservedly so) but the economy struggled through it. This past spring we were threatened again, weren't given a choice and capitulated in the BSC workout(who knows what the final cost for that will be?).
Now the shrill voices of the so called economic experts are being raised a third time- advising that we have no choice but to cave again with this new bailout package. BTW, the fourth recommendation in the article is laying the groundwork for an RTC-like bailout of the banks themselves when all of the C & D loans start to go south.
Maybe, just like the brave storeowner who's fed up with getting ripped off- we shold call their bluff on this one. Call your Congressman and tell her or him to take a pass on this bail out. We can't afford it.
So who gets the bailout-everyone who is upside down on their mortgage? There isn't enough relief for everyone. If my neighbor gets rewarded with a 30% reduced principle for missing mortgage payments, I'm going to try to do the same thing. Damn, I was stupid to make a down payment on my mortgage. I think I gonna load up on on second HELCO while I can to make my LTV at 100%. With everyone trying for the bailout money the housing market is going to be perceived as even more risker and interest rates are going to rise.
Aheadofthecurve writes:
The ethanol program will stop only when the New Jersey caucuses precede the Iowa caucuses.
Aheadofthecurve | 06.29.08 - 7:32 pm | #
I don't know where I read it or heard it - maybe you - but somewhere I heard that if NJ came first in the caucus/primary derby we'd have a 'waiter & actor subsidy policy' and not ethanol... I laughed so hard I almost fell over.
I worked in ethanol for about 4 years - you all have no idea how silly this biz is.
you all have no idea how silly this biz is.
I think i have a small idea.
AVENTINE RENEW ENRGY Share Price Chart | AVR - Yahoo! Finance
Fair Economist, lets talk about fairness. You and I bought identical houses next door to each other for the same price 2 years ago. You paid your mortgage, I did not.
Why am I entitled to a new loan with a reduced principle and you are not?
The proposal is basically an (inferior) replacement for nixing the current special exemption from cramdowns extended to some residential property mortgages. Your neighbor went bankrupt (blew his assets and couldn't pay his debts; otherwise he wouldn't qualify for the program). Therefore, his debts are reduced to what he can pay, including cramming down his mortgage. That's how BK works.
Insofar as it's not equivalent to BK I agree it's not fair. The result will be moral hazard and everybody taking payment holidays. I think the fact that this plan got through and cramdowns failed in spite of a similar public reaction shows who's running the show in Washington - big corps, banks in this case.
Andy, you have to think in terms of 'sustainability' and 'survivability,' and in every sense of the words.
If, for example, the world economy is about to take a deflationary nosedive, you must be prepared to conserve (hoard) your assets.
Beyond that, I'm not going to talk about my plan because: first, it would be of no use to you as every plan must be tailored to individual/family circumstances; second, it would reveal too much about how I operate.
For several years, economists have told the American people that a painful adjustment will be need to bring the trade/fiscal deficits back into balance. Now that this is finally happening, these same economist are running with their heads cut off. What did these guys expect?
"Call your Congressman and tell her or him to take a pass on this bail out."
Yeah, do that. He'll really care.
mp
Cheers, thought that was the theme.
vege garden - check
hoarded dry food - check
savings - check
4x spare nat gas bottles - check
convincing wife, working on it. Just about cost me the marraige to stop her buying a house last year...
rough translation of Mock Turtles quote:
American meltdown' reason money injection Fortis 28 Jun 08, 09:10 by our correspondence clerk BRUSSEL/AMSTERDAM (DFT) - Fortis count markets within some days up to weeks on complete collapsing the American financiële. That explains interventions of Thursday to the serial according to the bank insurer to reinforce itself with €8 billion. „We are on the nippertje ready. It goes in the United States much more badly than thought, Fortis-chairman Maurice say lip paunch, which continues that top man Votron stays on. Fortis expect bankruptcies under 6000 American banks which have cover now little. „But also Citigroup, General engines, there start complete meltdown in the US. Fortis picked up yesterday €1,5 billion with aandelenemissie. End previous year had Belgisch-Nederlandse the concern €13 billion to new shares spend for the adoption of ABN AMRO, for which the €24 billion paid. lip paunch bases its care on conversations with bankers. „Two months suffered did not know we that the zó go badly in America. And it still much will go more badly. We have to a thick mattress necessary the coming eighteen months pass when we can introduce ABN AMRO.
"I think the fact that this plan got through and cramdowns failed in spite of a similar public reaction shows who's running the show in Washington - big corps, banks in this case."
I agree. I would bet the Federal Housing Finance Regulatory Reform Act of 2008 is simply a S&L redux-a place where BofA can transfer their bad debts so they can recapitalize. You wanna bet how much of that bailout will be used in California?
The Hover Dam is impressive but now let's get on with "The Obama Dam"!!!
mp writes:
Andy, you have to think in terms of 'sustainability' and 'survivability,' and in every sense of the words.
I'm deleveraging like crazy right now...should have my car paid off soon. Then, I could cut expenses to the bone and live super cheap (could furlough my student loans also in the event of a job loss.) If things get really bad and I lose my job, it might be just the right push...I could get my arse out of the desert and back to the beach in SoCal where I belong! If I'm going to under or un-employed, might as well do it where it's not 112 degrees. Being single with no kids and no house has its advantages...mobility.
I'm not sure which I find more comical, a London newspaper giving recomendations on U.S. economic policy, or the New York Times giving recomendations on U.S. economic policy.
