2nd

3rd?

Exit,

Thank God! For just a moment, I thought every other person on the planet had been sucked into the debt hole.

FDIC tells OneUnited to cut perks, boost capital - Boston Business Journal:
FDIC tells OneUnited to cut perks, boost capital

That damn Mayan calendar.

if the Republicans in the Senate try to obstruct everything

"if"?

that's a given.

what will be the Obama, Reid, Pelosi response to fillibusters on every action (as in nearly every proposal in the last Congress)?

Talen says this will happen quickly. I'm not so sure, given the delaying tactics of the Fed/Treasury. But I am SURE Congress will be tied up in proposals that don't get to final votes in the Senate.

You can send your neighbors to the gulag and then you would not have to worry about them. I can send you the link to report them to the Obama administration.

I think it all goes back to Fantasy Island.

Da plane, da plane! Oh sh!t, it's in a nose dive and headed for the cabana.

"Will I have to shoot my neighbors when they come for my food and gold? I am starting to believe that I might. damn it!"

In the America that we can hope will arise from this distress, neighbors will (again) help one another.

Say what you might about the Mormons' beliefs, but their sense of community and charity could bear some replication, as does the same sense among other groups, ethnic, immigrant, or rural, in this country.

Something to look forward to when the Small 3 go down in flames:

AFS Trinity Power – A revolution in Fast Energy Storage™ featuring the Extreme Hybrid™.

Is This AFS Trinity 150 MPG SUV Being Suppressed By The Auto Industry?

Anybody seen one of these?

"Nassim Taleb is a crank."

It is all the rage now in the mainstream to trot out anyone who did not engage in the hubris and deception that all was well.

Trouble is, there aren't very many that they are aware of. The Charlie Rose I would actually watch would have a panel of e.g., Shedlock, CR, and a few other bloggers whose identities most of you could list off without pause, discuss what it was that allowed them to see it coming.

Cynical Dude(Unrated) writes:
Talen says this will happen quickly.

When Taleb says "quickly", he doesn't mean "soon". He means that when it starts happening, it will be like cresting that first peak on a roller coaster.
Cynical Dude | 12.07.08 - 2:23 pm | #

Or already HAPPENED - think radiation burst from a neutron bomb with the financial 'contagion' analogous to radiation... things look okay for while then everybody stars dieing of radiation poisoning with some dieing faster than others.

The financials have blown and now the real economy (Main Street) is dieing from the radiation.

I think the idea of the global economy regressing to the stone age is crazy, but things could get very bad:

I think the most likely scenairo is a lengthy recession (15-20 years) with high unemployment--nearly equalling the great depression.

I guess the government will inflate its way out of debt, since there really is no other alternative.

Imported items will become far more expensive. Consumer electronics will not fall in price as has been the norm.

Budgets will be much tighter--people will spend all of their income just providing the basics. Most families will get by with 1 or 2 cars; three car families will be rare.

Most everyone will know someone employed by a massive government jobs program.

A bank holiday will be declared and a massive banking system consolidation will occur. Depositers may lose a fraction of funds above FDIC limits.

Hotels will close worldwide as travel is greatly reduced for business and leisure. Island resort properties will close and decay. One third of Disney's hotels will be mothballed.

Las Vegas will be a strange place indeed, with very new properties falling into disrepair and decay.

Child day care centers will decline dramatically.

Fewer homes are needed as extended familes move in together to share costs.

Many casual dining chains will go out of business.

Airline travel will become less frequent. Airport expansions will be cancelled. Many aircraft manufacturers will file BK.

Pressure on the dollar will increase the price of oil.

Gold will go up in dollar terms, but not to stratospheric levels.

Property crimes will increase. There will be a great increase in alarm systems, security services of all kinds, self-defense products, window bars, steel doors, fences, video monitoring, etc.

The euro will be used by an increasing number of countries.

The cruise industry will nearly collapse. Ships will be left to rust; nobody will pay above scrap prices for a ship.

