I know this is a Volcker thread, but Summers has the most interesting quote in the debate, with the potent phrase "financial balance of terror":
But there is a very serious potential contradiction, which I think will increasingly be at the root of the most serious financial crises and which in many ways we saw in Asia in the late 1990s, and that is if a country has two problems -- one is all the foreigners are trying to take their money out because they've lost confidence and they don't believe in the sustainability, and the other is that the domestic banks are failing and that the assets are coming out -- then the central bank has two problems. It has an external problem, which is that people don't want to hold your money -- you should print less of it; and there's an internal problem with the banks failing. You can't very well -- contracting liquidity can be catastrophic, as it was in the United States in 1929 and 1930. And with a single instrument, it's very difficult to hit two targets. And so the most serious risk in the system is the kind of crisis that arises when there is a simultaneous failure of both internal and external confidence. And that's why people will debate forever what the Bank of Indonesia or the Bank of Korea or the Bank of Thailand should have done, should have been encouraged to do by the IMF and so forth, because there was no very good answer in the face of that internal contradiction.
And that's why certainly one of the risks in the current situation does lie in the magnitude of the U.S. current account deficit and the buildup of foreign claims on the United States. And it's a very difficult question to know whether those who are now holding a large portion of those claims -- foreign governments and central banks -- are, in the market parlance, strong hands, who will continue to hold all the way through, or weak hands, who will tend to liquidate at the first sign of trouble. Both what are they, and what are they perceived as being, because if they're perceived as being weak hands then others will find ways to liquidate even if they don't. And I've said at another point that in important respects, today's system relies on a kind of financial balance of terror, that the incentive isn't there to liquidate because if you liquidate, the value of all the stuff you own goes way down in value and that it's hard to know how to think about a system based on a financial balance of terror. On the one hand, as we saw, systems based on balances of terror can often have tremendous stability. On the other hand, as the term "balance of terror" suggests, there's good reason for them to make one feel uneasy.
He doesn't know anything. Dow futures are pointing towards Dow 9k. Everything that was wrong has now been righted... the fundamentals of the economy are strong...
Speaking of integrity, I've long been fascinated by the concept of "reputational capital."
Some gain and retain this capital by telling truth to power. Tanta was a great example...most of us knew nothing about her except what we learned from the quality of her writings here.
Others gain a different type of reputational capital by sucking up to those within (and above) their circle. They can lie or distort with impunity because the higher-ups approve of the deception. Kudlow comes to mind, but there are many others.
What, Obama is going to be listening to some Carter appointee?
Next, before you know it, Obama will be talking about energy efficiency. Laughable - thrift is something Americans decided was for others back in the Reagan days.
How can we expect the America of today to continue as it is if we start focussing on all those failed policies from the Carter era.
Volcker is just another one of those people that wants Americans to live differently, making him objectively opposed to the current American way of life. Why does Volcker hate America so much?
Obviously, Volcker simply refuses to recognize that in today's America, debt equals wealth, and when someone actually has the bad taste to ask someone to pay their bill, the debtor is expected to say 'No.' As rudely as possible, to let the creditor know what the debtor thinks of such impertinence.
You would almost think Volcker cares about America's creditworthiness or reputation. How old fashioned - must have something to do with his age. Clearly, he isn't a baby boomer - a group notable for having seemingly collectively adopted the idea that 'equity' is for winners, while savings are for losers.
That Obama is listening to someone like Volcker is surprisingly clear evidence that Obama, at least, is not really a baby boomer. Boomers have been notable for putting off problems until they become someone else's - something Volcker, at least, has never been accused of.
The California Public Employees' Retirement System portfolio has lost 31.1 percent of its value since peaking last fall, a staggering $81.4 billion drop. CalPERS officials say a "rainy day fund" is helping to defray the losses - for now. But if the market slump continues, they will hit up state and local employers for more money.
...
The CalPERS portfolio hit a high point of $260.6 billion on Oct. 31, 2007. As of market close on Dec. 4, it had fallen to $179.2 billion - almost back to its value in mid-2000.
Only $81.4B? It wasn't long ago that a billion dollars was considered a lot of money to lose. Now we have individual private corporations getting bailouts worth hundreds of billions dollars.
Are you saying that Volcker's solution to the inflation of the 80s was causal in the debt expansion that followed?
~~~
Short answer : No
The long answer is that from the 80s until now most our expansion has been based on the expansion of the balance sheets of the U.S. , the Banks and the private sector. Volcker just us got back to square one ... his actions did not lead to the following expansion.
The U.S. was suffering from overproduction then and still does. The only way to absorb this overproduction was over borrowing and now the chickens have come home to roost ... We, the U.S., are close to, if not, insolvent.
We need banks as a public utility to channel capital into productive not extractive and consumptive activities.
Extractive and consumptive activities are more profitable because they do not add the externality costs of extraction, pollution and waste. If those externalities were properly priced it would be another matter.
Without an economic strategy other than free market consumer consumption we will not recover but continue our economic decline through trade deficits and under investment in human capital.
Talking about advisers. Gates staying on as the SOD has been puzzling me. Here's seems to be the explanation. GM | 12.08.08 - 3:06 am | #
Gates wants to do a number of things that I think BO wants to see, like cuts of some of the big $$ weapon systems that he sees not aligned with the job at hand in Iraq and Afghastlystan. No SecDef, not even Rumsfeld with his previous posting in the job, can waltz in and immediately start hacking programs up without leaving tons of broken glass on the floor. Gates has two years in the seat, and is ready to move on those changes now. A new guy will be there 12-24 months before he can get his gyros aligned and move things forward. Makes absolute sense to leave him there and have him get on with it.
What the talking heads won't tell you is that the United States is in for some "tough times" until the rest of the world's standard of living begins to resemble our own.
Unfortunately, I think many Chinese workers make 2-5K/year, and Indians maybe double or triple that if they are lucky.
Are you saying that Volcker's solution to the inflation of the 80s was causal in the debt expansion that followed?
No. However, people conflate the Reagan boom, which was causal with the spending spree, with Volker's actions. Without that spending spree, the Volker recession would have been longer and nastier than it was and his reputation might not be as stellar as it is today.
Let's not forget Reagan is the guy who started the Ponzi scheme of using tax dollars to sop up excess Treasuries - I do not recall Volker's feelings on that specific topic and would be interested in reading any of his quotes on the matter, if anyone has any.
Volcker has real credibility, but I'm very skeptical that he'll be very effective as an Obama advisor--one of many others that have conflicting opinions. I'm afraid his voice will be lost in the crowd.
Let's not forget Reagan is the guy who started the Ponzi scheme of using tax dollars to sop up excess Treasuries - I do not recall Volker's feelings on that specific topic and would be interested in reading any of his quotes on the matter, if anyone has any Fleck is Broke | 12.08.08 - 3:37 am | #
"Given his skeptical views about the Reagan tax cuts, Volcker lobbied in secret against their passage owing to his view that they would lead toa massive revenue shortfall. While Fed Chairman Fred Schultz worked onHouse members, Volcker lobbied senators to vote against the cuts."
Bringing consumption back in line with income would not only crimp individuals and families, but also require major readjustments in the global economy, which has relied on the U.S. as consumer of last resort.
He's basically talking about crashing the world economy.
Right now, isn't the objective just to try and tread water until the boom echo can drive secular growth? Even doing that is going to be a challenge and will retard growth when it actually kicks in.
Comrade Counterpointer in a previous thread asked for anecdotes about shipping, transportation etc.
A relative is involved with importing autos from Japan into New Zealand. Two years ago the best in class(car carriers) vessels in this trade were withdrawn and replaced with end of life vessels. Scheduled sailings of these replacement vessels were often cancelled at short notice when they were required to fill demand on another trade.
This priority trade was the North Pacific route carrying autos from Asia to US West Coast Ports.
Now the best in class vessels are back, and the sailing schedule is stable but less frequent.
"The market was being run by mathematicians who didn't know financial markets," he said
...but were employed by those who do.
I reject any claim (although it might not have been intended in this specific case) that the people responsible were ignorant or stupid. But if I am the ignorant or stupid one, then dictatorship over me is warranted, as though I were a ward of the State. Obviously, events have proven that millions were incompetent to manage the freedoms they had.
Were the flag, pledge, and political theatre the "opiate of the masses", all along? If so, and if I think the masses are even more ignorant or stupid (and therefore more dangerous) than I, then I'm forced to play along. I'm disappointed to learn that so much of our national drama was a fantasy world.
While they may can claim that their mathematicians are weak, their production and direction are world class.
mmckinl wrote:
LOL ... It lead to 20 years of debt expansion and the complete gutting of industry.
Here in the peoples republic of Chapel, Hill all the Lambourghni Liberals celebrated the demise of industry in that mother "Gia" would be happy. Just think, no industry no polution, who could be against that. Be careful what you wish for because chances are you are will get it.
We will pay for late sixties and the seventies with a vengeance. Peace and love to all.
No, if manufacturing does, it will use robots for many of the jobs done now. The UAW is like the dockworkers, obsolete.
The use of MEW, etc., may have created a lot of artificial jobs that covered up how little of the labor force is actually needed in a post industrial world where actual labor can be done anywhere.
Banks as utility is a good solution to problems like SIV or CDO (CDS can be solved by trading them on open exchanges like futures).
But how will venture capital fit into the world of banks as utilities? How will this world support the next Google or Amazon?
""Gratefully there are more independents these days, with a forum provided by the internet for their thoughts, who operate outside of the conventional journals and channels of economic orthodoxy. Independent minds like Mark Thoma's Economist's View, Paul Kedrosky's Infectious Greed, Barry Ritholz's Big Picture, Yves Smith's Naked Capitalism, Eric Janszen's iTulip, and of course the benchmark for all, Calculated Risk, among others listed in the Divertissement Éducatif section on the left side of this blog. Their task is too often thankless but a candle lit in the darkness nonetheless.""
Well, when O gets Rangel to cram through the 'greening' of our schools and roads, look for the Shovel Leaning Officers and Bankers (SLOB)program to save us all......
Wonder if this will make the U-6 stat.
ova(Unrated) writes: The use of MEW, etc., may have created a lot of artificial jobs that covered up how little of the labor force is actually needed in a post industrial world where actual labor can be done anywhere.
Agreed. This is the elephant in the room. Werner brought this up about a week ago indirectly, saying the US should get used to a more traditional economic structure of 30% of the population working in manufacturing. I didn't have a chance at the time but I wanted to ask who'd use the ocean of goods generated.