JD | 06.29.08 - 7:47 pm | #
Perhaps the Wall St Journal giving advice on U.S. economic policy (editorial pages that is, Greg Ip can advise all he wants)
Andy, I find it useful to think about life as being like flying an airplane. Beyond the normal workload, you always have to be thinking about where you're going to put down if everything shits out.
And aside from looking for other traffic, that's one of the reasons a good pilot is always making the time to look out the window.
Plan B, etc.
Barclays warns of a financial storm as Federal Reserve's credibility crumbles
Barclays warns of a financial storm as Federal Reserve's credibility crumbles - Telegraph
I think the above article also qualifies as a dangerous "moment". For the FED perception is everything.
Currently oil is up about a buck and a half in asian trade.
I don't know what's funnier... watching white-collar manager-class people in denial, or watching them making plans for the Apocalypse, secure that their backyard veggie garden will feed them. They'll do anything but admit they're going to have to live like the average working-class or strapped-poor American has for the last 30 years. No, not them. They're SPECIAL. And they're already picking out the funky straw hats they think they're going to be wearing on pleasant dewy mornings in the tomato garden...
Is there a vegetable garden ETF yet?
anonymouse writes: ...or watching them making plans for the Apocalypse...
I don't think humanity makes it past the twenty-teens without nuking ourselves. Nothing can prepare you for that. You might as well buy a house, fwiw.
Anonymouse writes:
I don't think humanity makes it past the twenty-teens without nuking ourselves.
What pessimism you exude, unless something like this happens:-
YouTube - It's a mistake - Men At Work
"I don't know what's funnier..."
I don't either.
for those looking for the fortis article (english translation)
The Blog At the End of the World: Financial Telegraph predicts complete meltdown of US banking system
Tom Stone writes:
ac,there are fixes for our economic and social problems,they usually are long term,sometimes multigenerational,and the changes involved threaten entrenched interests,and involve pain for many.
Tom Stone | 06.29.08 - 8:43 pm | #
I agree. Unfortunately, we've become accustomed to instant gratification. What is long term? Is that like next quarter? The next rebate check? The American public, CEOs, and Congress have the attention span of a goldfish. We're learning that these glorified CEOs, this priviledged class of individuals for the past 25 years, have no special executive skills at all. None. I blame them more than the government for this economic mess.
With oil supplies running out with the consequence of suburbs and exurbs likely to become ghost towns, one long term project should be investment in light rail and high speed trains...which would require the right of emminent domain.
It would be nice if we could all work from home, but that's not practical. As has been mentioned before, a public works project like the CCC to build light rail in medium and large cities along with an Apollo like mission to develop alternative energy would take generations, but we need to get started now.
Real estate market threatening Georgia banks
http://www.ajc.com/business/content/business/stories/2008/06/28/bank_real_estate.html
Coinciding with the prophecies of doom from The Royal Bank of Scotland, Fortis, Barclays, and Roubini is the evangelicals' prophecy of earthquake-related mayhem on July 8, 2008 in San Diego.
Be careful, CR.
Men at Work was my favorite band when I was a kid, besides Dire Straits....great link!
what exactly is the "strategy" for protecing yourself against what is ultintily an unknowable, gven the power of taxation and governement to expropriate? The basics like no debt etc. are template fordeflationary environemnt, but the performance of all asset classes offered paltry returns. The yeild droped into the 1ish percent range. The stock market tanked. Gold at the time was fixed. commodities at the time were not investable. So I wonder just how great is any plan. Does your plan contemplate the federal government employing an argentina/brazil like bank holdiay overnight devaluation? how does one guard against that evne if youa re below the FDIC limits if that even means anything. There is no safe harbor other than maybe investing at GS, where they have an inside line. Note that Mittel just appointed to GS board and Then AccelorMittel rumored to be potentially taking a tsanke in rio tinto for iron ore. talk about cabal..
Anonymouse:
YouTube - Men at Work It´s a Mistake
This is the full version , 3:50' onwards is good.
No, it is not a bail-out. As we all know from Tanta, FHA, Fannie and Freddie are the living proof that Marx was right.
"Many of the critics have labeled it a $300 billion bailout - it's not. The cost will only be a small fraction of that amount, and the bill will probably be inconsequential."
If the bill is inconsequential, then why do it at all? IIRC, the agencies will guarantee mortgages refinanced 15% below the original amount. The government should demand a fifty percent discount in bubble states, nothing less would be fair to the taxpayer / guarantor.
Are we going to see Barney Frank raise the three hundred billion dollars of guarantees into three trillion? I would not be suprised.
CR, I think you are playing devil's advocate here.
"The Obama Dam"!!!
Hell I think he is going to launch a new Apollo program...........
"So I wonder just how great is any plan."
A plan is a 'startpunkt,' a starting point. It is also a 'standpunkt,' a standpoint, only at one given moment in time.
Read Moltke, then learn how to plan.
Thread music:"Blue Skies" by Al Jolson
YouTube
- Broadcast Yourself.
SHORT ANYTHING AMERICAN!
Barack should take that one on the election trail.........
I apologize because I shouldn't have posted my last comment. Too much red stripe thinking. Sorry.
"Moltke's main thesis was that military strategy had to be understood as a system of options since only the beginning of a military operation was plannable"
Ok so what exactly is the starting point: I assume it is cash in the mattress or gold bars hidden in the backyard? Both have sever drawbacks...particularly the cash in the backyard...interesting analogy, why is it everyone deferes to military strategy. sun tzu tactics without strategy is the surest way to failure strategy without tactics is the slowest way to success. Perhaps you could share with us how one should think about a starting point. WOuld be interested to hear.
why should people who have acted in an intelligent maner bail out a bunch ;of clowens? They can count cant yhey? They know how much they make, and based on that know how much they can pay for a mortgage
BTW, FHA on top of "no money down", now offers $1,000 cash back at closing to homebuyers.(In Florida) They must have realised by now that their buyers move out when their refrigerator breaks down.
