So they all knew it was a bubble, now?
Posted by Jerome a Paris on August 18, 2007 - 1:45pm
As the markets keep on going through turbulence, and many conflicting opinions are heard as to whether this is just a harbinger of things to come (my position) or just a "welcome correction" (still that of most "serious" pundits and the conventional wisdom), what's most striking to me - and very revealing on its own - is how suddenly everybody is talking about the real estate bubble as it if were the most obvious thing.
The very people that, in many instances, denied that there was any kind of bubble, or that house prices were a problem in any way, and denied that market valuations of certain assets were completely unreasonable, are now saying, in hindsight, that it was indeed a bubble and, while they are still saying that nothing much will really happen fro mthe end of the bubble (other than silly people getting punished), they are already hard at work trying to pin the blame elsewhere.
"A cheerleader, moi?", they ask, outraged.
But their new attitude ensures, right now, that the crisis WILL spread. Let me tell you why.
Fear makes a welcome return (FT, 15 August)The world has witnessed four great bubbles over the past two decades - in Japanese stocks in the late 1980s, in east Asia's stocks and property in the mid-1990s, in the US (and European) stock markets in the late 1990s and, finally, in the housing markets of much of the advanced world in the 2000s. There has been too much imprudent finance worldwide, with central bankers and ministries of finance providing rescue at virtually every stage.
This is a polite version of my "Bubbles" Greenspan moniker: cheap money, especially in times of turmoil, has cause runaway asset price inflation. But as wages were under control thanks to the Chinese, there was nothing to worry about. But now, this is deemed "imprudent". And a classic mania:
The process starts with "displacement", some event that changes people's perceptions of the future. Then come rising prices in the affected sector. The third stage is easy credit and its handmaiden, financial innovation.The fourth stage is over-trading, when markets depend on a fresh supply of "greater fools". The fifth stage is euphoria, when the ignorant hope to enjoy the wealth gained by those who came before them. The warnings of those who cry "bubble" are ridiculed, because these Cassandras have been wrong for so long. In the sixth stage comes insider profit-taking. Finally, comes revulsion.
Ridiculed we were indeed. But whether this takes the form of Jim Cramer begging the Fed to bail out feckless financiers, or Wolf's more prudent assertion that the "central bank must save not specific institutions, but the market itself," two thing are certain, and undoubtedly acknowledged by all: that there was a bubble, and that it has come to and end. That people say that this is just the beginning, or that it is a healthy correction to still high levels is mostly irrelevant, because what matters is that the notion of the end of the bubble is now widely public, because this is the single most important driver of things.
To make it simple: market psychology has flipped - from "prices will continue to go up" to "prices will no longer go up" - and thus the herd will stop buying. It doesn't really matter if it starts selling, or if it holds tight - buyers have become scarce (both because they suddenly don't think it's a good thing to buy, and because banks have stopped lending them money to do so - that's the credit crunch bit of the current crisis), and people don't expect prices to go up anymore. That, in itself, in enough to cool the markets. No expectations of quick gains and fewer buyers means, at the very best, stagnant markets.
But too many things in recent years have been predicated on ever increasing prices. Ninja mortgage loans (no income, no job, no assets) can only be repaid by flipping houses. Too many private equity buy outs of corporations made sense only in the expectation of a quick resale within 2-5 years at a premium. Now these homeowners and the companies have to live with crippling debt burdens - and many will collapse under that weight. That means, down the road, houses dumped on the market, and companies going bust, with the attendant layoffs, loss of pension and loss of healthcare. To be honest, the scale and the timing of these phenomenons is still very hard to pin down, which explains why prognoses go from 'speed bump' to 'major economic depression.'
But again, the end of the great bull market is, in itself, enough to seriously cripple what has been the main engine of growth in recent years: construction, financial engineering and increasing debt. Wages, which remained stagnant in supposedly booming economies, are not going to go up now, and the lower ability of households and corporations to borrow yet more money will necessarily cause ther spending to shrink.
Again, I have not yet talked in any way about the cost of the financial bubble itself - only about the expected changes in economic behavior due to new conditions. The financial meltdown, if there is one (as I personally think there will be) will only add to that and make thing worse by weakening banks, causing asset dumps and bringing down all sorts of asset classes down, and all the business they underpinned.
