But I like people destroying themselves through hubris..
//Munger: Yes, and nobody is even bothered by the folly. It violates the most elemental principles of common sense.//
Watching people hang themselves is entertaining..
//Some of the most admired people in finance — including Alan Greenspan — argued that derivatives trading, substituting for the old bucket shop, was a great contribution to modern economic civilization. There’s another word for this: bonkers. It is not a credit to academic economics that Greenspan’s view was so common.//
Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade.
Grundfest: And they can’t both be right. But both of them are following the rules.
I mentioned before that the lack of zero-sum transactions violates the basics of credit-debit double-entry bookkeeping.
I think the sages of Omaha have lost their luster.
Derivatives are weapons of mass-destruction, unless we write them...
Ratings agencies bear a lot of the responsibility and did a lousy job, but we own a big chunk of Moody's and think it's a great company...
The banks were out of control, but one of our favorite investments is Wells Fargo, the bank that cynically bragged that although they played a large part in peddling subprime mortgages, they themselves were shielded from the fallout. Much the same as Goldman Sachs, another Berkshire holding...
The down home, folksy wisdom is sounding pretty close to the cynical hypocrisy that comes from Wall St.
Any thoughts how this is going to go? Another bounce to the 50DMA before heading lower or are we about to break down to 78 before heading lower?
If we do get a significant drop in the dollar, how will this affect the economy for the rest of the year? Somehow I really doubt there will be any quick surge in manufacturing employment.
lifeguard1999 (profile) wrote on Thu, 5/14/2009 - 8:24 pm
Yeah! Arnold sells the properties for $1 billion, all the while California faces a $21.3 billion shortfall.
A few derivatives should cover the difference and generate a budget surplus to boot.
"Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade."----------------
'Makes sense. One firm eventually unwinds a profitable trade, the other gets bailed out by the government and then reports higher profits. It works for me...
I feel like i'm stuck in a maze of financial mirrors, and everything is elongated or truncated or stretched just so, as to be somewhat recognizable, but try as I might, I cannot find a way out...
I was just looking at some items that came on the market for auction. Somebody is putting their collection up for sale. The next few years - if you are a collector with cash - are going to be very interesting.
The Colt revolvers of
Buffalo Bill
Cole Younger
Killer Miller
Poker Alice
Some firms were planning to write-down their liabilities to the value of the counterparty's asset on the swap. "Sure, I owe $500 million, but his auditor says I'm a deadbeat and wrote his swap down to $150 million. I agree. I am a deadbeat."
GDD - Ha - $2700 in take home income? For a family of 4? And a 'maybe' job for the wife - then go out and borrow $500k? No wonder the NYT is going under... along with their employees...
This guy was already in a financial crap bucket, and he decided, heck, why not, let me make yet another idiotic decision. The guy should have been fired for being a moron. He has no business writing about anything that has to do with money. Dope. Where's Jas to call him out.
I mean, seriously, what a total putz. The guy is a financial illiterate basically, and is an economics reporter.
And how does he propose to get out of his mess...write a book about his own incompetence. Jerk. I hope no one buys it.
Charlie also commented "In the ’20s, a tiny class of people were financial promoters and a tiny class of people were buying securities. Today, it’s deep in the whole culture, and it is way more extreme."
So who was surprised initial claims continued to rise today? The consecutive declines of continuing claims is the reliable indicator for guessing the end of a recession -- provided it is uncertain whether employment would improve or deteriorate.
Given that in most past recessions we were never far from a automatic stabilizer credit powered recovery, we would have in that uncertain region. This time it is literally impossible. There is not enough new money to make good on past borrowing while funding self-powered economic activity.
We have layoffs scheduled on the books for automakers, for states, for universities, for hospitals, etc. If the number of layoffs isn't convincing, consider the sectors they are happening in. Look at law firms, look at the financial sector, etc. These are the impregnable backbone. It will be obvious in retrospect
One way or another, employment stats have been goosed. There has been zero discussion of how exactly millions of people have left the labor force amidst the largest post-war/on-record decline in household wealth. Little discussion on how many are being denied benefits, and how many are simply running out of them. I'm the BLS will catch up to period with final revisions, instead of spreading them out over multiple revisions (which they have done to deal with birth/death errors).
They're still using the "regular recessions don't last that long" playbook. Trying to do a running start before jumping on the train.
If you want to hear egregious finance decisions, listen to NPR's "Foreclosure City". Try to keep from yelling at the radio every time someone says, "Everybody was doing it" and "Nobody could have known".
Basel Too,
I too think they transferred ML to the UST. Last thing I heard about it was the marks they were using for official reporting were last updated in December or something
wow. that article by edmund andrews is quite the eye-opener, not that i hadn't already known subprime wasn't just poor minorities, but that he's admitting his financial ignorance to the world. the whole adam-and-eve subplot was kind of amusing.
California should have sold San Quentin many moons ago. It sits on a gorgeous piece of property and is an eyesore. If the state needs more prisons, there is plenty of useless property in the desert. Of course, now they are discussing selling it at a low point in the market. So typical of our dysfunctional government.
We are clearly a country of dumb mo-fos, or people in complete denial, or possibly both. As far as I can tell, we're doomed to repeat these same mistakes, in some perhaps slightly diferent form, over and over and over again. Only thing that will prevent this is that we'll ruin the planet first and make ourselves extinct at some point.
CashOnlyHousing
Equity/Commodity markets start to fall. Problems start popping up, let's say in Europe. Money gets scared, USD goes back up to the recent peaks. Maybe more if the pound or franc is annihilated. Then before long, losses are still adding up and governments try to keep the lights on with QE. Then competitive devaluation as the fear you have dominates the fear of what may. But it's not so competitive, trade will be at an abysmal level. USD falls enough that its exports are competitive enough to pay for necessary imports. Very much an introverted period. Probably coincides with shutting of overseas military bases, embassies. Some will resort to conquest as the economy no longer provides wealth to political power players. Slowly countries shed debt overhang, adapt to new circumstances, probably a preference to guaranteed payoff but long payback period with low rates of return. Infrastructure stuff. At a certain point, credit will return to fund waves of innovation as needed. Hopefully we choose to accept uncomfortable adjustments in the near term instead of drowning in debt by that time. Side stories will be water, power, food.
