Well, it's very simple --- if you had to regulate unfair lending practices, is that so hard to do without being concerned about whether or not something is an asset bubble?
I don't think significant asset bubbles are really that hard to identify.
Could you elaborate? Other than, "I know it when I see it", can you specify actual rules or procedures that the central bank might adopt?
For housing, sure, you have price/rent and price/income and so forth. But the next bubble won't be in housing... So how do you identify them in general?
For example, could the Fed really tell the difference between Peak Oil (if/when it happens) and a speculative bubble? How?
I've got CNBC on behind me, just thought I would keep everyone in the loop. Cramer is spending a long time arguing about Dollar Tree vs Family Dollar. It's quite humourus
Problem- the number of people with a vested interest in keeping the bubble going is too great.
Imagine the joint uproar of the all the free marketeers, wall streeters and the NARs/ACORNs of the world if anything was done interfere with the housing market in 2005-2006.
CR writes: I don't think significant asset bubbles are really that hard to identify.
Was oil a bubble at $147? Sure. At $120? Yes. At $95? Almost surely. At $85? Probably. At $75? Aye, there's the rub. Is $75 oil a bubble? What about nickel at par with the metal content of nickels? Pennies? Ahhh... but Eagles? See? Commodity bubbles are slippery critters.
Since asset bubbles are "easy to identify" could you please tell us if plutonium and lumber and tech stocks are bubbles or not.
I'm not busting on you here. It is just that "bubbles" are not all alike nor are they all easy to identify.
Recent bubbles have been enabled through the wonders of securitization. So either force the desk level employees to have some kind of direct stake or bonus derived from the lifetime performance of the security, or keep tabs on the banks' financial statements and review the areas of biggest growth for new regulation to guide the feedback loop away from overexuberance.
Or to take my radical idea, institute several baseline interest rates to avoid situations like the tech bubble spinning off into the housing bubble
Managed economy, here we come. But it's lateness may be an overreaction. The pendulum swings one way, then back the other way. How will they find equilibrium? Overshoots are us.
was there any doubt we were in the Tech bubble? or the housing bubble? the excuses just got harder and harder to believe.
I agree with you that it would be hard to figure out most bubbles, but significant bubbles may be easier.
as example: the chinese noticed 2 bubbles and acted to preempt them
1) property bubble in shanghai
2) stock bubble.
why couldn't our Fed do similarly?
Another thing:
the Fed would in theory be limited to fighting asset bubbles using Fed tools... which would be reserve ratios and lending requirements etc.
It would seem impossible for the Fed to do an action that would reduce oil prices when we do it the "true" peak oil. but I could be wrong.
"warned that the banking business may be concentrated in too few companies."
Then why do you keep doing what you are doing Ben & SHeila? Idiots!
Fast forward 2 years, Ben B speech....JPM and WFC both go under...if only we had a way to identify if an entity was too big to fail, we would surely do something about it!
Realizing that precedence isn't causality, I do, however, remember that the Roman empire suffered with each debasement of its coins. It did enjoy a brief renacence when one of the later emperors reversed -- partially -- the debasement.
It's too late to protect against asset bubbles. On Tuesday, August 6, 2008, Ascendia Brands (the company that makes Mr. Bubble) filed for bankruptcy protection.
I kinda love how reality is stranger than fiction.
Yes oil is a bubble. Oil will be at $30bbl once the hedge fund and GS stakes are unwind...meanwhile they get away with stealing millions from working class americans and then get a bailout...
@serf hopeinsd is correct. The housing bubble was known by virtually anyone with a brain. Even my 73 y/o high school educated mom knew it was a "significant bubble". She must be smarter than Greenspan.
Our politicians like bubbles. Keeps them in office as their planning horizons are typically 2, 4, or 6 years.
The notion of pricking a bubble should be replaced with how FED manipulated interest rates create bubbles in the first place. However it seems that would never, ever happen.
As @discombobulated capitalist states "Overshoots are us." Hedge yourself accordingly.
How about "some bubbles are easy to identify"? And the housing bubble was identified by smart people who identified it's causes, reasons why it could not continue indefinitely, and what was going to happen to it. Sometimes being right about what will happen, and the details of how it will happen is more than a matter of luck. It comes from understanding the situation, even if that understanding can't be distilled into a simple metric or set of rules.
On the other hand, I'd agree that identifying when a bubble will break is difficult, if not impossible, though I could still be wrong on that.
Central Planning has always worked so well. I suggest that he start with the ethanol and alternative energy bubbles. And these arrogant personal computer companies needed puncturing a long time ago along with the software companies.
Charles McKay:
"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one!"
I think Bernanke should go back to his office and be quiet. Seeing that consumer spending is 70% of the US economy and consumer spending has been in a speculative blow off bubble top for a decade, targeting that bad boy may be a non starter! The easiest bubble to see right now is the bubble in bailouts and Boom Boom Bernanke is plowing full speed ahead in growing that one.
If the bursting of an asset bubble creates economic dislocation, then preventing bubbles might seem an attractive goal. But whether incipient bubbles can be detected in real time and whether, once detected, they can be defused without inadvertently precipitating still greater adverse consequences for the economy remain in doubt.
Yeah, we pretty much know now that they are creating greater adverse consequences by meddling in a free market.
Elvis writes:
This is my question that has been baffling me for over a year. What is the deal with WFC's Alt-A porfolio? Why haven't they blown-up? Did they effectively pass all their trash for cash at the Fed Window and are lean and mean now? Or are they just good at hiding their crap and will imminently reveal it?
Elvis | 10.15.08 - 6:28 pm | #
Elvis -- from the previous thread -- What Alt-A portfolio do you speak of? My understanding was that they hold relatively little 1st mortgages on their books. Home Equity line & loans in CA are a ticking time bomb. Their subprime mortgages through Wells Fargo Financial were all fully documented & based on ability to pay.
The more important point in CR's excerpt is the part about the size of banking institutions. We can gripe all we want about how recent actions seem to contradict his statement. The fact is that in the short run, there was/is no choice. Repealing Gramm/Leach/Bliley and reinstating Glass/Steagall isn't a weekend's work, though it's probably necessary.
It's been posted here before, but I think it's probably useful to repost a socialist's view:
Would but we'd had Bernankie as fed chief circa 1996 and Greenspan circa 2006.
I think Greenspan had a more or less favorable opinion of asset inflation particularly when it was accompanied by wages growing at or below the "CPI". That played a significant role in the transfer of wealth to the haves between 1982 and very recently, both for the assets as well as for executive compensation. And any time the fed detected even a modicum of wage price pressure, the FED would tighten and the stock market would faint, to reinforce the notion that wage inflation was a very bad thing.
Now we are faced with assets that are significantly overpriced compared with median wages, during a credit crunch.
I don't think Ben has much to worry about in terms of popping asset bubbles, the recently demised commodity bubble nothwithstanding. And in fact, perhaps it would be best to simply leave the subject alone until housing prices find an equilibrium. Though they remain inflated relative to incomes, I don't think we need to have any official corrective action, unless it is to elevate wages towards an equilibruim with current prices. But perhaps that's a part of why the FED is spewing $Trillions of bucks into the global economy, though hopefully it doesn't just result in price inflation without accompanying wage gains.
I agree BB that is a puppet . He is too intelligent to do this under his own free will.
" Whereismyretirement writes:
Does anyone get the feeling that BB doesn't agree with what Paulson is doing and is making that known, however gently?
Whereismyretirement | 10.15.08 - 6:41 pm | # "
Your rules would not have prevented the bubble in tech stocks in the 90s.
Everyone who says "my grandmother knew it was a housing bubble" are missing the point. The next bubble will not be in housing. And whatever it is, I guarantee there will be smart people who say it is a bubble, and smart people who say it is not a bubble.
It is not at all clear (to me) that asset bubbles are identifiable in general in real time. Policy makers need rules. So I ask again, give me a rule that will distinguish Peak Oil from a speculative bubble in oil.
There's nothing the Fed could do about a bubble even if it discovered one. The Fed can lower interest rates, but it can't dictate where money gets spent. Witness the late 80s housing bubble. Interest rates were double digits at that time.
What could Bernanke do about GSEs, tax policy, lax regulation, fraud, and corruption? Nothing.
It's only a matter of time before gold is declared a bubble and the Feds seize, fix price, I mean pop it for the good of the economy.
Max Pruss | 10.15.08 - 6:48 pm |
Depends if you enlarge your view. From 1980 to 2007 the US National Debt to GDP increased from 150% to over 350%. In that context, if America must de-lever, then Gold is a lead indicator of a bubble unwind
Commodities are not necessarily a financial bubble, although they are clearly a racket (especially oil).
The significance of a financial bubble probably depends on the amount of leverage or credit being extended based solely on anticipation of future appreciation rather than any prospect of repayment from earnings.
Commodity contracts and derivatives are just big enough to allow for manipulation of prices to rip off consumers (and sometimes producers).
I think Fed can safely ignore Beanie Babies bubble (and commodities) but housing and to less extent stock market bubbles are dangerous because these are huge relative to GDP. The housing bubble is easier to control because it is almost exclusively with borrowed money and Fed controls the banking system. Interest rates are not the only tool and the bubble would have been prevented (or at least muted) if just the income had been verified and DTI ratios kept within reasonable limits. There is actually no need to decide whether there is a bubble or not. Just enforce those minimal standards.
Charles McKay:
"In a constitutional monarchy some surer means would have been found for the restoration of public credit. In England, at a subsequent period, when a similar delusion had brought on similar distress, how different were the measures taken to repair the evil; but in France, unfortunately, the remedy was left to the authors of the mischief. The arbitrary will of the regent, which endeavoured to extricate the country, only plunged it deeper into the mire. All payments were ordered to be made in paper, and between the 1st of February and the end of May, notes were fabricated to the amount of upwards of 1500 millions of livres, or 60,000,000l. sterling. But the alarm once sounded, no art could make the people feel the slightest confidence in paper which was not exchangeable into metal. M. Lambert, the president of the parliament of Paris, told the regent to his face that he would rather have a hundred thousand livres in gold or silver than five millions in the notes of his bank. When such was the general feeling, the superabundant issues of paper but increased the evil, by rendering still more enormous the disparity between the amount of specie and notes in circulation. Coin, which it was the object of the regent to depreciate, rose in value on every fresh attempt to diminish it. In February, it was judged advisable that the Royal Bank should be incorporated with the Company of the Indies. An edict to that effect was published and registered by the parliament. The state remained the guarantee for the notes of the bank, and no more were to be issued without an order in council. All the profits of the bank, since the time it had been taken out of Law's hands and made a national institution, were given over by the regent to the Company of the Indies. This measure had the effect of raising for a short time the value of the Louisiana and other shares of the company, but it failed in placing public credit on any permanent basis."
When the Government purchases ownership stakes in business and raw material goods, then sets values based on what is right for the nation, we have devolved into National Socialism. Good thing we have a charismatic leader coming along to complete the parallel lines.
Krugman would not have time to post tonight, he is getting ready for to watch the debates and get all excited about a democrat super majority in the congress so we can all have a wonderful golden age!
"Your rules would not have prevented the bubble in tech stocks in the 90s.
Everyone who says "my grandmother knew it was a housing bubble" are missing the point. The next bubble will not be in housing. And whatever it is, I guarantee there will be smart people who say it is a bubble, and smart people who say it is not a bubble.
It is not at all clear (to me) that asset bubbles are identifiable in general in real time. Policy makers need rules. So I ask again, give me a rule that will distinguish Peak Oil from a speculative bubble in oil."
History shows that every major financial crisis world-wide has been precipitated by a real-estate bust.
You are correct that my rules wouldn't prevent all asset bubbles. But they would have prevented the biggest of them all, the real-estate crash.
It has also been proven over and over that transparency at a minimum slows down asset bubbles and makes them clearer a lot sooner.
They only have to look for bubbles in important asset classes. Who gives a crap if truffles go through the roof? But if oil, major food crops, or housing do, than that affects everyone and should be deflated if possible.
"History may be written by officials, but it is the emperor in whose reign the history is written who is finally responsible, and it is he who will be blamed by posterity if there are distortions and errors..." [translated by Jonathan D. Spence]
I'm almost tempted to believe that PRKrugman53 is actually Paul Krugman. How many knew that he had Robin as a middle name? Hmmm... Maybe. I said almost tempted.
Why are we discussing what bubble is next? What the interest rate will be?
Aren't the events and actions taken unprecedented and irreversible? The very underpinnings of our country have been shorn away. Rules changed at will, laws broken or ignored. Tax payer money given away with no congressional oversight. The US has been sold, we are just waiting for the owner to make themselves known.
My histrionics are getting to me. Someone talk me down and refer me to a historical precedence that illustrates a nation that went to the edge and made it back.
Limit leveraged assets, bets, cash to a smaller number 7 to 1. That would keep excess capital from flowing to one single market. That is still highly leveraged in my book but a hell of a lot better than the current model of 30 or 40 to 1. Just an ignorant appraiser spouting off. Let the educated econ banter now continue....
Everything I have learned from this site tells me the stock market today is the result of hedge funds and leveraged entities selling on margin calls. If I am right the market will oscillate at the current level and then gradually go down to 7000.
From the FED website FAQ one of their primary responsibilities is to promote financial market stability. What else is there to understand? If asset bubbles or any other condition produces a financial market instability then it their duty and responsibility to address the problem.
It's easy to celebrate the man and his pedigree. We all know that Ben Bernanke is a solid economist, with impeccable credentials from many of Americas greatest universities. Leading academic journals are filled with his contributions.
But that background begs the most important question of all: What we don't know is Bernankes ability to provide institutional leadership for a central bank that is facing a unique confluence of domestic and international imbalances--the asset-bubble-current-account nexus.
Every Fed chairman that I ever worked with or observed over the past 33 years has had to face circumstances that he was unprepared for.
snip:
Like his predecessors, Ben Bernanke's skillset has not prepared him for the challenges he faces. Credentials don't make for a good Fed chairman. History tells us that it's all about learning on the job and coping with indoctrination under fire. The great irony for the Fed is that Alans Greenspan's legacy may well be Ben Bernanke's albatross. Forbes.com - Magazine Article
EvilHenryPaulson writes:
I've got CNBC on behind me, just thought I would keep everyone in the loop. Cramer is spending a long time arguing about Dollar Tree vs Family Dollar. It's quite humourus
.....
I heard him pull out dollar store vanilla wafers. "See they're the same thing. Who can tell the difference."
Pissed Off In California writes:
There's no need to pre-empt bubbles. All that is required is:
a) All mortgages require 20% down, 36% DTI, documented income...
Words of wisdom. I would only add that amortization period be capped at 25 years. Can't afford the monthly payments on a 25 year mortgage? Then you can't afford the house. Buy a cheaper one.
Why did we throw simple logic out the window? Greed, I guess...
aleister perdurabo writes:
Someone talk me down and refer me to a historical precedence that illustrates a nation that went to the edge and made it back.