From the bill:
"Those rates reflect CBOÂ’s view that mortgage holders would have an incentive to direct their highest-risk loans to the program, and are
based on the expectation that the underwriting standards established for the new program would be less restrictive than those currently in place for FHAÂ’s single-family loan-
guarantee program, thereby allowing FHA to insure loans with a greater risk of default. More-restrictive underwriting standards would lower the subsidy cost of the program but
at the expense of reducing the number of borrowers able to participate."
Sounds like a bank bailout to me!
Wonder if Larry washes his hands after he flushes.
Calculated Risk writes:
safe_as_apartments, there were a few economists shouting warnings from the roof tops - Dean Baker, Paul Krugman, and some others.
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
Best Wishes.
Calculated Risk | Homepage | 06.29.08 - 8:14 pm | #
Yes, and also Barry Ritholtz and Bill Fleckenstein and THIS site, plus a few others. But it was mainly on the blogs, not the MSM.
The economic problem was recognized in 2004 by a few mentioned above, that this 'recovery' was a fake driven by MEW and excessive credit. But, as you pointed out, those who did speak up were politicized, called unpatriotic, pessimists, and were swiftboated. Larry Kudlow (the greatest story never told) comes to mind, but there were plenty other 'expert' economists who demonized those that had the facts on their side. Sometimes the facts are just liberal, I suppose.
I sure wish there was some way to hold those folks accountable...like the guillotine (just kidding, sort of). But no, just like the hawks that led us to Iraq and have zero credibilty, these economists are still given a slot on TV, or are looked to for answers from the MSM, which further erodes any confidence in the old media. Jim Glassman of Dow 36,000 fame still writes for Bloomberg. Go figure.
On the bright side, we now have google.
For the next 30 years it will be easy to find anything a public official, media hack or academic said, wrote, or did for the last 10 that turned out to be insane .
"I assume it is cash in the mattress or gold bars hidden in the backyard?"
No, no, NO! I am not saying that! YOU must evaluate your own 'stand' and determine the starting point. Gold may be good for you, but not for someone else. Your 'position' and 'situation' determines your starting point.
However, the starting point you select must allow maximum flexibility.
mp,I recommend John Boyd's work,it goes a good ways beyond Von Moltke.
it's a f'n bailout to those of us waited/waiting for the bubble to pop when after being told the most dumb-arse things from the agents a few years ago that the RE prices will keep on rising... send some money to first time buyers if you want to really save this mess...
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
Why do we have liberal vs. conservative economists?
It sounds to me like people are more focused on politics than economics.
You can make the same argument about people arguing either way about global warming.
IMO it doesn't do much for the credibility of either side.
"I recommend John Boyd's work,..."
Tom, I implore people to do some kind of planning, any kind of reasonable planning, otherwise they're going to end up in a deep pile of ...
I guess when it comes down to it if economics is simply a vehicle for expressing political ideology rather than a science that deals with real actions and outcomes, we have our explanation as to why everything now is so screwed up, no?
mp.I agree,but if you wish to discuss either tactcs or strategy,no one since sun tzu has been as original or as influential as John Boyd.
ac
yep, The politicization of everything is bad, it just screws everything in the end!
My paternal grandparents fled the dust bowl of Oklahoma and Southwest Missouri during the thirties, Grapes of Wrath style, to pick cotton in California. I'm sure everyone has family (or personal??) stories with the Great Depression.
I'm wondering whether the Depression going on in places like Detroit and the dying rust belt are harbingers of things to come all over the U.S. If so, where will people migrate to pick cotton, so to speak?
Or, as I've suspected for several years, these housing, financial, and economic crises we face are the final nail in the structural adjustment coffin that's turned the U.S. into a complete third world economic model: an extremely concentrated wealthy and powerful ruling class and everyone else declining in living standards, fighting each other tooth and nail for jobs paying half what they made a decade ago. No need for vast migrations. Just vast slums of decaying sprawl everywhere. Sound about right?
I guess when it comes down to it if economics is simply a vehicle for expressing political ideology rather than a science that deals with real actions and outcomes, we have our explanation as to why everything now is so screwed up, no?
That and the fallacy of Homo economicus.
Summers:
"They should also recognise that no one can afford to be too picky about the timing or source of capital infusions and rapidly complete the review of regulations that limit the ability of private equity capital to come into the banking system. "
Is he suggesting that we allow the dark lords of financing (PE) to participate in bank ownership? Scary!
How about Huffington Post, CR? I am sure they must have realised what was going on. They always do. And how many liberal economists realised what was going on with Nasdaq in the late 90`s? Maybe you could come up with a chart. Good luck!
My paternal grandparents fled the dust bowl of Oklahoma and Southwest Missouri during the thirties, Grapes of Wrath style, to pick cotton in California. I'm sure everyone has family (or personal??) stories with the Great Depression.
My paternal grandparents also fled the dustbowl of South Dakota in the 30s and ended up in NJ. My grandmother always said they should've gone the direction everyone else went - which I think was Cal. - but they went east. Anyway, my grandfather was 47 -- my age -- with 4 out of 6 kids still living when they moved to a place they'd never been before. Of course, back then, people had their wits about them.
Whatever works for you, Tom, whatever works.