For samples of what might happen, read this Hedge Fund Sell Outs Threaten Markets or this excellent summary by stoneleigh earlier here at the Oil Drum: The Resurgence of Risk - A Primer on the Developing Credit Crunch.
Without going into these scenarios, what strikes me, again, is how quickly the pundits have flip-flopped to the new common wisdom of the bubble and are out looking for scapegoats.
Here's Martin Wolf, again:
Financial markets, and particularly the big players within them, need fear. Without it, they go crazy. Moreover, it is impossible for outsiders to regulate a global financial system riddled with conflicts of interest and dominated by huge derivatives markets, massive trading by highly leveraged hedge funds and reliance on abstruse mathematics and questionable statistical models. These markets must regulate themselves. The only thing likely to persuade them to do so is the certainty that the players will be allowed to go bust.
"they go crazy" (i.e. they overpay for assets) "conflicts of interest" (i.e. cheerleaders profit from higher prices) "highly leveraged" (i.e. too much easy debt) "questionable statistical models" (i.e. models work only so long as there are no crises). And the culprits are indeed now all over the media:
Rating agencies hit by subprime probeThe European Commission is to investigate credit ratings agencies amid growing dismay over their slow response to the subprime mortgage crisis.
Officials in Brussels, and many other critics, believe the ratings agencies failed to act quickly enough to warn investors about the risks of investing in securities backed by US subprime mortgages - the sector whose troubles triggered the recent global market volatility.
In the US, Barney Frank, Democrat chairman of the House financial services committee, said he planned to hold hearings on the agencies' performance next month. He said the agencies had "not done a good job" in the current crisis.
Rating agencies got paid by banks to provide ratings. Good ratings meant more sales by the banks. Of course there was pressure for rating agencies to be optimistic. Thier only restraint was their reputation, and we saw how effective that was for Arthur Andersen. Plus, the more they rated junk bonds favorably, the easier it was to refinance dodgy companies, and the fewer defaults there were, thus providing more fuel for that cycle.
This has been said for months by the Cassandras but, as usual, investigations get started when it's too late. Hopefully, this will at least lead to a fundamental rethink of the role of the rating agencies in the lending markets. Giving such a fundamental gatekeeper role to private entities essentially paid for by sale-side bankers is not a good way to avoid bubbles.
Limitations of computer models"Models (ours including) are behaving in the opposite way we would predict and have seen and tested for over very long time periods," said Lehman Brothers last week.
A glance at recent financial history shows that this type of "rare" event is not so unusual at all.
(...)
"People say these are one-in-a-100,000-years events but they seem to happen every year," says Satyajit Das, a consultant to hedge funds and investment banks. "This episode should make people ask questions about models - I think it could lead to a real reassessment."
Any such reassessment could have far-reaching consequences. The spread of financial models is at the heart of the growth of modern banking. Indeed, were it not for modern computing power, this decade's remarkable explosion in finance would not have occurred at all.
(...)
But while computers are often able to operate better than humans in "normal" markets, this month's events demonstrate that during times of stress they have some crucial flaws. One problem is that models typically predict the future on the basis of past data. This can lead to distortions, given the speed at which the financial industry is currently evolving. Indeed, many of the instruments at the heart of the current credit storm barely existed before this decade - which means that computers can only model these markets based on the benign conditions of the past few years.
Another big problem is that computer models do not always take account of the way that their own behaviour is affecting markets.
The dirty secret of bankers is that they are bad at science and maths, and do not understand that a model, however sophisticated, cannot provide output of a qaulity better than the input. Lots of data does not mean better data; what makes data "good" is qualitative analysis, i.e. risk assessment by bankers doing their job instead of relying on fancy models. They do use extremely smart mathematicians to play around with data, but these guys' jobs are not that of bankers. I mean, "models typically predict the future on the basis of past data" - anybody that has ever bought any financial instrument gets told (or sees written in small print) right from the start that the past is no indicator of the future...
Thus, models work until they don't. LTCM's lesson has visibly not been learnt.