A large part of the problem may be an unhealthy fear of a recession or down-turn. After the dotcom bubble and 9/11, Greenspan lowered interest rates and kept them low for a long time, which fueled the housing bubble. It seems that that same fear is operating today -- fear of a down-turn -- althought today's fear may be more warranted than the earlier fear. This comes, I believe, from the Fed's psychotic view that it can control the economy.
shadowjack62 - Thanks for the reference. Maybe Krugman would be so kind as to get Bernanke on here, his education on the depression seems rather stale according to his recent speeches
EvilHenryPaulson writes:
I've got CNBC on behind me, just thought I would keep everyone in the loop. Cramer is spending a long time arguing about Dollar Tree vs Family Dollar. It's quite humourus.
Why do you watch that trash? I'd rather watch the Hinterland Who's Who channel.
"China can target bubbles because their population is poorly armed poor people. The government here does not have the same luxury."
A billion people don't need much more than rakes when they get pissed off to overthrow a government. China has a history of porrly armed poor people throwing off their oppressors.
To fight an asset bubble, the Fed would RAISE interest rates.
Perhaps the Fed cannot force banks to lend, but it can certainly prevent them from lending.
Can they really? Really? What about non-regulated capital? Wasn't that the whole purpose of an "Investment Bank" to begin with?
I just don't think it's that simple. This bubble was the result of decades of poor public policy. Cheap credit wasn't enough for this to happen. You needed poor lending standards, ratings agency fraud, and regulatory inaction to get where we are today.
theyieldcurve,
I don't have eyes in the back of my head, the TV is behind me. I leave it on mostly to see the live press conferences, and hear the info the Fed/Treasury leaks through them
For housing, sure, you have price/rent and price/income and so forth. But the next bubble won't be in housing... So how do you identify them in general?
For example, could the Fed really tell the difference between Peak Oil (if/when it happens) and a speculative bubble? How?
Good questions. In the recent bubbles, all kinds of experts were assuring us that sound fundamentals were pushing prices to the sky. Dot.com stocks? Heck in five years, all shopping will be done online. Housing? They aren't making any more real estate, and land use regulations are crimping construction and restricting the supply, and affluent baby boomers are flocking to California and Florida and buildings mansions. Oil? We're running out, and all the Indians and Chinese will be driving cars in five years, so $200 oil is coming soon. No speculation involved at all. No way.
Didn't Goldman Sachs pay out something like $25 billion in Christmas bonuses to just 35000 employees last year? That's over $700k per employee. Shouldn't they have been saving that money for their CDOs?
Now that's a bubble worth popping...
It's more like black hole theory than bubble theory. The sucking of our money into various black holes...taxes, national debt, budget deficits, interest payments, investment bank bailouts, trade deficits, foreign oil, insane healthcare costs, fixed drug prices, skilled foreign labor, oil wars, and job outsourcing. It's not sustainable folks. The current market was built with borrowed money, and now it's defaulting and wealth is evaporating. There's nothing that the Fed or Treasury can do to stop this train wreak from happening.
I made the point some topics ago but nobody paid any attention. I always thought Greenspan's special pleading about ignoring asset bubbles might be self interested, either for himself or his friends. I found it difficult to understand how he could object to pricking bubble after the 2001 recession clearly came from an asset bubble and another was obviously building. Intentionally and mysteriously blind Greenie.
Imagine the joint uproar of the all the free marketeers, wall streeters and the NARs/ACORNs of the world if anything was done interfere with the housing market in 2005-2006.
You don't have to imagine. This uproar really did inhibit state regulators as they attempted to curb the excesses in the mortgage marketplace. I recently interviewed an assistant attorney general who told me that he and his colleagues heard from both the GSEs and the ratings agencies that they would do the economy serious damage if they came down too hard on Ameriquest, for example.
Before that, state regulators feared that if they threatened the survival of Household International, the supply of credit to lower-income households would be threatened. (For the record, ACORN was an outspoken critic of Household...)
A billion people don't need much more than rakes when they get pissed off to overthrow a government. China has a history of porrly armed poor people throwing off their oppressors.
Pissed Off In California
Interestingly enough, the 1989 protests were not led by students. Rather it was the rural/agricultural people who were protesting about inflation.
Since that time the Shangai clique has taken over the CCP and cities have benefitted at the expense of the rural majority (in terms of health care, state funding, red tape, environment, etc) primarily when they rolled back the capitalist rights of rural people.
This is STUPID. THey're talking about putting out fires that they themselves started. Well how about we just get rid of the pyromaniac kid with the box of matches? Sheesh
EvilHenryPaulson writes:
...arguing about Dollar Tree vs Family Dollar. It's quite humourus
~~~~~~~~~~~~~~~~~~~~~~~~~
"Need money? Call the "Money Tree". No fees. No closing costs. And so it began... The ghost of Scooter Phil Rizzuto
I just don't think it's that simple. This bubble was the result of decades of poor public policy. Cheap credit wasn't enough for this to happen. You needed poor lending standards, ratings agency fraud, and regulatory inaction to get where we are today.
But in a free market where corrections and recessions are allowed to happen these things are usually revealed during times of stress before they get out of control.
By preventing these stresses from occurring via rate cuts and bailouts they remained latent and multiplied until these stresses could no longer be put off.
All the basic engineering and biological principles I know of imply that stress is essential to a robust system.
Yet the role of the Federal Reserve and the government seems to be to protect us all from this.
In practice I don't see how this can work.
It guarantees an increasingly brittle system that becomes more and more prone to collapse over time.
The only way to offset this without exposing the system to real world stresses is to accurately predict the future - something I don't think we'll be able to do any time soon.
Credit begets more credit.
Default begets more default.
It's the sine wave of the credit cycle, aka k-wave, kondratieff wave. That's ultimately the context that's needed to understand what's happening.
Unfortunately, our modern economists don't believe in the k-wave because its last downcycle was in the 1930s and we all know it's "different this time".
Nothing is going to work. Some people will make money. A lot will lose. The chairs at the big table up front will get shuffled.
I remember reading a philospher whose name escapes me. His big thing was that organizations build up a big cloud of karma. His example was that you could take GM and fire every management employee. Then hire all new ones and it would still be the same GM.
The Fed doesn't really have to care about bubbles that don't involve debt financing.
Thus, the Peak Oil example raised by Nemo (are high oil prices a bubble?) is not too much of a concern. There's not a huge pile of debt financing oil stockpiles (as far as I know). Thus, the fall in oil prices is not endangering the banking system. Sure, futures are levered, but it's a zero sum market and they just represent a wealth transfer.
The same holds for bubbles in things like Beanie Babies, art, etc.
They only have to worry about things like housing (mortgage debt) and telecoms (telecom debt).
Gee, when the FFR is below the rate of inflation and are pumping massive liquidity into the system, isn't that how misallocation of capital(ie bubbles) happens?
Follow-up, due to the movement in Treasuries today what is everyone's opinion on the newly steepened yield curve
I know I and some other people have said that a steepened yield curve was necessary to restore proper functioning of banks, together with the easing in the CP market, dare I say there are some positive improvement in the financial market ?(despite unrecognized losses and a falling economy)
To fight an asset bubble, the Fed would RAISE interest rates.
Yes. I think it is really that simple. Rates should have been raised much quicker, much earlier, and they've probably got really good data that show that. They need to lurch the rates up in a large enough increment to make a difference. Other possibilities could be a transaction tax that could hamper a bubble's development.
Limit leveraged assets, bets, cash to a smaller number 7 to 1. That would keep excess capital from flowing to one single market. That is still highly leveraged in my book but a hell of a lot better than the current model of 30 or 40 to 1.
-Money Man
Sounds like another good idea. Haven't the Chinese been somewhat successful at pushing up capital requirements for banks to cool their inflation problem?
McKay:
"Besides these bubbles, many others sprang up daily, in spite of the condemnation of the government and the ridicule of the still sane portion of the public. The print-shops teemed with caricatures, and the newspapers with epigrams and satires, upon the prevalent folly. An ingenious card-maker published a pack of South-Sea playing-cards, which are now extremely rare, each card containing, besides the usual figures, of a very small size, in one corner, a caricature of a bubble company, with appropriate verses underneath. One of the most famous bubbles was "Puckle's Machine Company," for discharging round and square cannon-balls and bullets, and making a total revolution in the art of war. Its pretensions to public favour were thus summed up, on the eight of spades:
"A rare invention to destroy the crowd
Of fools at home, instead of fools abroad.
Fear not, my friends, this terrible machine,
They're only wounded who have shares therein."
Russia 1941-1945; 1991...?
War/ Collapse.
Dmitri Orlov wrote a book "Reinventing Collapse" that has a good argument as to why the US will not emerge from collapse. He pegs commercial collapse at xmas.
"preventing bubbles might seem an attractive goal"
What a timely admission. So they knew about bubble creation--they just ignored the risk? Small-time, ignorant RE investors had the same delusion--so what's their excuse?
I'm thinkin' that every bubble has some economic fundamentals behind it--some real economic reason for the price of whatever to rise. Then people notice the rise, and assume it will continue for awhile. They invest, and sure enough, it rises some more! Isn't that amazing! They invest some more, and other people notice the rise and invest--and in the modern world all of this happens a hell of a lot faster than the producers of this thing can ramp up production in response to the price signal. Or, in the dot.com example, it happens a lot faster than market forces and plain old reality can intervene to kill off the misconceived companies like pets.com.
The challenge would be identifying the point where a legitimate rise in the price of something cuts loose from economic fundamentals, and people start to bid up the price because they think the recent pattern of increase will continue indefinitely.
Government intervention on incipient bubbles may seem like tyranny to the people who live for the opportunities to get rich quick in a freewheeling marketplace. They will get rich slower, if at all. The economy may seem significantly less vibrant to some people. That will be the cost of giving most of us a little more economic security. It is a price that I am willing to pay.
That is easy. If "known experts", ex-doomers, political shysters are promoting it- it is probably a bubble.
Another sign- lots of graphs, models, figures and "specialist sounding" language is used to promote the cause.
Another sign- People using the following sentences
a. "There is a consensus" (hubris)
b. " fundamentals have changed" (but evidence suggests otherwise)
c. "models/ theories predict that.." (we live in playstations)
d. "Think of the kids", "Europeans are doing it", "think of.. ", "It is immoral.." (religious BS)
John Stark writes:
For housing, sure, you have price/rent and price/income and so forth. But the next bubble won't be in housing... So how do you identify them in general?
But in a free market where corrections and recessions are allowed to happen these things are usually revealed during times of stress before they get out of control.
By preventing these stresses from occurring via rate cuts and bailouts they remained latent and multiplied until these stresses could no longer be put off.
No argument here. But the Fed is simply powerless to decide where its money goes once its lent out. Even at this late date the treasury can't force the banks to lend. The only way to direct capital is through law, something the Fed can't make.
The FFR is a blunt instrument. You won't have much luck popping a helium balloon with a sledge hammer.
what is everyone's opinion on the newly steepened yield curve
Having a load of crappy economic news come out and seeing 10 year rates go up on it (even if they ended down a tad) said something to me. And it wasn't anything good.
It basically said RUN, RUN FOR YOUR (financial) LIVES!!!!
Hedge fund manager John Paulson identified the housing bubble and made $15 BIL for his funds and $3 BIL for himself. His newest employee is Alan Greenspan, who he agreed to take on despite their differences as to whether asset bubbles can be identified.
Paulson reportedly installed world class email encryption so his hedging activities could not be known. In the greed inspired world resulting from a decades old fed-sponsored credit binge, Paulson could have mass-emailed his plans to FR/TR and probably everyone else without risk of anyone else seeing the opportunity in the deflating bubble.
EvilHenryPaulson writes:
Depends if you enlarge your view. From 1980 to 2007 the US National Debt to GDP increased from 150% to over 350%. In that context, if America must de-lever, then Gold is a lead indicator of a bubble unwind.
Hi EHP, 1st thx for the encouragement to post, graciousness noted, but still I have to pay my dues by first understanding the genius of this conversation - tough. Maybe in a year. Ok, i understand physical gold, i used to refine and buy-sell to J&M. I called them a few months ago - the supply is only for gov and institutional buyers. Can you pls explain your post so that I understand it?
1] The end of western europe as a region of any significance- bad demographics, decreased consumption, innovation hindering environment, still living in the past, stratified society, poor integration of immigrants.
2] The beginning of the end of Australia, NZ and Canada as white dominated societies. While these countries might survive in their present form, they will have to change a lot.They will have to diversify beyond their current economic base, allow innovation and foster integration- otherwise they are screwed. Then again they do have a lot of idiots who live in the 1900s.
In my experience with canucks, only white canadians whose ancestors came to canada before WW2 (canucks) have such uncritical belief in their "superiority".
Almost everyone who came to canada post WW2, especially since the 1960s has a rather dim view of canada and canucks. This dim view of canada is shared by many immigrants irrespective of color or language. Some of worst critics of canucks are brits who moved to canada in the 1960s-and 1970s.
3] The US will probably do better than any western country for one reason- willingness to change. The one trend that has always manifested throughout US history has been a willingness to give up old ideas that are no longer workable. Often this requires a bad event to manifest itself (Civil War, WW1, DG1, WW2, Civil Rights Movement) but things do change for the better. Well most of the time.. at least.
One example- for all the history of poor treatment of non-white people, we today have many rich people, CEOs, well compensated innovators and yes.. kashkari- who are non-white. Compare that to any other country.
4] China is the big unknown. It could either realize the fallacy of neo-mercantilism and encourage it's own citizens to consume. It could also slip back into it's nationalistic shell- and get civil unrest/ posturing/ revolutions etc. Who knows??
5] Other Asian countries (excluding japan)- They have got their s**t together. Should do OK in the medium term. Long term, who knows?? - No one can consistently predict the future beyond 10-15 years.
6] Japan- If they do not become less xenophobic, they are f**ked. Their demographic profile is atrocious. If they get over their xenophobia, they could make it through this storm and end up better than they are now.
7] India- Lots of potential, but the society is too feminised and respectful of old idiots. Once they get over that and realize that they are in it together- they have a bright future. They could also destroy themselves through excessive infighting and mercantile attitudes.
8] Africa- If they get their s**t together and rearrange their boundaries in the way they see fit, things could improve. Peace+ need for more consumers might make it a very good place for growth. Who knows??
9] Middle East- Bright future if they become much less religious. Otherwise they are gonna get nuked one of these days. I feel the latter option is more likely.
Well if that don't beat all....Bretton Woods...again..just damn.
From Bloomberg.com
EU Pushes for Overhaul of Post-World War II Financial System
By James G. Neuger and Mark Deen
Oct. 16 (Bloomberg) -- European Union leaders pressed for an overhaul of the global financial system to prevent a repeat of the credit crunch that sparked the biggest stock-market selloff since the Great Depression.
EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord that paved the way for Europe's post-World War II reconstruction and set up the institutions that oversee the world economy today.