I implore people to do some kind of planning, any kind of reasonable planning
One of my Plan B's might be to follow you around mp, but I must confess Conjure creeps me out just a bit. My other Plan B involves a space ship. Other than that, I can't think of anything. Drawing a total blank. So I'll just tend my garden and see what grows.
Whenever I think of South Dakota in 1930 I think of Baker, SD.
Ah! Is that a clue?
"One of my Plan B's might be to follow you around mp,..."
No, thank you.
FRIED SQUIRREL WITH BISCUITS AND GRAVY (I've eaten this and it's not bad.)
Fried Squirrel
Crude making some nice headway tonight. Solidifying it's claim on +$140 territory.
How's that for stimulus?
"Some infrastructure investment-- that provides jobs for unemployed construction workers--seems to make sense."
My guess is 90% of those construction workers are already back in Mexico. And even if they aren't, we already have a surplus of housing.
And what would construction workers build, anyway? Dams made out of dry-wall and vinyl siding?
Not only is it a bailout, but the bill rewards the least-deserving borrowers and their lenders-- it is geared to force taxpayers to refinance around 400,000 payment-option ARMs that begin to recast next year. These are borrowers who will get instant, tax-free equity in homes where they never paid a penny of principal. These aren't struggling homeowners but people who engaged in willful speculation of homes worth over $650,000. It bails out their banks, too-- the program is voluntary so the banks will tap their riskiest loans, the ones most likely to default. A haircut for these banks is a lot better than a foreclosure.
The FHA is already floundering under its existing portfolio (over $4 billion in unexpected losses this year) and will require a direct appropriation next year for the first time in its 74 year history. The FHA will not be able to manage the program-- the CBO says 35 percent of the refinanced loans will still default! This thing is a train wreck and will not inspire "confidence" but quite rather the opposite.
CR-- you admire Dean Baker's analysis on housing, you should check out what he says about the bill, he calls is a bailout: "Barney Frank's bailout would mainly benefit banks"
The Meltdown Lowdown (No. 6) | The American Prospect
And, we're up to 16 GOP Senators opposing and we still have a White House veto threat against some of the spending elements.
The market will find a bottom for housing and that is the solution.
ac,
My unsolicited TA take last Friday, that I'm staying with until proven invalid, is that crude (esp. the etf USO) gave a key reversal signal, good for at least a short term top.
USO gapped up above previous day's high, climbed up 2-2.5%, gave up most of the day's gain closing under the previous day's high, all on lighter volume. In candlestick charting it's called a shooting star doji or inverted hammer. Short term tops can always roll into intermediate tops or long term tops, but I'll settle for a 10% pullback. I have no position, btw.
Well boob the first part of planning is realizing "hey, I need a plan"
Me? I am a speck on the economic ladder, just a rung above food stamps honestly.
When I first stumbled on this blog and Ben's blog I figured I was so far down that there would be no way to plan for what is coming.
Then I realized having a series or layering of survival plans for me and my family is a big if not biggest survival step out there.
I have 0 credit card debt, and lined up 3 layers of babysitting, applied and was accepted for low income housing, enrolled in school, and switched my employment to accomodate the school schedule. The kicker? school and work will be across the street. saves lots of gas dollars.
I also have lined up 3 places to share living quarters with if it all goes to pot and I am facing homelessness.
Stocking up the pantry a bit at a time each grocery trip, getting in physical shape, and quitting smoking.
That and trying to develop mental strength and ability to be stoic.
Poor people plans.
But you know what? i am a very large leg up on the people around me that have a bit more on the asset side.
So sit down one of these nights with a favorite beverage and play what if.
What assets do I have?
What abilities do I have?
What are my tolerances for uncertainty and discomfort?
What if I lose my job?
What if I lose my living quarters?
How can i stretch my food budget longer and thinner than my son can stretch a booger?
That is where your plan starts. It will (or should) change as the factors in the world change, or come about as you anticipated, but you have to start somewhere.
Sorry, rambling, but I am tired of the people I live near crying and sniveling about not having enough to plan, so I vented. (not saying you were doing that, just using your post as a mental cleansing point)
One of the weird aspects of the housing bubble was that it seemed only liberal economists noticed what was happening - and they were dismissed as being too shrill.
Why do we have liberal vs. conservative economists?
It is called back up, one set of economists will get a fixation on something and not notice that they have become full of it. Their opponents notice that they are becoming full of it and propose alternatives. Eventually the alternatives will replace the first set and the cycle repeats. Therefore checks and balances happen and the human race advances.
Ya its going to get interesting.
Baker SD made me start thinking about 'electric farm tractors' - something that popped into my head driving out that way (going over the Buffalo Ridge from S Minnesota to Sioux Falls & seeing all the wind turbines out that way).
Why the hell ship all that electricity to the city - use it right there.
Probably makes more sense to build electric farm tractors than it does to make electric cars. Tesla's cost what? $100K? Big farm tractors & harvesters price in that range (tractors less, harvesters more) frequently - probably not a huge problem to make a $100K electric farm tractor.
Plus they LOVE weight - actually add weight to the front of tractors all the time so they don't flip when plowing - so battery weight not a huge issue.
And they don't have to go that far - usually - though somebody trying to plant or pick 2000 acres in a hurry might argue.
Anyway - back to doom & gloom.
Read Moltke, then learn how to plan.
mp:
Yeah, Moltke was a great planner.
But when the following generals deviate from the plan and create the mess called WWI, who exactly knows how Moltke's plan would've worked out?
That said, plan B is a must here. My better half is getting thin on all of the plans in case something does occur...and yes, I think that it will.