But blaming rating agencies and computer models, of course, is a way to avoid the real debates, the ideological ones - that over the supposed superiority of the "efficient markets" to drive economic behavior, that over the insistence that things be valued in dollars (discounted cash flow) or be worthless, and that over the idea that greed is good and leads to socially acceptable outcomes. The core of the Reagan-Thatcher revolution is that greed (especailly that of financiers capturing future cash flows of the real world for their personal, immediate profit) spontaneously improves the common good, and that all regulations and taxes that limit it should be dismantled.
Well, we're about to see the price of that grand collective delusion. But we, especially those of us that call ourselves progressives, should not mistake our target. Bankers and financiers should be made to pay for their follies but that is only a small part of it. The big thing is to blame it on the failed, and utterly dangerous, ideology of the efficient markets/society doesn't exist/government is the problem crowd. otherwise it will start again - and not only that, but their proposed remedy WILL be lower wages, fewer worker rights, lower taxes and the other usual "reforms."
Again, the fact that a bubble is now publicly acknowledged ensures that there will be a major economic correction, irrespective of whether there is a full financial meltdown or not. There will be pain. There will be calls for bailouts. There will be further pressure on the lower and middle classes to bear the brunt of the price. Unless we have a coherent alternative economic discourse on the crisis - that of strict regulation of the financial world (real regulation, not the busybody but pretend kind like we have right now), bankers will continue to capture wealth, even as the pie shrinks.
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Finance guy opens two hedge funds. He bets all the money of one on Black and all the money of the other on Red. He takes twenty percent of the profit from the fund that suceeds and closes the fund that fails. He knows exactly what he is doing.
Consider the home buyer. He borrows the closing costs and 105% of the price of the house. Lives cheaper than rent for three years on the teaser rate. Then gives the house back to the bank. His credit rating is ruined but he was never creditworthy in the first place. He knows exactly what he is doing.
Consider the banker. He lend the money. Take out their fees. Then sell the loan to the hedge funds. He knows exactly what he is doing.
Everybody made money on the merry-go-round. Now that the ride has stopped, they'll go off and do something else laughing all the way. The next dot-com.
Well, it isn't true that everyone made money. Someone has to be left holding the bag when the smart money gets out. In the case of hedge funds one of the biggest bag holders is pension funds. Many of the largest hedge funds have a 24% pension fund interest.
So, once again, the little guy got left holding the bag. And this wild ride is far from over.
I didn't do any of those things. I just worked, paid my bills and took care of my family. Do I get a consolation prize?
No. You are part of the group that gets to pay the piper.
Being a decent person investing in a corrupt society doesn't pay, because even if just 30% of the assets around you fall through the floor, yours falls with them even if you did everything right.
The sub prime borrowers are not the victims, they are the cornerstone of the force that causes your loss.
You can have a crack dealer on the corner, but he only becomes a problem when he has customers. Without customers he becomes a casualty.
REPENT I say! THE END IS NIGH! AKNOWLEDGE YOUR SINS AND REPENT, and your soul might not be damned FOREVER!
oh, you ignorants! Do you not know that hell BURNS FOR EVER AND EVER?! May God forgive you, for you have not known what you have been doing. May you all REPENT!, and thus be SAVED!
ACCEPT JESUS AS YOUR SAVIOUR ALREADY!
Robert...
I disagree with your scenario about the attitude of home buyers. It strikes me as too cavalier. Some people might be doing what you suggest, of course, but certainly not the majority. The difference between the average buyer and the finance guy or the banker is a big one. Most buyers' motivation is to have a home, and a mid-to-long term investment.
Most buyers have no idea how the financing really works. They are told in various ways (via books, as well as by mortgage sales folks) that it's EASY to get a mortgage. Thrilled they can have the chance to own a house, they sign on the dotted line. After all, if they are told the monthly payments will approximate their rent, why not do it?
Beyond the situation where someone has an adjustable rate that starts jumping higher, there are all other costs of owning real property. Ongoing maintenance costs, emergency repairs, increases in utility rates, increases in taxes, increases in additional necessary costs such as water and sewer and garbage pick up if those aren't included in local taxes. Let's see, then there's gas, food, and...