Paulson and Kudlow, what a team of retards. So far, no mention of Credit Default swaps. The reason banks wont lend to one another of other financial firms is because there is zero transparency, no one knows whos left holding the bag on 70 trillion of Credit Default Swaps. Now until that is dealt with, there is no bottom. Paulson is deliberately risking the global economy to protect a small number of thieves and scam artists. This is unconscionable. LEAVE THE KEYS AND GET OUT! Based on what I've seen, the markets will absolutely collapse!
satan, are you having a "senior" moment? Watchout, Paulson's in the wings eyeing your kingdom. Did ya see his resume?!!!!!!Scary stuff and it ain't even Hallowee
i would argue it is very very hard to determine when an asset class moves from forth to an outright bubble - and if you get it wrong in short circuiting real demand as opposed to an irrational bubble - you (the central banker) do more harm than good - very easy to make pronouncements that 205 was when it became a bubble - after the fact (or pick your year)
the issue is that making a mountain of side bets (MBS CDS and their derivatives) on anything (and especially a bubble) in an unregulated fashion is a recipe for disaster
if we had 60 trillion in unregulated derivatives tied in an opaque web to the price of gold, then yeah, any bubble there would be a problem
otherwise, it just doesn;t matter
grow a pair BB - tell them what the real problem is - casino gambling writ large, unregulated, and no house odds - thats your recipe for disaster - he asset bubble just made it much worse
Geez, I can't keep up--this is from last thread, but wanted to comment that Suzie O has been saying that for at least 2 weeks--not only on her show, but on Oprah and also I think on Larry King. Actually she was taping Oprah's show right on the day or day after the run from the mm funds. I kept meaning to post that but kept forgetting.
Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe
canucklehead -- I am not a 'gold bug', I understand its uses but I realize its value is determined by the fluctuating marginal demand. Certain cultures definitely prefer it to corporate bonds for a store of value.
I simply can't say that I reliably understand its pricing in a leading manner, and what I don't understand frontwards & backwards I don't trust with my money.
It is both my opinion and understanding that at least until recently, large banks have had the metals exchanges cornered and that's not a game I want to play.
Paulson (speaking about Lehman) said "failure of any large financial system, I mean financial institution" is expected to cause severe market problems.
No.. just a loser canuck trying to impersonate me.. then saying canuck = loser is redundant.
rps writes:
satan, are you having a "senior" moment? Watchout, Paulson's in the wings eyeing your kingdom. Did ya see his resume?!!!!!!Scary stuff and it ain't even Halloween
rps | 10.15.08 - 7:28 pm | #
To prevent this current housing bubble, Fed should have been able to set a minimum mortgage rate. That is, a floor for how much banks have to charge for a mortgage.
Ex. Say the floor was 3%
Fed detects a housing bubble underway
Fed raises the floor to 4% cutting demand
Housing bubble goes away.
satan writes:
canucklehead -- I am not a 'gold bug', I understand its uses but I realize its value is determined by the fluctuating marginal demand. Certain cultures definitely prefer it to corporate bonds for a store of value.
Satan - are you asking me a question? Am i privileged to speak? If so, what is you want to know. Be specific.
Barley writes:
Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe
Just finished going through that. Thanks for passing it on.... I get queezy with unstable countries being pushed into a rough economy
Well that's good. Now that we're not gonna have any for quite a while. BS Bernutty is one sharp fellow. Did he write his PHD thesis on the GD1 or navel gazing?
Yes, but we have not made it to the last page yet. See, the believers get to take back the Kingdom and put evil in it's place. Every good book has a happy ending...Oh, and by the way there is a mansion for each of us in paradise....
"Dmitri Orlov wrote a book "Reinventing Collapse" that has a good argument as to why the US will not emerge from collapse. He pegs commercial collapse at xmas."
I've read a bit on Orlov's site. I think he says in essence that Russians survived the collapse of the early 90s because of social networks and the toughening experience of surviving deprivation.
There are bubbles, and then there are superbubbles. Dot.com, painful as it was, taught me a lot about the stock market and made me a better investor. My portfolio recovered--and millions of people were not affected at all.
This housing-mortgage--MBS--CDO bubble is not like that, is it?
@Cynical: Oh, now I get it! The stolen $700 BIL taxpayer funds invested in the 9 banks will enable them to buy their way out of their CDS obligations. Is that it?
``We're not going to use taxpayers' money to enrich financiers,'' Bush said
``People aren't going to be able to have a golden parachute as a result of your hard-working money,'' Bush said, referring to executives' severance payments.
Bush must not be on Hankypanky Paulson's real important meme list.
Just as soon as you stop smoking that stuff, it is making you so delusional.
__
Satan's Mom writes:
Son, did you take your anxiety medicine today?
Satan's Mom | Homepage | 10.15.08 - 7:33 pm | #
The problem is stupid fractional reserve banking. It was exaggerated because the investment banks were allowed to lever up 30:1 instead of the traditional 9:1.
Of course, part of the rescue package reduced bank reserve ratios to 0%, so leverage can maybe go to infinity! Maybe there is some capital reserve requirement that will prevent infinite credit, and infinite bubbles.
--
I don't think significant asset bubbles are really that hard to identify.
I totally agree with CR.
Crooks agents make a point of closing the bar door after the cattle is out. Do you need better proof that Greenspan and Bernanke ARE crooks agents?
Open up your eyes, people. American econo-political system is completely controlled by Crooks and their agents in USG and Fed AND at the expense of honest and hardworking American People.
The horses have been blowing bubbles around the paddock and snorting to high heaven at each ridiculous thing that the Bernanke and the Paulson have been saying.
They also are urging me to move to Argentina.
What is a poor cowboy to do with all these old bubbles lying around poisoning the hay?
Hi EHP, 1st thx for the encouragement to post, graciousness noted, but still I have to pay my dues by first understanding the genius of this conversation - tough. Maybe in a year. Ok, i understand physical gold, i used to refine and buy-sell to J&M. I called them a few months ago - the supply is only for gov and institutional buyers. Can you pls explain your post so that I understand it?
canucklehead | 10.15.08 - 7:23 pm | #
I don't understand physical gold other than it is a market that can be controlled by the big players and ultimately they will win.
I was referring to the growth in the US has coincided with an increase in debt. Given that no debt to income ratio can grow forever, and that it is easy to see how a consumer/state/corporation grows by borrowing then it bodes negatively for future earnings growth inside the US. Earnings + Foreseeable growth rate = value. If the debt/growth rate must decrease and earnings must go to pay down debt to a better margin of safety, then that would summarize a generational bubble in US stocks/treasuries.
Gold is if one thing, international and therefore a reference point to compare the US stock/treasury markets against
It was an offhand remark because the recent banking consolidation has made the metals exchange market a less equal playing field and so you can't necessarily trust it
Barley writes:
Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe
Live: i just checked with an employee of min in Kiev, his comment: " yeah...it's true....because our economyc very depend from dolar's cost on the world market....there are a lot of bank is closing....because we have crisis.
Satan,
Why do you have against us Canadians? Did you visit Montreal or Vancouver and accidentally pick up a transvestite hooker or something like that. If you ever visit Vancouver Island I'll hook you up with a real one, maybe you'll stop being so miserable...
Thus, the Peak Oil example raised by Nemo (are high oil prices a bubble?) is not too much of a concern. There's not a huge pile of debt financing oil stockpiles (as far as I know).
I wonder whether that is true... I thought everything in our modern economy involved debt financing, to a first approximation.
Regardless, I still do not think it is so easy to distinguish a "bubble" from the actual effects of supply and demand. And I am not convinced that we would be well-served, in the long run, by a bunch of bureaucrats whose purpose was to "identify and lean against asset bubbles".
Despite the recent disaster, I still believe markets work far better than central planning.
So what's this hoopajoop that Kudlow got Paulson to say on CNBC that qualified as breaking news - something about a 30 day interbank lending guarantee? Those are big numbers to guarantee, arent they? And how is this new?
But most of all, why is CNBC trying to spin it as something that will make the stock market go up? Are they that desperate after today that they have to reach this low? Gawd....
peAkcredit writes:
@Cynical: Oh, now I get it! The stolen $700 BIL taxpayer funds invested in the 9 banks will enable them to buy their way out of their CDS obligations. Is that it?
As I said, no one knows who is left holding the CDS bag, because they are contracts executed in the shadows, without benefit of transparency or reserves. Now if I think there is a chance you have a bad CDS position hidden on your books, I will not lend to you. this is why transparency is critical in financial transactions. Also, I know there are 70 trillion of the CDS's out there, I just don't know anyone elses position. If you are even a medium sized institution, I have to believe you have some CDS counterparty obligation or risk. Ergo, I will just hang on to my money and not lend. So until they acknowledge and deal with this we don't have a prayer. Then we have to deal with the fact that 70 Trillion in insurance has zero reserves to back it up...systemic? You betcha!
"Regardless, I still do not think it is so easy to distinguish a "bubble" from the actual effects of supply and demand. And I am not convinced that we would be well-served, in the long run, by a bunch of bureaucrats whose purpose was to "identify and lean against asset bubbles".
Despite the recent disaster, I still believe markets work far better than central planning."
There's no NEED to identify bubbles.
All we need to is to go back to plain vanilla banking with properly enforced regulations.
Bring Glass Steagal back.
Enforce 10:1 leverage at banks.
All exchanges world-wide need to be transparent.
Proper under-writing standards for mortgages.
No off balance-sheet vehicles.
Are we all going to be a bit poorer because fake credit has disappeared? Yes
Are we all going to have to save more? Yes
It's not rocket science, there's a reason why all of these regulations were enacted after the great depression, and there's a reason why it worked for 60 years.
The great difficulty here is that the Fed cannot target. Easy money goes wherever people want to put it; tight money stops everything.
So, does this mean the Fed would intervene in a specific market? It cannot do so without that action artificially creating winners and losers. People would then start to speculate on the Fed's actions, creating pre-bubble bubbles.
The Fed's best chance, I think, is to look at total debt load (which is, ultimately, total money supply - sound familiar?) compared to the carrying capacity of the population. There can only be so much money in a given representative population.
"Of course, part of the rescue package reduced bank reserve ratios to 0%, so leverage can maybe go to infinity!"
Ermmm...dividing by 0 kinda implies that we are already there.
CR,
I don't think significant asset bubbles are really that hard to identify.
Nope, not. TPTB want them because it enriches them. So they roll out all the stops to keep them growing and moving to new areas. Have since Brentton Woods breakdown. When the depression hits, does anyone think these guys are gonna be in soup lines?
No, they'll be buying things at pennies on the dollar, using $100 bills to light their Cuban cigars.
These things are done on purpose. If educated people on blogs can spot them...so can these asshats.
Bzzzt! Damn! Battery time change for the Super Colander Tin Foil Hat.
The credit crunch hitting Eastern Europe and the Balkans might be of more significance to the media in the short term (see posts by Barley, canucklehead)
I see things as degenerating faster and causing public riots unless I am mistaken that it will hurt consumers and the outlook for growth (ie hope in general for coming together)
CR: I don't think significant asset bubbles are really that hard to identify.
Agreed.
The problem is that what leader (President, Fed Chair, Senator, Congressman, etc) would have the political capital to pierce a bubble while still in the middle of an expansion. What do you think would have happened to a Fed Chairman who successfully helped initiate higher interest rates in 2004, causing the California, Florida and Las Vegas real estate markets tank within six months? Or how 'bout a regulator who pushed for tighter lending standards during that period?
Granted, with the benefit of 20/20 we know that either of those moves would have been a much better option than those were now facing. But that same leader, would not have been congratulated for preventing and unsustainable bubble, he/she would have been vilified (think realtors and Wall Street) for causing the markets to tank.
The conundrum is that without the benefit of 20/20 hindsight a leader, whose economy is still experiencing significant expansion,cant prove that there would have been a bubble and therefore would have no way to prove that hitting the brakes would be the most wise move.
If you read Lowensteins "The Rise and Fall of Long Term Capital Management" you would have a good idea that the FED and Treasury were more than willing to bailout a bunch of losers to help the bankers. That thing was childs play compared to the size of the current mess, but even then they were using the whole "systemic collapse" line to reward bad investments. We had a dry run already on this kind of thing but yet we are still doing it wrong.
"Live: i just checked with an employee of min in Kiev, his comment: " yeah...it's true....because our economyc very depend from dolar's cost on the world market....there are a lot of bank is closing....because we have crisis.
Message from the Kiev street..."
Poor Ukraine, the Stalin famine, the Stalin purges, smashed by Germans, irradiated by Chernobyl. Putin has shown or will show them Kuzma's mother. Poor Ukraine.
UK bailout - not going smoothly...why? Of course, because Paulson made it relatively less painful for his mates in the US. Seriously, when can we get rid of this doofus and get on with fixing things? Is it not yet completely obvious that he has a major conflict of interest, beyond just his broken ideology?
Hahahahahahahaahah Kudlow just called falling prices a tax cut again. What a idiot! The bailout is a huge tax increase that dwarfs any "tax cut" effect of falling energy prices. Also energy prices are falliing because economic activity is falling worlwide.
--
Totally OT. Which one of us do you think is Krugman? I'm almost certain it's either CSC, Jas, or Elvis.
Interesting Times,
I know you mean in jest, but associating me with any economist is an insult. Economists have a lot to do with the problems we are talking about.
Arent Bernanke and Greenspan economists? They are morally bankrupt because they propose solutions without ever considering if they are right or wrong in moral sense. They juts want to solve a problem. Hitler had the same mindset. Sorry, I realize that it is hard for most people to think that way.
ANY SOLUTION THAT REWARDS BAD PEOPLE AND PUNISHES HONEST PEOPLE IS GROSSLY IMMORAL.
"Comrade Misean: If we were paddled out at the cliffs right now, I'd say, "Man...what a knob."
I'd snake him."
Bwahahaahahahahhaha!
Yeah it'd be bitchen' to snake such a poser. I'd bogart the dudes stash too, cuz he'd be so bagged on, the only time people would talk to him is if he was sharing some kindy.
And now the Israeli Firsters, fearful that an Obama victory might liberate the US from its Israeli controller, are turning to hate DVDs to stir up religious (and racial) prejudice against him. Sickening.
re: satan
Everyone, please take a deep breath and realize that giving any further undue attention is to the ruination of all our interests in having meaningful/informative/short enough to catch up on discussions.
He first popped up a few days ago and ever since has been from Seattle/Vancouver/Montreal/Toronto and posted some bizarre self-victimizing bitter tirades. The central theme is he hates Canada and is ready for it to implode into a primitive society centered on race riots in the most unique demagogy I have ever seen. There is no point in continuing to attempt reason or to remind that this is not the proper venue for a group therapy session.
Please just ignore him, at least until there is a post of substance worth responding to.
Have you read any of the books of that "peaceful religion of submission to god". Trust me- the israelis, for all their corrupt leaders look like boy scouts when compared to their neighbors.
jim writes:
And now the Israeli Firsters, fearful that an Obama victory might liberate the US from its Israeli controller, are turning to hate DVDs to stir up religious (and racial) prejudice against him. Sickening.
jim writes:
And now the Israeli Firsters, fearful that an Obama victory might liberate the US from its Israeli controller, are turning to hate DVDs to stir up religious (and racial) prejudice against him. Sickening.
when can we get rid of this doofus and get on with fixing things? Is it not yet completely obvious that he has a major conflict of interest, beyond just his broken ideology?
As I said before, Obama needs to promise voters he will demand to take charge of economic policy the day after he is elected, kick out the dithtering dunderheads we've got at present and put in people who will get the diaster ameliorated and then solved.