"send some money to first time buyers if you want to really save this mess..." CM
Excellent idea. We should snuff all the people who bought homes into the bubble, by giving money away to those who were frugile and didn't buy into the frenzy.
And that's how we should handle any future bubbles. Give money away to those that did NOT participate so they can (after the pop) buy in and stabalize it.
Those that now buy into any bubble are screwed, and those that don't get rewarded. It kind of opens up a new way of thinking about where to invest. When something starts to go up too quickly, people would get out so they be the ones to receive the money if it pops. It's kind of a self-balancing mechanism.
Ok so what exactly is the starting point: I assume it is cash in the mattress or gold bars hidden in the backyard? Both have sever drawbacks...particularly the cash in the backyard...interesting analogy, why is it everyone deferes to military strategy. sun tzu tactics without strategy is the surest way to failure strategy without tactics is the slowest way to success. Perhaps you could share with us how one should think about a starting point. WOuld be interested to hear.
Well, at least the world isn't ending tonight. Asian markets jumpy but going nowhere in particular, except for some gains in Aussieland.
Gold trading in a tight range, no surprises. If the plug's being pulled tomorrow, nobody gave Asia the word.
dryfly writes: Probably makes more sense to build electric farm tractors than it does to make electric cars.
Not only does it make sense it's exactly what the country needs for something like sustainable farming. So of course it'll be done only when it's too late, or after that. But I've read a lot of people advocating similar ideas on the doom&gloom'R'US The Oil Drum. I bet the vast majority of people don't know electric farm tractors exist. Maybe this could be your investment legacy.
My paternal grandparents fled the dust bowl of Oklahoma and Southwest Missouri during the thirties, Grapes of Wrath style, to pick cotton in California. I'm sure everyone has family (or personal??) stories with the Great Depression.
Not quite the Great Depression, but maybe worse. My parents left Vietnam as boat people with 3 kids under the age of 8, and my mother pregnant. For two years, we lived in a refugee camp in Indonesia, where my younger brother was born; there my parents learned the true meaning of hunger, resolve, and resourcefulness. Strangely enough we landed penniless in the reddest of red states, in a city that is heavily divided by the politics of race.
So for 28 years they busted their ass (15+ hours/day for 7 days a week) and saved every discretionary penny the earned to buy "things that produced stuff" (dryfly, some people do get "it") or education (30 years combined of college), never once asking for a government handout or complaining about taxes. On the eve of their retirement, they've saved more than enough to live comfortably anywhere(preferably not in the US, but Vietnam is much much worse). Instead, they continue to work, not for themselves, but to make sure that the four of us don't get swept away in this madness.
Sorry for the OT rant, but it kind of saddens me that two non-educated college people (which evidently is a "code word" these days for racist or ignorant), who came to the US penniless not knowing a word of English, get "it", while most Americans are still clueless about the bitter medicine that they need to take.
Present company excluded, of course.
oops. should be, non-college educated. that JD going to waste.
Damn. I need to have a stiff drink and reread Studs Terkel.
Maybe we should just threaten to monitize the debt. Yup, paid you all off today. Hurry up we're all going to the bank on Monday to trade our green ones in for pink ones. ou'll need your proof of U.S. Citizenship to exchange cash and convert your acoounts to pink ones. Oh, you can't make it to the bank by Monday from Tehran, Dubai, and Mecca? That's a damned shame. Don't tell me we're powerless.
"Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
Aaaaahahahahahahahahahahaaaahahahahahahaahahahahaha
gasp
hahahahahahahahahahahahahahahahahahahahaahahahahah...
This chart
Nothing like them fiscally responsible 90's. Veritable victorian age of financial restraint at both the individual and public level.
Apparently "fiscally responsible" means "a levered credit boom in technology" and "fiscally irresponsible" means "a levered credit boom in real estate." Good thing there wasn't any relationship between the two.
Cheers,
prat
I really don't think he's got a clue what to do. The idea that we can alter the price of oil is absurd; that is NOT in our power. And pumping more money into the system won't solve the SOLVENCY problem, as Roubini has said. The US is in for a excruciatingly painful lesson and it richly deserves it in my opinion. It should be painful enough for the lesson to stay learned for decades the way the Germans learned about inflation from their experience in the 1920s.
During the Depression, my father was already in CA, to be specific in San Diego, and was working in a restaurant as a cook. He escaped the depths of the Depression by having been very frugal with money and having been at the same job for many years when the Depression hit. He became the owner of a restaurant by the late '30s. He also lived with relatives until he could buy his own place (he never had a mortgage, always paid cash for his houses).
"Many of the critics have labeled it a $300 billion bailout - it's not."
OK CR.
So it isn't a $300 billion bailout. But it is a bailout. If it wasn't, then why would it be needed?
Furthermore, the cost of said bailout is currently unknown. Those estimates of costs and such along with $1.85 will get you a Grande coffee at Starbucks.
I personally am pretty incensed at the bailout. I pay taxes. I get no home mortgage deduction, I get no capital gains exception. I get no FHA Secure financing, or help from Hope Now Alliance. I get no cancellation of debt discharge taxes. I just get reamed, year after year, because I refuse to purchase a home for my family that is grossly overpriced.
Not being a bank or IB, I don't get access to the easy funds from the Fed. But I get to watch as inflation rips up the value of my savings and salary.
All crimes committed against decent citizenry by none other than the government itself. In broad daylight no less.
A lot of people chose to avoid the financial calamity because they recognized a bubble, and sounded the alarm. What do such people get? A medal and a stick up the rear?
Government officials love to talk about family values, the "definition" of "family", and yadda yadda. But in reality the government is doing all it can to burn real families at the stake, while honoring, rewarding, and glorifying the speculators and idiots.
