Rolling US Economy Into The Shitbin Thread

Ladies and gentlemen, Barry Ritholz:

If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finsh marginally ahead of George W. Bush on the list of worst presidents.

I might point out that the government's goal is not trading, and therefore starting that post with trading strategy tidbits is a bit bogus.

http://content.yieldmanager.edgesuite.net/atoms/c6/3c/ea/09/c63cea098d87e9368024a1168dc4ea40.jpg

In these our troubled times, an inspiration:

Racing to keep up with a down-market mindset, many real estate brokers say they have been experimenting with a new paradigm in advertising, spinning their ads like roulette wheels in the hope of landing in the sweet spot of the parsimonious post-Lehman buyer.

The model is shaping up like this: The new propriety frowns at luxury, lifestyle and the fetishistic focus on designer brands and architects. Instead, brokers say they are trying to recast their listings in terms of responsible spending, comfort and, most especially, value.

“Three or four years ago, value was something that was uncomfortable even to talk about,” said Bruce Ehrmann, an associate broker at Stribling & Associates. “Value suggested thrift, and thrift meant you couldn’t keep up.”

But now value has another ring and thrift has a nice kind of sound. “People are not buying emotionally or lustily — they’re buying in a calculated manner the likes of which we haven’t seen in 15 years, except briefly after 9/11,” Mr. Ehrmann said. “The draw tends to be location, price and value before glory, glamour, Valcucine kitchens and Waterworks baths.”

An attractive price is the most direct way to convey value, preferably set off by some variation of the formerly taboo “reduced.”

“We never used to say ‘reduced’ in a very strong market because we felt people would think of it as tainted goods,” said Deanna Kory, a senior vice president at Corcoran. “But now if you don’t, people don’t think the seller is serious, especially if it’s been on the market any length of time. And people today feel cheated if they don’t get a deal.”

This is especially true, she added, in “certain categories that are more saturated, like one-bedroom co-ops and downtown lofts from $3 million to $6 million.”

And wouldn't you trust people who looked like this, especially dude on the right:

http://graphics8.nytimes.com/images/2009/03/01/realestate/01cov-600.jpg

with the exception of "price improvement" being used as some sort of Orwellian code for "price reduction," i haven't noticed all that much of this realtor Newspeak -- nor have the pictures in the ads changed that much. i'm still seeing lots of ads replete with pictures of granite countertops, stainless steel kitchen appliances, subzero fridges, and those bowl-shaped bathroom sinks.

the nytimes continues its brave, in-depth, multifacted exploration of the top 1% of american earners

AIG posts $61 billion quarterly loss. Unreal.

http://finance.yahoo.com/news/AIG-posts-617B-4Q-loss-apf-14508618.html

Under 6K!

ohhhhhhhh sheeeyit

Uh, 7K I think you mean.

it looks like naomi klein dropped out of that thing, btw

dammit JtM, I was sure this was Crash Day

crash day will come if the administration ever really just says 'fuck these banks' and does the nationalization/"structured bankruptcy" thing. but at this point i think that might be a relief. i think the strategy is to try to ease on down to that, but i'm not sure a slow bleed is the best answer. otoh, i guess pulling the trigger on that kind of thing is hard, because it could have a lot of weird consequences. i understand the impulse to avoid cataclysm. i just wonder if there's actually a choice. and anyway, we're already down 7,000 from the peak, what's another couple grand?

meanwhile a republican friend is blaming the selloff today on obama's plan to raise the capital gains rate. yes, i'm sure there's a lot of profit-taking going on...

(talking to conservatives about the economy these days is hilarious. it's like sherilynn fenn after that car crash in wild at heart, where she's dead but just doesn't know it yet.)

Okay, I'm quoting that.

meanwhile a republican friend is blaming the selloff today on obama's plan to raise the capital gains rate. yes, i'm sure there's a lot of profit-taking going on...

and nothing to do with the latest AIG shenanigans being reported on, oh no ...

i'm sure i will hear the "obama is raising capital taxes OMGWTF we gonna die!!" from certain right-wing friends -- there's a conveyor belt of this kinda shit amongst that bunch.

krugman on geithner, again.

meanwhile a republican friend is blaming the selloff today on obama's plan to raise the capital gains rate. yes, i'm sure there's a lot of profit-taking going on...

hahahahahahhahahahaha

one has to have made a capital gain to pay capital gains.