We really need to grapple with the fact that modern real economies are so efficient they really don't need many participants at all. There are a lot of answers -- deliberately abstaining from automation, paying people to drink beer and be a burden on society so it has something to pull, killing four out of five people in a lottery so the survivors have enough chores to divide between them. Whatever.
Also, don't forget that Volker was appointed in 1979 but didn't get aggressive until after Reagan was elected. It was Ronald Reagan who gave Volker the political cover to do what needed to be done.
Byz - wow, apocalyptic Logan's run start to the week. But, but, futures say all good rally on!
Government MEW to reflate production and create jobs will create a new TVA and WPA, but where's the final demand? It's not here and it's not in Europe. Confidence has gone tipping point parabolic, and it really looks at this point that the conversation is mismatched between economic numbers which could be juiced a bit, altho I have my doubts, and consumer psychology which has already concluded that tough times are ahead and bare essentials and repair and maintenance are the only items on the shopping list.
Counterpointer(Excellent) writes: Byz - wow, apocalyptic Logan's run start to the week.
No, it could be awesome. We could mostly give up money and live in a world where only the people who wanted to worked.
As a eudamonist, I'd like to see the human race get down to the important business of dressing in togas and lucite sandals and going from college class to shooting range to grange meeting.
It's a fruit hanging in front of us we could pretty much pluck whenever we wanted. Humans will make the potential into something else.
But, but, futures say all good rally on!
Party on everyone, we've just finalized plans to spend hundreds of millions of grandchildren into decades of labor to repay our debts.
"run by mathematicians" -- yes, let's pass the buck onto the math guys, for doing what their employers, the frat guys, told them to do.
Who do you think supplied all those rosy numbers and assumptions to cram into the quant machine?
We got into trouble because the financial system was run by scammers, who paid lots and lots of people -- mathematicians, politicians, salespeople, spinners -- very handsomely to give them cover.
The "financial instruments" weren't complex, they were BOGUS. The thick cloak of legitimacy placed around them--now, that was complex. Somebody needs to unravel that puppy and get to the ill-gotten gains of the operators behind it.
On another board, some guy I'm arguing with is convinced the consumer will be leading us out of this recession/depression by spending.
I guess he doesn't read about HELOCs going away, credit card companies cutting lines, and, oh, those 0% APR car loans.... only 700+ FICOs please.
Still, I weep for my puts today. YM + 206, ES +25.
I thin I may roll over into Rich's strategy of single short ETFs, that way I can stop sweating the theta decay and the vega hits.
I was looking at SPY vs. SH, at the 63 day rolling tracking. It's wasn't nearly as brutally poor as I thought it might be. I guess watching SKF and SRS has led me to expect much more tracking risk.
Counterpointer(Excellent) writes: But I sympathize with your back to basics intent.
They are metaphorical lucite sandals. =)
It's not really back to basics. It's a way to mop up surplus labor pool -- you want a Greek polis or a Muslim umma, a political-social construct that's got endless offices and duties for people, and a "complete" ideal of human development. Get everyone tied up in ritual so they don't notice existence is pointless. Go for an relatively individualist image so you don't fall into sectarianism and topple your play Republic. Keep everyone armed so they can serve as the "Imperial family" and prevent tyranny by accumulation of compulsive force.
The "financial instruments" weren't complex, they were BOGUS. The thick cloak of legitimacy placed around them--now, that was complex. Somebody needs to unravel that puppy and get to the ill-gotten gains of the operators behind it.
Alo | 12.08.08 - 8:08 am |
from money.cnn.com:I love the taste of seed corn in the morning...
NEW YORK (CNNMoney.com) -- There are currently a record number of unemployed college graduates seeking work. So many, in fact, that they outnumber high school dropouts on the job hunt.
In November the number of people with a higher degree who were out of work rose to 1.413 million from 1.411 million in the previous month, according to the Bureau of Labor Statistics. Comparatively, there were 1.282 million unemployed high school dropouts, up slightly from 1.273 million in October.
I like the European model. My analogy of dockworkers and UAW members was based on the assumption that, yes, jobs would still be there. Just not in the number needed before. In a country where the workforce is growing, or at least stable, cutting 1/3 the jobs in an industry is not good.
Comrade Byzantine_Ruins makes an excellent point. What I think will happen is that somewhere, right now, someone is working out in their head a new ism. Probably one that has elements of Utophia, is very green, and will have its very own bible. Because to adapt, and survive, the future as I see it, will require major social engineering.
All social engineering is preceded by verbal engineering. Starting with how you define "a good life."
Merrill's Thain wants 10 million bonus, because... well
"Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ."
While some of my general impressions are similar to your own, I nonetheless wonder how accurate they really are.
My personal experience has made me intimately familiar with a few operations here in the US, most of which are run very much along the sensible lines you suggest.
I don't see any real scarcity of competent, dedicated people here, but I can only observe that in many cases they don't define the culture where they work. I'm not sure why that should be the case but, from where I sit, it is.
What is recovery economically in America? A low unemployment rate? A consumer that spends x amount of major items, and y amount on disposables? Because if that is the goal; then we are screwed.
I saw slumdog millionaire this weekend. It's set in the slums of modern India. The frightening part is the staggering mass of despirate humanity out there living in squalor. Globalization means fighting tooth and nail with 3 billion smart, hungery, desperate people.
America is not up to the task. I really think smoot hawley 2 might be a better outcome than the dislocation of 270 million Americans ( the lowest 90%) having their lifestyles adjust to the slumdog level.
Eric,
I recently hired a CFO as a consultant who had been working for a UK company for 10 years or so. He wanted to return to the US and left his job.
I doubt this guy ever made more than $500k a year in his life. I can guarantee this guy would be more competent than 90% of Wall St's risk managers and CFO's after a brief ramp-up time.
The problem is he doesn't have the narrow pedigree that Wall St requires, no Northeast Ivy League MBA, no contacts...just incredible insight and ability. There are thousands just like him that will never get a chance because they're not members of the club.
So, we get what we've ordered from Wall St. Oh well...
Obama will do what his handlers tell him to do. Mr. Change has filled his cabinet with Clinton retreads. Volker advise will be pushed aside in the name of doing something even if it's the wrong meds.
Globalization means fighting tooth and nail with 3 billion smart, hungry, desperate people.
I think that is the most valuable idea to come out of Jared Diamond's books: That Third World people are actually extremely resourceful (not to mention intelligent). And excellent problem-solvers. They have to be, in order to build societies by banging rocks together, in part because First World societies infect them with diseases and use up their natural resources.
In a world where complex civilizations are prone to collapse, their methods of survival will endure. They are not going to "take over the world" - they are simply going to keep surviving, while the West will be forced into upheaval and dark periods.
The average American would not stand for that. It is either reprogram all of us or revolution.
There is no "average American" - this country is not homogenous. People in New England live differently than people in California, for example. Some Americans are already living simpler lives (you know them as "lower middle class" nobodies) and will have less change to adapt to.
They're the American counterparts to the resourceful Third-Worlders I mentioned in the other comment.
How can anyone reconcile Volker's comments with the Stimulus Package which grows by the day? Volker is right, but the policy actions coming down the pike prove that he was used during the campaign.
Obama supports the workers who are doing a sit in at a window factory which had it's line of credit pulled. Excuse me, but we don't need anymore windows unless they put rose colored glass in the windows. What a bunch of bullshit!
SKF is roughly flat for the year at around $106. How's that for tracking error?
To be clear, I know there's two things going on with these short funds.
1) Actual tracking error..... they're supposed to be tracking daily returns, so if they miss that, there's no way to make it back
2) The whole "daily returns vs. period returns" trap, where you always lose because the volatility just eats you. (Market goes up 10%, then down 11%, $100 in a long fund is down $2.10, $100 in a 2x is down $6.40)
The (2) part scares me from a long term perspective, as much as the theta and vega hits from options (and since the funds are using options (exchange traded or not), I can see how this happens).
["The only reason I sleep at night," said a longtime friend and business partner of Volcker's, speaking on background, "is that Paul Volcker will have the president's ear."]
LOL! Special interests will find a way to silence Volcker or marginalize him before he has a chance to suggest any reforms.
They're the American counterparts to the resourceful Third-Worlders I mentioned in the other comment.
mal | 12.08.08 - 9:15 am |
I don't think they are living in the same level of squalor or poverty. Yes, I do believe there is an average American.
Average American = I am entitled to food, clothes, heat, a fairly clean envrionment, somewhat crime free surroundings, and a chance to rise above my station in life.
Average American = I am entitled if I earn enough to pay for it, crime doesn't exist in "our" neighborhoods, and our neighbors feel the same. The government has no business knowing my income, the number of people living in my home, nor how I plan on spending my income.
he wants tough new regulations on securities markets, including oversight of hedge funds, in order to avoid the need for a bailout effort by the Fed ever again.
Yes, we need new laws to stop of from making bad laws. That'll work.
Volcker may be competent, but his ego sure wouldn't let him stay retired.
CHICAGO (NEWSCHANNEL 3) - A sit-in enters its fourth day at a Chicago factory after workers took over the building demanding severance pay.
...
President-elect Barack Obama supports those workers and says the company should follow through on its commitments.
Reverend Jesse Jackson showed up Sunday to offer his support. "These workers are now struggling for dignity and economic justice," said Rev. Jackson. "It's not just the workers; it's the workers, the management, it's the whole proposition of closing plants and throwing workers away with no place to go."
"Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ."
wow..... just, wow.....
Eric,
Yeah, the conversation is kind of like a drunk driver saying "I am a hero. I avoided hitting a schoolbus full of children and only clipped the pedestrians on the sidewalk!"
Obama's stimulus plans are nothing more than Keynesian tripe. Theft really. Diluting the real savings of the prudent in order to bailout idiots.
The prudent are obviously a small minority. Otherwise we would hear loud public opposition to this foolhardy notion that we have to keep housing unaffordable. WTF!
Only dingbats would propose to keep housing unaffordable.
If you liked "Slumdog Millionaire", check out the book that it was based on, "Q&A". Read it on a recommendation before I travelled through India for two months last year and it was eye opening to say the least. The movie captured the heart of the story but I think the book was superior and had more intense moments as well as a bigger twist at the end. Boyle did a good job though in capturing as honest a portrayal of modern India as I've seen in a recent times on film. (The train scenes alone were brilliant - instantly returned to all of the time the wife and I spent crossing the country on trains, including a 40 hour marathon from Kolkata to Goa.)