If I loan a chunk of money to my drug-addicted jobless deadbeat friend, can I expect the government to come and buy the debt for $0.85 on the dollar? No? Then let the lenders shove it up their asses. Seriously. Let them shove it up their asses. I wasn't calling for government intervention when I saw the credit and housing bubble years ago. I sure don't want the government intervening now.
"We're from the government and we're here to help."
Seriously, tell the lenders to stick it where the sun don't shine.
We are just one political event (Iran) away from 200+ oil and a stock market crash.
With things a fragile as they are, this would be the "straw".
Guys how does it work in this country when it comes to studying economics? Is it something like:" Those of you who had a rough childhood or are on antidepressants take two steps to the left". I am kind of confused. I thought economics was some sort of a science. I didnt know it had something to do with ones mental problems. Live and learn, I guess.
Instead of knocking the hot air out of the ballon, Summers wants to pump even more hot air into the ballon, making an even greater blast when the ballon bursts.
"We're from the government and we're here to help."
where's shnapps?
that prediction
"making an even greater blast when the ballon bursts"
Uhhh, c'mon... it's a souffle. The air is gently coming out. Get your metaphores straight.
Well, we spent roughly a half century horsing around propping up a central system of fiat money, one shouldn't expect such, er, bankrupt thinking to disappear overnight. Let's have us a solution of central fiat money to fix stuff.
Nobody knows how the endgame plays. But at least let's call it an endgame, shall we?
Homedad, please don't confuse Moltke with Son of Moltke.
They're two very different Moltkes.
I thought economics was some sort of a science. I didnt know it had something to do with ones mental problems. Live and learn, I guess.
Yeah, you can do math out the wazoo but at some level, I tend to equate it to Hari Seldon's math from Asimov's Foundation Trilogy. Trying to predict the behavior of masses of people with mathematic certainty.
Just too many different takes on the same set of circumstances:
It's a bailout.
No, it's not.
Yes, it is.
Good luck with that.
They're two very different Moltkes.
You've got me there.
I'll check up on it in the next day or so. Wasn't aware that Dad Moltke did anything great since I have little interest in 19th century German history.
Of course, I'm not French...
How many words in the essay would you like?
BTW...this newfangled clock of yours. Precisely how is it different from its earlier version again?
Broker | 06.29.08 - 11:33 pm
Economics is a "science" the same way intelligent design is a "science". How much of a science can it be when they make up numbers to satisfy the predetermined outcome of their "experiment"?
If you didn't have a "rough childhood", I wouldn't go taunting those who did. You wouldn't like the schooling they'd give you. Left? Probably. The right never gave them anything (not even an MBA from Harvard).
A level playing field is coming. Are you ready?
It's not enough for just the FED to screw us on this whole credit debacle. Congress has to get their sorry butts in on the action too.
Page Not Found - AOL News
And if the whole credit stuff wasn't bad enough, this...
We are just one political event (Iran) away from 200+ oil and a stock market crash.
Not to mention an monster currency crisis if the dollar resumes it's downward spiral.
We'll get to see an interesting test of various theories regarding markets coming up -- will the markets really dictate monetary policy in the end?
Is the Fed's control really an illusion that's maintained only in times of prosperity?
The markets know that nothing builds character like a good deflationary depression.
Nothing wrong with Joe Six Pack that a few years fighting to survive on the streets won't fix up right quick.
Might even turn him into a good moral God-fearin' man of the sorts who contributes to social order, not tears it down for his debauches and indulgences.
All these economists have lost touch with reality and morality having hidden behind their ivory walls and platonic ideals of academia.
Sure they mean well, but their naive idealism makes them the ideal puppets of those dark forces lurking in the shadows.
Set the land afire with the purifying flames of deflation.
All will be well in due time.
Oh, and short bucky.
It's not enough for just the FED to screw us on this whole credit debacle. Congress has to get their sorry butts in on the action too.
Better load up on "groovy lube".
It's too bad Harry Browne didn't live to see this. He'd tell us how to profit from the whole mess.
Why do we have liberal vs. conservative economists?
It sounds to me like people are more focused on politics than economics.
ac, you win the prize.
It's always been about politics.
Who wins, who loses.
Us and Them.
With . . . Without
And who denies it's what the fighting's all about.
YouTube - Pink Floyd - Us And Them
Set the land afire with the purifying flames of deflation.
All will be well in due time.
Oh, and short bucky.
Ummmm, why would you 'short bucky' if you believed in 'deflation'?
I have to take credit/disdain for that last post by anonymous.
Thought I was signed in.
Ummmm, why would you 'short bucky' if you believed in 'deflation'?
Dryfly, why you always gotta ruin the fun?
Dryfly, why you always gotta ruin the fun?
Cause I have Norwegian ancestors and Norwegians hate to see anyone having fun?
"Sorry for the OT rant, but it kind of saddens me that two non-educated college people (which evidently is a "code word" these days for racist or ignorant), who came to the US penniless not knowing a word of English, get "it", while most Americans are still clueless about the bitter medicine that they need to take."
No apologies necessary, insofar as I'm concerned. Your "rant" is very much "on-topic."
I'm sure you honor your parents.
You KNOW why they get, and so do I.
This piece by Summers is disgusting - where is the penance, the contrition the recognition of a system gone wrong for a loooong while now ? instead, its another bailout without a shadow of a doubt - but smothered with systemese lingo to put the necessary distance between the now and the final steps - when the govt has to take enough of the insolvent institutions into their embrace, make enough holders of their as whole as possible for them to trust the whole shebang again..