I do not expect a "run on the dollar" to occur where there is a sudden and massive drop in the use of the dollar worldwide. Nor do I expect a lengthy period of unavailability of electronic payment systems.

I don't expect food supplies to become unavailable; there is no reason why this would happen. A great deal of the food consumed in the USA is made in the USA. Of course, imported fresh fruits would be pricier.

What is your "best guess" scenario?

Las Vegas will be a strange place indeed

Will be?

Something to look forward to when the Small 3 go down in flames:

Interesting...but I don't think the collapse of the big 3 losers will help matters. They each actively don't WANT to license this vehicle from AFS. They prefer to continue building SUVs, trucks, and the like with MARGINALLY improved fuel efficiency. They don't WANT a major-league, leapfrog improvement.

One of the Big 3 would have to be forced to license and build this thing by a Congress that makes it a stipulation of a bailout - yeah right, they'd do that.

Perhaps a Honda or Toyota or Tata motors would license and build it.

Cynical Dude, apropos we posted at the same time, no? Perhaps I found your blackswan?

At the risk of ruffling a few feathers, I am looking for comments that are more specific in identifying the casual chain of coming events. Just as in the house/mortgage bubble, many (most here) correctly noted the disconnect with reality, but where are we headed and how will it unfold? Taleb's statements are typical of many who talk in absolute general terms "it will be much worse", but what specifically are we talking about?

I have been trying to reconcile the conflicting views of deflation/deflation, and my sense is that most recognize they are not competing events, but consecutive with the ordering pretty well assumed (deflation first, then rapid inflation). So what excatly will trigger the transition from deflation to inflation and how will this first appear?

Reflecting on collective comments in past threads, it seems this will not occur simply as a result of excessive stimulus and other "bailouts" as the current pace of deflation may absorb, at least initially, much of the impact. It occurs to me that the knee in the curve will finally occur when production will have been so crippled by the current economic dislocations that shortages begin to emerge. Only at that point, when crippled production can no longer meet demand will the hyper inflation phase begin.

Am I correct in this thinking? Isn't a critical step in the transition to hyper inflation a correction in production yielding a clear shortage in goods and services?

And if this is correct, how far do we really have to go before such shortages are an issue (for the sake of discussion putting aside oil)? Hard to imagine in an economy and world that seems to suffer from excess rather than limited productive capacity.

Thanks to all for the creative conversations.

Dry,
Not that you needed another anecdote, but we have many clients teetering near bankruptcy. This is a first. Yes, you know some of them.
Fortunately for us, they still have to file those k's.

If Taleb is right then nobody walks away from this wreck completely intact. The winners will be the ones carried away only horribly mangled and wounded. The losers will be ash.

dryfly | 12.07.08 - 2:20 pm |

Taleb certainly looked a bit smug.

I having been reading about deflation. The Irving Fischer link someone posted has been very helpful. He even has his version of what will happen, broken out into stages, probably where Roubini saw it.

I can't say I understood it completely but I think I understand why Bernake is printing. He knows we are experiencing deflation. He wants to inflate enough so the debt can be paid down easier for the large debtors. He won't succeed, but he can make it less devasting.

I can't say I understood it completely but I think I understand why Bernake is printing. He knows we are experiencing deflation. He wants to inflate enough so the debt can be paid down easier for the large debtors. He won't succeed, but he can make it less devasting.
nova | 12.07.08 - 2:43 pm | #

Depends on your definition of 'success' - if we have some mangled bodies exiting the crash but still alive to see another day - he might consider that 'success'.

I doubt the mangled will feel all that lucky though.

What's worse Cynical is Rice is going even further...This is troubling, very troubling...I only half believed they would try something crazy before leaving power...now I'm leaning towards 99% sure in my belief...

"Most families will ->get by

Taleb's claims about his clients being unaffected need close inspection. Even if he moved all of his clients money into cash - in which currency? If it is USD, was it a lucky guess a year ago or a conclusion of some chain of reasoning? If it is Euro, then they are not unaffected.
Taleb does not seem to have a positive theory/philosophy of how the world works, only a claim that anything is possible, and the likelihood of that is much more than you think. I had this insight when I was in school.

