Jump to content
Sign in to follow this  
silatix

economy in crisis..

Recommended Posts

Is there a good reason to keep bumping this thread with info? Well, if anyone reads it and gets a bit of information they might not otherwise get, then yeah. Also, if you watch CNN or especially CNBC, you're getting a lot of 'this side says this' and 'the other side says that,' and one of those sides is certifiably out of its mind.

 

Here's the best thing I've read in a few days. Robert Reich on the debt we're running up.

 

http://tpmcafe.talkingpointsmemo.com/talk/...-the-budget.php

 

Key paragraph:

"Can we continue to borrow and borrow and borrow? Yes, but eventually we'll have to pay higher interest rates to continue to attract global savings, mostly from the Chinese and Japanese. But that's not anytime soon. The Chinese and Japanese are not going to yank their money out of Treasury bills because
the slump is worldwide and T-bills are about the best and safest place to park savings.
Besides,
the Chinese don't want the dollar to plunge.
They'd be stuck with a lot of paper worth far less than they got it for, and their exports would be in even worse shape than now. Blue-Dog Democrats, Washington insiders who love to prattle on about the dangers of too much debt, Wall Street bond traders, and most of the Republican Party (including, notably, John McCain and La. Governor Bobby Jindal, the two "front-runners" for the Republican presidency in 2012, at least in terms of media attention), will continue to fuss about the skyrocketing debt. "

...but that's just politics, he continued.

Share this post


Link to post
Share on other sites

Oh wow, what an awesome story in that second link. There's a link off that story to this article from 2005 in which Li himself says that his model is poorly understood.

 

One of the things that's bugged me has been the 'nobody understood their own math' argument. You hear it all the time, never explained. That article really tries to explain it. But it helps if you've been around financial people to understand why the Li Gaussian Copula model became so widespread. The hunger for the coolest quant model has always been huge. The guys at the top loved to boast about how many financial engineers they had stowed in their back rooms doing Nobel-quality work for them, and then they'd roll the dice on billion-dollar bets believing these engineers' models were sound. They weren't.

Share this post


Link to post
Share on other sites

what sucks is people want their 15k Dow, and peak property values. the bubble is popping, and IMO these banks that gambled on this loose but profitable model of risk should lose, and their asssets should be able to be correctly valued by the market. seems like this is going to fuck cashholders, and what will happen is the adjustment will be in 2011 dollars being inflated to where the nominal values of houses don't drop too far to put people underwater, but at the risk of hyperinflation or just making our federal tax payments even more of a really bad joke.

 

Geithner's solution to the toxic asset side of the bailout seems dodgy

Edited by jablinko

Share this post


Link to post
Share on other sites

We're repeating the mistakes the Japanese made, the ones that turned their entire 1990s into the 'Lost Decade' because they refused to take their medicine and admit that their banks were insolvent. Instead they threw money at their banks to allow them to save face. So says another great Krugman Post:

 

"The guarantees that the US government has already extended to the banks in the last year, and the insufficient (though large) capital injections without government control or adequate conditionality also already given under TARP, closely mimic those given by the Japanese government in the mid-1990s to keep their major banks open without having to recognize specific failures and losses. The result then, and the emerging result now, is that the banks’ top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized.[...]"

 

"These kind of half-measures to keep banks open rather than disciplined are precisely what the Japanese Ministry of Finance engaged in from their bubble’s burst in 1992 through to 1998 …"

Share this post


Link to post
Share on other sites
We're repeating the mistakes the Japanese made, the ones that turned their entire 1990s into the 'Lost Decade' because they refused to take their medicine and admit that their banks were insolvent. Instead they threw money at their banks to allow them to save face. So says another great Krugman Post:

 

"The guarantees that the US government has already extended to the banks in the last year, and the insufficient (though large) capital injections without government control or adequate conditionality also already given under TARP, closely mimic those given by the Japanese government in the mid-1990s to keep their major banks open without having to recognize specific failures and losses. The result then, and the emerging result now, is that the banks' top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized.[...]"