And who will pay for this ? not the totally poor - they have no money - not the really rich - they are the ones OWED the money and who will be made partially whole - it will be the ones in the 100K to 2M assets ( excluding the housing distortions) bracket ).
The gall of it all is what's getting up my nose most of all - YOU screw it up and I pay ? NO WAY !
And I surprised at CR at this:
I haven't commented very much about this housing bill. Many of the critics have labeled it a $300 billion bailout - it's not. The cost will only be a small fraction of that amount, and the bill will probably be inconsequential.
I don't doubt that it is inconsequential but these guys in Congress have got to get real - ignoring what they are doing since its inconsequential is no doubt good for my blood pressure and my wallet but its NOT good if we really want to fix the system. They have to stop pretending to patch the system but instead admit that it broke for the all reasons so familiar to the reader of this blog - a govt heavily in debt and going to continue to be so; a populace with really poor balance sheets - an education system that seems to denigrate excellence - a corruption of the civil service political neutrality ideals in all branches of the bureaucracy and most of all an Empire mentality that is quite unsuited to the parlous financial state we are in. If people won't think with their morality at least they can think with their wallets.
This article is utter shit.
-K
Here's your inflation :-
YouTube - ShadowStats.com founder John Williams on M3 Money Supply
So far it's mostly overseas, but it'll come back, give it a lil time.
"making an even greater blast when the ballon bursts"
Uhhh, c'mon... it's a souffle. The air is gently coming out. Get your metaphores straight.
-barely
Silent but deadly? LOL
. . . ignoring what they are doing since its inconsequential is no doubt good for my blood pressure and my wallet but its NOT good if we really want to fix the system.
K, ignoring them is good for the blood pressure, but not so good for the wallet. They do it and we pay for it. The banking system will be saved. Cost is no object to them.
Which is why I'm going to have another drink and listen to more Pink Floyd.
The best thing the government can do is get out of the way. Let the malinvestment dissappear.
Get rid of the Federal Reserve and the IRS.
rsj | 06.29.08 - 11:11 pm |
For those of you who have never tried to plan, check out rsj's comment. He has his act together.
The only hope they have is the on going ignorance of the American public.
BB,
That John Williams interview keeps showing clips of paper bills printed. That's M1 (plus checking and savings accounts)- his chart showed M1 contracting, as well as rising rapidly during the double digit inflation of the seventies/early eighties.
M3 has been shown by many analysts to not correlate well with anything, including inflation. Also, the interviewer probably avoided asking Mr. Williams about his consumer price level statistics, which show the U.S. having been in a contraction for several decades. His statistics are invalidated by simply looking at tax receipts. He's a total fraud.
M3 has been shown by many analysts to not correlate well with anything, including inflation.
The ones who also say no recession or credit problems? There's a difference twixt little correlation and hasn't in the past shown...
On money supply, here's one from a real doomer: Money Supply Trends Are Deflationary
Mish's Global Economic Trend Analysis: Money Supply Trends Are Deflationary
or on Money Supply and Recessions (damn you permalink!)
Mish's Global Economic Trend Analysis: Money Supply and Recessions
Tough crowd tonight. If anyone is currently on anti-depressants please don't skip them.
As far as planning goes the best plans start with no debt and having savings that you don't need to keep in an account. The ultimate hedge is a good education or skill set as you should be able to earn it back faster than those who simply fell into wealth(real estate). I think a lot of people went into the Depression with little more than a job and came out the other side pretty good as long as they held that job. Perhaps a Depression will create something of a meritocracy?
mp writes:
"...you have to think in terms of 'sustainability' and 'survivability,' and in every sense of the words. If, for example, the world economy is about to take a deflationary nosedive, you must be prepared to conserve (hoard) your assets."
I'm following my 2 hypothetical homeowning families who each had 10% equity as of May 1. Family 2 is paying their mortgage and RE tax, while family 1 is 'staying in', not paying either, but saving the total, and in 11 or so months will get to look at their equity and the trend of prices, and decide whether to use the cash to get current and stay, or keep the cash , go rent, heal their credit dent and buy later in a lower-priced market.
Wondering which family will have done the best job of conserving assets?
stop the deflation inflation nonsense already, that topic has been beaten to death.
Everyone agrees that credit crisis is a deflationary force.
Inflationists simply believe that government (FED) response would be an even larger inflationary force.
So far Bernanke is not really disappointing.
frankly, I do not feel so bad about the most recent homebuyers who made no investment and act like and are treated like its "their home" they are losing.
I do not feel too bad about the mortgage brokers now out of work as they ripped the system for 3-4 years. Dont feel ssorry for the banks and lenders.
I feel for the folks who played by the rules (followed the sprit of the law and letter of the law) and are about to get screwed under any scenario either by higher taxes, deflated dollars, deflated home prices.
But then again, I am preaching to the Choir.
Commodity based inflation does not require a monetary response.
That is all.
For infrastructure investment targeted on short-term stimulus ...
how about federally guaranteed loans/grants/programs for energy efficiency home-improvement...expand the weatherization program by a factor of 100X? Might help the price of oil/gas a bit, too.
Appropriate steps include...measures to promote the use of natural gas
The natural gas that has risen 70% in cost in twelve months?
Are the stats wrong? Is the data faulty? Are our interpretations of it wrong? Is the FED doing the right thing? Must bailouts continue to prevent a systemic collapse? Ultimately only time will tell. Thanks for all the links guys, keep em coming, i need more info even if it contradicts.