Did you ever see the movie Delicatessen?

PapaSloth | 12.07.08 - 2:54 pm |

No, did they eat people?

They call me Tim writes:
Anybody posted this yet?

Help - Page Not Found - Boston.com
They call me Tim | 12.07.08 - 2:27 pm

Don't think so. It was new to me:

One such blogger, a retired veteran of Wall Street who signed his posts "Calculated Risk," had established his own blog in January 2005.

Calculated Risk quickly developed a cult following for its sophisticated analysis of economic data, for rapidly crunching numbers into readable graphs, and for the knowledgeable posts of Tanta, a guest blogger with razor-sharp prose and an almost limitless enthusiasm for exposing the inner workings of the mortgage industry. Tanta had worked as a mortgage banker, and the blog created an instant platform for this one thoughtful - and worried - insider. Today, her posts have become legendary as a prescient warning cry about the current financial meltdown.

Also, big props to The Big Picture and others.

dryfly writes:

"I always thought of hyperinflation as a monetary phenomenon.

It is."

dryfly, bgates; thanks for response. Given that inflation is a monetary phenomenon, isn't it measured by what you can purchase (X vs. 3X)? If production declines, or scarcity appears, and prices are finally bid up because demand can decline no further - what do you call that? If not tecnically inflation, isn't the result the same; money becomes worth less because you can buy less for the same amount?

Personally, I worry about Mesiahs. I do not know who makes me worry more; a Mullah, or a Baptist.

Fischer mentions in his writing that FDR had to print. If he didn't, the gov would have fallen. He also mentions the midwest where people were already starting to cross the line into outright revolution.

May we have an example of someone who knows how the world works?

Keynes and Fridman had postive, if opposite, theories that tried to explain how the world works. Nobody is trying to come with perfect Theory Of Everything (save string theorists). The point is that critisizing can be valuable but it usually is not hard. The real value is in trying to come with something new that helps understand how the world works.

"They aren't just going to disappear in a cloud of poof."

They will unless you have money to maintain them.

In the next year or so, look for cities to start passing ordinances allowing backyard poultry and goats.

Chickens aren't the problem,...it's the roosters. Please remember, you don't need roosters for egg production.

The Federal government is already the largest employer in the country, even excluding the military and Post Office.
Corey | Homepage | 12.07.08 - 3:06 pm |

Closely followed by Wal-Mart.

Actually, that's "dying". You've been machine tooling for too long.

Outsider | 12.07.08 - 3:07 pm | #

LOL - I wondered about that but my spell checker let it go - I mean who am I to question a spellchecker?

Taleb does not seem to have a positive theory/philosophy of how the world works, only a claim that anything is possible, and the likelihood of that is much more than you think

People are linear creatures. We extrapolate action along linear lines.

Complexity is multiplicative.

Ergo, there will also be a mismatch in expectations versus reality.

Taleb also mentions in his Black Swan book that Fannie and Freddie are a "keg of dynamite."

Crewman(Unrated) writes:
Bush deployed 20000 troops to respond to emergencies in the US. That scares me. They know what is coming?

20000 troops against 300 million inhabitants? I think we know who should be scared in that scenario. 20000 troops wouldn't even control a sizable midwest town; a metropolis is out of the question.

I don't know why Bush enacted that policy, but crowd control during a monetary collapse doesn't seem likely.

Corey:
How exactly will this magical transformation take place in a people that have been conditioned to believe that government is there to provide for all their needs, cradle to grave?

Funny, the lession I've been learning (or actually, the lesson that the powers that be have been trying to force into my skull) is that we are all on our own: "I got mine, screw you" or "Hooray for me, too bad for you" or "Not my problem if you were too stupid to not make yourself rich. Die already!"

stdfs:
Chickens aren't the problem,...it's the roosters. Please remember, you don't need roosters for egg production

Ah, but you NEED a rooster to propagate your flock. No rooster, no replication.