I guess I'm taking your comment personally because those are the things that are slamming me right now. I bought my current house three years ago (very low fixed rate - with a solid bank lender) and seven months later I lost my job. I was out of work for quite a long time and dipped into savings over and over to keep afloat. Now I have my sweet home (my third in 25 years) on the market and it's not a pretty picture.
My credit rating was STELLAR when I closed on this place, but now...well, I'm walking a tightrope.
This is probably how decline and collapse of civilization is going to feel, personally, for each of us.
Suddenly. For no apparent reason. Your services are no longer required. Society has no room for you as a contributing member. You are no longer part of the mainstream. You have been cut to run on your own.
The place where you seek shelter; your home, quickly slips out of your hands ... and then you are out on the streets, homeless.
You get relabeled as a loitering vagrant, a rabid dog to be shot on sight. You have only yourself to blame. Do not cast mud on those who lured you into suburbitopia and who profited in the process. They are the white shirted angels who were merely doing "business" in the fair and square tradition. They are without fault. It's all yours to be enjoyed on an exclusive basis. Heads they win, tails you lose.
Also known as "manadatory retirement", which millions of us experience every year, good years and bad.
The fun part about being a Cassandra is you only have to be right once to get an "Infallible Oracle" brand on your forehead. You can be wrong time after time but that one time that the end really is nigh, you get all the babes.
Hi Bkhere,
I can sympathize if Robert cannot.
I was unemployed for five years: 2000 through 2005.
Never had a home but lost all retirement savings.
Today I spit in the face of politicos, particularly republican ones, since I did everything society told me to do:
- stayed out of trouble
- didn't do drugs
- served in the military
- earned two college degrees.
So much for all of that "pull yourself up by your bootstraps" republican bullshit.
I for one am ready for a reset to the American dream which in my world means the "Second American Revolution".
All I can say is hang in there and spit in the face of the bullshit artists like Robert. They know not of your pain, only their betterment at our expense!
May we know what your areas of study were in college?
Hi SacredCowTipper,
Yes, BSEE and MBA.
Of the two, the MBA has proven far more valuable as US corporations have hollowed out technical staff in favor of outsourced expertise.
Quite counterintuitive.
By the way, I PAID for both of these degrees myself - no handouts from anyone!
I wonder how many here are aware of this other phenomenon, namely, that being all you can be and getting an engineering degree is the new lie of our society?
Prole is not kidding. I work in a tech-affiliated field and see over the recent years how the engineering ranks have been decimated in the USA.
The big laugh is watching politicians (like Barak Obama on CSPAN this morning) extolling the virtues of getting a higher education and graduating more engineers in this country. He probably means well. Just doesn't have a clue.
Today, even getting an MBA is questionable as the financial remnants of our hollowed out economy begin to crumble under the stress.
I had a friend in law school whose brother graduated from Notre Dame with a an engineering degree and high honors. Could not find a job. Wound up going to DePaul law school.
Problem is ... everybody is going to law school.
There are WAY too many lawyers. It is a pretty sad commentary on our society that everything has to be settled by litigation or incarceration.
Better that than settling everything the old fashion way ... by uncivil action, such as by a duel to the death.
But my point was not that. Rather; when they "all" graduate from law school, who is going to be their client? There won't be anybody else left.
While it is true that a single lawyer in a small town starves while two do well, the curve doesn't keep going that way. If the whole town is filled with nothing but lawyers, they're all unemployed.
Milton Friedman made the observation years ago that our economy was heading towards a unsustainable service economy where there would be two insurance salesman facing each other at a table and trying to sell each other insurance.
Bruce,
My records show it is time for us to meet and reassess your current insurance policy. We have many novel packages that will match with your evolving needs. We have a new post-peak plan called Catchusifucan which is ideally suited for your demographic.
"If the whole town is filled with nothing but lawyers, they're all unemployed."
That would be..... Buffalo, NY.
Well, as they say, a town that cannot support one lawyer can always support two.
We're trying to do something about the lawyer problem.
http://www.prosefights.org/nmlegal/nsalawsuit/nsalawsuit.htm#reportresponse
I have an MS in Mechanical Engineering. When I started school in 1967 the LA Times had (no kidding) 100 pages of employment ads for engineers. Even though I don't look for work anymore I am amazed at how few engineering jobs are available in the SF Bay area. I suppose if your talents are in software or specialized EE areas you are employable but for mechanical types: head for China.