Also, check out "Shantaram" - it's not particularly well-written but it's a great story about an Australian drug dealer who escapes into the slums of Mumbai and ends up in the criminal underworld. Or wait until Johnny Depp makes the movie in a year or two (he just bought the rights to the book.)
"When the Washington Nationals played their first baseball game in the nation's capital in April 2005, two congressmen who oversaw mortgage giant Freddie Mac had choice seats courtesy of the very company they were supposed to be keeping an eye on. Efforts to tighten government regulation were gaining support on Capitol Hill, and Freddie Mac was fighting back. The baseball tickets for the home opener were means of influence. According to confidential company documents obtained by The Associated Press, Reps. Bob Ney, R-Ohio, and Paul Kanjorski, D-Pa., spent the evening in hard-to-obtain seats near the Nationals dugout with Freddie Mac executive Hollis McLoughlin and four of Freddie Mac's in-house lobbyists...."
The new president wants the same thing as the old one. Goverment spending more then it takes in, inflation that is understated, bubbles, and fraud. Good luck Paul.
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Volcker is a dinosaur. His time came and went. He complains about the Reagan deficits-- he's lucky Reagan ran a deficit, otherwise the economy probably would have slipped into depression due to his monetary policies.
The US was a creditor nation in 1980-- we could afford to put a massive squeeze on the money supply and run massive deficits. Well, we can't do that anymore.
This is a "game over" situation. All the Volckers in the world aren't going to fix this. The only answer is MASSIVE cuts in government spending combined with MASSIVE tax cuts. We almost certainly won't get either, given which way the Obama administration seems to be shaping up.
Welcome to the lost American (and British) decade. For the median American it actually started about 2005. Read up on Japan in the 1990's - except cross out the deflation part. It wasn't the end of the world, but it was depressingling stagnant, especially compared to the go-go years.
Here's Peter Schiff speaking the truth once again although nobody wants the medicine required to cure the disease. We can do this on our own terms or have it foced upon us by others.
Elaine delves into another Bank gamble-con; Swaptions. Major investment and commercial banks such as JP Morgan Chase, Bank of America Securities and Citigroup make markets in swaptions in the major currencies, and these banks trade amongst themselves....
What are Banks doing with the Bailout Money?
Private Sector Deleveraging
The brutal forced asset liquidations and hedge fund selling continues at all levels of the private sector, from the individual consumer to the largest investment banks. It is difficult to estimate, but noted adviser Marc Faber mentioned a figure of about $30 Trillion in equity asset losses globally this year alone plus other types of asset losses which may in total be as high as about $100 Trillion
...guess that the DTCC notice is all about this deleveraging that is going on. Namely, I suspect that all those darling little mortgage securities are not secure at all and so they were unceremoniously dumped into the stew pots of the Federal Reserve. These mortgage securities are no longer being sold because they were exchanged for Treasuries. Thus, J.Pirate Morgan is recapitalized and is now expected to lend money to us. Money which is OUR money. For Treasuries are IOUs on future tax revenues!
emsnews.wordpress.com
I prefer Spitzer over Volcker. Volcker will save his own and nail the banks gambling losses onto the backs of the taxpayer.
"Change does not roll in on the wheels of inevitability, but comes through continuous struggle. And so we must straighten our backs and work for our freedom. A man cant ride you unless your back is bent."
Martin Luther King, Jr.
The stock market in two days are up 11 % from the bottom. At the same time you write negative about the economy and I trust you and sold my stocks. Now Stock market is 11 % higher
Why you write so negative about the economy? The stock market rise and rise evry day now and I am not in because I read here and think economy still is bad. You tell people economy very bad i US, but the stock market reach new high evrey day now.
It's not about windows, it's about being locked out and not given a sixty day notice, which by law, has to be done, unless there is an unforeseen circumstance, which in this case was finance being cutoff by
one of the banks that was bailed out.
Oh, this law kicks in when a business has more than 100 employee's.
In the South where all or most of the manufacturing has gone to China or Mexico, most everyone has been affected.
Some further thoughts from, today's Financial Times:
Prof. Taleb coauthors a piece that argues the Nobel Economics Prize should be withdrawn from Myron Scholes and his colleague. Too much damage done by these two, he argues, and the prize still gives their failed theories credibility. Taleb also comes close to arguing that B-schools be closed because the tenured profs are still teaching the Scholes theorems as valid.
In a review of a new Woodrow Wilson bio, Martin Jurek suggests that Pres-elect Obama, being very bright and all, could well follow the Wilsonian example of intellectual/moral pride going before a big fall. As Jurek suggests, we just don't know what makes Obama tick as a decision-maker.
My fear is that, on economic matters, he is surrounded with the yammering, contradictory voices of ambitious policy wonks and will be more like an FDRthrow one thing after another up against the wall and see if it sticks. The White House will be, after all, a seething cauldron of competing interests. (Certainly his revelation yesterday of elements in his kick-start recovery plan sounds like a liberal's Christmas list with no clear understanding of how to build a sustainable recovery.)
Volcker, right or wrong, could well be treated as an unwelcome old fuddy-duddy by Obama's inner circle and as such denied access. If you don't have access, you ain't got nuthin'.
Buckaroo Banzai, I'm not sure that Volcker's views are much different than your's, yet you call him a dinosaur. Massive spending and tax cuts, like you suggest, and I agree with, will still put us into bad economic conditions b/c it doesn't address any of the debt and unfunded liability related problems that we face.
Then you really should not listen. On revelations of loses far exceeding even the revised lower expectations Beazer Homes is a double since Tuesday. Too specific? Then you should have been in financials which are up 25-40% on equally bad news.
DCRogers quotes Larry Summers:
And I've said at another point that in important respects, today's system relies on a kind of financial balance of terror, that the incentive isn't there to liquidate because if you liquidate, the value of all the stuff you own goes way down in value and that it's hard to know how to think about a system based on a financial balance of terror. On the one hand, as we saw, systems based on balances of terror can often have tremendous stability. On the other hand, as the term "balance of terror" suggests, there's good reason for them to make one feel uneasy.
Holding stuff you can't sell because the value will go down if you sell sounds a lot like the Banks 18 months ago. Only in this case the pin-pulled grenades are treasuries instead of Mortgage backed securities.
History doesn't repeat and all, but I'd sure hate to see what rhymes with the last year's festivities.
Why you write so negative about the economy? The stock market rise and rise evry day now and I am not in because I read here and think economy still is bad. You tell people economy very bad i US, but the stock market reach new high evrey day now.
The danger of Volker is the likelihood of his doing the same things that worked last time. How many times in the last two years have we learned the folly of old thinking? This time government is part of the problem not part of the solution.
The speculative bubble in petroleum corrected itself and the lower prices are cheered. Why not the same hands off for houses and stocks?
Are there psychopaths who are actually calling for tax cuts now? All the Friedmanite lunatics should be locked up. They brought us to the edge of the abyss with their nonsense and they STILL won't shut up. Scum.
Eric,
Buying puts on a couple favorites that have bounced big (SPG, COF). But also being cautious -- hearing a lot of bears expecting an extended 4th wave rally. I don't put a lot of stock in TA, but I listen when others do...
Right now, the stock market is a casino. One week the shorts taking bulls money and the next week the bulls taking shorts money. CR is talking macroeconomic(disinflation) whereas the stock market is currently functioning on microeconomic(gambling).
Do you want to know if the market is going to be up or down on December 31?
"Bye, Bye, SS and Medicare Boomer's get your ass to work."
My ass has been at work since I was bucking hay for 40 cents and hour at 13. I love how the youngins keep blaming the boomers. This boomer didn't buy video games, fancy clothes or mega-function cell phones on a credit card. I got a bigger house by rolling over equity, not using it for boats and other crap.
Yet a strange thing happened the other day. I maintain an account with three employees including myself. My counterpart has a smaller account with ten. Management decided to combine accounts, explaining to me that "you are doing too good of a job." I suppose the next thing that will happen will be that I get laid off because my paycheck is too generous.
Get my ass back to work? Tell that to your generation, who think that work is an entitlement based on a meaningless piece of paper.
I don't call for tax cuts until we're out of this mess, not now though, and not anytime soon only b/c of our debt and the need to transition into a different kind of economy, not for useless social programs. We need less spending right now and less gov't meddling with the short term as the only concern. In an ideal world, I'm generally for less taxes in conjunction with low spending and small government.
guys, with the deficits that the entitlements are going to give us (for practical purposes, a decrease in the surplus is going to be a source of deficit without spending cuts, as the gov is spending the surplus)...
anybody here thinks it's possible that we are going to print our way out of the issue? without rulling out slight increase in payroll tax (i don't see the FICA rate going up a lot during an L shaped recession though).
for me the scary part entitlements wise will be 2008-2023, after that demographics seem to improve. it's disturbing that the size of the labor force is shrinking as we speak.
Anyone who thinks either National Party gives a rat's ass about J6P is a moron. Proof is in the pudding as they say, and this debacle proves the point. They are both perfectly legal crime syndicates for you slow learners out there.
Strangely, it is quite possible that the boomer's parents did not, and the boomer's children will not be able to, use 'equity' to get themselves more of anything.
This concept of 'equity' seems a fitting epitath for the boomers, but maybe that is just me. It certainly epitomizes the idea that simply by owning something, the owner is entitled to ever more merely by the virtue of ownership.
In my humble opinion Volcker will be the den mother to Obama's economic team. Volcker is correct in his critique of wall street. Wall street has yet to find an economist with a formula to time the market. Additionally, economists have applied too much empirical methodology on their analysis. They should just accept their place in the academic chain of command - and it is not in the math department.
the cashing in of equity in the house (when the old downsize) and stocks/bonds might have a big impact.
but there's no good research i could find out there. also read a couple of books on the topic. the key seems to be the discretionary income of the young, if it begins to grow, asset prices might not go down much in real terms. otherwise, there will be no buyers when the old try to cash in.
if you don't need to cash in, you pass the assets to your heirs. it's the people that need to cash the ones that are set up for disappointment.
I'm in the Southeast. I was shopping at the nearby Walmart Supercenter and noticed two things:
Walmart store brand tuna in the past year has gone from .52 to .59 to .67 to .82 a can in the past year. When it was .52-.67, there would be none on the shelf unless you got there right after they restocked. Same with store-brand peanut butter.
Now at .82 a can, the shelves are already stocked, but the 1.60/can store brand SPAM knock-off are always completely sold out.
If conditions get any worse in this region, there are going to be a lot of folks going very hungry.
