Rolling US Economy Into The Shitbin Thread

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

gah minus 's'
I am typo prone today

Is it wrong of me to ignore anyone who concludes their analysis with "buy gold bullion?"

in general i agree, but it's not hard to understand why non-crazy people think there's a chance of massive inflation. and if you're looking to hedge against inflation gold's pretty much your best bet. i mean, people do buy gold every day, it's not just ron paul supporters.

i'm not buying any gold, fwiw. but i'm not totally thrilled to have my putative retirement savings tied up in stocks and bonds either, and the glib assumptions of the last 60 years that the market will always rebound aren't any guarantee. imagine you were 20 years from retirement when the nikkei peaked in 1989. first few years of the decline, no big deal, it'll come back. but now we're 20 years out and it's running at less than 20 percent of the peak. that would be the equivalent of the dow being around 2,800 in 2028. not that there's an exact parallel or anything, just saying that things can get pretty slow and stay slow.

this american life has a new show up on the banking system (haven't listened to it yet, but but the first 2 they did on the economy were great): http://www.thisamericanlife.org/Radio_Episode.aspx?episode=375

There will be a massive dislocation in the value of the dollar. It is too soon to tell if it will be hyperinflationary, inflationary with high unemployment, or deflationary with massively high unemployment.

If the US government (or any other government) decides that it will try to prop asset values by becoming the buyer of last resort for bad debts of all kinds - CDOs, fucked up mortgages, credit cards, every last bit of stinking shit on the balance sheets of the banks, then woo-hoo! Hyperinflation here we come!

Because the US government is in the business of insuring personal bank accounts up to $250,000, I can see why Geithner and Obama are hesitant to let the insolvent banks go into receivership. There are too many of them already and bound to be many, many more, but it is still it seems better than letting hyperinflation out of the bag. In that case, massive asset deflation will follow, and a cash famine.

It will come down to politics. Which is why hyperinflation is a pretty good wager, starting in a few years. But still, it is a wager, not a sure thing.

updated chart:

http://blog.prospect.org/blog/ezraklein/3333412448_6f0e53b363.jpg

holy crap:

Across the nation, 19 million houses and apartments — nearly one out of every seven — are vacant, the highest percentage since the 1960s. But only about six million of those homes are for sale or for rent. That means millions more could still flood onto the market, depressing prices further.

But tipsy, to paraphrase George W. Bush, no one could have foreseen that building so many new houses and condos on spec could have glutted the housing market.

few extra clips from frontline

The 60 Minutes piece tonight was on what happens when the FDIC takes over a bank, and it was very, very interesting: http://tinyurl.com/c29xo3

Krugman upset w/ Bam today. Ditto.

Phoned my ex-roommate yesterday; he got fired (for the first time ever) last week, position eliminated (medical advertising). Has a mortgage, lives alone in Jersey, in his late 40s. Scared, near tears.

indeed

http://www.businessinsider.com/henry-blodget-krugman-obama-already-out-of-touch-with-economy-2009-3

btw did anyone hear On the Media on NPR this weekend? there were a couple of financial columnists throwing around terms they learned last week. So nobody knows anything.

lol interview with co-author of 1999 bestseller dow 36,000

glassman: "was that dow 36,000? i meant, dow 3,600 -- damn typesetters!"

loving the credibility of any organization called "business insider" these days

if our financial system has become so economically complex that President Obama is right, then is it also too complex to be politically sustainable?

best lines from the 36,000 interview:

"Al-Qaeda is not eating our lunch anymore. Al-Qaeda is stuck in Web 1.0."..."Web 2.0 is anathema to al-Qaeda"

i dunno, there's an al-qaeda recipe site that's pretty dope

terr-r

lol

Do you ever regret having written the book, or regret the title? Do people come up to you at cocktail parties and say "Oh, yeah, Dow 36,000 -- how's that working out for you?"

Anyway, from this story:

http://www.thebigmoney.com/sites/default/files/auctioneer.jpg

other dow 36,000 co-author accuses obama of sabotaging economy, uses phrase 'manchurian candidate'

Top 10 headlines that could signal a market bottom

Dow up 379 today... is that part of #8? what'd I miss?

no, it was good news unfortunately