 

"These kind of half-measures to keep banks open rather than disciplined are precisely what the Japanese Ministry of Finance engaged in from their bubble's burst in 1992 through to 1998 …"

 

damn that's really frustrating.

 

Joe Stiglitz (another nobel prize winning economist) on this subject from a recent Democracy Now: http://www.democracynow.org/2009/2/25/stieglitz

Share this post


Link to post
Share on other sites

Here ya go.

 

http://www.voxeu.org/index.php?q=node%2F3143

 

Here's an article about the whole US vs Japan debate.

 

The good news is that the asset price bubbles themselves were far smaller in the US than in Japan (see charts below). Furthermore, the US central bank has been swifter in recognising reality, cutting interest rates quickly to close to zero and moving towards "unconventional" monetary policy.

The bad news is that the debate over fiscal policy in the US seems even more neanderthal than in Japan: it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have. The big danger is that an attempt will be made to close the fiscal deficit prematurely, with dire results. Again, the US administration's proposals for a public/private partnership, to purchase toxic assets, look hopeless. Even if it can be made to work operationally, the prices are likely to be too low to encourage banks to sell or to represent a big taxpayer subsidy to buyers, sellers, or both. Far more important, it is unlikely that modestly raising prices of a range of bad assets will recapitalise damaged institutions. In the end, reality will come out. But that may follow a lengthy pretence.

 

More
.

On taking a step back and looking at the big picture.

Share this post


Link to post
Share on other sites

Here's Roubini on what he calls plan "N":

 

So why is the US government temporizing and avoiding doing the right thing, i.e. take over the insolvent banks? There are two reasons. First, there is still some small hope and a small probability that the economy will recover sooner than expected, that expected credit losses will be smaller than expected and that the current approach of recapping the banks and somehow working out the bad assets will work in due time. Second, taking over the banks – call is nationalization or, in a more politically correct way, "receivership" – is a radical action that requires most banks be clearly beyond pale and insolvent to be undertaken. Today Citi and Bank of America clearly look like near-insolvent and ready to be taken over but JPMorgan and Wells Fargo do not yet. But with the sharp rise in delinquencies and charge-off rates that we are experiencing now on mortgages, commercial real estate and consumer credit in a matter of six to twelve months even JPMorgan and Wells will likely look as near-insolvent …

 

…So while Plan A is now underway today's very negative market response to this Treasury plan suggest that it will not fly. Markets were expecting a more clear plan but also a plan that would bail out shareholders and creditors of insolvent banks. Unfortunately that is not politically and fiscally feasible. It is thus time to start to think and plan ahead for for Plan N ("nationalization" of insolvent banks).

 

The rest of the piece is only available to subscribers to his service and can be found at:

http://www.rgemonitor.com/roubini-monitor/...banking_systems

Share this post


Link to post
Share on other sites

Naill Ferguson's solution:

 

There is something desperate about the way people on both sides of the Atlantic are clinging to their dog-eared copies of Keynes's General Theory. Uneasily aware that their discipline almost entirely failed to anticipate the crisis, economists seem to be regressing to macro-economic childhood, clutching the multiplier like an old teddy bear.

 

The harsh reality that is being repressed is this: the Western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More important, households are groaning under unprecedented debt burdens.

 

…The solution to the debt crisis is not more debt but less debt. Two things must happen. First, banks that are de facto insolvent need to be restructured, a word that is preferable to the old-fashioned nationalisation. Existing shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalisation after losses have meaningfully been written down. Bondholders may have to accept either a debt-for-equity swap or a 20 per cent "haircut" - a disappointment, no doubt, but nothing compared with the losses suffered when Lehman Brothers went under.

 

… The second step we need to take is a generalised conversion of American mortgages to lower interest rates and longer maturities. About 2.3 million US households face foreclosure and that number is certain to rise. For example, $US97 billion of $US200 billion of option adjustable-rate mortgages will reset in the next two years. The average monthly payment will increase by more than 60 per cent. As a result, up to eight million households could be driven into foreclosure, driving down home prices even further. Few of those affected have any realistic prospect of refinancing at more affordable rates. So, once again, what is needed is state intervention.