Office of the Comptroller of the Currency director John Dugan on Monday released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008. "The results were surprising, and not in a good way," Dugan told a gathering in Washington at the Office of Thrift Supervision's annual conference. According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months, the rate was roughly 56%. After eight months, 58% of borrowers had re-defaulted. The OCC tracked the number of borrowers that re-defaulted on their mortgages after the modification was completed. Dugan acknowledged that not all re-defaulted mortgages go to foreclosure, but he argued that the number was very high. Dugan said he was not sure why there was such a high level of re-default, pointing out that it may be because the modifications were not low enough to be affordable.
I wonder what the re-default rate is after a year? How about after another half million people lose their jobs?
What I think will happen is that somewhere, right now, someone is working out in their head a new ism.
It's certainly true that the ideologies of our era are worn out and unsuited to our times. Look at what you get -- people talking about entitlements and rent_to_own going on about how the Germans have better vacations.
Framing the problem -- what problem?
The problem is unfortunately that people will mostly continue these pointless jabberings until they are dead, because they can't be bothered to change their minds or have ideas or notice that the world has changed since they formed their view of things at 14.
So well get the Randonians vs. the Commies, yawn, for the 97th round of their eternal struggle. Get a job you don't need vs. the struggle for means of production we have too many of. Oooh how relevant, pardon me while I wait for reality to catch up with you guys; I'll be sitting with the grim reaper over by the piles of the unburied dead.
"The market was being run by mathematicians who didn't know financial markets,"
I was one of the math and stat guys working at a major firm. I'm pretty sure my analysis led to much lower risk for my clients, and I explained the risks pretty thoroughly.
However, I saw what a number of competitors were peddling. Some of those things were downright stupid. The math being used to support them often had problems. Assuming housing prices would never go down was a famous example. There were a number of variables which people didn't know how to assess, and thus left out of their models. The banks were drawn to models and solutions which had to do with borrowing, investment, mergers, acquisitions. They weren't usually good at understanding nonfinancial items. Thus, unions, hurricanes,
Another group of problems arose from circumstances which had happened before, and weren't even contemplated in sress tests. Money market funds breaking the buck? Yes, it happened before 2008. Deflation happened before, so did home price declines. There is also a litany of problems which we haven't seen recently where we may hear "who could have known?" within a few years: trade wars, 18% interest rates, hoarding of consumer goods, extended drought, major municipal bankruptcy, or a US trade surplus. All of these have happened before, and you would be surprised how many proformas and stress tests implicitly assume these things won't happen. It's quite instructive to run such stress tests. You can't run all of the possibilities, but many weaknesses and potential improvements are exposed.
It seems likely that he [Volcker] will advise Obama that the growth of U.S. consumption -- everything from government spending to household outlays -- should not be financed by selling ever larger amounts of debt to foreign interests.
I doubt Obama will listen to Volcker. Volcker identifies government spending as part of the problem. Obama on the other hand is promising a significant increase in deficit spending, going so far as to say the current economic conditions warrant that spending and deficits are not important.
If Obama marginalizes Volcker then Obama, like Bush and Clinton, is part of the problem. Given Obama's recent position on deficit spending I think we already have the answer.
mmckinl: Re extraction and consumption vs. production -- most things cannot be produced out of thin air, so you got to dig out raw materials. And you need a whole system of extractive industries to provide "liquidity" in raw materials. Otherwise you end up like former Eastern European "communist" economies with factories and workers sitting idle until raw materials would come in, or critical machines could be repaired, and there was scarcity and supply volatility in most things (of public and business interest).
Unfortunately, stability and resilience require a degree of redundancy. (And just how much redundancy is enough can only be figured out "organically", no central planner has yet shown consistent and sustained performance.)
Likewise with consumption, what/who are you producing for if your product is not consumed?
Having said that, you can operate with more or less waste and pollution.
If Obama marginalizes Volcker then Obama, like Bush and Clinton, is part of the problem. Given Obama's recent position on deficit spending I think we already have the answer.
Some liberals are already viewing Obama as Bush in blackface.
I think it is possible to contemplate that at the end of the next S&P down 5 leg (assuming we're at an up 4) starts a new equity upcycle just as volatile as the downcycle, this time driven by inflation. What is the VIX stays above 60 for several years, basically reflecting the fact that no one has control over the economy anymore, or has the slight clue how it functions in aggregate?
"Volcker is a dinosaur. His time came and went. He complains about the Reagan deficits-- he's lucky Reagan ran a deficit, otherwise the economy probably would have slipped into depression due to his monetary policies."
Random thought.... Volcker is sort of like Gandalf. He seems to disappear for long stretches and then only shows up whenever we've got ourselves into some serious $%^#. So people aren't usually happy to see him.
I think (hope) that Volcker will be Obama's most significant adviser. Personal responsibility/integrity appears to be very important to Obama and he is thus more likely to value advice from somebody who believes and has lived by those values. I believe that the Treasury Secretary/Summers was a sop to Wall Street who probably would have freaked if somebody not of Wall Street had been appointed.
Volcker may not know the answers, but he knows what they look like. Obama cannot know the answers either, but he's listening to the rig Vluy.
That would be "...listening to the right guy." Thanks, haloscan-breath.
I wonder what Volker really thinks of Summers, Geithner, and Rubin...and if he will share these thoughts with Obama.
I'm a mathematician, but I swear to god I didn't do it...
so it's really that simple?
Don't spend more than you make?
I wonder what Volker really thinks of Summers, Geithner, and Rubin...and if he will share these thoughts with Obama.
I have wondered the same thing since Obama announced his advisors.
"Volcker grew up during the Depression, raised by a father who taught him one lesson above everything else: Integrity is a person's greatestasset"
Too bad that asset doesn't show up on Wall Street balance sheets...
cd
""But when we dealt with inflation, it laid the groundwork for 20 years of growth." Volcker
LOL ... It lead to 20 years of debt expansion and the complete gutting of industry.
I'm pretty sure Volcker will tell Obama what he thinks. He's never been shy about expressing his opinion.
So far as integrity goes, my favorite quote is:
"A man's integrity is never questioned until it has already been lost."
Author unknown.
tranches of loss writes: I wonder what Volker really thinks of Summers [...]
Well, here's an interesting debate between Volcker and Summers from the far-away era of May, 2007, discussing Bretton Woods II: Does The World Need A New Monetary System?
I know this is a Volcker thread, but Summers has the most interesting quote in the debate, with the potent phrase "financial balance of terror":
But there is a very serious potential contradiction, which I think will increasingly be at the root of the most serious financial crises and which in many ways we saw in Asia in the late 1990s, and that is if a country has two problems -- one is all the foreigners are trying to take their money out because they've lost confidence and they don't believe in the sustainability, and the other is that the domestic banks are failing and that the assets are coming out -- then the central bank has two problems. It has an external problem, which is that people don't want to hold your money -- you should print less of it; and there's an internal problem with the banks failing. You can't very well -- contracting liquidity can be catastrophic, as it was in the United States in 1929 and 1930. And with a single instrument, it's very difficult to hit two targets. And so the most serious risk in the system is the kind of crisis that arises when there is a simultaneous failure of both internal and external confidence. And that's why people will debate forever what the Bank of Indonesia or the Bank of Korea or the Bank of Thailand should have done, should have been encouraged to do by the IMF and so forth, because there was no very good answer in the face of that internal contradiction.
And that's why certainly one of the risks in the current situation does lie in the magnitude of the U.S. current account deficit and the buildup of foreign claims on the United States. And it's a very difficult question to know whether those who are now holding a large portion of those claims -- foreign governments and central banks -- are, in the market parlance, strong hands, who will continue to hold all the way through, or weak hands, who will tend to liquidate at the first sign of trouble. Both what are they, and what are they perceived as being, because if they're perceived as being weak hands then others will find ways to liquidate even if they don't. And I've said at another point that in important respects, today's system relies on a kind of financial balance of terror, that the incentive isn't there to liquidate because if you liquidate, the value of all the stuff you own goes way down in value and that it's hard to know how to think about a system based on a financial balance of terror. On the one hand, as we saw, systems based on balances of terror can often have tremendous stability. On the other hand, as the term "balance of terror" suggests, there's good reason for them to make one feel uneasy.
LOL ... It lead to 20 years of debt expansion and the complete gutting of industry.
mmckinl | 12.08.08 - 2:42 am | #
Are you saying that Volcker's solution to the inflation of the 80s was causal in the debt expansion that followed?
cd
He doesn't know anything. Dow futures are pointing towards Dow 9k. Everything that was wrong has now been righted... the fundamentals of the economy are strong...
Speaking of integrity, I've long been fascinated by the concept of "reputational capital."
Some gain and retain this capital by telling truth to power. Tanta was a great example...most of us knew nothing about her except what we learned from the quality of her writings here.
Others gain a different type of reputational capital by sucking up to those within (and above) their circle. They can lie or distort with impunity because the higher-ups approve of the deception. Kudlow comes to mind, but there are many others.
What, Obama is going to be listening to some Carter appointee?
Next, before you know it, Obama will be talking about energy efficiency. Laughable - thrift is something Americans decided was for others back in the Reagan days.
How can we expect the America of today to continue as it is if we start focussing on all those failed policies from the Carter era.
Volcker is just another one of those people that wants Americans to live differently, making him objectively opposed to the current American way of life. Why does Volcker hate America so much?
Obviously, Volcker simply refuses to recognize that in today's America, debt equals wealth, and when someone actually has the bad taste to ask someone to pay their bill, the debtor is expected to say 'No.' As rudely as possible, to let the creditor know what the debtor thinks of such impertinence.
You would almost think Volcker cares about America's creditworthiness or reputation. How old fashioned - must have something to do with his age. Clearly, he isn't a baby boomer - a group notable for having seemingly collectively adopted the idea that 'equity' is for winners, while savings are for losers.
That Obama is listening to someone like Volcker is surprisingly clear evidence that Obama, at least, is not really a baby boomer. Boomers have been notable for putting off problems until they become someone else's - something Volcker, at least, has never been accused of.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/07/MN1314IRLO.DTL&tsp=1
The California Public Employees' Retirement System portfolio has lost 31.1 percent of its value since peaking last fall, a staggering $81.4 billion drop. CalPERS officials say a "rainy day fund" is helping to defray the losses - for now. But if the market slump continues, they will hit up state and local employers for more money.
...