Ditto for Silicon Valley.
There was a time, before the 2001 dot.com bust when the Sunday paper was thicker than two telephone books because of all the help wanted sections.
Now it is an anorexic shadow of itself.
There aren't even the same number of regular advertisements.
Who are you going to advertise to? The unemployed engineers?
(Of course, part of the problem is that jobs, classifieds, etc. are now advertised on the internet rather than via newspapers which is why papers are dying. However, the general trend is still that all the hardware jobs are heading to China and all the software jobs to India and Romania. Silicon is no longer made in "Silicon" Valley. It's all made in China, Taiwan, Malaysia. We have "evolved" into a "new" economy thanks to globalization.)
I'm an underemployed engineer myself - Iowa State's computer science program, and now I work in that icky VoIP area. Its booming, even today, but I'm underworked due to disability. I have a mild case of Asperger's Syndrome - I look and act normal a good bit of the time, but I'm different enough in person that its caused me immense grief in employment.
A number of people posting here seem to have mentioned Asperger's. If there's ever a new demographic questionnaire done, that might be an interesting question for it. Could be that hyperanalytical people are disproportionately drawn here.
Or maybe not caring about social herding cues confers an advantage for 'black swan' type perceptions.
Or perhaps we're just peculiar.
You can add me to the list. I definitely have ADHD and may have some kind of aspergers/high functioning autism. Or just have lousy social skills. In any case, one person said I have it and other people say I don't. People don't come to TOD if they think the solution to peak oil is to con some other poor bastard out of their oil.
I also have Asperger's. I have also noticed more and more those posting on this forum and others saying the same thing. I too have wondered what the percentage of "Aspies" or others on the Autism scale are represented on TOD. I do know that we with Asperger's tend to view the world differently than most.
Anyone else out there?
Given the high maths involved, the aspect of this case being very complex, though very interesting, from a logical point of view, so counter-intuitive (from the business-as-usual standpoint), anti-social, and so fundamentally "big", I have no wonder at all that many "aspies" are interested in this subject. For me it is corroboration that it is such an interesting phenomenon...
New lie? You think this is a new lie? You obviously haven't been around very long. Engineering is and has been a terrible career for anyone wanting steady income and security. I know engineers who spent half the 70s on unemployment after the aerospace crash. Every senior engineer I know from the 80s on has told me to get my MBA if I want a chance of staying with a company beyond the completion of a contract.
You're much better off becoming a plumber. Toilets always need unplugging and it's not a job that can be successfully outsourced to India (the trip charge is a deal killer!).
Orion,
I'm right there with you. I was on one of those on the unemployment lines in the 70's (when the Vietnam war ended and there was no more of a need by our Great Society for engineers to calculate how much Butter is needed for lubing the Guns).
However ...
Do realize that every year our universities graduate a new litter of technology-armed graduates, salivating at the mouth, wagging their tails, and eager to serve their masters. The Market will provide.
You got a surplus of skilled engineers? That is one of the bottlenecks in the Swedish workforce. You dont happen to also have a surplus of skilled programmers, welders, plumbers, metal cutting machine operators, concrete workers and so on?
Its odd if skilled people cant get work, you ought to invest like mad in the energy sector and so on.
Hi prole,
I'm right there with you since my life to date fits much the same profile. I also hold a BSEE and hope to be finishing an MSEE in a month or two. I tell myself the MSEE is for me, but I probably wouldn't be doing it if the company wasn't paying. Sometimes I think I should've spent all that time going out to get high and get laid.
As luck would have it I also work in the MI-complex. My idiot managers are throwing my skill, training, and intellect away on filling out Excel spreadsheets and adjusting sliders in MS Project.
To put things in perspective, I was working with Excel and drafting architectural plans in AutoCAD in middle school. I was designing and conducting my own mechanical and acoustic science experiments in high school. I helped design, build, and successfully field test cellular repeaters in college.
I get my passive-aggressive revenge on management by constantly showing up late and doing about 10 actual hours of their 'work' a week. Somehow I wound up with two cubicles, so I can almost always tell these pukes, "I was in the other building dude." If that fails, then "I was taking the Browns to the Super Bowl."