Here's my take, the FED will not raise rates anytime this year and creative bailout or much needed stimulus, depending on which side of the camp one is on will be employed and deployed continuously until there is a recovery in financials or there is a systemic collapse whichever comes first.
What this means is a dollar value decline that continues. Maybe we will see an intervention but it's too early to tell now. So do what you have to. And good luck in all that you do.
The only stimulus package that would work would be to reward those that are fiscally responsible.
large caps into small and mid, it has longer-term bullish implications and doesn't bode very well for the masses
who seem to be looking for 1300 on the S&P. I noticed even the bullish Carl Futia has joined the 1300 fray
recently. With so many wanting a major selloff from here odds are it will be a minor one.
Very interesting video: Will the market crash???
http://youtube.com?watch?34343hjih
What to worry ?
Kim can sell us many tons of fresh
U.S. fiat currency at half price.
Now get some sleep.
Yeah! More government! Wheeee!
My personal suggestion would be to hand over the Fed, the Treasury, and the US budget to a Star Chamber composed of the heads of the top ten IB's and banks on Wall Street. At least that way, we know they aren't bribing congress.
And, just make Cheney VP for Life and Secretary of War (don't laugh, kiddies; go google War Department. It wasn't that long ago).
And make it mandatory for every citizen earning less than one million a year to hand over everything they have to the Star Chamber for redistribution.
mp writes:
rsj | 06.29.08 - 11:11 pm |
For those of you who have never tried to plan, check out rsj's comment. He has his act together.
mp, rsj is a her, not he,...otherwise I agree.
Take away or recover from all the 'isms' A to Z. That's the answer. All the isms take away your liberty, enslave you, even kill you. But there's the agents and true believers who operate within their group of followers, adhering to their their tribal ways and prejudices.
Now we know communism doesn't set us free because the powerful use the social organization in this belief-system as a way to dominate the masses. Where is Zionism or the Neo-cons taking us now? What will socialism give us? Impoverishmant and tyranny. Why do we believe in systems that take our liberty and freedom away?
All of the isms destroy democracy for the sake of narrow goals and social stratification or a toxic class system. Who are the believers in the Project for a New American Century? Will this project give us liberty? Think about the ideas and fanaticism that are deconstructing and destroying America and the hope of majority rule.
""Fiscal stimulus measures must be coupled to budget process reform that provides reassurance that, once the crisis passes, the fiscal policy discipline of the 1990s will be re-established."
They still ran big deficits in the 1990s (except at the very end), once you subtract the big surpluses from the Social Security trust fund.
Anyway, this kind of advice is naive at best. It's akin to suggesting to an addict that it's okay to take another shot now as long he promises to be good five years from now.
Summers has no ideas and is more of the problem rather than the solution.
M3 has been shown by many analysts to not correlate well with anything, including inflation
Anonymouse,
They didn't look at long enough time-series. In long term, the correlation between money supply and inflation is very high:
http://www.europarl.europa.eu/comparl/econ/emu/20061220/kraemer_en.pdf
http://minneapolisfed.org/research/QR/QR1931.pdf
When I was in college my father told me about the Great Depression. Said that while money became worthless, the flip side was prices deflated to affordable levels so you could survive even with a worthless currency. As fate would have it, I'm completely in cash these days waiting for prices to crash. Hope my old man was right.
rsj, from a fellow stumbler, great post - best wishes -- keep us updated! And can't be said enough: Thank you CR and Tanta for warning early.
"Why do we have liberal vs. conservative economists?"
Imagine if we had liberal vs conservative chemists.
Conservative chemist: Just allow those free radicals to react.
Liberal chemist: No, let's throw in some free radical traps to control the reaction.
Oh, by the way, on solvency, dimethylsulfoxide (DMSO) is about as close as you're gonna get to a universal solvent.
dryfly,
Another alternative to the electric tractor is the hydrogen tractor... you use elctricity from a wind turbine to split water and you collect the hydrogen (there is a little company down in Algona, Iowa, that will sell you a Ford engine converted for hydrogen). Of course, handling a gas like hydrogen is no simple job. Ammonia also has potential. (NH4 has more hydrogen than hydrogen does).
mp wrote: However, the starting point you select must allow maximum flexibility.
And for me that means borrow all the money you can at long term rates that you can and will be able to service, move it off shore to countries that have real money and don't punish savers, then wait for the democrats to pull an Argentina and inflate the long term debt away. Count the votes...savers maybe 20% of votes...people up to their ass in debt...maybe 80%...a democratic or republican president (economically mostly the same) and certaining a veto proof demokratic congress and guess who their going to use the tube of KY on...the savers.
we also offer many untimate solvents. Some are on sale in aisle 4.
Aheadofthecurve wrote:dimethylsulfoxide (DMSO) is about as close as you're gonna get to a universal solvent.
Right on! What a dipole moment! DMAC or DMF ain't bad either.
El Cliffo wrote:
Coinciding with the prophecies of doom from The Royal Bank of Scotland, Fortis, Barclays, and Roubini is the evangelicals' prophecy of earthquake-related mayhem on July 8, 2008 in San Diego.
Speaking as evangelical who appreciates a little bit of symmetry in my doomsday, I think it'd have a much nicer ring to it if it was moved back a month.
Oh, by the way, on solvency, dimethylsulfoxide (DMSO) is about as close as you're gonna get to a universal solvent.
Hmmm. Oysters.
In other words, elect Democratic presidents and filibuster-proof Congresses for the next few decades.
You're out of your friggin' mind, man. Filibuster-proof = spend like a drunken sailor.
Dire Straits "Industrial Disease"
YouTube - Dire Straits - Industrial Disease LIVE '86