The CalPERS portfolio hit a high point of $260.6 billion on Oct. 31, 2007. As of market close on Dec. 4, it had fallen to $179.2 billion - almost back to its value in mid-2000.
Only $81.4B? It wasn't long ago that a billion dollars was considered a lot of money to lose. Now we have individual private corporations getting bailouts worth hundreds of billions dollars.
Talking about advisers. Gates staying on as the SOD has been puzzling me. Here's seems to be the explanation.
Gates' Plan To Fix the Pentagon The now-and-future defense secretary's two critical ideas for reforming the military.
Defense Secretary Gates' two brilliant ideas for fixing the Pentagon. - By Fred Kaplan - Slate Magazine
ice one CR. a readymade late nite end-o-the-world thread. bring on the doom pr0n!
Are you saying that Volcker's solution to the inflation of the 80s was causal in the debt expansion that followed?
~~~
Short answer : No
The long answer is that from the 80s until now most our expansion has been based on the expansion of the balance sheets of the U.S. , the Banks and the private sector. Volcker just us got back to square one ... his actions did not lead to the following expansion.
The U.S. was suffering from overproduction then and still does. The only way to absorb this overproduction was over borrowing and now the chickens have come home to roost ... We, the U.S., are close to, if not, insolvent.
mmc-
I was thinking the same thing. We need a "central investor". I've had enough with the fiddlings of the bankers.
I'll be more than happy when the Fed becomes a price taker.
hong konger
We need banks as a public utility to channel capital into productive not extractive and consumptive activities.
Extractive and consumptive activities are more profitable because they do not add the externality costs of extraction, pollution and waste. If those externalities were properly priced it would be another matter.
Without an economic strategy other than free market consumer consumption we will not recover but continue our economic decline through trade deficits and under investment in human capital.
Expecting for the second coming is quintessentially American; just like apple pie, hamburgers and lynch mobs.
Talking about advisers. Gates staying on as the SOD has been puzzling me. Here's seems to be the explanation.
GM | 12.08.08 - 3:06 am | #
Gates wants to do a number of things that I think BO wants to see, like cuts of some of the big $$ weapon systems that he sees not aligned with the job at hand in Iraq and Afghastlystan. No SecDef, not even Rumsfeld with his previous posting in the job, can waltz in and immediately start hacking programs up without leaving tons of broken glass on the floor. Gates has two years in the seat, and is ready to move on those changes now. A new guy will be there 12-24 months before he can get his gyros aligned and move things forward. Makes absolute sense to leave him there and have him get on with it.
cd
What the talking heads won't tell you is that the United States is in for some "tough times" until the rest of the world's standard of living begins to resemble our own.
Unfortunately, I think many Chinese workers make 2-5K/year, and Indians maybe double or triple that if they are lucky.
Our "tough times" could last a while.....
Are you saying that Volcker's solution to the inflation of the 80s was causal in the debt expansion that followed?
No. However, people conflate the Reagan boom, which was causal with the spending spree, with Volker's actions. Without that spending spree, the Volker recession would have been longer and nastier than it was and his reputation might not be as stellar as it is today.
Let's not forget Reagan is the guy who started the Ponzi scheme of using tax dollars to sop up excess Treasuries - I do not recall Volker's feelings on that specific topic and would be interested in reading any of his quotes on the matter, if anyone has any.
Volcker has real credibility, but I'm very skeptical that he'll be very effective as an Obama advisor--one of many others that have conflicting opinions. I'm afraid his voice will be lost in the crowd.
Let's not forget Reagan is the guy who started the Ponzi scheme of using tax dollars to sop up excess Treasuries - I do not recall Volker's feelings on that specific topic and would be interested in reading any of his quotes on the matter, if anyone has any
Fleck is Broke | 12.08.08 - 3:37 am | #
"Given his skeptical views about the Reagan tax cuts, Volcker lobbied in secret against their passage owing to his view that they would lead toa massive revenue shortfall. While Fed Chairman Fred Schultz worked onHouse members, Volcker lobbied senators to vote against the cuts."
RealClearMarkets - Articles - The Paul Volcker Myth
cd
Try again:
RealClearMarkets - Articles - The Paul Volcker Myth
crcompanion doing odd things with blank spaces (inserting/deleting at random)
cd
I'm afraid his voice will be lost in the crowd.
~~~
My gut feeling is that Obama will get a consensus to operate ...
The situation calls for radicle answers not adding up all the answers and getting the average.
Bringing consumption back in line with income would not only crimp individuals and families, but also require major readjustments in the global economy, which has relied on the U.S. as consumer of last resort.
He's basically talking about crashing the world economy.
Right now, isn't the objective just to try and tread water until the boom echo can drive secular growth? Even doing that is going to be a challenge and will retard growth when it actually kicks in.
Lost decade, indeed.
Well, mmc-
If you want to see an explosion of inflation, start pricing negative externalities into the equation.
Comrade Counterpointer in a previous thread asked for anecdotes about shipping, transportation etc.
A relative is involved with importing autos from Japan into New Zealand. Two years ago the best in class(car carriers) vessels in this trade were withdrawn and replaced with end of life vessels. Scheduled sailings of these replacement vessels were often cancelled at short notice when they were required to fill demand on another trade.
This priority trade was the North Pacific route carrying autos from Asia to US West Coast Ports.
Now the best in class vessels are back, and the sailing schedule is stable but less frequent.
Volcker followed his good point about overconsumption with a non sequitur call for more regulation.
Switching from mathematicians to Pelosi sounds like "out of the frying pan and into the fire."
We had more regulation (Sarbanes Oxley) and it failed to prevent our current crisis.
The government regulated to MAKE the overconsumption bubble.
The government is now regulating massively to PERPETUATE overconsumption.
All we need is fewer regulations--i.e., fewer Greenspan Puts, fewer "Ownership" (Loanership) Societies, fewer bailouts, fewer bubble subsidies, fewer stimulus programs.
Once you accept the assumption that the Fed is necessary all this crap follows and there is no solution. The Fed and central bank are the problem.
Volker, like most kings, never abdicated.
The Gates plan sounds like Obama will continue Bush's foreign policy of perpetual, global, undeclared counter-insurgency wars.
"The market was being run by mathematicians who didn't know financial markets," he said
...but were employed by those who do.
I reject any claim (although it might not have been intended in this specific case) that the people responsible were ignorant or stupid. But if I am the ignorant or stupid one, then dictatorship over me is warranted, as though I were a ward of the State. Obviously, events have proven that millions were incompetent to manage the freedoms they had.
Were the flag, pledge, and political theatre the "opiate of the masses", all along? If so, and if I think the masses are even more ignorant or stupid (and therefore more dangerous) than I, then I'm forced to play along. I'm disappointed to learn that so much of our national drama was a fantasy world.
While they may can claim that their mathematicians are weak, their production and direction are world class.
mmckinl wrote:
LOL ... It lead to 20 years of debt expansion and the complete gutting of industry.
Here in the peoples republic of Chapel, Hill all the Lambourghni Liberals celebrated the demise of industry in that mother "Gia" would be happy. Just think, no industry no polution, who could be against that. Be careful what you wish for because chances are you are will get it.
We will pay for late sixties and the seventies with a vengeance. Peace and love to all.
Volcker == window dressing.
The U.S. is facing years of high unemployment and all that it entails for govt. spending, Medicaid, the Social Security system, etc.
The manufacturing jobs aren't coming back.
Volcker knows it.
Regarding cabinet appointees, Henry Kissinger published an interesting OpEd in the NYT/IHT a few days ago. See if I can locate it.
Ah, yes:
A great team of rivals - The New York Times
In it, there is detail on internal relationships, and K's estimation of several of the players as well.
The manufacturing jobs aren't coming back.
Volcker knows it.
rich | 12.08.08 - 6:47 am |
No, if manufacturing does, it will use robots for many of the jobs done now. The UAW is like the dockworkers, obsolete.
The use of MEW, etc., may have created a lot of artificial jobs that covered up how little of the labor force is actually needed in a post industrial world where actual labor can be done anywhere.
Banks as utility is a good solution to problems like SIV or CDO (CDS can be solved by trading them on open exchanges like futures).
But how will venture capital fit into the world of banks as utilities? How will this world support the next Google or Amazon?
From: Jesse's Café Américain
""Gratefully there are more independents these days, with a forum provided by the internet for their thoughts, who operate outside of the conventional journals and channels of economic orthodoxy. Independent minds like Mark Thoma's Economist's View, Paul Kedrosky's Infectious Greed, Barry Ritholz's Big Picture, Yves Smith's Naked Capitalism, Eric Janszen's iTulip, and of course the benchmark for all, Calculated Risk, among others listed in the Divertissement Éducatif section on the left side of this blog. Their task is too often thankless but a candle lit in the darkness nonetheless.""
Congrats to CR and all who participate here.
Well, when O gets Rangel to cram through the 'greening' of our schools and roads, look for the Shovel Leaning Officers and Bankers (SLOB)program to save us all......
Wonder if this will make the U-6 stat.
ova(Unrated) writes:
The use of MEW, etc., may have created a lot of artificial jobs that covered up how little of the labor force is actually needed in a post industrial world where actual labor can be done anywhere.
Agreed. This is the elephant in the room. Werner brought this up about a week ago indirectly, saying the US should get used to a more traditional economic structure of 30% of the population working in manufacturing. I didn't have a chance at the time but I wanted to ask who'd use the ocean of goods generated.
We really need to grapple with the fact that modern real economies are so efficient they really don't need many participants at all. There are a lot of answers -- deliberately abstaining from automation, paying people to drink beer and be a burden on society so it has something to pull, killing four out of five people in a lottery so the survivors have enough chores to divide between them. Whatever.
We really need to think about this.
Volker, like most kings, never abdicated.
Also, don't forget that Volker was appointed in 1979 but didn't get aggressive until after Reagan was elected. It was Ronald Reagan who gave Volker the political cover to do what needed to be done.
Byz - wow, apocalyptic Logan's run start to the week. But, but, futures say all good rally on!
Government MEW to reflate production and create jobs will create a new TVA and WPA, but where's the final demand? It's not here and it's not in Europe. Confidence has gone tipping point parabolic, and it really looks at this point that the conversation is mismatched between economic numbers which could be juiced a bit, altho I have my doubts, and consumer psychology which has already concluded that tough times are ahead and bare essentials and repair and maintenance are the only items on the shopping list.
C
Counterpointer(Excellent) writes:
Byz - wow, apocalyptic Logan's run start to the week.