"... because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money."
I wonder how much of this catastrophe can be attributed, not to complex derivatives written by ex-physicists, but to simple charlatanism?
A loan of this type should be a no-brainer: "no way." If you can't afford it, you can't afford it ....
GDD9000, re: stupid people
That's what I thought when I saw the Zillow report on Reuters, CR posted it earlier today. It's sad, but many adults need a parental figure to explain this whole mess to them. That waiting a couple of years will not bring them back to break even on their house or other investments
EvilHenryPaulson:
Arizona is so backed up with unemployment claims that a 2 month delay to get benefits is common. A buddy I recently visited applied in Marc h after he was discharged from the Navy. His application was lost and now he has to resubmit. Apparently this is common.
Bob_in_MA wrote: "I think the sages of Omaha have lost their luster." ...
I think you've got this one dead wrong. Buffett and Munger have been remarkably consistent over time, which is now 40 years. They were the first to sound the alarm about derivatives trading and subprime leading. Unfortunately, the rest of the world decided to write them off as outdated.
Samdog,
This crisis has nothing to do with complex math, which I am sad to admit is being treated as a scapegoat. It comes down to
1. Salespeople
2. Fraud
3. Bonuses that did not track complete performance
4. Anti-regulators, linked to an obsolete political system
5. Governments content to play some very large and dangerous games in the name of near term employment and wealth (applies as much to the US and UK as China and Japan)
6. Economics as a field is very primitive and dominated by ideological priorities
There is nothing about this crisis that I couldn't explain well enough to a 7 year old for them to write a report fit to be presented in Congress
Samdog,
The Swiss Franc of Switzerland/Credit Suisse/UBS. If the EU is going to dislocate, you will have many years of warning. Takes longer to disassemble than assemble. For now, there will be changes, but through the EU
Accountants sold out for the same reasons as everyone else... They're buried in debt.
This week I've been called several times for a job which wants too much skill for far too little money so they will get exactly what they're asking for - someone desperate who lies well.
Immediate need for highly-credentialed, highly-skilled and experienced real esate litigation attorney ... to work on a complex case involving claims of commingled funds, mismanagement, fraud, negligence, dissolution of the involved LLC's and an accounting as to what is owed each party
Nuke,
There have also been reports of computer systems crashing around reporting time. Whether deliberate or not, these problems amount to the offices being under-equipped to deal with the volume of claims. It's not a huge leap to understand a state failing to adequately fund the logistics, is also saving itself from paying claims. It's win-win for now
i'm starting to go over some of the state tax receipts from non-bubblezone. the decline is really starting to accelerate in some places. check out Kentucky fiscal year to date deficit; it's all from April.
"2 Live Within Means"
"...Among the more novel ways Basu said older Americans might trim expenses is by growing food and learning to become self-sufficient. "Home production of foods and services is now more necessary than ever for retirees," he said."
I guess the price of dog food is expected to rise quickly.
We're all farmers now...
I agree with some of what you say, but completely disagree with some.
"Then competitive devaluation as the fear you have dominates the fear of what may. But it's not so competitive, trade will be at an abysmal level. USD falls enough that its exports are competitive enough to pay for necessary imports." ... "Probably coincides with shutting of overseas military bases, embassies."
I do not see this happening and I think some recent news backs up my view. Such as china opening up the yuan for international trade. At some point the weaker currencies are going to have capital flight from their debt which will trigger a positive feedback loop where benefitting the stronger currencies. Dollar has to fall relative to the rest of the currencies as long as we have are exporting more dollars than are coming back as investments. I think the swap agreements are preventing this for the time being but unless you believe in an international conspiracy to support the dollar I think this will have to end, especially as governments continue to shore up the balance sheets of their banking systems(eventually less need for dollars to cover losses abroad).
Their will have to be very significant changes in the attitudes(allegiance?) of our elected officials before we see exports pay for imports. Any increase in manufactured exports is going to be a very slow process. I can't even imagine them cutting military spending anytime in the near future without some kind of revolution/coup taking place, unless it comes as a result of debt workout agreements with foreign governments.
"Slowly countries shed debt overhang, adapt to new circumstances, probably a preference to guaranteed payoff but long payback period with low rates of return."
Agree. In our case I think the shedding of debt overhang will come from default though, probably through hyperinflation, if not outright.
Basel Too,
if you want to share charts of tax receipts by state.
Print Screen - > Open MS Paint -> Paste -> Crop -> Save -> imageshack.us (or other similar website, requires no registration)
If I were a NYTs reporter, I'd be ashamed to go public.
I am working on a foreclosure defence. I explained to the husband that he had an interest only mortgage, and he still didn't know what that was, after having the loan getting behind, modifying getting behind again and going into foreclosure. The wife is the brains. However, the point is that a great many people are only capable of understanding what next month's payment is and if they can pay it or not.
Lots of hispanic types here just automatically refer to the mtg payment as the rent, and I just as stubbornly say each time, it's not rent, it's a mtg payment.
CashOnlyHousing
The Dollar does have to fall relative to other currencies. I did mention that. The key is when. With such low trade levels, it is a very weak breeze pushing it downward. A financial disruption will be more than sufficient to jerk it upward, similar to last Autumn.
Jeebus you aren't kidding about acceleration; from your link on Kentucky state revenues:
Through the first 10 months of the fiscal year, receipts are down 1.6 percent.
Through the first 9 months of the fiscal year, receipts were flat compared to a year earlier.
lawyerliz
What do you think? Prevent stupid people from making mistakes, or prevent stupid people from being given the opportunity to cause systemic risk. Should we bring in Credit licenses?
In the end we just have to worry about loans being made which will never be paid off.