I'm way late to this thread but it was nailed early on:
Problem- the number of people with a vested interest in keeping the bubble going is too great.
Imagine the joint uproar of the all the free marketeers, wall streeters and the NARs/ACORNs of the world if anything was done interfere with the housing market in 2005-2006.
indeed. The reason why so few people saw there was a tremendous housing bubble building - when it seems perfectly obvious in hindsight - is that so many people had a vested interest in perpetuating it. Even folks who had no interest at all in selling their current dwelling were pleased as punch to see their home value rising without having to lift a finger.
It's the same dynamic that perpetuates pork barrel spending in Congress. If some guy in Alaska gets a $200 million Bridge to Nowhere, everyone outside Alaska is in an uproar. But if your congress critter doesn't bring home the bacon, he gets shown the door.
satan: except that their neighbors haven't been stealing other people's land and turning the inhabitants into serfs. The Arab potentates are far from angels, but they aren't theives.
bond guy writes:
The Fed doesn't really have to care about bubbles that don't involve debt financing.
Thus, the Peak Oil example raised by Nemo (are high oil prices a bubble?) is not too much of a concern. There's not a huge pile of debt financing oil stockpiles (as far as I know). Thus, the fall in oil prices is not endangering the banking system. Sure, futures are levered, but it's a zero sum market and they just represent a wealth transfer.
The same holds for bubbles in things like Beanie Babies, art, etc.
They only have to worry about things like housing (mortgage debt) and telecoms (telecom debt).
bond guy | 10.15.08 - 7:12 pm | #
I'm sure leverage had a role in the speculation we saw in oil this summer. And that is probably why we are not seeing it now.
In a sign that the liquidity crisis is becoming more acute for Russian lenders, Bank Globex, one of the industry's medium-sized players, has blocked early withdrawals from fixed-term deposit accounts for five days.
The announcement raised immediate concerns about whether the bank's move was even legal.
Emil Aliyev, vice president of Globex, said the measure was introduced after a spike in demand for early withdrawals of term deposits, "with many depositors explaining that they urgently wanted to transfer their money to VTB and Sberbank," Interfax reported. Both VTB and Sberbank are state controlled
Economists have a lot to do with the problems we are talking about.
Jas - I think you grossly overestimate the power that the vast majority of economists have in our society. While a great number of economists study the problems we are talking about, it is non-economists who overwhelmingly cause them.
...adding, I think the single most valuable thing that the Fed could do to prevent the next bubble, is to start telling people there's a bubble going on.
Think how much pain Alan Greenspan might have saved us if he had spoken up and told the truth about irrational exuberance in the housing market, rather than what he actually did, which was aiding and abetting the bubble by advising people to take out ARMs, which he most certainly knew was foolish advice for most borrowers.
"Somebody asked for examples of countries which survived a Crash. Would you say that the USSR (wow, there's an ancient acronym) "survived" 1989? :)"
Part of the SU was the Russian mind as expressed in society and its habits and perspectives. That doesn't change all that quickly. I have not been back since the early 90s, so there are people here with much more recent and relevant impressions.
But if it ever comes to your attention that a national leader is threatening nuclear war, that would mean that we are in the hands of a lunatic and no one is safe.
That being said, the very existence of those weapons is a constant, chronic threat to human survival. It is in everyone's interest to mute and if possible eliminate all threats and threatening postures.
I suggest you read the history of the spread of that religion before you say that. I can suggest you some fine sources from well known scholars of that religion. Their attitudes towards non-believers are very illuminating.
Now.. Christianity used to be like that, but it has changed/ become less problematic.
__
jim writes:
satan: except that their neighbors haven't been stealing other people's land and turning the inhabitants into serfs. The Arab potentates are far from angels, but they aren't theives.
jim | 10.15.08 - 8:01 pm | #
I eat glue
Yes this is a great time to start fighting asset bubbles.
timing is everything. And Ben's got none of it.
YouTube - Don Ho at the 2005 Pro Bowl
Well, it's very simple --- if you had to regulate unfair lending practices, is that so hard to do without being concerned about whether or not something is an asset bubble?
CalculatedRisk --
I don't think significant asset bubbles are really that hard to identify.
Could you elaborate? Other than, "I know it when I see it", can you specify actual rules or procedures that the central bank might adopt?
For housing, sure, you have price/rent and price/income and so forth. But the next bubble won't be in housing... So how do you identify them in general?
For example, could the Fed really tell the difference between Peak Oil (if/when it happens) and a speculative bubble? How?
Mishkin wrote 53 pages saying this can't be done
Mishkin Says Banking System Can Cope With `Stressful' Markets - Bloomberg.com
I've got CNBC on behind me, just thought I would keep everyone in the loop. Cramer is spending a long time arguing about Dollar Tree vs Family Dollar. It's quite humourus
Problem- the number of people with a vested interest in keeping the bubble going is too great.
Imagine the joint uproar of the all the free marketeers, wall streeters and the NARs/ACORNs of the world if anything was done interfere with the housing market in 2005-2006.
Mishkin also wrote saying this can be done. I think Mishkin is Cramer.
Fed Should Avert Price Bubbles With Regulation, Mishkin Says - Bloomberg.com
CR writes: I don't think significant asset bubbles are really that hard to identify.
Was oil a bubble at $147? Sure. At $120? Yes. At $95? Almost surely. At $85? Probably. At $75? Aye, there's the rub. Is $75 oil a bubble? What about nickel at par with the metal content of nickels? Pennies? Ahhh... but Eagles? See? Commodity bubbles are slippery critters.
Since asset bubbles are "easy to identify" could you please tell us if plutonium and lumber and tech stocks are bubbles or not.
I'm not busting on you here. It is just that "bubbles" are not all alike nor are they all easy to identify.
Impovernment of the booble by the bauble for the bubble. So
wrap up your worries in your woe
(wumpumtum!) and shake down the shuffle for the throw.
There's a much simpler method - inflation targeting.
Recent bubbles have been enabled through the wonders of securitization. So either force the desk level employees to have some kind of direct stake or bonus derived from the lifetime performance of the security, or keep tabs on the banks' financial statements and review the areas of biggest growth for new regulation to guide the feedback loop away from overexuberance.
Or to take my radical idea, institute several baseline interest rates to avoid situations like the tech bubble spinning off into the housing bubble
Managed economy, here we come. But it's lateness may be an overreaction. The pendulum swings one way, then back the other way. How will they find equilibrium? Overshoots are us.
The harder they try to control this, the more it will slip out of their grasp. You can't print money endlessly without creating bubbles.
Looks like we will not need transparency now as the stock market now is in "auto-mark to market" mode, as we speak!
Isn't Bubbles dead now? Oh, I guess not. Daily Fix | Comedy Central
Bubbles is alive! And it figures.
BB,
Don't worry, we will not have another one during your tenure.
Rob:
to be fair, he did say "significant bubbles"
I think that that qualifier may have merit.
was there any doubt we were in the Tech bubble? or the housing bubble? the excuses just got harder and harder to believe.
I agree with you that it would be hard to figure out most bubbles, but significant bubbles may be easier.
as example: the chinese noticed 2 bubbles and acted to preempt them
1) property bubble in shanghai
2) stock bubble.
why couldn't our Fed do similarly?
Another thing:
the Fed would in theory be limited to fighting asset bubbles using Fed tools... which would be reserve ratios and lending requirements etc.
It would seem impossible for the Fed to do an action that would reduce oil prices when we do it the "true" peak oil. but I could be wrong.
When gold goes bak to $1000 will it be decreed to be in a bubble, and slapped back down by the Fed?
Silly me, they do this already don't they.
Another "Weekend at Bernanke's"...
Ben and Hank dress up the economy's corpse and parade it around to convince everyone to keep partying.
"warned that the banking business may be concentrated in too few companies."
Then why do you keep doing what you are doing Ben & SHeila? Idiots!
Fast forward 2 years, Ben B speech....JPM and WFC both go under...if only we had a way to identify if an entity was too big to fail, we would surely do something about it!
Realizing that precedence isn't causality, I do, however, remember that the Roman empire suffered with each debasement of its coins. It did enjoy a brief renacence when one of the later emperors reversed -- partially -- the debasement.
Solution: No boom, no bubble.
Solution to indentifying bubbles:
DONT CREATE THIS WITH CHEAP AND EASY CREDIT AND ZERO REGULATORY ENFORCEMENT!!
All of your bubble examples were created with fiat money.
Doesn't anybody have a non-fiat example to foist on CR as a test?
It's too late to protect against asset bubbles. On Tuesday, August 6, 2008, Ascendia Brands (the company that makes Mr. Bubble) filed for bankruptcy protection.
I kinda love how reality is stranger than fiction.
No deflation and no more bubbles? That is a tall order.
"the chinese noticed 2 bubbles and acted to preempt them
1) property bubble in shanghai
2) stock bubble.
why couldn't our Fed do similarly?"
Aren't the Chinese socialists?
Yes oil is a bubble. Oil will be at $30bbl once the hedge fund and GS stakes are unwind...meanwhile they get away with stealing millions from working class americans and then get a bailout...
Another example: Was $copper a bubble in 2006, 2007 or 2008? Was it a bubble in 2006 but not in 2004?
This is exhibit 1-A as to why they should eliminate the Fed.
Can't identify asset bubbles? I wonder how many blogs alone were started as a result of their stupid bubble blowing policies?
This is such a massive indictment of their stupidity. Congress should close the whole thing down tomorrow (before the markets open).
And in the future, our barn will have a door like FORT KNOX!
I have a long standing aversion to debt bubbles...........
@serf hopeinsd is correct. The housing bubble was known by virtually anyone with a brain. Even my 73 y/o high school educated mom knew it was a "significant bubble". She must be smarter than Greenspan.
Our politicians like bubbles. Keeps them in office as their planning horizons are typically 2, 4, or 6 years.
The notion of pricking a bubble should be replaced with how FED manipulated interest rates create bubbles in the first place. However it seems that would never, ever happen.
As @discombobulated capitalist states "Overshoots are us." Hedge yourself accordingly.
How about "some bubbles are easy to identify"? And the housing bubble was identified by smart people who identified it's causes, reasons why it could not continue indefinitely, and what was going to happen to it. Sometimes being right about what will happen, and the details of how it will happen is more than a matter of luck. It comes from understanding the situation, even if that understanding can't be distilled into a simple metric or set of rules.
On the other hand, I'd agree that identifying when a bubble will break is difficult, if not impossible, though I could still be wrong on that.
uhhh, we are still in bubble.
its called the earnings bubble.
I can't resist.
YouTube -
This is for you, Ben Bernanke!
Does anyone get the feeling that BB doesn't agree with what Paulson is doing and is making that known, however gently?
Heh.
Somebody should Hanky what he intends to do about the bond bubble.
Central Planning has always worked so well. I suggest that he start with the ethanol and alternative energy bubbles. And these arrogant personal computer companies needed puncturing a long time ago along with the software companies.
as example: the chinese noticed 2 bubbles and acted to preempt them
Maybe you should wait a couple years to proclaim the superiority of the Chinese system.
Charles McKay:
"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one!"
There's no need to pre-empt bubbles. All that is required is:
a) All mortgages require 20% down, 36% DTI, documented income.
b) ANY debt, asset, etc.. MUST be exchanged on single open, transparent exchange. Stock market, bond market, CDS clearing house etc..
Nothing else would be required to prevent bubbles from occurring.
Unfortunately we would all go back to a very boring way of creating credit and paying for consumer goods.
I think Bernanke should go back to his office and be quiet. Seeing that consumer spending is 70% of the US economy and consumer spending has been in a speculative blow off bubble top for a decade, targeting that bad boy may be a non starter! The easiest bubble to see right now is the bubble in bailouts and Boom Boom Bernanke is plowing full speed ahead in growing that one.
"It did enjoy a brief renacence when one of the later emperors reversed -- partially -- the debasement."
Diocletian?
If the bursting of an asset bubble creates economic dislocation, then preventing bubbles might seem an attractive goal. But whether incipient bubbles can be detected in real time and whether, once detected, they can be defused without inadvertently precipitating still greater adverse consequences for the economy remain in doubt.
Yeah, we pretty much know now that they are creating greater adverse consequences by meddling in a free market.
Elvis writes:
This is my question that has been baffling me for over a year. What is the deal with WFC's Alt-A porfolio? Why haven't they blown-up? Did they effectively pass all their trash for cash at the Fed Window and are lean and mean now? Or are they just good at hiding their crap and will imminently reveal it?
Elvis | 10.15.08 - 6:28 pm | #
Elvis -- from the previous thread -- What Alt-A portfolio do you speak of? My understanding was that they hold relatively little 1st mortgages on their books. Home Equity line & loans in CA are a ticking time bomb. Their subprime mortgages through Wells Fargo Financial were all fully documented & based on ability to pay.
The more important point in CR's excerpt is the part about the size of banking institutions. We can gripe all we want about how recent actions seem to contradict his statement. The fact is that in the short run, there was/is no choice. Repealing Gramm/Leach/Bliley and reinstating Glass/Steagall isn't a weekend's work, though it's probably necessary.
It's been posted here before, but I think it's probably useful to repost a socialist's view:
Technical difficulties.
In the longer run, some sort of breakup of the big banks (think ATT in the early eighties) is probably inevitable, and necessary.
Would but we'd had Bernankie as fed chief circa 1996 and Greenspan circa 2006.
I think Greenspan had a more or less favorable opinion of asset inflation particularly when it was accompanied by wages growing at or below the "CPI". That played a significant role in the transfer of wealth to the haves between 1982 and very recently, both for the assets as well as for executive compensation. And any time the fed detected even a modicum of wage price pressure, the FED would tighten and the stock market would faint, to reinforce the notion that wage inflation was a very bad thing.
Now we are faced with assets that are significantly overpriced compared with median wages, during a credit crunch.
I don't think Ben has much to worry about in terms of popping asset bubbles, the recently demised commodity bubble nothwithstanding. And in fact, perhaps it would be best to simply leave the subject alone until housing prices find an equilibrium. Though they remain inflated relative to incomes, I don't think we need to have any official corrective action, unless it is to elevate wages towards an equilibruim with current prices. But perhaps that's a part of why the FED is spewing $Trillions of bucks into the global economy, though hopefully it doesn't just result in price inflation without accompanying wage gains.
I agree BB that is a puppet . He is too intelligent to do this under his own free will.
" Whereismyretirement writes:
Does anyone get the feeling that BB doesn't agree with what Paulson is doing and is making that known, however gently?
Whereismyretirement | 10.15.08 - 6:41 pm | # "
Totally OT.
Which one of us do you think is Krugman?
I'm almost certain it's either CSC, Jas, or Elvis.
Horses gone, barn door closed.
No booms and busts anymore? How they going to make money?
Caption contest!
LOOKING FORWARD
When I am grown to man's estate
I shall be very proud and great,
And tell the other girls and boys
Not to meddle with my toys.
-- Robert Louis Stevenso
It's only a matter of time before gold is declared a bubble and the Feds seize, fix price, I mean pop it for the good of the economy.
Hi everyone
)
Which one of us do you think is Krugman?
Why would Krugman post on here? Just because he reads doesn't mean he posts.