No, it could be awesome. We could mostly give up money and live in a world where only the people who wanted to worked.
As a eudamonist, I'd like to see the human race get down to the important business of dressing in togas and lucite sandals and going from college class to shooting range to grange meeting.
It's a fruit hanging in front of us we could pretty much pluck whenever we wanted. Humans will make the potential into something else.
But, but, futures say all good rally on!
Party on everyone, we've just finalized plans to spend hundreds of millions of grandchildren into decades of labor to repay our debts.
Byz - there's no way in hell I'm wearing a toga and sandals waiting for the ever erratic Ride On to show up or on the Red Line at rush hour.
But I sympathize with your back to basics intent.
C
"run by mathematicians" -- yes, let's pass the buck onto the math guys, for doing what their employers, the frat guys, told them to do.
Who do you think supplied all those rosy numbers and assumptions to cram into the quant machine?
We got into trouble because the financial system was run by scammers, who paid lots and lots of people -- mathematicians, politicians, salespeople, spinners -- very handsomely to give them cover.
The "financial instruments" weren't complex, they were BOGUS. The thick cloak of legitimacy placed around them--now, that was complex. Somebody needs to unravel that puppy and get to the ill-gotten gains of the operators behind it.
On another board, some guy I'm arguing with is convinced the consumer will be leading us out of this recession/depression by spending.
I guess he doesn't read about HELOCs going away, credit card companies cutting lines, and, oh, those 0% APR car loans.... only 700+ FICOs please.
Still, I weep for my puts today. YM + 206, ES +25.
I thin I may roll over into Rich's strategy of single short ETFs, that way I can stop sweating the theta decay and the vega hits.
I was looking at SPY vs. SH, at the 63 day rolling tracking. It's wasn't nearly as brutally poor as I thought it might be. I guess watching SKF and SRS has led me to expect much more tracking risk.
Counterpointer(Excellent) writes:
But I sympathize with your back to basics intent.
They are metaphorical lucite sandals. =)
It's not really back to basics. It's a way to mop up surplus labor pool -- you want a Greek polis or a Muslim umma, a political-social construct that's got endless offices and duties for people, and a "complete" ideal of human development. Get everyone tied up in ritual so they don't notice existence is pointless. Go for an relatively individualist image so you don't fall into sectarianism and topple your play Republic. Keep everyone armed so they can serve as the "Imperial family" and prevent tyranny by accumulation of compulsive force.
Wow..... more jobs cut (DOW Chem), and yet that's good!
The "financial instruments" weren't complex, they were BOGUS. The thick cloak of legitimacy placed around them--now, that was complex. Somebody needs to unravel that puppy and get to the ill-gotten gains of the operators behind it.
Alo | 12.08.08 - 8:08 am |
BINGO!!
We have a winner who gets it.
Give the lad a blue pony.
Byz - you should read up on the agricultural economics of Angkor. Very instructive.
C
from money.cnn.com:I love the taste of seed corn in the morning...
NEW YORK (CNNMoney.com) -- There are currently a record number of unemployed college graduates seeking work. So many, in fact, that they outnumber high school dropouts on the job hunt.
In November the number of people with a higher degree who were out of work rose to 1.413 million from 1.411 million in the previous month, according to the Bureau of Labor Statistics. Comparatively, there were 1.282 million unemployed high school dropouts, up slightly from 1.273 million in October.
Hang Seng H-Financials up 10.17% overnight.
Huh?
C
O ran on Change
Promoting Fear. Seems the same.
Hang Seng H-Financials up 10.17% overnight.
Huh?
The bottom's in. -553k is as bad as it gets.
(snort)
eric
those jobs have been shifted to india
Jobs, jobs, jobs.
I like the European model. My analogy of dockworkers and UAW members was based on the assumption that, yes, jobs would still be there. Just not in the number needed before. In a country where the workforce is growing, or at least stable, cutting 1/3 the jobs in an industry is not good.
Comrade Byzantine_Ruins makes an excellent point. What I think will happen is that somewhere, right now, someone is working out in their head a new ism. Probably one that has elements of Utophia, is very green, and will have its very own bible. Because to adapt, and survive, the future as I see it, will require major social engineering.
All social engineering is preceded by verbal engineering. Starting with how you define "a good life."
"those jobs have been shifted to india"
I wonder if they'll start coming back as round 4 of India-Pakistan becomes more and more real.
Blackhat, I say put them to work digging ditches...or the YCA.
Merrill's Thain wants 10 million bonus, because... well
"Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ."
Page not found - - CNBC.com
wow..... just, wow.....
rent_to_own:
While some of my general impressions are similar to your own, I nonetheless wonder how accurate they really are.
My personal experience has made me intimately familiar with a few operations here in the US, most of which are run very much along the sensible lines you suggest.
I don't see any real scarcity of competent, dedicated people here, but I can only observe that in many cases they don't define the culture where they work. I'm not sure why that should be the case but, from where I sit, it is.
What is recovery economically in America? A low unemployment rate? A consumer that spends x amount of major items, and y amount on disposables? Because if that is the goal; then we are screwed.
Eric | 12.08.08 - 8:43 am | #
Eric, I was reading the same artice when you posted. What a joke! The audacity to hold a committee meeting to discuss bonuses.
Anarchy is the only solution. Full stop.
Nova,
I saw slumdog millionaire this weekend. It's set in the slums of modern India. The frightening part is the staggering mass of despirate humanity out there living in squalor. Globalization means fighting tooth and nail with 3 billion smart, hungery, desperate people.
America is not up to the task. I really think smoot hawley 2 might be a better outcome than the dislocation of 270 million Americans ( the lowest 90%) having their lifestyles adjust to the slumdog level.
I guess picking up SRS at the close Friday wasn't such a smart plan.
SKF is roughly flat for the year at around $106. How's that for tracking error?
Eric,
I recently hired a CFO as a consultant who had been working for a UK company for 10 years or so. He wanted to return to the US and left his job.
I doubt this guy ever made more than $500k a year in his life. I can guarantee this guy would be more competent than 90% of Wall St's risk managers and CFO's after a brief ramp-up time.
The problem is he doesn't have the narrow pedigree that Wall St requires, no Northeast Ivy League MBA, no contacts...just incredible insight and ability. There are thousands just like him that will never get a chance because they're not members of the club.
So, we get what we've ordered from Wall St. Oh well...
Obama will do what his handlers tell him to do. Mr. Change has filled his cabinet with Clinton retreads. Volker advise will be pushed aside in the name of doing something even if it's the wrong meds.
Globalization means fighting tooth and nail with 3 billion smart, hungry, desperate people.
I think that is the most valuable idea to come out of Jared Diamond's books: That Third World people are actually extremely resourceful (not to mention intelligent). And excellent problem-solvers. They have to be, in order to build societies by banging rocks together, in part because First World societies infect them with diseases and use up their natural resources.
In a world where complex civilizations are prone to collapse, their methods of survival will endure. They are not going to "take over the world" - they are simply going to keep surviving, while the West will be forced into upheaval and dark periods.
Badger boy writes:
Nova,
I saw slumdog millionaire this weekend...
I cam imagine having been in the slums of the Philipines years ago. Only India is probably worse.
The average American would not stand for that. It is either reprogram all of us or revolution.
The average American would not stand for that. It is either reprogram all of us or revolution.
There is no "average American" - this country is not homogenous. People in New England live differently than people in California, for example. Some Americans are already living simpler lives (you know them as "lower middle class" nobodies) and will have less change to adapt to.
They're the American counterparts to the resourceful Third-Worlders I mentioned in the other comment.
Nice spike in PMs
How can anyone reconcile Volker's comments with the Stimulus Package which grows by the day? Volker is right, but the policy actions coming down the pike prove that he was used during the campaign.
I guess holding SRS the past 2 weeks has not been so smart a strategy either.
Obama supports the workers who are doing a sit in at a window factory which had it's line of credit pulled. Excuse me, but we don't need anymore windows unless they put rose colored glass in the windows. What a bunch of bullshit!
SKF is roughly flat for the year at around $106. How's that for tracking error?
To be clear, I know there's two things going on with these short funds.
1) Actual tracking error..... they're supposed to be tracking daily returns, so if they miss that, there's no way to make it back
2) The whole "daily returns vs. period returns" trap, where you always lose because the volatility just eats you. (Market goes up 10%, then down 11%, $100 in a long fund is down $2.10, $100 in a 2x is down $6.40)
The (2) part scares me from a long term perspective, as much as the theta and vega hits from options (and since the funds are using options (exchange traded or not), I can see how this happens).
["The only reason I sleep at night," said a longtime friend and business partner of Volcker's, speaking on background, "is that Paul Volcker will have the president's ear."]
LOL! Special interests will find a way to silence Volcker or marginalize him before he has a chance to suggest any reforms.
Obama == More of the Same.
Excuse me, but we don't need anymore windows unless they put rose colored glass in the windows. What a bunch of bullshit!
The workers are protesting over not receiving the severance pay they are legally due, not about losing their jobs.
The problem with America vs. Europe is that the US has not yet had to deal with issues of scarcity.
The day it does will be the day US corporations start producing better quality products.
Tough times ahead for SRS & SKF holders. Ouch.
They're the American counterparts to the resourceful Third-Worlders I mentioned in the other comment.
mal | 12.08.08 - 9:15 am |
I don't think they are living in the same level of squalor or poverty. Yes, I do believe there is an average American.
Average American = I am entitled to food, clothes, heat, a fairly clean envrionment, somewhat crime free surroundings, and a chance to rise above my station in life.
The workers are protesting over not receiving the severance pay they are legally due, not about losing their jobs.
I understand that. I had an employment contract with ANB Finanacial, and when the FDIC took us out in May, I didn't get paid.
That's just standard counter-party risk in an employment transaction.
Get over it, and get on with your life.
Time for bearishness is now over.
Ok Spectre, so what teeny tiny little thing could you do so that Volker advice won't be pushed aside?
No gloom allowed unless it is added:
I will make a phone call. I will post a post card. I will march up and down with a sign. I will pull $100 out of a bank. Whatever.
I want to see defiant fists shaken at
negativity, hell at the second law of thermo.
Gloom was appropriate when warnings were needed and unheeded. Now that we face an abyss, rays of sunshine are needed.
Bye, Bye, SS and Medicare Boomer's get your ass to work.
I see Santa Claus. He is kinda skinny and black this year.