 

 

The rest is

 

 

The Minneapolis fed has an interesting article that might lend credence to Ferguson. It puts forth solid evidence that the notion of fiat money creation is dead. The Fed does NOT create money that is then circulated through the economy. The multiplier effect is substantially a myth.

 

http://tinyurl.com/boch4u

Share this post


Link to post
Share on other sites

I just read that Ferguson article, and when I got to this, I stopped cold:

I heard almost no criticism of the $US800 billion ($1.2trillion) stimulus package then making its way through Congress (and mutating as it went into something more like a pork barrel).

This is boilerplate conservative claptrap. Some pork barrel items will exist in any package. But what's being called pork barrel in this package is stuff like volcano monitoring, NOAA funding and the like. Even if you call it 'pork,' and I wouldn't, it sums to about one hundredth of a percent. Nobody can come up with a total for pork that even scratches one percent of the total. Now with a bunch of the money yet to be channeled, and with a lot of it going to the states to send out, there are a lot of chances for pork to be introduced. In fact I'd be amazed if we don't hear about spending scandals, graft, embezzlement, etc, beginning around September of this year. Power and money cause corruption. The idea is to keep it as low as possible, and if zero tolerance were possible everyone would love that, but it's not.

 

I also have a problem with his stipulating that debt was the problem and that we're going into debt as the solution. This sentence was particularly disingenuous:

The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments propose to do.

He's conflating two kinds of debt. Private debt was the problem, overstretched households, misunderstood risks, big-time leverage. So, yes, debt was the problem. Now the solution is spending, simple Keynesian spending. If we had an option, anything would be better, but we don't have an option. We're going into public debt to save our pathetic skins, and hopefully in the future there'll be better regulation.

 

Krugman as usual has a better take on this today. Revenge of the Glut. It's basically saying in Econ 201 terms what the old This American Life episode 'Giant Pool of Money' said in Folklore Studies 101 terms.

 

Edit: Ahh, I see that Ferguson works at the Hoover Institute. There you go. Now I know better than to spend any more time on him. I wonder if his office is next to Victor Davis Hanson. :D

Share this post


Link to post
Share on other sites

they bring in the guy who was the head of the IMF?

talk to people familiar with the third world about the IMF and World Bank

fucking economic colonialism

 

i know it doesnt sound rational, but why does it sound so conspiratorial and poorly informed to look at the fact that this will consolidate power, and just may benefit the mega rich banking global elite guys who basically control the US via our money system. that maybe this crisis was engineered to make us want a solution and force us to put trust in bigger institutions. I don't know, this particular episode of This American Life ever more seems like there is a bit of propaganda going on than any kind of investigation or a sense of healthy doubt in their "incompetence theory" that the fact that power will be consolidated and the federal reserve will become more powerful and make money on the interest is just a coincidental byproduct...

 

i dont know... and i am trying not to care and just be glad that i'm doing relatively well, but this just seems like another version of 9/11 where now we are forced into rushing into another major move nationally in a state of fear and being informed by decontextualized bits of information

 

whatever. will be interesting to talk about when we're all old

Edited by jablinko

Share this post


Link to post
Share on other sites

Fucking hilarious:

 

http://www.talkingpointsmemo.com/archives/...y_now_i_see.php

 

The funniest thing in this whole, not-so-funny episode is watching these bank execs being all, 'we really didn't want the money,' and 'we're not going to take the money if there are strings attached.' Riiiight. Tell us another one, geniuses. The only reason any of them have stock prices above zero right now is because there's a built-in assumption that they'll be taken over by the government, and the buck-twenty is what their shares are worth given the weighted average of probabilities for what the government will do once it takes over. But of course that probabilities list includes the best thing to do--simply wipe out all shareholders entirely. This is cold-hearted to say, for anyone who has a 401(k) invested in C or BofA, but the story won't get any better for waiting. It'll get worse. They're empty shells. They're zombies.

 

Sorry in advance that this reached your email, Chris. :D

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

×
×
  • Create New...