Just read that NYT article. Amazing! That douche has been living in a half-million dollar house rent free for 8 months. I have been renting since I turned 18 (I am 30 now). As a serviceman, I never wanted to try to flip a house every 3 years, so I've been saving. I am happy that interest rates have been pushed to nothing (penalizing savers like me) to bail out dip-shits like this. This is why I canceled my NYT subscription over 8 years ago. Have fun when your company declares bankruptcy and your last paycheck bounces.
the states eventually have to realize that sales and hospitality taxes ain't gonna cut it, and that FY 2008-2010 budgets are still optimistic. either they massively cut current expenses, future obligations (pensions), or institute massive tax increases. Unlike with the Federal government, the states have no limits when it comes to taxing wealth, with the exception that the wealth might pick up and move.
of course, there's still the 11th hour bailout that's being worked on in Congress.
Public employee jobs are sacrosanct. I do not believe any of the announced cuts will occur. The feds will step in at the last minute. In the service, it is slightly different. Without unions, cuts are happening. Navy has cut over 30,000 slots in the past 5 years.
Basel Too,
The answer is all 3. It will be rough. Canada experienced the same thing in the 90s when speculators played off the fear Québec might separate and caused interest rates to go up. In the end a good thing that the problem was resolved earlier rather than later
Yes, that's the bank's job. If you're a creditor, would you loan $100 to a man who wants to invest on black at the roulette wheel? The lender/borrower is a partnership.
--
"Munger: I would argue that a majority of the horrors we face would not have happened if the accounting profession developed and enforced better accounting. They are way too liberal in providing the kind of accounting the financial promoters want. They’ve sold out, and they do not even realize that they’ve sold out."
I WAS SAYING THAT 12 YEARS AGO.
In a system of the Crooks you must serve the Crooks to make good money.
Economists are even better example of those who "sold out"!
The American econo-political system is: A system of the Crooks, by the Crooks, and FOR the Crooks.
BBAD can't do a damn thing about it. I know, I know, these congenital dopes can vote and many do vote to keep the Crooks in power. Amaaaaazing doooopes…
ehp: i agree that the states should take their medicine now, but i don't any of them have the political will to do it. while i think that the Fed's will eventually bailout out the states, i don't think direct funds will get through Congress (even though the states have been using the first stimulus tranche (medicaid) to plug holes) simply because Senators from flyover aren't going to agree to help Cali out.
so i'm thinking that the Fed's going to have to create a lending or guarantee facility.
So can they foreclose on this NYT guy already so my responsible, penny-pinching wife and I (and 10-month old daughter) can have a decent place to live? I'll give the bank (chase) more than $0 / month and I'd love to live where they live.
I'm not saying I "deserve" it and he doesnt. I'm saying I will buy it for $330,000 (he paid $460,000) and make mortgage payments every month, in full, and on time.
There's a 12 part youtube on the Argentina collapse of 2001-2002 that seems like a play-by-play manual to current events...
The well connected loot the coffers vis a vis political connections, the currency gets devalued by 2/3rds and the glass-bottom boat voyage from 1st world to 3rd world begins, one of the control methods used by a little-known American Bank called Citibank, was to not allow people access to their money, by keeping banks and atms closed, in the months that followed devaluation...
Everyone needs to read that NYTimes piece. So he has now gone 8 months with out paying his mortgage, and not heard a thing from his servicer. ?????? What does it take to actually get foreclosed on these days? just how backed up are they? And he is basically robbing whoever currently owns that loan. I would love to kwow what he is doing with the money he is not paying for the house- paying off the credit cards so the wife can keep shopping? reserving another place at the beach for the summer?
After a story is in the NYTimes, other media outlets usually follow like lemmings and write/show similar stories (or in the case of my local paper, just reprint the same NYT piece a day after I already read it at nytimes.com, and want me to pay for the privilege). Wonder if the "stop paying your mortage and nothing will happen" meme will make it into other media stories.
Systemic risk was supposed to be prevented by lenders not taking stupid risks with financially stupid people. Since that didn't work out, I guess we have to protect ourselves from stupid buyers and lenders from systemic risks.
Disclosure simply doesn't work with a person who doesn't understand what interest only is. Perhaps some independent party needs to administer an exam before you get a mortgage!!!
As I posted, the first time around with neg ams and such, I noted that they were offered to people who were least likely to have graduated from high school. Finally I realized that explanations would not make things clear and I would say that after the first year of making payments you will Owe More Money. Also, that in case we had to foreclose, I didn't want them defending on the basis that they didn't understand. The bank would have had me fired if they had known that I uttered the word foreclosure at closing.
But not one person ever put their pen down and walked away.
This week I've been called several times for a job which wants too much skill for far too little money so they will get exactly what they're asking for - someone desperate who lies well.
so I guess that means you'll be taking the job, then?
"Through the first 10 months of the fiscal year, receipts are down 1.6 percent.
Through the first 9 months of the fiscal year, receipts were flat compared to a year earlier."
You have to read the whole report. These are year-over-year comparisons and, apparently, Q4FY08 was a period of high growth for KY (jelly). I'm not saying there isn't a significant problem, but we have to be cognizant of the full story.
hopeinsd
He is worth more on the balance sheet than he is foreclosed. That is the problem of keeping banks on life support. Zombies. Not living, not dead. Like the flavellas or shanty-towns around most cities in the developing world. They don't own the land, so they don't maintain or invest in it, so they live in squalor. That's one of reasons why we have laws of adverse possession or squatter's rights. If they're going to foreclose in the next 12 months, odds are that they will do it in the next 3. If they miss out on summer, they might as well wait until next spring.
I like to watch the craps table in the casino, because at any given time, players can take off most if not all of their bets before the next roll of the dice, but you never see it happen.
Sometimes after a shooter makes a number of points, and the table layout is pregnant with chips of every hue, why do people never get a clue and not only count their winnings up in the rack, but also on the layout?
I'm not rattled.
The great majority of people need to believe certain things.
If you search hard enough, you can get close enough to the truth for personal satisfaction, though.
One of the foreclosures I am defending has a 2006 case number. I posted yesterday. The banks are too cheap to hire decent attorneys so if you put in a roadblock they mostly just go on to something else. In Fla you have to join the wife. They did join the wife. . .then they dropped her as defendent and filed for Summary Judgment. We filed an Affidavit basically just saying that the wife was still here...not dead yet....