And we have the spectacle of James Baker — James Baker! — attacking the Obama administration from the left, calling for temporary nationalization of zombie banks as part of the recapitalization process.

wow, i missed this one.

Under 6K!

Heh, this was the first thing I saw when I got home after hearing rumors of carnage

one has to have made a capital gain to pay capital gains.

yeah, i asked what segment of the market he thought this profit-taking was happening in. haven't heard back yet.

Don't panic, Gordon Brown is coming to save us all tomorrow.

Ben Stein brings much needed wisdom in these topsy-turvy times.

http://finance.yahoo.com/expert/article/yourlife/144940

I think of Herbert Hoover, who graduated from mining engineering school in the late 1880s. Just as he was entering the labor force in 1893, a huge Depression hit. But he didn't know about it because there were few statistics, so he headed out West, started a mining enterprise, and became a millionaire

I read that a miming enterprise.

i would die to see ben stein at a fed reserve board meeting growling out, "bernanke! bernanke!" a la that very famous movie

It wouldn't be the last time Hoover didn't know about a Depression amirite

so are we back to the pre-"irrational exuberance" days then?!?

― LOLBJ (Eisbaer), Monday, February 23, 2009 4:29 PM (1 week ago) Bookmark

The Return to Irrational Exuberance

o_O ;_; o_O

http://www.businessinsider.com/niall-fergusson-economists-in-a-state-of-massive-denial-2009-3

Did anybody watch Ben Stein put up against Ed Schultz last night on CNN?

Down among the comments was this quote from the Niall Fergusson piece:

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.

I substantially agree with this.

We have a shit ton of insolvent banks. The only sensible solution is to declare them insolvent, take the shareholders' equity to zero, rip them down to whatever assets are solid, and then sell the assets to someone who know how to run a bank without running it into the ground. This should be done to every insolvent bank everywhere, no matter how big they looked a year ago. If a bank ia a stinking corpse, let's bury it decently and get on with our lives.

what i think ferguson's wrong about is that obama's following an exclusively keynesian program. i think he's doing more of a everything-and-the-kitchen-sink approach. which does not preclude the measures on banks and mortgages that ferguson (and, seemingly, everybody these days) is calling for. what's hard to tell so far is the degree to which obama's just trying to ease toward those things, in a controlled landing way, and the degree to which geithner, summers et al. are actually fighting against them happening at all.

it may not be exclusively Keynesian but it's largely Keynesian in as much as it's been reduced to a monetary policy issue.

This is interesting:
http://www.businessinsider.com/what-makes-aig-so-special-2009-3

might as well add the latest Michael Lewis too

http://www.vanityfair.com/politics/features/2009/04/iceland200904

don don't you mean fiscal policy? monetary policy is useless at the mo

yes Tracer thanks

Michael Lewis article is wonderful, as always.

I love this part:

Alcoa, the biggest aluminum company in the country, encountered two problems peculiar to Iceland when, in 2004, it set about erecting its giant smelting plant. The first was the so-called “hidden people”—or, to put it more plainly, elves—in whom some large number of Icelanders, steeped long and thoroughly in their rich folkloric culture, sincerely believe. Before Alcoa could build its smelter it had to defer to a government expert to scour the enclosed plant site and certify that no elves were on or under it. It was a delicate corporate situation, an Alcoa spokesman told me, because they had to pay hard cash to declare the site elf-free but, as he put it, “we couldn’t as a company be in a position of acknowledging the existence of hidden people.”

yeah, tipsy, from what little of niall fergusson I've read he is rather a tool. But the point about facing up to insolvent banks and forcing shareholders to accept their equity has gone to zero is a good one.

As for the validity of the Keynesian formula, it still makes perfect sense that in an environment where 1) asset values are collapsing and debt default is pandemic, and 2) even solvent people and institutions are loath to borrow or spend because it seems insane not to hoard cash against future uncertainty, that this situation requires governments to borrow and spend, if the object is to get money and credit flowing again.

The sad hitch in this formula is that too many western governments are already hip deep in debt, so that this solution will bring further problems not too far down the road. However, it still seems worth trying, provided we restore some soundness and sanity to banking and finance at the same time.

The sad hitch in this formula is that too many western governments are already hip deep in debt, so that this solution will bring further problems not too far down the road.