Pissed Off In California --
Your rules would not have prevented the bubble in tech stocks in the 90s.
Everyone who says "my grandmother knew it was a housing bubble" are missing the point. The next bubble will not be in housing. And whatever it is, I guarantee there will be smart people who say it is a bubble, and smart people who say it is not a bubble.
It is not at all clear (to me) that asset bubbles are identifiable in general in real time. Policy makers need rules. So I ask again, give me a rule that will distinguish Peak Oil from a speculative bubble in oil.
I do not think it is remotely easy.
There's nothing the Fed could do about a bubble even if it discovered one. The Fed can lower interest rates, but it can't dictate where money gets spent. Witness the late 80s housing bubble. Interest rates were double digits at that time.
What could Bernanke do about GSEs, tax policy, lax regulation, fraud, and corruption? Nothing.
Bernanke "warned that the banking business may be concentrated in too few companies"
How fast would new banks be setup if the old ones died off?
I know I would be getting a group together over the weekend to do just that if that opportunity arose.
Caption:
"Hey, where did my Goldman guys go?"
Bubble are for bathtubs!
Now.. now.. why is he trying to freeze hell over?
Hi Paul Krugman or his mildly amusing obscenity-shouting double.
It's only a matter of time before gold is declared a bubble and the Feds seize, fix price, I mean pop it for the good of the economy.
Max Pruss | 10.15.08 - 6:48 pm |
Depends if you enlarge your view. From 1980 to 2007 the US National Debt to GDP increased from 150% to over 350%. In that context, if America must de-lever, then Gold is a lead indicator of a bubble unwind
Max --
There's nothing the Fed could do about a bubble even if it discovered one.
Not true...
The Fed can lower interest rates
To fight an asset bubble, the Fed would RAISE interest rates.
Perhaps the Fed cannot force banks to lend, but it can certainly prevent them from lending.
Commodities are not necessarily a financial bubble, although they are clearly a racket (especially oil).
The significance of a financial bubble probably depends on the amount of leverage or credit being extended based solely on anticipation of future appreciation rather than any prospect of repayment from earnings.
Commodity contracts and derivatives are just big enough to allow for manipulation of prices to rip off consumers (and sometimes producers).
"Another "Weekend at Bernanke's"...
Ben and Hank dress up the economy's corpse and parade it around to convince everyone to keep partying."
snicker
This goes on my ofice door.
Bernanke pi**ing on Greenspan in public. Now that is interesting!!
I would like to get stoned with Paul Krugman.
I would bring the herb and go to NJ.
Noble Paul could even have greens.
I would also like to blaze with Chomsky. But he has to come to Cali.
I think Fed can safely ignore Beanie Babies bubble (and commodities) but housing and to less extent stock market bubbles are dangerous because these are huge relative to GDP. The housing bubble is easier to control because it is almost exclusively with borrowed money and Fed controls the banking system. Interest rates are not the only tool and the bubble would have been prevented (or at least muted) if just the income had been verified and DTI ratios kept within reasonable limits. There is actually no need to decide whether there is a bubble or not. Just enforce those minimal standards.
Charles McKay:
"In a constitutional monarchy some surer means would have been found for the restoration of public credit. In England, at a subsequent period, when a similar delusion had brought on similar distress, how different were the measures taken to repair the evil; but in France, unfortunately, the remedy was left to the authors of the mischief. The arbitrary will of the regent, which endeavoured to extricate the country, only plunged it deeper into the mire. All payments were ordered to be made in paper, and between the 1st of February and the end of May, notes were fabricated to the amount of upwards of 1500 millions of livres, or 60,000,000l. sterling. But the alarm once sounded, no art could make the people feel the slightest confidence in paper which was not exchangeable into metal. M. Lambert, the president of the parliament of Paris, told the regent to his face that he would rather have a hundred thousand livres in gold or silver than five millions in the notes of his bank. When such was the general feeling, the superabundant issues of paper but increased the evil, by rendering still more enormous the disparity between the amount of specie and notes in circulation. Coin, which it was the object of the regent to depreciate, rose in value on every fresh attempt to diminish it. In February, it was judged advisable that the Royal Bank should be incorporated with the Company of the Indies. An edict to that effect was published and registered by the parliament. The state remained the guarantee for the notes of the bank, and no more were to be issued without an order in council. All the profits of the bank, since the time it had been taken out of Law's hands and made a national institution, were given over by the regent to the Company of the Indies. This measure had the effect of raising for a short time the value of the Louisiana and other shares of the company, but it failed in placing public credit on any permanent basis."
When the Government purchases ownership stakes in business and raw material goods, then sets values based on what is right for the nation, we have devolved into National Socialism. Good thing we have a charismatic leader coming along to complete the parallel lines.
Krugman would not have time to post tonight, he is getting ready for to watch the debates and get all excited about a democrat super majority in the congress so we can all have a wonderful golden age!
database writes:
"the chinese noticed 2 bubbles and acted to preempt them
1) property bubble in shanghai
2) stock bubble."
however, China providing "cheap money" to the US contributed largely to US asset bubble
they did not anticipate the speed of the "feed back" I guess
"Your rules would not have prevented the bubble in tech stocks in the 90s.
Everyone who says "my grandmother knew it was a housing bubble" are missing the point. The next bubble will not be in housing. And whatever it is, I guarantee there will be smart people who say it is a bubble, and smart people who say it is not a bubble.
It is not at all clear (to me) that asset bubbles are identifiable in general in real time. Policy makers need rules. So I ask again, give me a rule that will distinguish Peak Oil from a speculative bubble in oil."
History shows that every major financial crisis world-wide has been precipitated by a real-estate bust.
You are correct that my rules wouldn't prevent all asset bubbles. But they would have prevented the biggest of them all, the real-estate crash.
It has also been proven over and over that transparency at a minimum slows down asset bubbles and makes them clearer a lot sooner.
They only have to look for bubbles in important asset classes. Who gives a crap if truffles go through the roof? But if oil, major food crops, or housing do, than that affects everyone and should be deflated if possible.
Speaking of the Chinese:
"History may be written by officials, but it is the emperor in whose reign the history is written who is finally responsible, and it is he who will be blamed by posterity if there are distortions and errors..." [translated by Jonathan D. Spence]
-- The Emperor K'ang-Hsi
China can target bubbles because their population is poorly armed poor people. The government here does not have the same luxury.
I'm almost tempted to believe that PRKrugman53 is actually Paul Krugman. How many knew that he had Robin as a middle name? Hmmm... Maybe. I said almost tempted.
Why are we discussing what bubble is next? What the interest rate will be?
Aren't the events and actions taken unprecedented and irreversible? The very underpinnings of our country have been shorn away. Rules changed at will, laws broken or ignored. Tax payer money given away with no congressional oversight. The US has been sold, we are just waiting for the owner to make themselves known.
My histrionics are getting to me. Someone talk me down and refer me to a historical precedence that illustrates a nation that went to the edge and made it back.
Limit leveraged assets, bets, cash to a smaller number 7 to 1. That would keep excess capital from flowing to one single market. That is still highly leveraged in my book but a hell of a lot better than the current model of 30 or 40 to 1. Just an ignorant appraiser spouting off. Let the educated econ banter now continue....
Everything I have learned from this site tells me the stock market today is the result of hedge funds and leveraged entities selling on margin calls. If I am right the market will oscillate at the current level and then gradually go down to 7000.
From previous thread:
EvilHenryPaulson writes:
"Bernanke thinks the entire great depression is due to deflation/reflation
It's about encumbered market participants."
Exactly why throwing all this money around will not help today anymore than it did in the 30's. The Fed is confusing the cart and the horse.
The Federal Reserve must spend millions of dollars on research and they still do not know what is going on?
Just mutter a catchy phrase like irrational exuberance to pop them...that's all it takes.
Someone talk me down and refer me to a historical precedence that illustrates a nation that went to the edge and made it back.
Germany. France.
From the FED website FAQ one of their primary responsibilities is to promote financial market stability. What else is there to understand? If asset bubbles or any other condition produces a financial market instability then it their duty and responsibility to address the problem.
Prescient, Mr. Roach?
Maestro Redux?
Stephen S. Roach 10.25.05
It's easy to celebrate the man and his pedigree. We all know that Ben Bernanke is a solid economist, with impeccable credentials from many of Americas greatest universities. Leading academic journals are filled with his contributions.
But that background begs the most important question of all: What we don't know is Bernankes ability to provide institutional leadership for a central bank that is facing a unique confluence of domestic and international imbalances--the asset-bubble-current-account nexus.
Every Fed chairman that I ever worked with or observed over the past 33 years has had to face circumstances that he was unprepared for.
snip:
Like his predecessors, Ben Bernanke's skillset has not prepared him for the challenges he faces. Credentials don't make for a good Fed chairman. History tells us that it's all about learning on the job and coping with indoctrination under fire. The great irony for the Fed is that Alans Greenspan's legacy may well be Ben Bernanke's albatross.
Forbes.com - Magazine Article
Why does Satan eat glue?
The US has already gone to the edge and come back several times
EvilHenryPaulson writes:
I've got CNBC on behind me, just thought I would keep everyone in the loop. Cramer is spending a long time arguing about Dollar Tree vs Family Dollar. It's quite humourus
.....
I heard him pull out dollar store vanilla wafers. "See they're the same thing. Who can tell the difference."
He's Paulson's court jester.
Pissed Off In California writes:
There's no need to pre-empt bubbles. All that is required is:
a) All mortgages require 20% down, 36% DTI, documented income...
Words of wisdom. I would only add that amortization period be capped at 25 years. Can't afford the monthly payments on a 25 year mortgage? Then you can't afford the house. Buy a cheaper one.
Why did we throw simple logic out the window? Greed, I guess...
aleister perdurabo writes:
Someone talk me down and refer me to a historical precedence that illustrates a nation that went to the edge and made it back.
Whoville
A large part of the problem may be an unhealthy fear of a recession or down-turn. After the dotcom bubble and 9/11, Greenspan lowered interest rates and kept them low for a long time, which fueled the housing bubble. It seems that that same fear is operating today -- fear of a down-turn -- althought today's fear may be more warranted than the earlier fear. This comes, I believe, from the Fed's psychotic view that it can control the economy.
Bernanke "warned that the banking business may be concentrated in too few companies"
Translation - "OMG, this Paulson creep is setting ME as Fall Guy for the history books"
Damn, Ben, I thought you were faster than this.
shadowjack62 - Thanks for the reference. Maybe Krugman would be so kind as to get Bernanke on here, his education on the depression seems rather stale according to his recent speeches
KW writes:
"Another "Weekend at Bernanke's"...
Ben and Hank dress up the economy's corpse and parade it around to convince everyone to keep partying."
that calls for a series of Halloween cartoons (Stu?)
"have desk level employees to have some kind of direct stake or bonus derived from the lifetime performance of the security"
sounds better than relying on the SEC to do it--go evil hank
France/Germany. Post WW I and WW II?
Great. Just great.
Which one of us do you think is Krugman?
Jas.
CR and him are just playing mind games with us.
EvilHenryPaulson writes:
I've got CNBC on behind me, just thought I would keep everyone in the loop. Cramer is spending a long time arguing about Dollar Tree vs Family Dollar. It's quite humourus.
Why do you watch that trash? I'd rather watch the Hinterland Who's Who channel.
Anonymous writes:
Why does Satan eat glue?
It sticks to his ribs.
Oct. 12, 1998 DJIA - 8592
Oct. 15, 2008 DJIA - 8577
Buy and hold!
laughing about the "Weekend at Bernanke's imagery"
I will try and find the movie soundtrack to play during tomorrow's market
"China can target bubbles because their population is poorly armed poor people. The government here does not have the same luxury."
A billion people don't need much more than rakes when they get pissed off to overthrow a government. China has a history of porrly armed poor people throwing off their oppressors.
To fight an asset bubble, the Fed would RAISE interest rates.
Perhaps the Fed cannot force banks to lend, but it can certainly prevent them from lending.
Can they really? Really? What about non-regulated capital? Wasn't that the whole purpose of an "Investment Bank" to begin with?
I just don't think it's that simple. This bubble was the result of decades of poor public policy. Cheap credit wasn't enough for this to happen. You needed poor lending standards, ratings agency fraud, and regulatory inaction to get where we are today.
The Fed is just one, small piece of this puzzle.
Better try AC/DC's-"Highway To HELL"
Oct. 12, 1998 DJIA - 8592
Oct. 15, 2008 DJIA - 8577
Or in 1998 dollars:
Oct. 12, 1998 DJIA - 8592
Oct. 15, 2008 DJIA - 6735
theyieldcurve,
I don't have eyes in the back of my head, the TV is behind me. I leave it on mostly to see the live press conferences, and hear the info the Fed/Treasury leaks through them
For housing, sure, you have price/rent and price/income and so forth. But the next bubble won't be in housing... So how do you identify them in general?
For example, could the Fed really tell the difference between Peak Oil (if/when it happens) and a speculative bubble? How?
Good questions. In the recent bubbles, all kinds of experts were assuring us that sound fundamentals were pushing prices to the sky. Dot.com stocks? Heck in five years, all shopping will be done online. Housing? They aren't making any more real estate, and land use regulations are crimping construction and restricting the supply, and affluent baby boomers are flocking to California and Florida and buildings mansions. Oil? We're running out, and all the Indians and Chinese will be driving cars in five years, so $200 oil is coming soon. No speculation involved at all. No way.
CSC, this is for you, Canadian bubbles...
YouTube - Trailer Park Boys - The Water Bong Is So Smooth
"heckuva job, Brownie"
"heckuva job, Brownie"
France/Germany. Post WW I and WW II? Great. Just great.
Okay, okay, I'll chip in...
Russia, 1989...
Japan, 1990...
Ruble and Yen still exist, yes?
Didn't Goldman Sachs pay out something like $25 billion in Christmas bonuses to just 35000 employees last year? That's over $700k per employee. Shouldn't they have been saving that money for their CDOs?
Now that's a bubble worth popping...
It's more like black hole theory than bubble theory. The sucking of our money into various black holes...taxes, national debt, budget deficits, interest payments, investment bank bailouts, trade deficits, foreign oil, insane healthcare costs, fixed drug prices, skilled foreign labor, oil wars, and job outsourcing. It's not sustainable folks. The current market was built with borrowed money, and now it's defaulting and wealth is evaporating. There's nothing that the Fed or Treasury can do to stop this train wreak from happening.
ratefink writes:
Oct. 12, 1998 DJIA - 8592
Oct. 15, 2008 DJIA - 8577
Buy and hold!
....
The biggest scam ever perpetrated on the American working class. I here that mantra everyday, everywhere.
Caption:
Ballistics testing: Sniper's Dream
"Someone talk me down and refer me to a historical precedence that illustrates a nation that went to the edge and made it back."
Germany 1939-1945,,,
Russia 1941-1945; 1991...?
The US has not ever taken a small per centage of the losses these two suffered, especially not materially and in citizens killed and incapacitated.
But there are many others.
I am delighted to see that Ben Bernanke has noticed the bubbles in US Treasuries and the US Dollar, and will be moving quickly to pop them!
LOL, Lakeguy. Awesome.