We are planning to acquire a dozen chickens next year plus 2 roosters...but then, we're in the sticks.

Sure, sure. People in L.A. are dialing 211 for emergency Christmas gifts [see article upthread]. Somehow I doubt we're ready to become that mythical nation of self-sufficiency and "neighbor helping neighbor".

Yep. We are not ready. Doesn't mean it won't happen. To your previous question, people will stop believing the government provides when it can no longer do so. Kind of scary, huh?

...Unless the crash is complete, the disease will still be walking around within the government.

The disease, like the poor, will always be with us. Revolutions eat their children; just like software startups.

They are learning...

More than 160 US, NATO vehicles burned in Pakistan

By RIAZ KHAN, Associated Press Writer Riaz Khan, Associated Press Writer 2 hrs 5 mins ago
PESHAWAR, Pakistan – Militants torched 160 vehicles, including dozens of Humvees destined for U.S. and allied forces fighting in Afghanistan, in the boldest attack so far on the critical military supply line through Pakistan.

The American military said Sunday's raid on two transport terminals near the beleaguered Pakistani city of Peshawar would have "minimal" impact on anti-Taliban operations set to expand with the arrival of thousands more troops next year.

However, the attack feeds concern that insurgents are trying to choke the route through the famed Khyber Pass, which carries up to 70 percent of the supplies for Western forces in landlocked Afghanistan, and drive up the cost of the war

Thanks for your response. What got me on this point is the assumption I had been holding that deflation was good for savers and those holding stored wealth. But this comfortable assumption rests on the belief that goods will remain plentiful, onlt their prices will change as demand collpases. There is a point at which the downturn is so severe that it affects productive capacity, in which case scarcity is not easily solved simply by resorting to savings.

Deflation destroys productive capacity EXCEPT for 'pure services' - those that don't rely on any capital at all.

Everyone gets all hung up on debt vs savings but deflation also destroys capital intensive operations regardless whether they are debt free or not - look up 'operational leverage' [basically investing capital to produce more & better than is possible w/out that capital]... in a deflation it behaves almost like debt.

I mean who is going to invest in machinery TODAY if the products they produce are going to decline in price, even if the demand in non-monetary units is fairly constant? And especially if you believe the cost of those machines will also be declining - why not just wait?

So jobs go away in a deflation too - exacerbating the deflation.

People on this forum (and everywhere in general) are way to casual thinking through the repercussions - BOTH for inflation & deflation. They both suck but in different ways.

Satan: You cannot predict the long term (+5yrs) future! The best predictions are short term (upto 1yr), very good and objective analysis might even be accurate at intermediate timescales (1-5 yrs). However even short term predictions can be upset by unknown or poorly understood factors.

Few businesses that I know of have a need to predict their operating needs 5+ years into the future. When they do, it is based on simple arguments like "China is a big and growing market, we should have presence there".

R&D definitely looks at a rather distant future, but smart companies do not try to apply strict forecasts to their R&D strategy, whether its high-tech or pharma. I think most of these companies try to pursue multiple paths and not be bound by "the" forecast.

We think arithmetic while the world acts geometric

It's remarkable how few people understand the Mythical Man Month.

My favorite example is pregnancy - one woman can make a baby in nine months but nine women can't make a baby in one month.

Boise isn't that bad, overall. It's still isolated in many ways. A fellow stopped me in downtown with a question and I flinched, expecting another handout request.

But no, he just asked parking meters needed quarters after 5pm. Then we chatted about the city.

There's a lot of ads on TV that seem offkey for these times.

There's one for Burger King that shows Chinese peasants who have never tasted a hamburger ("Burger Virgins") doing a blind taste test between Big Mac and Whopper.

Is that sick or what?

You would think execs would be smart enough to pull offkey ads. Not so. Lots of denial.

interesting, taleb as lenin. ok. where does larouche fit in?