Which is exactly what Fergusson says in the article.

It's an unavoidable fact that I noted upthread--the level of debt we are committed to is unprecedented and the global political/economic system is far more complext than it was even two decades ago. The Keynesian formula has never been applied on this kind of global scale before. Indeed, if JMK even imagined his theories on a pandemic scale, I'm not aware of it.

What we're doing might still be the only feasible solution we have, but very very few economists saw this disaster coming and it's likely that very very few will accurately predict its outcome.

Why Is Obama Fiddling While Our Economy Is On Fire?

I thought people wanted government to stay out of the markets, Don.

nice comment on the article

Please...Charles Krauthammer?

Let's see if I've got the story right so far.

Popular presidential candidate gets elected.

Losing party is in disarray.

New president inherits a clusterfuck of an economy, goes to the left as he said he would from the stump.

Stock market reacts poorly, as it should with any kind of market intervention by the biggest swinging dick there is...the US govt. What will the elephant sit on next?

Making it worse is that unlike the previous interventions of late 08, this one isn't done by their "team" and to their benefit in the short-term.

Much whining ensues about how the president doesn't know what he's doing.

Yet president's approval ratings outside of lower Manhattan continue to climb.

Opposition is stymied...opts to go to its basest of bases and appoint a radio host as its defacto head. Sets up a summer of unrest by attacking president and his supporters as lazy, bad decision makers etc. Elected members of opposition party hide beneath their desks.

President signals that he doesn't care about the 5% of America making up Opposition base, he cares about "all of America" (Whether this is true or not is immaterial). Approval ratings rise again.

Opposition sees power slipping away at highest echelons, and goes into firebreak mode, pre-attacking president on his next promised steps, in this case, healthcare.

They're scrambling to get a step or two ahead.

This is crisis management PR 101.

Over the next couple of weeks, keep an eye out for Krauthammer et al to start talking about how overregulation of the financial sector really caused this problem. Because that's the next rightwing sacred cow bound for the slaughterhouse.

http://farm4.static.flickr.com/3305/3330977799_10554eda9a.jpg

a friend who works in finance sends this:

i just finished a report by the old and deservedly highly respected quebec global and us economic analysis firm, bca research (the old bank credit analyst). i'm not sure what scared them so badly, but i've never read anything that pesimistic about the us. basically, they said americans are fubared, although it's likely to be a few more years before things really begin to deteriorate in earnest.

the us still has quite a bit of room to increase borrowing and raise taxes before investors begin to flee the dollar and treasuries. certainly more room than eastern and southern european countries do.

they say it's unlikely the us will ever be able to bring ballooning deficits and debt under control or avoid hyperinflation. on top of that we will see a huge increase in those dependent on public medical and retirement systems in the us by 2020 or so because of the boomer geezers, addding even further to us debt burdens.

this means anyone but the very rich is unlikely to be able to afford anything but the most basic medical care in another 10 - 20 years, unless we are willing to relocate to another country with sufficient assets not denominated in dollars.

in their opinion it's only a matter of a few more years before the dollar and treasuries begin an irreversable collapse, and taxes & interest rates soar. they address the fact that this scenario has been predicted for years, and give reasons to believe that this time it really will happen.

these reports are encrypted and not linkable, unfortunately, but most larger financial firms have access to them. they're also the ones reading them and deciding what to do about it and when to get out. you can bet the farm that they are reading this particular report at the white house right now. bca research has been mandatory reading there and at the fed and treasury for many years.

iceland is a canary. the next set of shoes to fall on this centipede horror looks like it will be eastern & southern european countries. after that, the fun begins in earnest.

i really hope i'm totally wrong about all of this and just in need of counseling for alarmist tendencies, but the odds this is how things will unfold are certainly increasing. this isn't a fringe outfit, bca research is mainstream, informed economic thinking on a practical level.

he adds that he is telling everyone to buy gold bullion these days, because he thinks massive inflation is unavoidable...

Better switch that username.

so I'm a total pessimist but I don't think willing to start buying gold bullion and preparing for the end of the world because one firm in quebec says so

also cause I don't have any money

insert "I'm" between "think" and "willing"

AARGH! Is it wrong of me to ignore anyone who concludes their analysis with "buy gold bullion?" I feel like I'm a bad conspiracy theorist.

or williams jennings bryan