I made the point some topics ago but nobody paid any attention. I always thought Greenspan's special pleading about ignoring asset bubbles might be self interested, either for himself or his friends. I found it difficult to understand how he could object to pricking bubble after the 2001 recession clearly came from an asset bubble and another was obviously building. Intentionally and mysteriously blind Greenie.
Imagine the joint uproar of the all the free marketeers, wall streeters and the NARs/ACORNs of the world if anything was done interfere with the housing market in 2005-2006.
You don't have to imagine. This uproar really did inhibit state regulators as they attempted to curb the excesses in the mortgage marketplace. I recently interviewed an assistant attorney general who told me that he and his colleagues heard from both the GSEs and the ratings agencies that they would do the economy serious damage if they came down too hard on Ameriquest, for example.
Before that, state regulators feared that if they threatened the survival of Household International, the supply of credit to lower-income households would be threatened. (For the record, ACORN was an outspoken critic of Household...)
A billion people don't need much more than rakes when they get pissed off to overthrow a government. China has a history of porrly armed poor people throwing off their oppressors.
Pissed Off In California
Interestingly enough, the 1989 protests were not led by students. Rather it was the rural/agricultural people who were protesting about inflation.
Since that time the Shangai clique has taken over the CCP and cities have benefitted at the expense of the rural majority (in terms of health care, state funding, red tape, environment, etc) primarily when they rolled back the capitalist rights of rural people.
This is one of the best (and funniest) pieces on asset bubbles of all time.
Recession-Plagued Nation Demands New Bubble To Invest In | The Onion - America's Finest News Source
"Benny, what are you kids doin?"
"Me and Al and Hank are just blowing bubbles, Ma"
"Not in the kitchen, it makes the floor slick"
"Forget the floor Ma, we're keeping the house from cavin in!"
"Just clean up when you're done"
"Sure Ma, sure."
Requiring 20% down on housing is preempting a housing bubble...more or less.
Does Krugman hang out with Roubini at Roubini's place that has the masonry vulvas?
This is STUPID. THey're talking about putting out fires that they themselves started. Well how about we just get rid of the pyromaniac kid with the box of matches? Sheesh
There should be stiffer margin requirements in the stock market too, as there used to be, to stop rampant speculation.
CSC,
The best show ever produced in this country, and guess what we do when watching. Almost 4:20...
T-bills were up, T-Notes and T-Bonds were down as the 10 year dump spreads out on the curve wsj quicl link
EvilHenryPaulson writes:
...arguing about Dollar Tree vs Family Dollar. It's quite humourus
~~~~~~~~~~~~~~~~~~~~~~~~~
"Need money? Call the "Money Tree". No fees. No closing costs. And so it began... The ghost of Scooter Phil Rizzuto
I just don't think it's that simple. This bubble was the result of decades of poor public policy. Cheap credit wasn't enough for this to happen. You needed poor lending standards, ratings agency fraud, and regulatory inaction to get where we are today.
But in a free market where corrections and recessions are allowed to happen these things are usually revealed during times of stress before they get out of control.
By preventing these stresses from occurring via rate cuts and bailouts they remained latent and multiplied until these stresses could no longer be put off.
All the basic engineering and biological principles I know of imply that stress is essential to a robust system.
Yet the role of the Federal Reserve and the government seems to be to protect us all from this.
In practice I don't see how this can work.
It guarantees an increasingly brittle system that becomes more and more prone to collapse over time.
The only way to offset this without exposing the system to real world stresses is to accurately predict the future - something I don't think we'll be able to do any time soon.
Credit begets more credit.
Default begets more default.
It's the sine wave of the credit cycle, aka k-wave, kondratieff wave. That's ultimately the context that's needed to understand what's happening.
Unfortunately, our modern economists don't believe in the k-wave because its last downcycle was in the 1930s and we all know it's "different this time".
Except, apparently, it's not.
The ghost of Scooter Phil Rizzuto
Didn't his family cut off his head and freeze it?
Lakeguy, Trailer Park Boys are my favorite. Nice choice of clips.
Sorry Jas. hug
Its my problem. Not yours.
Nothing is going to work. Some people will make money. A lot will lose. The chairs at the big table up front will get shuffled.
I remember reading a philospher whose name escapes me. His big thing was that organizations build up a big cloud of karma. His example was that you could take GM and fire every management employee. Then hire all new ones and it would still be the same GM.
There is serious wierdness coming.
The Fed doesn't really have to care about bubbles that don't involve debt financing.
Thus, the Peak Oil example raised by Nemo (are high oil prices a bubble?) is not too much of a concern. There's not a huge pile of debt financing oil stockpiles (as far as I know). Thus, the fall in oil prices is not endangering the banking system. Sure, futures are levered, but it's a zero sum market and they just represent a wealth transfer.
The same holds for bubbles in things like Beanie Babies, art, etc.
They only have to worry about things like housing (mortgage debt) and telecoms (telecom debt).
Which one of us do you think is Krugman?
Dunno, but PRKrugman53 he ain't.
The real Paul Krugman would never use smiley faces in a post.
Roubini, on the other hand, is all about the lol
xoxo
Gee, when the FFR is below the rate of inflation and are pumping massive liquidity into the system, isn't that how misallocation of capital(ie bubbles) happens?
SO WTF ARE YOU DOING RIGHT NOW?
Follow-up, due to the movement in Treasuries today what is everyone's opinion on the newly steepened yield curve
I know I and some other people have said that a steepened yield curve was necessary to restore proper functioning of banks, together with the easing in the CP market, dare I say there are some positive improvement in the financial market ?(despite unrecognized losses and a falling economy)
To fight an asset bubble, the Fed would RAISE interest rates.
Yes. I think it is really that simple. Rates should have been raised much quicker, much earlier, and they've probably got really good data that show that. They need to lurch the rates up in a large enough increment to make a difference. Other possibilities could be a transaction tax that could hamper a bubble's development.
Limit leveraged assets, bets, cash to a smaller number 7 to 1. That would keep excess capital from flowing to one single market. That is still highly leveraged in my book but a hell of a lot better than the current model of 30 or 40 to 1.
-Money Man
Sounds like another good idea. Haven't the Chinese been somewhat successful at pushing up capital requirements for banks to cool their inflation problem?
Never got a chance to finish a prior thread, but wanted to send out a Thank You to CSC & Scotto for their suggestions on where to look for PM's.
I had a nice conversation with someone at golddealer in Inglewood, and also at the Newport place that CSC recommended.
A credit based economy requires more and more debt to keep growing. If debt stops growing the whole cycle breaks down.
Debt growth requires an ever increasing number of asset bubbles.
I believe THIS is why Greenspan and others were so deathly afraid of prevent asset bubbles. Our economy REQUIRES asset bubbles to keep growing.
But as Roubini has pointed out real-estate bubbles are always the worst, do the most damage, and take the longest to recover from.
Unfortunately by 2002 the only asset big enough to keep our debt cycle growing was real-estate.
McKay:
"Besides these bubbles, many others sprang up daily, in spite of the condemnation of the government and the ridicule of the still sane portion of the public. The print-shops teemed with caricatures, and the newspapers with epigrams and satires, upon the prevalent folly. An ingenious card-maker published a pack of South-Sea playing-cards, which are now extremely rare, each card containing, besides the usual figures, of a very small size, in one corner, a caricature of a bubble company, with appropriate verses underneath. One of the most famous bubbles was "Puckle's Machine Company," for discharging round and square cannon-balls and bullets, and making a total revolution in the art of war. Its pretensions to public favour were thus summed up, on the eight of spades:
"A rare invention to destroy the crowd
Of fools at home, instead of fools abroad.
Fear not, my friends, this terrible machine,
They're only wounded who have shares therein."
Ted Williams, not PhilR. 2 pieces; head and body.
Shnaps that Roubini post is PRICELESS!!!
Germany 1939-1945,,,
War
Russia 1941-1945; 1991...?
War/ Collapse.
Dmitri Orlov wrote a book "Reinventing Collapse" that has a good argument as to why the US will not emerge from collapse. He pegs commercial collapse at xmas.
ClubOrlov
Russia, 1989...
Collapse
Japan, 1990...
I wish we had the Japanese societal norms and lack of weapons.
That's it, heading for the hills...be back later.
Be kind to each other.
"preventing bubbles might seem an attractive goal"
What a timely admission. So they knew about bubble creation--they just ignored the risk? Small-time, ignorant RE investors had the same delusion--so what's their excuse?
Good thing Bernankes an expert on the depression. Too bad he didn't study preoperity.
I'm thinkin' that every bubble has some economic fundamentals behind it--some real economic reason for the price of whatever to rise. Then people notice the rise, and assume it will continue for awhile. They invest, and sure enough, it rises some more! Isn't that amazing! They invest some more, and other people notice the rise and invest--and in the modern world all of this happens a hell of a lot faster than the producers of this thing can ramp up production in response to the price signal. Or, in the dot.com example, it happens a lot faster than market forces and plain old reality can intervene to kill off the misconceived companies like pets.com.
The challenge would be identifying the point where a legitimate rise in the price of something cuts loose from economic fundamentals, and people start to bid up the price because they think the recent pattern of increase will continue indefinitely.
Government intervention on incipient bubbles may seem like tyranny to the people who live for the opportunities to get rich quick in a freewheeling marketplace. They will get rich slower, if at all. The economy may seem significantly less vibrant to some people. That will be the cost of giving most of us a little more economic security. It is a price that I am willing to pay.
To fight an asset bubble, the Fed would RAISE interest rates.
Except that really wouldn't have been necessary in the most recent cases.
All they needed to do was refrain from cutting rates.
This would have likely crushed the developing bubbles back in 1998.
I.E. the solution to the asset bubbles is simply for the Fed not to do anything.
This makes sense if you make the rather reasonable assumption that Wall Street is smarter than the Fed.
That is easy. If "known experts", ex-doomers, political shysters are promoting it- it is probably a bubble.
Another sign- lots of graphs, models, figures and "specialist sounding" language is used to promote the cause.
Another sign- People using the following sentences
a. "There is a consensus" (hubris)
b. " fundamentals have changed" (but evidence suggests otherwise)
c. "models/ theories predict that.." (we live in playstations)
d. "Think of the kids", "Europeans are doing it", "think of.. ", "It is immoral.." (religious BS)
John Stark writes:
For housing, sure, you have price/rent and price/income and so forth. But the next bubble won't be in housing... So how do you identify them in general?
Without bubbles this economy has nothing, nothing.
But in a free market where corrections and recessions are allowed to happen these things are usually revealed during times of stress before they get out of control.
By preventing these stresses from occurring via rate cuts and bailouts they remained latent and multiplied until these stresses could no longer be put off.
No argument here. But the Fed is simply powerless to decide where its money goes once its lent out. Even at this late date the treasury can't force the banks to lend. The only way to direct capital is through law, something the Fed can't make.
The FFR is a blunt instrument. You won't have much luck popping a helium balloon with a sledge hammer.
CalculatedRisk --
I don't think significant asset bubbles are really that hard to identify.
Perhaps he should look at Treasuries?
what is everyone's opinion on the newly steepened yield curve
Having a load of crappy economic news come out and seeing 10 year rates go up on it (even if they ended down a tad) said something to me. And it wasn't anything good.
It basically said RUN, RUN FOR YOUR (financial) LIVES!!!!
Minitry of Truth writes: Shnaps that Roubini post is PRICELESS!!!
Yeah, it's a hoot. It's also the first time I've ever seen Dr. Doom smile.
This one was my fave. "Uh, Nouriel - the camera's over here!"
Can you blame him,tho?
A few lines of code could run monetary policy better than the fed.
Hedge fund manager John Paulson identified the housing bubble and made $15 BIL for his funds and $3 BIL for himself. His newest employee is Alan Greenspan, who he agreed to take on despite their differences as to whether asset bubbles can be identified.
Paulson reportedly installed world class email encryption so his hedging activities could not be known. In the greed inspired world resulting from a decades old fed-sponsored credit binge, Paulson could have mass-emailed his plans to FR/TR and probably everyone else without risk of anyone else seeing the opportunity in the deflating bubble.
I don't think significant asset bubbles are really that hard to identify.
Reefer
EvilHenryPaulson writes:
Depends if you enlarge your view. From 1980 to 2007 the US National Debt to GDP increased from 150% to over 350%. In that context, if America must de-lever, then Gold is a lead indicator of a bubble unwind.
Hi EHP, 1st thx for the encouragement to post, graciousness noted, but still I have to pay my dues by first understanding the genius of this conversation - tough. Maybe in a year. Ok, i understand physical gold, i used to refine and buy-sell to J&M. I called them a few months ago - the supply is only for gov and institutional buyers. Can you pls explain your post so that I understand it?
Here's a confidence builder from Bloomberg: Bush Says U.S. Taxpayers Will Get Back `Most' of Money Under Bank Rescue
Wow, it's party time
My take-
1] The end of western europe as a region of any significance- bad demographics, decreased consumption, innovation hindering environment, still living in the past, stratified society, poor integration of immigrants.
2] The beginning of the end of Australia, NZ and Canada as white dominated societies. While these countries might survive in their present form, they will have to change a lot.They will have to diversify beyond their current economic base, allow innovation and foster integration- otherwise they are screwed. Then again they do have a lot of idiots who live in the 1900s.
In my experience with canucks, only white canadians whose ancestors came to canada before WW2 (canucks) have such uncritical belief in their "superiority".
Almost everyone who came to canada post WW2, especially since the 1960s has a rather dim view of canada and canucks. This dim view of canada is shared by many immigrants irrespective of color or language. Some of worst critics of canucks are brits who moved to canada in the 1960s-and 1970s.
3] The US will probably do better than any western country for one reason- willingness to change. The one trend that has always manifested throughout US history has been a willingness to give up old ideas that are no longer workable. Often this requires a bad event to manifest itself (Civil War, WW1, DG1, WW2, Civil Rights Movement) but things do change for the better. Well most of the time.. at least.
One example- for all the history of poor treatment of non-white people, we today have many rich people, CEOs, well compensated innovators and yes.. kashkari- who are non-white. Compare that to any other country.
4] China is the big unknown. It could either realize the fallacy of neo-mercantilism and encourage it's own citizens to consume. It could also slip back into it's nationalistic shell- and get civil unrest/ posturing/ revolutions etc. Who knows??
5] Other Asian countries (excluding japan)- They have got their s**t together. Should do OK in the medium term. Long term, who knows?? - No one can consistently predict the future beyond 10-15 years.
6] Japan- If they do not become less xenophobic, they are f**ked. Their demographic profile is atrocious. If they get over their xenophobia, they could make it through this storm and end up better than they are now.
7] India- Lots of potential, but the society is too feminised and respectful of old idiots. Once they get over that and realize that they are in it together- they have a bright future. They could also destroy themselves through excessive infighting and mercantile attitudes.
8] Africa- If they get their s**t together and rearrange their boundaries in the way they see fit, things could improve. Peace+ need for more consumers might make it a very good place for growth. Who knows??
9] Middle East- Bright future if they become much less religious. Otherwise they are gonna get nuked one of these days. I feel the latter option is more likely.