They cancelled the Summary Judgment and haven't reset it yet, even tho all they needed to do was add the wifie back on again. And I was doing them a favor, because they would have had to start all over again to eliminate the wife, so no good title.
And the banks are beginning to realize they can't sell unless the price is hugely reduced, which makes them even more reluctant to foreclose.
neither one of my parents graduated from high school, they probably wouldn't even understand Andrews' article if they tried to read it, but they have more than enough common sense not to do what he did.
"- so I guess that means you'll be taking the job, then?"
Ha.
I'm not desperate and I don't lie well.
That's a good part of why I'm still unemployed.
I told the recruiters what to relay back to the client to actually make the thing work out right but I have little doubt that some 30-year-old guy with a checklist knows better. It's not my problem except I keep getting the same annoying call from different recruiters.
NY Times article -
a fascinating story -there is no malevolence by any of the involved. And, every action by every actor is rational (except the wife maybe).
If the reporter were to continue acting rationally, he would allow the bank to foreclose instead of considering the mortgage his moral obligation.
"When the regulators put in the option exchanges, there was
just one letter in opposition saying “you shouldn’t do this,”
and Warren Buffett wrote it. When they wanted to make the
securities market function better as a gambling casino with
vast profits for the people who were croupiers—there was a
big constituency in favor of dumb change. Buffett was like a
man trying to stop an elephant with a pea shooter. We’re not
controlling financial leverage if we have option exchanges."
Wonderful that he refers to the "bucket shops". They were real and are featured prominently in the great classic book "Reminiscences of a Stock Operator" by Edwin Lefèvre.
Credit default swaps = bucket shops.
History repeats, and repeats . . . and repeats . . . . . and
woa
"They’ve sold out, and they do not even realize that they’ve sold out."
I love that quote.
Sounds like Munger is calling Greenspan out...
Why did Buffet not stop dealing in derivatives?
But I like people destroying themselves through hubris..
//Munger: Yes, and nobody is even bothered by the folly. It violates the most elemental principles of common sense.//
Watching people hang themselves is entertaining..
//Some of the most admired people in finance — including Alan Greenspan — argued that derivatives trading, substituting for the old bucket shop, was a great contribution to modern economic civilization. There’s another word for this: bonkers. It is not a credit to academic economics that Greenspan’s view was so common.//
Bring me a bucket.
Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade.
Grundfest: And they can’t both be right. But both of them are following the rules.
I mentioned before that the lack of zero-sum transactions violates the basics of credit-debit double-entry bookkeeping.
Somebody inquired yesterday, who are the old guard now?
Munger referencing Livermore is like the old guard squared.
Many of the dealers' sales are too low, the automaker said, with just over 50 percent of dealers accounting for about 90 percent of the company's U.S. sales.
The remaining 50% should have been axed a long time ago...
The west has been living in a make believe world for some time now.
//I mentioned before that the lack of zero-sum transactions violates the basics of credit-debit double-entry bookkeeping.//
Arbitrage_Macht_Frei,
Why don't you invent a new word to describe a world beyond ridiculous?
The west is the best
The west is the best
Get here, and we'll do the rest
Ahnold decides it's time to sell...
Schwarzenegger to propose selling San Quentin - Santa Cruz Sentinel
beyond ridiculous was last week, beyond reproach is this week
I think the sages of Omaha have lost their luster.
Derivatives are weapons of mass-destruction, unless we write them...
Ratings agencies bear a lot of the responsibility and did a lousy job, but we own a big chunk of Moody's and think it's a great company...
The banks were out of control, but one of our favorite investments is Wells Fargo, the bank that cynically bragged that although they played a large part in peddling subprime mortgages, they themselves were shielded from the fallout. Much the same as Goldman Sachs, another Berkshire holding...
The down home, folksy wisdom is sounding pretty close to the cynical hypocrisy that comes from Wall St.
Yeah! Arnold sells the properties for $1 billion, all the while California faces a $21.3 billion shortfall.
US Dollar Index, last 6 months
Any thoughts how this is going to go? Another bounce to the 50DMA before heading lower or are we about to break down to 78 before heading lower?
If we do get a significant drop in the dollar, how will this affect the economy for the rest of the year? Somehow I really doubt there will be any quick surge in manufacturing employment.
i wouldn't mind if all those bankers fell into a bloody bucket.
So the accountants sold out? Again?
Didn't they learn from the Enron debacle?
A: No
lifeguard1999 (profile) wrote on Thu, 5/14/2009 - 8:24 pm
Yeah! Arnold sells the properties for $1 billion, all the while California faces a $21.3 billion shortfall.
A few derivatives should cover the difference and generate a budget surplus to boot.
"Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade."----------------
'Makes sense. One firm eventually unwinds a profitable trade, the other gets bailed out by the government and then reports higher profits. It works for me...
bleh (profile) wrote on Thu, 5/14/2009 - 4:25 pm
i wouldn't mind if all those bankers fell into a bloody bucket.
Yeah, sans their heads ....
A friend of mine rents a small house at San Quentin - he's a guard. He has views of the bay and the city and pays $400/mo.
Like his boss, this guy is irrelevant.
The Fed balance sheet is out - MBS increased another $65BB. Unbelievable.
And more writedowns on Maiden Lane.
I feel like i'm stuck in a maze of financial mirrors, and everything is elongated or truncated or stretched just so, as to be somewhat recognizable, but try as I might, I cannot find a way out...
Hey, my own personal Whocoodanode? via a NYTimes reporter. Goes to show you what shmucks they are.
My Personal Credit Crisis - NY Times
And more writedowns on Maiden Lane.
I thought that the Fed had transferred ML to the UST.
I was just looking at some items that came on the market for auction. Somebody is putting their collection up for sale. The next few years - if you are a collector with cash - are going to be very interesting.
The Colt revolvers of
Buffalo Bill
Cole Younger
Killer Miller
Poker Alice
and more...
Some firms were planning to write-down their liabilities to the value of the counterparty's asset on the swap. "Sure, I owe $500 million, but his auditor says I'm a deadbeat and wrote his swap down to $150 million. I agree. I am a deadbeat."
Reportedly, that's why FAS 157 was delayed.