Charlie Chaplin.

"I don't expect food supplies to become unavailable; there is no reason why this would happen:......

Funny....that's what they thought in the Soviet Union with all those Mega-Farms back in the early 80's. They couldn't feed their own people - we had to ship milions of tons of foodstuffs to them!

interesting, taleb as lenin. ok. where does larouche fit in?

Charlie Chaplin.
Broward Horne | Homepage | 12.07.08 - 3:36 pm | #

Taleb is not Lenin; he is capitalism's new favorite obscurantist.

Oopsie, gremlins inserted an extra space in my URL...
Error 404: Page Not Found | NDN

OK, CR Companion insterted the extra space, and just did it again.  Sigh.

Actually, a link to the entire interview came from someone else in comments here yesterday. I did find the fun clip, though.

PapaSloth writes:

"It shows, among other things, that median household income has fallen monotonically for the last 5 years."

PapaSloth, Dryfly, thanks for responses. Maybe the aggregate data shows this, but I agree wages are "sticky" and even an emotional issue. Contractors in my locale, although more interested and "available" for projects are still not willing to acknowledge price competitivness, and will no bid rather than lower a tenative bid. When I see hourly rates notch lower than I'll know we've broken through. Hasn't happened yet, despite 18 months of shrinking demand.

Taleb is taking on strawmen. The mathematical modelers do not believe everything runs according to Black-Scholes, or even a version of that with fat tails. We take it all with a grain of salt, it's just a model. Surely value-at-risk that ignores credit risk is not expected to account for credit risk.
comrade artichoke | 12.07.08 - 3:45 pm | #

As a (statistical) modeler, I can say that, with some exceptions, this is spot-on.  I work for people who want The Answer, even if I know there is no such answer exists.  You can push for a better understanding of risk all you like, but you're still a prisoner of the prejudices of management.  The same applies to the Mythical Man-Month observation.  The developers understand it; the traders don't.  Yet it's the traders asking you if you could use another hand (not theirs) to work on something at the last minute.

That's not the whole picture, though, and it's intellectually dishonest and sloppy to say that the housing bubble was unknowable.

Ok, let me say this in a simpler language.
satan | 12.07.08 - 3:51 pm | #

Thanks, because the problem is clearly that we are simpletons and not merely people who don't agree with everything Taleb says.

He is telling you, obliquely, that most of the speculative assumptions of western thinking are BS. Most of your beliefs about the future are therefore worthless. He is calling out something that I have often mentioned- Hubris.
satan | 12.07.08 - 3:51 pm | #

Pot, meet kettle, and what makes you think I share "speculative assumptions of western thinking"?

He is also pointing out that some of the basic assumptions and behaviors of western capitalism will have to change if we want a functional society. Some of you might yammer about how human behavior never changes and status quo. Some of you believe that we go back to GD1 or even medievial times. I predict that given the nature and spread of technology + demography- the present course of events will lead us to a place where we won't have much of a species left.
satan | 12.07.08 - 3:51 pm | #

Straw-man all the way.  I'm anti-capitalist, for example, and don't believe any of these things about human behavior you ascribe.

true, but the timing was. who knows if the t-bond futures will hit 150 before or after 110? nemo sciet.
bgates | 12.07.08 - 3:56 pm | #

This is why Taleb is a finance capitalist speaking to finance capitalists.  If all you care about is predicting short-term moves in markets to make money, then Taleb is correct, though he's not really saying much that is new, and his audience should be fools like Robert Rubin and Phil Gramm.

Can someone in simple language explain to me Keynes views ?

No one can, because they aren't simple. I've been reading Krugman's blog to get the flavor of them.

RE: Cranky

Thanks for the link:

YouTube - Atheists and the Stock Market - Nassim Nicholas Taleb

I find it interesting, and true.

The only important thing to notice in the current market is that - for the time being - it cannot be predicted. Hedge funds still need to unwind; the new administration offers hope for recovery; the market is in a bottoming process.