Well if that don't beat all....Bretton Woods...again..just damn.
From Bloomberg.com
EU Pushes for Overhaul of Post-World War II Financial System
By James G. Neuger and Mark Deen
Oct. 16 (Bloomberg) -- European Union leaders pressed for an overhaul of the global financial system to prevent a repeat of the credit crunch that sparked the biggest stock-market selloff since the Great Depression.
EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord that paved the way for Europe's post-World War II reconstruction and set up the institutions that oversee the world economy today.
Who is reposting my stuff?????????????
Paulson and Kudlow, what a team of retards. So far, no mention of Credit Default swaps. The reason banks wont lend to one another of other financial firms is because there is zero transparency, no one knows whos left holding the bag on 70 trillion of Credit Default Swaps. Now until that is dealt with, there is no bottom. Paulson is deliberately risking the global economy to protect a small number of thieves and scam artists. This is unconscionable. LEAVE THE KEYS AND GET OUT! Based on what I've seen, the markets will absolutely collapse!
Ohh it is that canuck "Pissed Off In California". You are a coward, then again that is redundant
meanwhile they get away with stealing millions from working class americans and then get a bailout...
crispy&cole
Bad day?
satan writes:
Who is reposting my stuff?????????????
satan | 10.15.08 - 7:25 pm | #
Satan...Haven't you read the book. You don't get to win.
satan, are you having a "senior" moment? Watchout, Paulson's in the wings eyeing your kingdom. Did ya see his resume?!!!!!!Scary stuff and it ain't even Hallowee
Anyone have the latest tally on how the Bear and Sterns deal is panning out?
Bad day?
Barley
LOL
im assuming the problem isn;t the bubble
i would argue it is very very hard to determine when an asset class moves from forth to an outright bubble - and if you get it wrong in short circuiting real demand as opposed to an irrational bubble - you (the central banker) do more harm than good - very easy to make pronouncements that 205 was when it became a bubble - after the fact (or pick your year)
the issue is that making a mountain of side bets (MBS CDS and their derivatives) on anything (and especially a bubble) in an unregulated fashion is a recipe for disaster
if we had 60 trillion in unregulated derivatives tied in an opaque web to the price of gold, then yeah, any bubble there would be a problem
otherwise, it just doesn;t matter
grow a pair BB - tell them what the real problem is - casino gambling writ large, unregulated, and no house odds - thats your recipe for disaster - he asset bubble just made it much worse
Geez, I can't keep up--this is from last thread, but wanted to comment that Suzie O has been saying that for at least 2 weeks--not only on her show, but on Oprah and also I think on Larry King. Actually she was taping Oprah's show right on the day or day after the run from the mm funds. I kept meaning to post that but kept forgetting.
Wonder how much O pulled out?
Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe
Crisis spreads to Eastern Europe as Ukraine, Hungary and Serbia call IMF - Telegraph
canucklehead -- I am not a 'gold bug', I understand its uses but I realize its value is determined by the fluctuating marginal demand. Certain cultures definitely prefer it to corporate bonds for a store of value.
I simply can't say that I reliably understand its pricing in a leading manner, and what I don't understand frontwards & backwards I don't trust with my money.
It is both my opinion and understanding that at least until recently, large banks have had the metals exchanges cornered and that's not a game I want to play.
Well, I write my own book. So far things have gone my way
Money Man writes:
Satan...Haven't you read the book. You don't get to win.
Kudlow asked Paulson a very good questions (of course Paulson didn't answer it):
Kudlow - "What will prevent the banks from taking your billions at 5% and using it to payoff their other preferreds that cost them 8-10%"?
Paulson - "uh, uh, uh, 2 minutes of mindless nothing, then...they won't"
OT. When will Iran provoke a war with Isreal to get the price of oil up? Or Russia into the Ukraine? Or when does Venezuela implode upon itself?
Don't these one trick poines have an interest in reviving the price of oil at any cost?
did you hear that?
Paulson (speaking about Lehman) said "failure of any large financial system, I mean financial institution" is expected to cause severe market problems.
he meant SYSTEM....we are all screwed.
No.. just a loser canuck trying to impersonate me.. then saying canuck = loser is redundant.
rps writes:
satan, are you having a "senior" moment? Watchout, Paulson's in the wings eyeing your kingdom. Did ya see his resume?!!!!!!Scary stuff and it ain't even Halloween
rps | 10.15.08 - 7:28 pm | #
To prevent this current housing bubble, Fed should have been able to set a minimum mortgage rate. That is, a floor for how much banks have to charge for a mortgage.
Ex. Say the floor was 3%
Fed detects a housing bubble underway
Fed raises the floor to 4% cutting demand
Housing bubble goes away.
Russia, 1989...
Collapse
Couldn't have been a very big collapse, they're still threatening nuclear war, yes?
Anonymous writes:
satan writes:
Who is reposting my stuff?????????????
satan | 10.15.08 - 7:25 pm | #
Anonymous | 10.15.08 - 7:28 pm
lol
[For example, could the Fed really tell the difference between Peak Oil (if/when it happens) and a speculative bubble? How?]
I would start by examining the leverage employed by those buying up assets that seem to be displying bubblish characteristics.
satan writes:
canucklehead -- I am not a 'gold bug', I understand its uses but I realize its value is determined by the fluctuating marginal demand. Certain cultures definitely prefer it to corporate bonds for a store of value.
Satan - are you asking me a question? Am i privileged to speak? If so, what is you want to know. Be specific.
wow...some serious paulsonbluster on CNBC right now, with none other than the KRUDlow. Worthless. And yet priceless.
Barley writes:
Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe
Just finished going through that. Thanks for passing it on.... I get queezy with unstable countries being pushed into a rough economy
Kudlow - "What will prevent the banks from taking your billions at 5% and using it to payoff their other preferreds that cost them 8-10%"?
Spot freaking on.
Bubbles can be controlled. Raise margin requirements. In real estate down payments.
"Fed may consider asset bubbles."
Well that's good. Now that we're not gonna have any for quite a while. BS Bernutty is one sharp fellow. Did he write his PHD thesis on the GD1 or navel gazing?
It has to be navel gazing.
Nostrovia,
Yes, but we have not made it to the last page yet. See, the believers get to take back the Kingdom and put evil in it's place. Every good book has a happy ending...Oh, and by the way there is a mansion for each of us in paradise....
"Dmitri Orlov wrote a book "Reinventing Collapse" that has a good argument as to why the US will not emerge from collapse. He pegs commercial collapse at xmas."
I've read a bit on Orlov's site. I think he says in essence that Russians survived the collapse of the early 90s because of social networks and the toughening experience of surviving deprivation.
He needs to be worried about the unemployment/serf wages bubble.
It doen't matter what else he does, the only true fix is for the majority of the people to be paid enough money so they can afford to buy stuff.
Son, did you take your anxiety medicine today?
Kudlow: Would you be willing to stay on for a few months?
Oh my god...here comes the coup de etat!
There are bubbles, and then there are superbubbles. Dot.com, painful as it was, taught me a lot about the stock market and made me a better investor. My portfolio recovered--and millions of people were not affected at all.
This housing-mortgage--MBS--CDO bubble is not like that, is it?
ahh that was probably just "Pissed Off In California" trying to impersonate me.
Satan - are you asking me a question? Am i privileged to speak? If so, what is you want to know. Be specific.
canucklehead | 10.15.08 - 7:31 pm
@Cynical: Oh, now I get it! The stolen $700 BIL taxpayer funds invested in the 9 banks will enable them to buy their way out of their CDS obligations. Is that it?
``We're not going to use taxpayers' money to enrich financiers,'' Bush said
``People aren't going to be able to have a golden parachute as a result of your hard-working money,'' Bush said, referring to executives' severance payments.
Bush must not be on Hankypanky Paulson's real important meme list.
Just as soon as you stop smoking that stuff, it is making you so delusional.
__
Satan's Mom writes:
Son, did you take your anxiety medicine today?
Satan's Mom | Homepage | 10.15.08 - 7:33 pm | #
The problem is stupid fractional reserve banking. It was exaggerated because the investment banks were allowed to lever up 30:1 instead of the traditional 9:1.
Of course, part of the rescue package reduced bank reserve ratios to 0%, so leverage can maybe go to infinity! Maybe there is some capital reserve requirement that will prevent infinite credit, and infinite bubbles.
This economics stuff is easy.
WHhheeeee!
When did Bloomberg become The Onion?
``It's likely we'll not only get most of the money back, but in some cases actually make a little money,'' he (Bush) said.
"Ohh it is that canuck "Pissed Off In California". You are a coward, then again that is redundant"
I can't figure out whether you're just a troll, an asshole, long the market right now and in need of new depends or all of the above.
I need to remember never to attempt to give useful information to assholes on the net; just a waste of my time.
--
I don't think significant asset bubbles are really that hard to identify.
I totally agree with CR.
Crooks agents make a point of closing the bar door after the cattle is out. Do you need better proof that Greenspan and Bernanke ARE crooks agents?
Open up your eyes, people. American econo-political system is completely controlled by Crooks and their agents in USG and Fed AND at the expense of honest and hardworking American People.
Jas
"Couldn't have been a very big collapse, they're still threatening nuclear war, yes?"
Russia collapsed, but was never defeated. There has been no foreign army in Moscow since 1812. IMO they are not threatening nuclear war.
Nuclear war fighting doctrine is not on topic here.
I eat cat poo and put marbles in my bum. aaahhhhhhhhh stop it .
Well.. I did not start the reposting. So as long as you do that, I will reply back.
Pissed Off In California writes:
"Ohh it is that canuck "Pissed Off In California". You are a coward, then again that is redundant"
Hmmm...
Fed fed asset bubbles. That's kinda all that needs to be said.
Nostrovia,
This housing-mortgage--MBS--CDO bubble is not like that, is it?
John Stark
No it is not because it is all contained (to the global financial system). So as long as you have no ties to anything financial, your okay.
O/T
Just rec'd txt mssg about two oil tankers being instructed NOT to off load at Asia location.
Caption:
Who farted?
Comrade Misean is Dope writes:
"Fed may consider asset bubbles."
That must be a typo, I think you meant "Fed may consider ASS Bubbles
I am not a canuck.. that is so "a canuck thing"
satan (aka some canuck impersonating me) writes:
I eat cat poo and put marbles in my bum. aaahhhhhhhhh stop it .
satan | 10.15.08 - 7:37 pm | #
Pardners,
The horses have been blowing bubbles around the paddock and snorting to high heaven at each ridiculous thing that the Bernanke and the Paulson have been saying.
They also are urging me to move to Argentina.
What is a poor cowboy to do with all these old bubbles lying around poisoning the hay?
Giddyup!
Hi EHP, 1st thx for the encouragement to post, graciousness noted, but still I have to pay my dues by first understanding the genius of this conversation - tough. Maybe in a year. Ok, i understand physical gold, i used to refine and buy-sell to J&M. I called them a few months ago - the supply is only for gov and institutional buyers. Can you pls explain your post so that I understand it?
canucklehead | 10.15.08 - 7:23 pm | #
I don't understand physical gold other than it is a market that can be controlled by the big players and ultimately they will win.
I was referring to the growth in the US has coincided with an increase in debt. Given that no debt to income ratio can grow forever, and that it is easy to see how a consumer/state/corporation grows by borrowing then it bodes negatively for future earnings growth inside the US. Earnings + Foreseeable growth rate = value. If the debt/growth rate must decrease and earnings must go to pay down debt to a better margin of safety, then that would summarize a generational bubble in US stocks/treasuries.
Gold is if one thing, international and therefore a reference point to compare the US stock/treasury markets against
It was an offhand remark because the recent banking consolidation has made the metals exchange market a less equal playing field and so you can't necessarily trust it
Save your strength, satan. Our battle begins soon.
Get a life..
Jesus writes:
Save your strength, satan. Our battle begins soon.
Jesus | 10.15.08 - 7:40 pm | #
"there won't be any bubbles for a long time."
With all the $ being pumped into the system I can't agree. Look for it in 6 - 9 months.
--
"Sorry Jas. hug"
'nova,
Thanks, Nova. I needed that.
Hug back.
Jas
Barley writes:
Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe
Live: i just checked with an employee of min in Kiev, his comment: " yeah...it's true....because our economyc very depend from dolar's cost on the world market....there are a lot of bank is closing....because we have crisis.
Message from the Kiev street...
Satan,
Why do you have against us Canadians? Did you visit Montreal or Vancouver and accidentally pick up a transvestite hooker or something like that. If you ever visit Vancouver Island I'll hook you up with a real one, maybe you'll stop being so miserable...
bond guy --
Thus, the Peak Oil example raised by Nemo (are high oil prices a bubble?) is not too much of a concern. There's not a huge pile of debt financing oil stockpiles (as far as I know).
I wonder whether that is true... I thought everything in our modern economy involved debt financing, to a first approximation.
Regardless, I still do not think it is so easy to distinguish a "bubble" from the actual effects of supply and demand. And I am not convinced that we would be well-served, in the long run, by a bunch of bureaucrats whose purpose was to "identify and lean against asset bubbles".
Despite the recent disaster, I still believe markets work far better than central planning.
I find you guys too self-righteous.. that is all. Hubris (pride) is my favorite sin..
Lakeguy writes:
Satan,
Why do you have against us Canadians?
So what's this hoopajoop that Kudlow got Paulson to say on CNBC that qualified as breaking news - something about a 30 day interbank lending guarantee? Those are big numbers to guarantee, arent they? And how is this new?
But most of all, why is CNBC trying to spin it as something that will make the stock market go up? Are they that desperate after today that they have to reach this low? Gawd....
PS I have visited victoria a few times- nice city but major RE bubble.
If you ever visit Vancouver Island I'll hook you up with a real one, maybe you'll stop being so miserable...
Lakeguy | 10.15.08 - 7:42 pm | #
peAkcredit writes:
@Cynical: Oh, now I get it! The stolen $700 BIL taxpayer funds invested in the 9 banks will enable them to buy their way out of their CDS obligations. Is that it?
As I said, no one knows who is left holding the CDS bag, because they are contracts executed in the shadows, without benefit of transparency or reserves. Now if I think there is a chance you have a bad CDS position hidden on your books, I will not lend to you. this is why transparency is critical in financial transactions. Also, I know there are 70 trillion of the CDS's out there, I just don't know anyone elses position. If you are even a medium sized institution, I have to believe you have some CDS counterparty obligation or risk. Ergo, I will just hang on to my money and not lend. So until they acknowledge and deal with this we don't have a prayer. Then we have to deal with the fact that 70 Trillion in insurance has zero reserves to back it up...systemic? You betcha!
"Regardless, I still do not think it is so easy to distinguish a "bubble" from the actual effects of supply and demand. And I am not convinced that we would be well-served, in the long run, by a bunch of bureaucrats whose purpose was to "identify and lean against asset bubbles".
Despite the recent disaster, I still believe markets work far better than central planning."
There's no NEED to identify bubbles.
All we need to is to go back to plain vanilla banking with properly enforced regulations.
Bring Glass Steagal back.
Enforce 10:1 leverage at banks.
All exchanges world-wide need to be transparent.
Proper under-writing standards for mortgages.
No off balance-sheet vehicles.