GDD - Ha - $2700 in take home income? For a family of 4? And a 'maybe' job for the wife - then go out and borrow $500k? No wonder the NYT is going under... along with their employees...
This guy was already in a financial crap bucket, and he decided, heck, why not, let me make yet another idiotic decision. The guy should have been fired for being a moron. He has no business writing about anything that has to do with money. Dope. Where's Jas to call him out.
I mean, seriously, what a total putz. The guy is a financial illiterate basically, and is an economics reporter.
And how does he propose to get out of his mess...write a book about his own incompetence. Jerk. I hope no one buys it.
So, California got a Billion for some sea-side digs, but how much can they get for Chowchilla?
Charlie also commented "In the ’20s, a tiny class of people were financial promoters and a tiny class of people were buying securities. Today, it’s deep in the whole culture, and it is way more extreme."
We're all subprime now!
We're all subprime speculators now. Even worse, we're clearly not any good at it.
So who was surprised initial claims continued to rise today? The consecutive declines of continuing claims is the reliable indicator for guessing the end of a recession -- provided it is uncertain whether employment would improve or deteriorate.
Given that in most past recessions we were never far from a automatic stabilizer credit powered recovery, we would have in that uncertain region. This time it is literally impossible. There is not enough new money to make good on past borrowing while funding self-powered economic activity.
We have layoffs scheduled on the books for automakers, for states, for universities, for hospitals, etc. If the number of layoffs isn't convincing, consider the sectors they are happening in. Look at law firms, look at the financial sector, etc. These are the impregnable backbone. It will be obvious in retrospect
One way or another, employment stats have been goosed. There has been zero discussion of how exactly millions of people have left the labor force amidst the largest post-war/on-record decline in household wealth. Little discussion on how many are being denied benefits, and how many are simply running out of them. I'm the BLS will catch up to period with final revisions, instead of spreading them out over multiple revisions (which they have done to deal with birth/death errors).
They're still using the "regular recessions don't last that long" playbook. Trying to do a running start before jumping on the train.
Context is king.
If you want to hear egregious finance decisions, listen to NPR's "Foreclosure City". Try to keep from yelling at the radio every time someone says, "Everybody was doing it" and "Nobody could have known".
Basel Too,
I too think they transferred ML to the UST. Last thing I heard about it was the marks they were using for official reporting were last updated in December or something
I wonder what Duck L'Orange is up to?
He used to be so quotable, back in the day.
wow. that article by edmund andrews is quite the eye-opener, not that i hadn't already known subprime wasn't just poor minorities, but that he's admitting his financial ignorance to the world. the whole adam-and-eve subplot was kind of amusing.
but really...hoocoodanode ... i mean ... everybody was doing it.... it was as american as gramma's apple pie...
California should have sold San Quentin many moons ago. It sits on a gorgeous piece of property and is an eyesore. If the state needs more prisons, there is plenty of useless property in the desert. Of course, now they are discussing selling it at a low point in the market. So typical of our dysfunctional government.
And now he is publishing a book about his stupidity! He probably got an advance to write the book!
Edmund - stay in the northeast where you belong.
We are clearly a country of dumb mo-fos, or people in complete denial, or possibly both. As far as I can tell, we're doomed to repeat these same mistakes, in some perhaps slightly diferent form, over and over and over again. Only thing that will prevent this is that we'll ruin the planet first and make ourselves extinct at some point.
California should also sell Folsom Prison and use the proceeds to build a new prison out in the Mohave somewhere - Hey- Victorville!!!
it is high risk , high return game.... folks to took risk should be ready to take loss... why bail them out....
I'd like to see how much the euphemystically named "Honor Rancho" fetches on the open market?
CashOnlyHousing
Equity/Commodity markets start to fall. Problems start popping up, let's say in Europe. Money gets scared, USD goes back up to the recent peaks. Maybe more if the pound or franc is annihilated. Then before long, losses are still adding up and governments try to keep the lights on with QE. Then competitive devaluation as the fear you have dominates the fear of what may. But it's not so competitive, trade will be at an abysmal level. USD falls enough that its exports are competitive enough to pay for necessary imports. Very much an introverted period. Probably coincides with shutting of overseas military bases, embassies. Some will resort to conquest as the economy no longer provides wealth to political power players. Slowly countries shed debt overhang, adapt to new circumstances, probably a preference to guaranteed payoff but long payback period with low rates of return. Infrastructure stuff. At a certain point, credit will return to fund waves of innovation as needed. Hopefully we choose to accept uncomfortable adjustments in the near term instead of drowning in debt by that time. Side stories will be water, power, food.
"... because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money."
I wonder how much of this catastrophe can be attributed, not to complex derivatives written by ex-physicists, but to simple charlatanism?
A loan of this type should be a no-brainer: "no way." If you can't afford it, you can't afford it ....
GDD9000 (profile) wrote on Thu, 5/14/2009 - 8:43 pm
We're all subprime speculators now. Even worse, we're clearly not any good at it.
Yes, that second part is rather important.
edit "can't afford ...."
GDD9000, re: stupid people
That's what I thought when I saw the Zillow report on Reuters, CR posted it earlier today. It's sad, but many adults need a parental figure to explain this whole mess to them. That waiting a couple of years will not bring them back to break even on their house or other investments
Failure to Launch on a national scale...
EHP,
"Maybe more if the pound or franc is annihilated"
Are you talking Swiss franc or implying the EUC has already dissolved (taking its currency with it)?
Only thing that will prevent this is that we'll ruin the planet first and make ourselves extinct at some point.
That's when Keanu comes in... (i want those 2 hours of my life back)
I like that new legal term, forsooth and to wit:
Bonkers.
EvilHenryPaulson:
Arizona is so backed up with unemployment claims that a 2 month delay to get benefits is common. A buddy I recently visited applied in Marc h after he was discharged from the Navy. His application was lost and now he has to resubmit. Apparently this is common.
If only Arnold would step in and suspend disbelief like the Eastern Front seems capable of, everything would be jake.
Bob_in_MA wrote: "I think the sages of Omaha have lost their luster." ...