Average American = I am entitled if I earn enough to pay for it, crime doesn't exist in "our" neighborhoods, and our neighbors feel the same. The government has no business knowing my income, the number of people living in my home, nor how I plan on spending my income.
he wants tough new regulations on securities markets, including oversight of hedge funds, in order to avoid the need for a bailout effort by the Fed ever again.
Yes, we need new laws to stop of from making bad laws. That'll work.
Volcker may be competent, but his ego sure wouldn't let him stay retired.
...but then my cow says I'm naive....
Obama's best strategy is to paint a bleak picture now. Fortunately for him, the facts align with that.
Workers take over factory in Chicago | chicago, factory, workers - Top Stories - WWMT NEWSCHANNEL 3
CHICAGO (NEWSCHANNEL 3) - A sit-in enters its fourth day at a Chicago factory after workers took over the building demanding severance pay.
...
President-elect Barack Obama supports those workers and says the company should follow through on its commitments.
Reverend Jesse Jackson showed up Sunday to offer his support. "These workers are now struggling for dignity and economic justice," said Rev. Jackson. "It's not just the workers; it's the workers, the management, it's the whole proposition of closing plants and throwing workers away with no place to go."
Eric | 12.08.08 - 8:43 am | #
"Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ."
wow..... just, wow.....
Eric,
Yeah, the conversation is kind of like a drunk driver saying "I am a hero. I avoided hitting a schoolbus full of children and only clipped the pedestrians on the sidewalk!"
Cheer up a little: Depression appears unlikely |
News for Dallas, Texas | Dallas Morning News
| Latest News
Cheer up a little: Depression appears unlikely
(Texas newspapers will be last to admit it.)
Obama's stimulus plans are nothing more than Keynesian tripe. Theft really. Diluting the real savings of the prudent in order to bailout idiots.
The prudent are obviously a small minority. Otherwise we would hear loud public opposition to this foolhardy notion that we have to keep housing unaffordable. WTF!
Only dingbats would propose to keep housing unaffordable.
Sadly, we're long on dingbats.
Calculated Risk,
You write so negative about the economy - but in the wo latest days the stock market is up 11%!
I could have made a lot money on the stock market if it wasent for you telling us to sell our stocks...
Badger boy,
If you liked "Slumdog Millionaire", check out the book that it was based on, "Q&A". Read it on a recommendation before I travelled through India for two months last year and it was eye opening to say the least. The movie captured the heart of the story but I think the book was superior and had more intense moments as well as a bigger twist at the end. Boyle did a good job though in capturing as honest a portrayal of modern India as I've seen in a recent times on film. (The train scenes alone were brilliant - instantly returned to all of the time the wife and I spent crossing the country on trains, including a 40 hour marathon from Kolkata to Goa.)
Also, check out "Shantaram" - it's not particularly well-written but it's a great story about an Australian drug dealer who escapes into the slums of Mumbai and ends up in the criminal underworld. Or wait until Johnny Depp makes the movie in a year or two (he just bought the rights to the book.)
Freddie Mac used open wallet to battle regulation |
News for Dallas, Texas | Dallas Morning News
| Latest News
Freddie Mac used open wallet to battle regulation (front page)
"When the Washington Nationals played their first baseball game in the nation's capital in April 2005, two congressmen who oversaw mortgage giant Freddie Mac had choice seats courtesy of the very company they were supposed to be keeping an eye on. Efforts to tighten government regulation were gaining support on Capitol Hill, and Freddie Mac was fighting back. The baseball tickets for the home opener were means of influence. According to confidential company documents obtained by The Associated Press, Reps. Bob Ney, R-Ohio, and Paul Kanjorski, D-Pa., spent the evening in hard-to-obtain seats near the Nationals dugout with Freddie Mac executive Hollis McLoughlin and four of Freddie Mac's in-house lobbyists...."
The new president wants the same thing as the old one. Goverment spending more then it takes in, inflation that is understated, bubbles, and fraud. Good luck Paul.
CALL FOR PAPERS
19th Annual
Derivatives Securities and Risk Management Conference
April 17-18, 2009
Jointly organized by the FDICs Center for Financial Research Cornell Universitys Johnson Graduate School of Management and The University of Houstons Bauer College of Business
The conference organizers invite submission of research papers for the 19th Annual Derivatives and Risk Management Conference. The conference will be held at the FDICs facilities located in Arlington, Virginia, on Friday April 17 and Saturday April 18, 2009
FDIC: Center for Financial Research
@My Money
Take a hike, Sport.
Ideological Warfare Rages on Federal Appeals Courts Dominated by Republican Appointees - washingtonpost.com
WAPO - The Politics of the Federal Bench GOP-Appointed Majorities Winning Ideological Battles at Appellate Level
Volcker is a dinosaur. His time came and went. He complains about the Reagan deficits-- he's lucky Reagan ran a deficit, otherwise the economy probably would have slipped into depression due to his monetary policies.
The US was a creditor nation in 1980-- we could afford to put a massive squeeze on the money supply and run massive deficits. Well, we can't do that anymore.
This is a "game over" situation. All the Volckers in the world aren't going to fix this. The only answer is MASSIVE cuts in government spending combined with MASSIVE tax cuts. We almost certainly won't get either, given which way the Obama administration seems to be shaping up.
Welcome to the lost American (and British) decade. For the median American it actually started about 2005. Read up on Japan in the 1990's - except cross out the deflation part. It wasn't the end of the world, but it was depressingling stagnant, especially compared to the go-go years.
Here's Peter Schiff speaking the truth once again although nobody wants the medicine required to cure the disease. We can do this on our own terms or have it foced upon us by others.
YouTube - Peter Schiff silenced on CNN International 11/24/2008
Elaine delves into another Bank gamble-con; Swaptions. Major investment and commercial banks such as JP Morgan Chase, Bank of America Securities and Citigroup make markets in swaptions in the major currencies, and these banks trade amongst themselves....
What are Banks doing with the Bailout Money?
Private Sector Deleveraging
The brutal forced asset liquidations and hedge fund selling continues at all levels of the private sector, from the individual consumer to the largest investment banks. It is difficult to estimate, but noted adviser Marc Faber mentioned a figure of about $30 Trillion in equity asset losses globally this year alone plus other types of asset losses which may in total be as high as about $100 Trillion
...guess that the DTCC notice is all about this deleveraging that is going on. Namely, I suspect that all those darling little mortgage securities are not secure at all and so they were unceremoniously dumped into the stew pots of the Federal Reserve. These mortgage securities are no longer being sold because they were exchanged for Treasuries. Thus, J.Pirate Morgan is recapitalized and is now expected to lend money to us. Money which is OUR money. For Treasuries are IOUs on future tax revenues!
emsnews.wordpress.com
I prefer Spitzer over Volcker. Volcker will save his own and nail the banks gambling losses onto the backs of the taxpayer.
"Change does not roll in on the wheels of inevitability, but comes through continuous struggle. And so we must straighten our backs and work for our freedom. A man cant ride you unless your back is bent."
Martin Luther King, Jr.
Take a hike, Sport.
Hey GH... still re-loading? I bought some SH this AM.
Calculated Risk,
The stock market in two days are up 11 % from the bottom. At the same time you write negative about the economy and I trust you and sold my stocks. Now Stock market is 11 % higher
Why you write so negative about the economy? The stock market rise and rise evry day now and I am not in because I read here and think economy still is bad. You tell people economy very bad i US, but the stock market reach new high evrey day now.
I could have made 11 % in two days.
It's not about windows, it's about being locked out and not given a sixty day notice, which by law, has to be done, unless there is an unforeseen circumstance, which in this case was finance being cutoff by
one of the banks that was bailed out.
Oh, this law kicks in when a business has more than 100 employee's.
In the South where all or most of the manufacturing has gone to China or Mexico, most everyone has been affected.
I get it - My Money is a satirist, right? Hysterical!
If Volcker really thinks the fault lies with the quants, he really doesn't understand the problem. He surely hasn't read CR, or Tanta.
But I suspect that quote in isolation doesn't do justice to his views--I think he's much too wise for that.
Some further thoughts from, today's Financial Times:
My fear is that, on economic matters, he is surrounded with the yammering, contradictory voices of ambitious policy wonks and will be more like an FDRthrow one thing after another up against the wall and see if it sticks. The White House will be, after all, a seething cauldron of competing interests. (Certainly his revelation yesterday of elements in his kick-start recovery plan sounds like a liberal's Christmas list with no clear understanding of how to build a sustainable recovery.)
Volcker, right or wrong, could well be treated as an unwelcome old fuddy-duddy by Obama's inner circle and as such denied access. If you don't have access, you ain't got nuthin'.
White House: package under negotiation would call for about $15 billion in aid to automakers
My Money | 12.08.08 - 10:04 am | #
Bummer about your portfolio. Mine is not doing so well either, so I, too, am going to lay the blame at someone else's feet. I feel so much better.
Buckaroo Banzai, I'm not sure that Volcker's views are much different than your's, yet you call him a dinosaur. Massive spending and tax cuts, like you suggest, and I agree with, will still put us into bad economic conditions b/c it doesn't address any of the debt and unfunded liability related problems that we face.
The window company is flat broke. The workers can get in line with everyone who has been screwed by the credit bubble.
I could have made 11 % in two days.
My Money
Then you really should not listen. On revelations of loses far exceeding even the revised lower expectations Beazer Homes is a double since Tuesday. Too specific? Then you should have been in financials which are up 25-40% on equally bad news.
DCRogers quotes Larry Summers:
And I've said at another point that in important respects, today's system relies on a kind of financial balance of terror, that the incentive isn't there to liquidate because if you liquidate, the value of all the stuff you own goes way down in value and that it's hard to know how to think about a system based on a financial balance of terror. On the one hand, as we saw, systems based on balances of terror can often have tremendous stability. On the other hand, as the term "balance of terror" suggests, there's good reason for them to make one feel uneasy.
Holding stuff you can't sell because the value will go down if you sell sounds a lot like the Banks 18 months ago. Only in this case the pin-pulled grenades are treasuries instead of Mortgage backed securities.
History doesn't repeat and all, but I'd sure hate to see what rhymes with the last year's festivities.
Why you write so negative about the economy? The stock market rise and rise evry day now and I am not in because I read here and think economy still is bad. You tell people economy very bad i US, but the stock market reach new high evrey day now.
I could have made 11 % in two days.
And your here why?
I think Mr. Money is being facetious; no one's could be that foolish...could they?...oh never mind.
The danger of Volker is the likelihood of his doing the same things that worked last time. How many times in the last two years have we learned the folly of old thinking? This time government is part of the problem not part of the solution.