Are we all going to be a bit poorer because fake credit has disappeared? Yes
Are we all going to have to save more? Yes
It's not rocket science, there's a reason why all of these regulations were enacted after the great depression, and there's a reason why it worked for 60 years.
Give me back my forum, aaaaahhhhhhhhhh get out of my head
The great difficulty here is that the Fed cannot target. Easy money goes wherever people want to put it; tight money stops everything.
So, does this mean the Fed would intervene in a specific market? It cannot do so without that action artificially creating winners and losers. People would then start to speculate on the Fed's actions, creating pre-bubble bubbles.
The Fed's best chance, I think, is to look at total debt load (which is, ultimately, total money supply - sound familiar?) compared to the carrying capacity of the population. There can only be so much money in a given representative population.
Comrade Misean: If we were paddled out at the cliffs right now, I'd say, "Man...what a knob."
I'd snake him.
Stop impersonating me..
_
satan writes:
Give me back my forum, aaaaahhhhhhhhhh get out of my head
satan | 10.15.08 - 7:46 pm | #
Coinz,
"Of course, part of the rescue package reduced bank reserve ratios to 0%, so leverage can maybe go to infinity!"
Ermmm...dividing by 0 kinda implies that we are already there.
CR,
I don't think significant asset bubbles are really that hard to identify.
Nope, not. TPTB want them because it enriches them. So they roll out all the stops to keep them growing and moving to new areas. Have since Brentton Woods breakdown. When the depression hits, does anyone think these guys are gonna be in soup lines?
No, they'll be buying things at pennies on the dollar, using $100 bills to light their Cuban cigars.
These things are done on purpose. If educated people on blogs can spot them...so can these asshats.
Bzzzt! Damn! Battery time change for the Super Colander Tin Foil Hat.
Nostrovia,
Self righteous? Canadians? Never heard that one before. Everyone is allowed to have thier own opinion, thats what places like this are all about...
How are BB and HP going to catch the horse who ran away?
Group hug...
Is satan bi-polar?
"Thanks, Nova. I needed that.
Hug back."
Keep it decent, guys.
The credit crunch hitting Eastern Europe and the Balkans might be of more significance to the media in the short term (see posts by Barley, canucklehead)
I see things as degenerating faster and causing public riots unless I am mistaken that it will hurt consumers and the outlook for growth (ie hope in general for coming together)
Does satan have a personality disorder?
PO in Ca
There is one problem, massive increase in money supply must force a bubble somewhere.
CR: I don't think significant asset bubbles are really that hard to identify.
Agreed.
The problem is that what leader (President, Fed Chair, Senator, Congressman, etc) would have the political capital to pierce a bubble while still in the middle of an expansion. What do you think would have happened to a Fed Chairman who successfully helped initiate higher interest rates in 2004, causing the California, Florida and Las Vegas real estate markets tank within six months? Or how 'bout a regulator who pushed for tighter lending standards during that period?
Granted, with the benefit of 20/20 we know that either of those moves would have been a much better option than those were now facing. But that same leader, would not have been congratulated for preventing and unsustainable bubble, he/she would have been vilified (think realtors and Wall Street) for causing the markets to tank.
The conundrum is that without the benefit of 20/20 hindsight a leader, whose economy is still experiencing significant expansion,cant prove that there would have been a bubble and therefore would have no way to prove that hitting the brakes would be the most wise move.
If you read Lowensteins "The Rise and Fall of Long Term Capital Management" you would have a good idea that the FED and Treasury were more than willing to bailout a bunch of losers to help the bankers. That thing was childs play compared to the size of the current mess, but even then they were using the whole "systemic collapse" line to reward bad investments. We had a dry run already on this kind of thing but yet we are still doing it wrong.
"Live: i just checked with an employee of min in Kiev, his comment: " yeah...it's true....because our economyc very depend from dolar's cost on the world market....there are a lot of bank is closing....because we have crisis.
Message from the Kiev street..."
Poor Ukraine, the Stalin famine, the Stalin purges, smashed by Germans, irradiated by Chernobyl. Putin has shown or will show them Kuzma's mother. Poor Ukraine.
Oh no, not again...
USD/JPY
ahh just some impersonater/s
Barley writes:
Is satan bi-polar?
Barley | 10.15.08 - 7:49 pm | #
At least stick to one name..
rps writes:
Does satan have a personality disorder?
rps | 10.15.08 - 7:49 pm | #
Let's switch to making hurtful comments about Swedes.
They tend to be smug, arrogant and holier than thou.
Nemo writes:
Oh no, not again...
USD/JPY
Nemo | Homepage | 10.15.08 - 7:50 pm | #
Anyone have change for C note?
satan my son you must leave this place and return to me, you are destroying a great blog with your endless drivel
well, yes but they keep it to themselves unless they are drunk..
karelian writes:
Let's switch to making hurtful comments about Swedes.
They tend to be smug, arrogant and holier than thou.
"Ever dance with the devil in the pale moonlight?"
"When you dance with the devil, the devil does not change, the devil changes you"
Pavel Chichikov - shitty things happen to good people.
Been there, worked there. Great people! Too bad they got caught up in the easy life. Aint democracy wonderful.
I can see Victoria from my backyard, like really man...
UK bailout - not going smoothly...why? Of course, because Paulson made it relatively less painful for his mates in the US. Seriously, when can we get rid of this doofus and get on with fixing things? Is it not yet completely obvious that he has a major conflict of interest, beyond just his broken ideology?
U.K. Bailout Plan Shows Some Cracks - WSJ.com
Maybe they need to put a big real-time graph of Asian markets up behind McCain/Obama during the debate tonight.
Hahahahahahahaahah Kudlow just called falling prices a tax cut again. What a idiot! The bailout is a huge tax increase that dwarfs any "tax cut" effect of falling energy prices. Also energy prices are falliing because economic activity is falling worlwide.
Gulf islands?
Kona writes:
I can see Victoria from my backyard, like really man...
Kona | 10.15.08 - 7:52 pm | #
Nuclear war fighting doctrine is not on topic here.
Pavel the Optimist.
Somebody asked for examples of countries which survived a Crash. Would you say that the USSR (wow, there's an ancient acronym) "survived" 1989?
--
Totally OT. Which one of us do you think is Krugman? I'm almost certain it's either CSC, Jas, or Elvis.
Interesting Times,
I know you mean in jest, but associating me with any economist is an insult. Economists have a lot to do with the problems we are talking about.
Arent Bernanke and Greenspan economists? They are morally bankrupt because they propose solutions without ever considering if they are right or wrong in moral sense. They juts want to solve a problem. Hitler had the same mindset. Sorry, I realize that it is hard for most people to think that way.
ANY SOLUTION THAT REWARDS BAD PEOPLE AND PUNISHES HONEST PEOPLE IS GROSSLY IMMORAL.
Jas
CSC,
"Comrade Misean: If we were paddled out at the cliffs right now, I'd say, "Man...what a knob."
I'd snake him."
Bwahahaahahahahhaha!
Yeah it'd be bitchen' to snake such a poser. I'd bogart the dudes stash too, cuz he'd be so bagged on, the only time people would talk to him is if he was sharing some kindy.
Nostrovia,
Nemo writes:
Oh no, not again...
Folks need USDs to settle up.
Not the Swedes - love those folks, too. Yes they are a bit insular but nice never-the-less.
Agree with you there..
ANY SOLUTION THAT REWARDS BAD PEOPLE AND PUNISHES HONEST PEOPLE IS GROSSLY IMMORAL.
Jas
Jas Jain | Homepage | 10.15.08 - 7:54 pm | #
And now the Israeli Firsters, fearful that an Obama victory might liberate the US from its Israeli controller, are turning to hate DVDs to stir up religious (and racial) prejudice against him. Sickening.
Muslim DVD rattles voters in key battleground states - CNN.com
This country deserves a McCain/Palin admin. It also deserves McCain dropping dead 30 seconds after being sworn in and Sarah becoming the president
"Bernanke: Fed may Consider Asset Bubbles"
Clearly, Bernanke is a genious. How come he did not get the Nobel in Chemistry? Damned Swedes!
Oh my god I have tears.
"Been there, worked there. Great people! Too bad they got caught up in the easy life. Aint democracy wonderful."
Barley, I was in Kiev over 20 years ago. I have never seen the new Russia or the new Ukraine.
Actually I am Krugman...
Has anyone else noticed how FAT Krugman is now? He must be on this blog all day long reading the comments and not getting out
I am Krugma
re: satan
Everyone, please take a deep breath and realize that giving any further undue attention is to the ruination of all our interests in having meaningful/informative/short enough to catch up on discussions.
He first popped up a few days ago and ever since has been from Seattle/Vancouver/Montreal/Toronto and posted some bizarre self-victimizing bitter tirades. The central theme is he hates Canada and is ready for it to implode into a primitive society centered on race riots in the most unique demagogy I have ever seen. There is no point in continuing to attempt reason or to remind that this is not the proper venue for a group therapy session.
Please just ignore him, at least until there is a post of substance worth responding to.
thank you for your time
Gulf islands?
Nah, I'm an Olympic Peninsula type... freezing to death!
Have you read any of the books of that "peaceful religion of submission to god". Trust me- the israelis, for all their corrupt leaders look like boy scouts when compared to their neighbors.
jim writes:
And now the Israeli Firsters, fearful that an Obama victory might liberate the US from its Israeli controller, are turning to hate DVDs to stir up religious (and racial) prejudice against him. Sickening.
jim writes:
And now the Israeli Firsters, fearful that an Obama victory might liberate the US from its Israeli controller, are turning to hate DVDs to stir up religious (and racial) prejudice against him. Sickening.
CNN.com - Page not found 14...=rss_topstories
OMG, I got one of those in the mail and tossed it--did not know what it was.
Will the real slim krugman please stand up
when can we get rid of this doofus and get on with fixing things? Is it not yet completely obvious that he has a major conflict of interest, beyond just his broken ideology?
As I said before, Obama needs to promise voters he will demand to take charge of economic policy the day after he is elected, kick out the dithtering dunderheads we've got at present and put in people who will get the diaster ameliorated and then solved.
Brazil in free fall and their newspapers still have pretty woman on the front page...Latins sure know their priorities:
http://extra.globo.com/
I'm way late to this thread but it was nailed early on:
Problem- the number of people with a vested interest in keeping the bubble going is too great.
Imagine the joint uproar of the all the free marketeers, wall streeters and the NARs/ACORNs of the world if anything was done interfere with the housing market in 2005-2006.
indeed. The reason why so few people saw there was a tremendous housing bubble building - when it seems perfectly obvious in hindsight - is that so many people had a vested interest in perpetuating it. Even folks who had no interest at all in selling their current dwelling were pleased as punch to see their home value rising without having to lift a finger.
It's the same dynamic that perpetuates pork barrel spending in Congress. If some guy in Alaska gets a $200 million Bridge to Nowhere, everyone outside Alaska is in an uproar. But if your congress critter doesn't bring home the bacon, he gets shown the door.
satan: except that their neighbors haven't been stealing other people's land and turning the inhabitants into serfs. The Arab potentates are far from angels, but they aren't theives.
Hi EvilHenryPaulson,
I am here to discuss about events that matter. But I have to call out BS and self-righteous assertions/ delusions.
In case you have forgotten, it is delusional behavior that got us into this financial crisis.
From Brazil - let me translate- OH SHIT:
Bovespa fecha com a maior desvalorização da década
http://jbonline.terra.com.br/extra/2008/10/15/e151024065.html
bond guy writes:
The Fed doesn't really have to care about bubbles that don't involve debt financing.
Thus, the Peak Oil example raised by Nemo (are high oil prices a bubble?) is not too much of a concern. There's not a huge pile of debt financing oil stockpiles (as far as I know). Thus, the fall in oil prices is not endangering the banking system. Sure, futures are levered, but it's a zero sum market and they just represent a wealth transfer.
The same holds for bubbles in things like Beanie Babies, art, etc.
They only have to worry about things like housing (mortgage debt) and telecoms (telecom debt).
bond guy | 10.15.08 - 7:12 pm | #
I'm sure leverage had a role in the speculation we saw in oil this summer. And that is probably why we are not seeing it now.
karelian writes:
Let's switch to making hurtful comments about Swedes.
They tend to be smug, arrogant and holier than thou.
karelian | 10.15.08 - 7:51 pm | #
Yeah, maybe true, but the women are sooo hot. That makes up for alot...
Flight to quality:
In a sign that the liquidity crisis is becoming more acute for Russian lenders, Bank Globex, one of the industry's medium-sized players, has blocked early withdrawals from fixed-term deposit accounts for five days.
The announcement raised immediate concerns about whether the bank's move was even legal.
Emil Aliyev, vice president of Globex, said the measure was introduced after a spike in demand for early withdrawals of term deposits, "with many depositors explaining that they urgently wanted to transfer their money to VTB and Sberbank," Interfax reported. Both VTB and Sberbank are state controlled
http://www.themoscowtimes.com/article/600/42/371690.htm
Who gives a fuck about Canada? Drink your beer and go to bed
"Bovespa aciona 'circuit breaker', mas despenca"
Translation - Who turned on the circuit breakers??
Economists have a lot to do with the problems we are talking about.
Jas - I think you grossly overestimate the power that the vast majority of economists have in our society. While a great number of economists study the problems we are talking about, it is non-economists who overwhelmingly cause them.
...adding, I think the single most valuable thing that the Fed could do to prevent the next bubble, is to start telling people there's a bubble going on.
Think how much pain Alan Greenspan might have saved us if he had spoken up and told the truth about irrational exuberance in the housing market, rather than what he actually did, which was aiding and abetting the bubble by advising people to take out ARMs, which he most certainly knew was foolish advice for most borrowers.
Iceland down, Brazil next up to the plate. How many countries will collapse before we see 2 quarters of negative growth, ie a recession?
No money:
"Nine airlines will be grounded by the end of the week due to overdue debts, aviation authorities announced Wednesday."
http://www.themoscowtimes.com/article/600/42/371708.htm
"Somebody asked for examples of countries which survived a Crash. Would you say that the USSR (wow, there's an ancient acronym) "survived" 1989? :)"
Part of the SU was the Russian mind as expressed in society and its habits and perspectives. That doesn't change all that quickly. I have not been back since the early 90s, so there are people here with much more recent and relevant impressions.
But if it ever comes to your attention that a national leader is threatening nuclear war, that would mean that we are in the hands of a lunatic and no one is safe.
That being said, the very existence of those weapons is a constant, chronic threat to human survival. It is in everyone's interest to mute and if possible eliminate all threats and threatening postures.
For the record, I am not Paul Krugman.
xoxo
-N.
We need the WOPR to show us that nuclear war is useless! The only way to win is not to play the game!
I suggest you read the history of the spread of that religion before you say that. I can suggest you some fine sources from well known scholars of that religion. Their attitudes towards non-believers are very illuminating.
Now.. Christianity used to be like that, but it has changed/ become less problematic.
__
jim writes:
satan: except that their neighbors haven't been stealing other people's land and turning the inhabitants into serfs. The Arab potentates are far from angels, but they aren't theives.
jim | 10.15.08 - 8:01 pm | #