I think you've got this one dead wrong. Buffett and Munger have been remarkably consistent over time, which is now 40 years. They were the first to sound the alarm about derivatives trading and subprime leading. Unfortunately, the rest of the world decided to write them off as outdated.
Samdog,
This crisis has nothing to do with complex math, which I am sad to admit is being treated as a scapegoat. It comes down to
1. Salespeople
2. Fraud
3. Bonuses that did not track complete performance
4. Anti-regulators, linked to an obsolete political system
5. Governments content to play some very large and dangerous games in the name of near term employment and wealth (applies as much to the US and UK as China and Japan)
6. Economics as a field is very primitive and dominated by ideological priorities
There is nothing about this crisis that I couldn't explain well enough to a 7 year old for them to write a report fit to be presented in Congress
NYT: You’ll be paying a basic tax rate of 28 percent, and they’ll hit you with another 10 percent penalty.
A 28% bracket says mortgage interest and alimony (both tax deductable) were not the problem, other spending was.
Samdog,
The Swiss Franc of Switzerland/Credit Suisse/UBS. If the EU is going to dislocate, you will have many years of warning. Takes longer to disassemble than assemble. For now, there will be changes, but through the EU
EHP: There is nothing about this crisis that I couldn't explain well enough to a 7 year old for them to write a report fit to be presented in Congress
But who would explain the 7-year-old's report to Congress?
Accountants sold out for the same reasons as everyone else... They're buried in debt.
This week I've been called several times for a job which wants too much skill for far too little money so they will get exactly what they're asking for - someone desperate who lies well.
From craigslist ad attorney wanted
Immediate need for highly-credentialed, highly-skilled and experienced real esate litigation attorney ... to work on a complex case involving claims of commingled funds, mismanagement, fraud, negligence, dissolution of the involved LLC's and an accounting as to what is owed each party
No one here would have expected this.
Nuke,
There have also been reports of computer systems crashing around reporting time. Whether deliberate or not, these problems amount to the offices being under-equipped to deal with the volume of claims. It's not a huge leap to understand a state failing to adequately fund the logistics, is also saving itself from paying claims. It's win-win for now
i'm starting to go over some of the state tax receipts from non-bubblezone. the decline is really starting to accelerate in some places. check out Kentucky fiscal year to date deficit; it's all from April.
http://www.osbd.ky.gov/NR/rdonlyres/18EFA425-BC1A-465B-84CF-13A792A47AA9/0/0904TaxReceipt.pdf
inflation Hits Retirees
The author makes suggestions for retirees:
"2 Live Within Means"
"...Among the more novel ways Basu said older Americans might trim expenses is by growing food and learning to become self-sufficient. "Home production of foods and services is now more necessary than ever for retirees," he said."
I guess the price of dog food is expected to rise quickly.
We're all farmers now...
I walked by the Dismal Scientology Center the other day, and they had copies of "Re-Fi-netics" for just one dollar.
Did California start sending out tax refunds yet? I read they were holding them because of course the checks would have bounced...
EHP-
I agree with some of what you say, but completely disagree with some.
"Then competitive devaluation as the fear you have dominates the fear of what may. But it's not so competitive, trade will be at an abysmal level. USD falls enough that its exports are competitive enough to pay for necessary imports." ... "Probably coincides with shutting of overseas military bases, embassies."
I do not see this happening and I think some recent news backs up my view. Such as china opening up the yuan for international trade. At some point the weaker currencies are going to have capital flight from their debt which will trigger a positive feedback loop where benefitting the stronger currencies. Dollar has to fall relative to the rest of the currencies as long as we have are exporting more dollars than are coming back as investments. I think the swap agreements are preventing this for the time being but unless you believe in an international conspiracy to support the dollar I think this will have to end, especially as governments continue to shore up the balance sheets of their banking systems(eventually less need for dollars to cover losses abroad).
Their will have to be very significant changes in the attitudes(allegiance?) of our elected officials before we see exports pay for imports. Any increase in manufactured exports is going to be a very slow process. I can't even imagine them cutting military spending anytime in the near future without some kind of revolution/coup taking place, unless it comes as a result of debt workout agreements with foreign governments.
"Slowly countries shed debt overhang, adapt to new circumstances, probably a preference to guaranteed payoff but long payback period with low rates of return."
Agree. In our case I think the shedding of debt overhang will come from default though, probably through hyperinflation, if not outright.
"Side stories will be water, power, food."
100% agreement here.
analogies to The History of The World Part 1
YouTube - The French Revolution (from The History of The World Part 1)
Count de Money ( Wall St Crooks )
Good To Be The King ( Wall St Crooks )
The piss boy with the bucket ( American taxpayers )
Basel Too,
if you want to share charts of tax receipts by state.
Print Screen - > Open MS Paint -> Paste -> Crop -> Save -> imageshack.us (or other similar website, requires no registration)
If I were a NYTs reporter, I'd be ashamed to go public.
I am working on a foreclosure defence. I explained to the husband that he had an interest only mortgage, and he still didn't know what that was, after having the loan getting behind, modifying getting behind again and going into foreclosure. The wife is the brains. However, the point is that a great many people are only capable of understanding what next month's payment is and if they can pay it or not.
Lots of hispanic types here just automatically refer to the mtg payment as the rent, and I just as stubbornly say each time, it's not rent, it's a mtg payment.
CashOnlyHousing
The Dollar does have to fall relative to other currencies. I did mention that. The key is when. With such low trade levels, it is a very weak breeze pushing it downward. A financial disruption will be more than sufficient to jerk it upward, similar to last Autumn.
ShadowInventory (profile) wrote on Thu, 5/14/2009 - 1:21 pm
Ahnold decides it's time to sell...
sorry governator..selling a prison or two aint gonna cover it
at this point you are gonna have to look at selling one entire county....to the chinese
refer to the mtg payment as the rent, and I just as stubbornly say each time, it's not rent, it's a mtg payment.
Rent is not far from the truth (about 95% true for a new mortgage, renting money from the bank).
B2,
Jeebus you aren't kidding about acceleration; from your link on Kentucky state revenues:
Through the first 10 months of the fiscal year, receipts are down 1.6 percent.