The speculative bubble in petroleum corrected itself and the lower prices are cheered. Why not the same hands off for houses and stocks?
No way Volcker's advice will prevail - too much pain for these effete hangers-on, and too many pig-men still in high places.
That is "I think My Money..."
New Thread.
Are there psychopaths who are actually calling for tax cuts now? All the Friedmanite lunatics should be locked up. They brought us to the edge of the abyss with their nonsense and they STILL won't shut up. Scum.
Eric,
Buying puts on a couple favorites that have bounced big (SPG, COF). But also being cautious -- hearing a lot of bears expecting an extended 4th wave rally. I don't put a lot of stock in TA, but I listen when others do...
Mr Money
Right now, the stock market is a casino. One week the shorts taking bulls money and the next week the bulls taking shorts money. CR is talking macroeconomic(disinflation) whereas the stock market is currently functioning on microeconomic(gambling).
Do you want to know if the market is going to be up or down on December 31?
Flip a fuc_ing coin.
"Republicans=Sociopaths"
Finally, a blog for the thinking man. Now, for the rest of us . . .
"Bye, Bye, SS and Medicare Boomer's get your ass to work."
My ass has been at work since I was bucking hay for 40 cents and hour at 13. I love how the youngins keep blaming the boomers. This boomer didn't buy video games, fancy clothes or mega-function cell phones on a credit card. I got a bigger house by rolling over equity, not using it for boats and other crap.
Yet a strange thing happened the other day. I maintain an account with three employees including myself. My counterpart has a smaller account with ten. Management decided to combine accounts, explaining to me that "you are doing too good of a job." I suppose the next thing that will happen will be that I get laid off because my paycheck is too generous.
Get my ass back to work? Tell that to your generation, who think that work is an entitlement based on a meaningless piece of paper.
I don't call for tax cuts until we're out of this mess, not now though, and not anytime soon only b/c of our debt and the need to transition into a different kind of economy, not for useless social programs. We need less spending right now and less gov't meddling with the short term as the only concern. In an ideal world, I'm generally for less taxes in conjunction with low spending and small government.
If Volker is worried, I am worried. The financial system is broken and teetering on the abyss. Check out gloomboom.com
guys, with the deficits that the entitlements are going to give us (for practical purposes, a decrease in the surplus is going to be a source of deficit without spending cuts, as the gov is spending the surplus)...
anybody here thinks it's possible that we are going to print our way out of the issue? without rulling out slight increase in payroll tax (i don't see the FICA rate going up a lot during an L shaped recession though).
for me the scary part entitlements wise will be 2008-2023, after that demographics seem to improve. it's disturbing that the size of the labor force is shrinking as we speak.
Anon and Joe6pack, is it possible to talk about the deficits & entitlement issues in a pragmatic way?
this issue is key to anybody investing for the long term. finger pointing and generational name calling does not help.
Anyone who thinks either National Party gives a rat's ass about J6P is a moron. Proof is in the pudding as they say, and this debacle proves the point. They are both perfectly legal crime syndicates for you slow learners out there.
"I got a bigger house by rolling over equity"
Strangely, it is quite possible that the boomer's parents did not, and the boomer's children will not be able to, use 'equity' to get themselves more of anything.
This concept of 'equity' seems a fitting epitath for the boomers, but maybe that is just me. It certainly epitomizes the idea that simply by owning something, the owner is entitled to ever more merely by the virtue of ownership.
rent_to_own, i also see the end of the assumption that the new buyer pays at least what the previous buyer paid plus transaction costs.
this is what people in my city were taking for granted. it's history now.
In my humble opinion Volcker will be the den mother to Obama's economic team. Volcker is correct in his critique of wall street. Wall street has yet to find an economist with a formula to time the market. Additionally, economists have applied too much empirical methodology on their analysis. They should just accept their place in the academic chain of command - and it is not in the math department.
the cashing in of equity in the house (when the old downsize) and stocks/bonds might have a big impact.
but there's no good research i could find out there. also read a couple of books on the topic. the key seems to be the discretionary income of the young, if it begins to grow, asset prices might not go down much in real terms. otherwise, there will be no buyers when the old try to cash in.
if you don't need to cash in, you pass the assets to your heirs. it's the people that need to cash the ones that are set up for disappointment.
Fred Thompson doing a Ron Paul. PRICELESS!!
YouTube - Fred Thompson on the Economy
Just a canary in a coal mine:
I'm in the Southeast. I was shopping at the nearby Walmart Supercenter and noticed two things:
Walmart store brand tuna in the past year has gone from .52 to .59 to .67 to .82 a can in the past year. When it was .52-.67, there would be none on the shelf unless you got there right after they restocked. Same with store-brand peanut butter.
Now at .82 a can, the shelves are already stocked, but the 1.60/can store brand SPAM knock-off are always completely sold out.
If conditions get any worse in this region, there are going to be a lot of folks going very hungry.
Maybe this is old or just expected news, but marketwatch just posted this: Regulator: High number of mortgages re-defaulting - MarketWatch
High Number of Mortgages Re-defaulting
Office of the Comptroller of the Currency director John Dugan on Monday released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008. "The results were surprising, and not in a good way," Dugan told a gathering in Washington at the Office of Thrift Supervision's annual conference. According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months, the rate was roughly 56%. After eight months, 58% of borrowers had re-defaulted. The OCC tracked the number of borrowers that re-defaulted on their mortgages after the modification was completed. Dugan acknowledged that not all re-defaulted mortgages go to foreclosure, but he argued that the number was very high. Dugan said he was not sure why there was such a high level of re-default, pointing out that it may be because the modifications were not low enough to be affordable.
I wonder what the re-default rate is after a year? How about after another half million people lose their jobs?
What I think will happen is that somewhere, right now, someone is working out in their head a new ism.
It's certainly true that the ideologies of our era are worn out and unsuited to our times. Look at what you get -- people talking about entitlements and rent_to_own going on about how the Germans have better vacations.
Framing the problem -- what problem?
The problem is unfortunately that people will mostly continue these pointless jabberings until they are dead, because they can't be bothered to change their minds or have ideas or notice that the world has changed since they formed their view of things at 14.
So well get the Randonians vs. the Commies, yawn, for the 97th round of their eternal struggle. Get a job you don't need vs. the struggle for means of production we have too many of. Oooh how relevant, pardon me while I wait for reality to catch up with you guys; I'll be sitting with the grim reaper over by the piles of the unburied dead.
"The market was being run by mathematicians who didn't know financial markets,"
I was one of the math and stat guys working at a major firm. I'm pretty sure my analysis led to much lower risk for my clients, and I explained the risks pretty thoroughly.
However, I saw what a number of competitors were peddling. Some of those things were downright stupid. The math being used to support them often had problems. Assuming housing prices would never go down was a famous example. There were a number of variables which people didn't know how to assess, and thus left out of their models. The banks were drawn to models and solutions which had to do with borrowing, investment, mergers, acquisitions. They weren't usually good at understanding nonfinancial items. Thus, unions, hurricanes,
Another group of problems arose from circumstances which had happened before, and weren't even contemplated in sress tests. Money market funds breaking the buck? Yes, it happened before 2008. Deflation happened before, so did home price declines. There is also a litany of problems which we haven't seen recently where we may hear "who could have known?" within a few years: trade wars, 18% interest rates, hoarding of consumer goods, extended drought, major municipal bankruptcy, or a US trade surplus. All of these have happened before, and you would be surprised how many proformas and stress tests implicitly assume these things won't happen. It's quite instructive to run such stress tests. You can't run all of the possibilities, but many weaknesses and potential improvements are exposed.
It seems likely that he [Volcker] will advise Obama that the growth of U.S. consumption -- everything from government spending to household outlays -- should not be financed by selling ever larger amounts of debt to foreign interests.
I doubt Obama will listen to Volcker. Volcker identifies government spending as part of the problem. Obama on the other hand is promising a significant increase in deficit spending, going so far as to say the current economic conditions warrant that spending and deficits are not important.
If Obama marginalizes Volcker then Obama, like Bush and Clinton, is part of the problem. Given Obama's recent position on deficit spending I think we already have the answer.
mmckinl: Re extraction and consumption vs. production -- most things cannot be produced out of thin air, so you got to dig out raw materials. And you need a whole system of extractive industries to provide "liquidity" in raw materials. Otherwise you end up like former Eastern European "communist" economies with factories and workers sitting idle until raw materials would come in, or critical machines could be repaired, and there was scarcity and supply volatility in most things (of public and business interest).
Unfortunately, stability and resilience require a degree of redundancy. (And just how much redundancy is enough can only be figured out "organically", no central planner has yet shown consistent and sustained performance.)
Likewise with consumption, what/who are you producing for if your product is not consumed?
Having said that, you can operate with more or less waste and pollution.
"The market was being run by mathematicians who didn't know financial markets," he said this year after the crisis struck.
Buffett put it with neoclassic wit: "Beware geeks bearing formulas" (hat tip to Virgil).
If Obama marginalizes Volcker then Obama, like Bush and Clinton, is part of the problem. Given Obama's recent position on deficit spending I think we already have the answer.
Some liberals are already viewing Obama as Bush in blackface.
I think it is possible to contemplate that at the end of the next S&P down 5 leg (assuming we're at an up 4) starts a new equity upcycle just as volatile as the downcycle, this time driven by inflation. What is the VIX stays above 60 for several years, basically reflecting the fact that no one has control over the economy anymore, or has the slight clue how it functions in aggregate?
Volker is right
btw history records volker fought with reagan...
reagans policy was stimulative, budget spending increases with tax breaks galore,
while volker and the fed jacked up rates to put the brakes on
"today" marks the end of deregulation as the unassailable mantra from the right
and
we (americans) must, will, produce more and consume less
"Volcker is a dinosaur. His time came and went. He complains about the Reagan deficits-- he's lucky Reagan ran a deficit, otherwise the economy probably would have slipped into depression due to his monetary policies."
LOL
Random thought.... Volcker is sort of like Gandalf. He seems to disappear for long stretches and then only shows up whenever we've got ourselves into some serious $%^#. So people aren't usually happy to see him.
If you haven't read Tolkien, never mind.
I think (hope) that Volcker will be Obama's most significant adviser. Personal responsibility/integrity appears to be very important to Obama and he is thus more likely to value advice from somebody who believes and has lived by those values. I believe that the Treasury Secretary/Summers was a sop to Wall Street who probably would have freaked if somebody not of Wall Street had been appointed.