The important thing to notice is that [ if you do not have inside information ] you are a fool to put any new money into the market.

Any predictions on how far away we are, and supporting rationale?

I find it ironic to have this question in the same thread as the discussion about black swans and Taleb. Not that it isn't a very important question

This is not a time to put new money into the market - in either direction -

This is a time to stand back and watch - attentively.

Trenches,
Disagree on many fronts. You have a misguided notion that the government can fix this mess. It can't. You're just a contrarian -- you don't have any fundamental opinion of where this is going.

I'll take out puts on your optimism.

...after all the "wash is run thru the machines", only some will realize that the 300mil customers we used to be won't be nearly so gullible, reactive, and downright stupid nor ignorant.

In_the_trenches | 12.07.08 - 4:32 pm |

I don't see an inflection point, but I do see a turning point.

it will be like a global currency revaluation - so parody among currencies will remain,

I'm sure you meant "parity", but it reads well either way

We've had almost a 50% drop in the market and a severe recession

Japan had a greater drop despite massive government intervention and that was long before the derivatives bubble.

they want their citizens to be happy

I would be quite happy if somebody somehow managed to fix this mess but the fundamental problems are still in place. I suggest that YOU are the one focused on markets and greed. I have no vested interest in any US paper, either short or long.

I don't see that anything has been "fixed" by a stock market decline.

Too bad Dr. Rice has no credibility left when it comes to "irrefutable evidence."

Too bad that every Democrat in congress saw the same evidence she saw, and 98% of them shared her conclusions.

Ream me some more Hank.

Take a bow satan. I've always wondered who caused everyone to buy that wintel crap.

When the IBM PC came out in 1981, it was criticized for having a poor non-propietary architecture with an OS from an emerging company, and parts made in taiwan. The apple route was the way to go. How did that work out?

Work out for who, the benighted who bought IBM clones and suffered with an inferior operating system and inferior hardware for 30 years? satan this was one of your most evil deeds ever.

Quality doesn't always equal popularity.

Heard a guy at Church this AM speaking on friend that was told to pick up extra shifts...at reduced pay. The Co. refuses to hire new workers and tells currently employed to work or else. These extra shifts used to pay time and 1/2. Coming down the tracks...and it aint lookin' back.

Well, after that boston write up I am afraid I will have to stop posting as much.

Any fame would be detrimental to my preference to live my life out of spotlight, and quite frankly might be detrimental to my continued employment.

Quite frankly, it has been extremely fun, and sobering at times to participate in this blog, but unfortunately as conditions worsen the messengers will be blamed for the message.

CR, I will comment from time to time, but this is getting too big and too well known.

Thank you! One and all, thank you!

Someday this war's gonna end...

It is nice to have an OT chat on a zombie thread

Speaking of which - I strongly suspect Trotsky would have exceeded Stalin in mass terror. He put as little value on human life but was much better at organization issues. He would have installed a much more effective and efficient Nazi-style mass production of death.

So, Pavel - was Nazi Germany an atheist or Christian state?

Spain during the times of Inquisition - how tolerant was it? How tolerant is Saudi Arabia or Pakistan?

Well, if Israel is not a particularly religious country, then I guess no country is.

At least you know that there may be something you don't yet understand. : )

And vice versa - there may be something you only think (or believe) you understand

I am back.
I think there are no truly religious states in Pavel's sense, even if Israel does not qualify.
Therefore all states are more or less atheistic and therefore all wars are waged only by atheistic states.
Religious state is an abstract ideal.
Pavel - please correct me if I misinterpreted your view.

Yes, I know of A. Men. He was a very very good and kind man.

I respectfully disagree that believers can give a better account of where goodness comes from .
Believers have to rely to a higher authority to explain how they ought to behave. Note that the religious interpretation of what is right/wrong has changed dramatically over the centuries.
Non-believers rely on what they think is right. Of course, their views will change over time as the humankind changes.