Through the first 9 months of the fiscal year, receipts were flat compared to a year earlier.
broward (homepage, profile) wrote on Thu, 5/14/2009 - 5:13 pm
"Accountants sold out for the same reasons as everyone else... They're buried in debt."
_ _ _
Sorry Broward,
I wasn't trying to rattle your cage.
And now for you, your own 'Samdog's Haiku Moment' to soothe the soul:
~ ~
Boward's meme ramps up,
His tinfoil hat set to "high"
Now crackles and sparks
lawyerliz
What do you think? Prevent stupid people from making mistakes, or prevent stupid people from being given the opportunity to cause systemic risk. Should we bring in Credit licenses?
In the end we just have to worry about loans being made which will never be paid off.
Somewhere, Gray Davis is laughing his head off...
Just read that NYT article. Amazing! That douche has been living in a half-million dollar house rent free for 8 months. I have been renting since I turned 18 (I am 30 now). As a serviceman, I never wanted to try to flip a house every 3 years, so I've been saving. I am happy that interest rates have been pushed to nothing (penalizing savers like me) to bail out dip-shits like this. This is why I canceled my NYT subscription over 8 years ago. Have fun when your company declares bankruptcy and your last paycheck bounces.
the states eventually have to realize that sales and hospitality taxes ain't gonna cut it, and that FY 2008-2010 budgets are still optimistic. either they massively cut current expenses, future obligations (pensions), or institute massive tax increases. Unlike with the Federal government, the states have no limits when it comes to taxing wealth, with the exception that the wealth might pick up and move.
of course, there's still the 11th hour bailout that's being worked on in Congress.
Today 789 Chrysler dealerships are no longer
Did Your Chrysler Dealer Make The Cut? - Chrysler Dealers - Jalopnik
Right out of the Japanese playbook:
Zombie Loans Give Life to Blockbuster Amid Defaults
Zombie Loans Give Life to Blockbuster Amid Defaults (Update1) - Bloomberg.com
The seeds of ZIRP will yield bitter fruit.
On the 61st second of the 61st minute, in the 25th hour of the day, Congress did nothing
"Did California start sending out tax refunds yet?"
I received mine 2 weeks ago but havent cashed it yet. I better get to the bank soon.
Public employee jobs are sacrosanct. I do not believe any of the announced cuts will occur. The feds will step in at the last minute. In the service, it is slightly different. Without unions, cuts are happening. Navy has cut over 30,000 slots in the past 5 years.
Here's Connecticut. Half of its FY decrease of 1.2B was from April alone.
http://www.ct.gov/drs/lib/drs/research/09comparstate/mon_stmt_apr_2009.pdf
Basel Too,
The answer is all 3. It will be rough. Canada experienced the same thing in the 90s when speculators played off the fear Québec might separate and caused interest rates to go up. In the end a good thing that the problem was resolved earlier rather than later
Basel Too,
Decline in personal income tax is responsible for most of the collapse in tax revenues nationally. Unemployment is catching up.
http://www.rockinst.org/pdf/government_finance/2009-05-13-state_revenue_flash_report_personal_income_tax_revenue_decline.pdf
Prevent stupid people from making mistakes
Yes, that's the bank's job. If you're a creditor, would you loan $100 to a man who wants to invest on black at the roulette wheel? The lender/borrower is a partnership.
They’ve sold out, and they do not even realize that they’ve sold out.
They absolutely know it.
And thus Greenspan's legacy is sealed. How long, dare I whisper before Clinton is implcated?
--
"Munger: I would argue that a majority of the horrors we face would not have happened if the accounting profession developed and enforced better accounting. They are way too liberal in providing the kind of accounting the financial promoters want. They’ve sold out, and they do not even realize that they’ve sold out."
I WAS SAYING THAT 12 YEARS AGO.
In a system of the Crooks you must serve the Crooks to make good money.
Economists are even better example of those who "sold out"!
The American econo-political system is: A system of the Crooks, by the Crooks, and FOR the Crooks.
BBAD can't do a damn thing about it. I know, I know, these congenital dopes can vote and many do vote to keep the Crooks in power. Amaaaaazing doooopes…
Jas
ehp: i agree that the states should take their medicine now, but i don't any of them have the political will to do it. while i think that the Fed's will eventually bailout out the states, i don't think direct funds will get through Congress (even though the states have been using the first stimulus tranche (medicaid) to plug holes) simply because Senators from flyover aren't going to agree to help Cali out.
so i'm thinking that the Fed's going to have to create a lending or guarantee facility.
any thoughts on that, Bond Girl?
why would anyone bailout blockbuster?!?... oh its JP Morgan... nevermind. JPM knows business.
I just skimmed the list of dealership closures, 789 of them, 40 pages of nothing but addresses, left a mark on my conscious
So can they foreclose on this NYT guy already so my responsible, penny-pinching wife and I (and 10-month old daughter) can have a decent place to live? I'll give the bank (chase) more than $0 / month and I'd love to live where they live.
I'm not saying I "deserve" it and he doesnt. I'm saying I will buy it for $330,000 (he paid $460,000) and make mortgage payments every month, in full, and on time.
There's a 12 part youtube on the Argentina collapse of 2001-2002 that seems like a play-by-play manual to current events...
The well connected loot the coffers vis a vis political connections, the currency gets devalued by 2/3rds and the glass-bottom boat voyage from 1st world to 3rd world begins, one of the control methods used by a little-known American Bank called Citibank, was to not allow people access to their money, by keeping banks and atms closed, in the months that followed devaluation...
"And thus Greenspan's legacy is sealed. How long, dare I whisper before Clinton is implcated?"
~~~~~
All the Presidents and Congress are implicated since Reagnomics took hold some 28 years ago ...
They fired Volcker and started the printing presses while cutting taxes ... gutting pensions, outsourcing and
goosing the FIRE sectors to make phantom wealth out of thin air ...
Everyone needs to read that NYTimes piece. So he has now gone 8 months with out paying his mortgage, and not heard a thing from his servicer. ?????? What does it take to actually get foreclosed on these days? just how backed up are they? And he is basically robbing whoever currently owns that loan. I would love to kwow what he is doing with the money he is not paying for the house- paying off the credit cards so the wife can keep shopping? reserving another place at the beach for the summer?
After a story is in the NYTimes, other media outlets usually follow like lemmings and write/show similar stories (or in the case of my local paper, just reprint the same NYT piece a day after I already read it at nytimes.com, and want me to pay for the privilege). Wonder if the "stop paying your mortage and nothing will happen" meme will make it into other media stories.
--
""They’ve sold out, and they do not even realize that they’ve sold out." I love that quote."
lifeguard1999,
Yes, confirmation of born-and-bred American dopes.
Dopes here, dopes there, and dopes everywhere!
Jas
Basel Too,
Incidentally:
Rep. Frank Plans Four Separate Muni Bills - Bond Buyer Article
Systemic risk was supposed to be prevented by lenders not taking stupid risks with financially stupid people. Since that didn't work out, I guess we have to protect ourselves from stupid buyers and lenders from systemic risks.
Disclosure simply doesn't work with a person who doesn't understand what interest only is. Perhaps some independent party needs to administer an exam before you get a mortgage!!!
As I posted, the first time around with neg ams and such, I noted that they were offered to people who were least likely to have graduated from high school. Finally I realized that explanations would not make things clear and I would say that after the first year of making payments you will Owe More Money. Also, that in case we had to foreclose, I didn't want them defending on the basis that they didn't understand. The bank would have had me fired if they had known that I uttered the word foreclosure at closing.
But not one person ever put their pen down and walked away.
"In a system of the Crooks you must serve the Crooks to make good money."
So many people surprised that a system of "Yes Men" is collapsing.
The big surprise is going to be when the crooks discover their money's value is tied via feedback loop to the dope's incomes.
This week I've been called several times for a job which wants too much skill for far too little money so they will get exactly what they're asking for - someone desperate who lies well.
"Through the first 10 months of the fiscal year, receipts are down 1.6 percent.
Through the first 9 months of the fiscal year, receipts were flat compared to a year earlier."
You have to read the whole report. These are year-over-year comparisons and, apparently, Q4FY08 was a period of high growth for KY (jelly). I'm not saying there isn't a significant problem, but we have to be cognizant of the full story.
hopeinsd
He is worth more on the balance sheet than he is foreclosed. That is the problem of keeping banks on life support. Zombies. Not living, not dead. Like the flavellas or shanty-towns around most cities in the developing world. They don't own the land, so they don't maintain or invest in it, so they live in squalor. That's one of reasons why we have laws of adverse possession or squatter's rights. If they're going to foreclose in the next 12 months, odds are that they will do it in the next 3. If they miss out on summer, they might as well wait until next spring.
Thanks for that link, Bond Girl.
Saying "collapse in tax revenues" is putting it mildly ...
I like to watch the craps table in the casino, because at any given time, players can take off most if not all of their bets before the next roll of the dice, but you never see it happen.
Sometimes after a shooter makes a number of points, and the table layout is pregnant with chips of every hue, why do people never get a clue and not only count their winnings up in the rack, but also on the layout?
RockyR
Isn't Ky where Saturn's are made ?
How's that going ?
"I wasn't trying to rattle your cage."
I'm not rattled.
The great majority of people need to believe certain things.
If you search hard enough, you can get close enough to the truth for personal satisfaction, though.
One of the foreclosures I am defending has a 2006 case number. I posted yesterday. The banks are too cheap to hire decent attorneys so if you put in a roadblock they mostly just go on to something else. In Fla you have to join the wife. They did join the wife. . .then they dropped her as defendent and filed for Summary Judgment. We filed an Affidavit basically just saying that the wife was still here...not dead yet....
They cancelled the Summary Judgment and haven't reset it yet, even tho all they needed to do was add the wifie back on again. And I was doing them a favor, because they would have had to start all over again to eliminate the wife, so no good title.
And the banks are beginning to realize they can't sell unless the price is hugely reduced, which makes them even more reluctant to foreclose.
I went to a word burning the other day, my first.
It was a 6 syllable and kept us warm for 15 minutes.
neither one of my parents graduated from high school, they probably wouldn't even understand Andrews' article if they tried to read it, but they have more than enough common sense not to do what he did.
"Isn't Ky where Saturn's are made ?
How's that going ?"
Haha! Pretty poorly I'd have to imagine.
lifeguard1999,
Yes, confirmation of born-and-bred American dopes.
Dopes here, dopes there, and dopes everywhere!
Sorry, lifeguard999, but that makes it official.
You gonna have to change your handle to "lifeguard1999 is dope" to comply with the policy ....
"- so I guess that means you'll be taking the job, then?"
Ha.
I'm not desperate and I don't lie well.
That's a good part of why I'm still unemployed.
I told the recruiters what to relay back to the client to actually make the thing work out right but I have little doubt that some 30-year-old guy with a checklist knows better. It's not my problem except I keep getting the same annoying call from different recruiters.
NY Times article -
a fascinating story -there is no malevolence by any of the involved. And, every action by every actor is rational (except the wife maybe).
If the reporter were to continue acting rationally, he would allow the bank to foreclose instead of considering the mortgage his moral obligation.
Lawerliz:
As I recall, you were relatively optimistic several months ago. Now you seem more pessimistic. Any green shoots in your neck of the woods?
you're a good sport, bh. Good luck to you.
"When the regulators put in the option exchanges, there was
just one letter in opposition saying “you shouldn’t do this,”
and Warren Buffett wrote it. When they wanted to make the
securities market function better as a gambling casino with
vast profits for the people who were croupiers—there was a
big constituency in favor of dumb change. Buffett was like a
man trying to stop an elephant with a pea shooter. We’re not
controlling financial leverage if we have option exchanges."
NB..... He is talking about all options!
It is a slippery slope indeed!
We have gun rights here. You can only pull half that crap here. If you try and go for the other, well, we'll see...
Wonderful that he refers to the "bucket shops". They were real and are featured prominently in the great classic book "Reminiscences of a Stock Operator" by Edwin Lefèvre.
Credit default swaps = bucket shops.
History repeats, and repeats . . . and repeats . . . . . and