My friends and I find it physically painful to watch "The Office" on NBC. That's how accurate a picture it paints.
It's a "cost plus contract".
You're the cost and your managers are laughing all the way to the bank.
They are not "idiots".
Instead, you are Dilbert.
Why do you live in a cubicle (or two)?
Don't you deserve an office?
For heavens sake you have a BSEE degree!
P.S. When I was young, I too worked as a double E (with MS!) in the MI-complex. I was too dumb to understand that I was just cannon fodder for the cost plus contracts. They didn't want me to actually do good work; just to run up justifiable costs. That's your real job dude. Figure out how to charge Uncle Sam more without being caught.
I can still find work with my MSEE degree but now it has to be with military industrial companies prevented by the nature of their work from offshoring. I spent the first twenty years of my career making products people actually wanted to buy.
I think a science education is a very useful and scarce thing to have even if it doesn't directly lead to lifetime employment. There are already too many idiots out there. Why do people get liberal arts degrees? They think reading Shakespeare in the original Klingon makes them a better person.
Hi Bkhere,
I can sympathize if Robert cannot.
I was unemployed for five years: 2000 through 2005.
Sorry to hear that.
Never had a home but lost all retirement savings.
May I ask why you never purchased a home?
Today I spit in the face of politicos, particularly republican ones, since I did everything society told me to do:
I got laid off in 1989, with a optical physics BS, I was underemployed for two years, then started my own buiness and now semi-retired at 45 years old.
Pulling myself by the boot-straps was good advice for me!
- stayed out of trouble
- didn't do drugs
- served in the military
- earned two college degrees.
Thank you for your serice. Sometimes it takes more than what you've outlined to succeed in life. You didn't buy a home, at time when homes were inexpensive, thus I suspect, but await the details, on your investments you made in the 90s.
Did you have a divorce in your recent past? That alone can break some people finanically.
So much for all of that "pull yourself up by your bootstraps" republican bullshit.
Like I said above, worked out pretty good for me. The people I grew up with who didn't pull themselves up are the ones still living off of Mom and dad's kindness!
I for one am ready for a reset to the American dream which in my world means the "Second American Revolution".
Oh really? Notice how everyone is "ready" but they never actually do something about it? So you had some bad luck, what can I say since I don't know much about you, and you want to burn the barn down? Do you realize that would ruin many millions of lives who haven't had your bad fortune?
Or do you not care?
All I can say is hang in there and spit in the face of the bullshit artists like Robert. They know not of your pain, only their betterment at our expense!
I'm sorry you are so bitter. I will say a prayer for you that things will turn around.
Steroids anybody?
Not only are these "winners" convinced of the validity of the system, but it was their talent alone that led to their success. Never mind any luck or uncontrollable circumstances being involved such as being in the right place at the right time, having the right mentor or friends, or even having the right name or color of skin. Can’t have any doubt as to the merit of the status of our high stations can we.
Bruce--
For more on the subject, a recent book called:
The Social Atom examines this thoroughly--
It is by the former editor of Nature, and a excellent read.
Most of our conceptions of the conditions success and failure are pure fantasy.
Hightrekker, thanks a lot! I'm looking for a new book to put on my reading list. I will order it today.
In that case, you should definitely also read N. Taleb's Fooled by Randomness. It covers exactly this, and more, and is an entertaining read.
That's the way it is with winners and losers in any zero sum "game". The winners are convinced everything was fair and balanced. The losers are convinced the playing field was tilted.
Steroids anybody
Your cynicism is frightening.
What can I say? I got a late start in life, but I ended up pretty well off.
It took me 7 years to get throught college-I worked full time my first few years while going to school part-time, then took some student loans, changed my major, then I only worked part-time while finishing my degree.
My house is paid for, I own a ranch in the southern part of the state. I did it through hard work-50 to 60 hours a week frequently, and some good investments.
There are a lot of people who feel the same way you do. If things didn't work out for you, it must be because the game is rigged.
I disagree, if I can come from a blue-collar family to be semi-retired at 45 it can happen to others. Not everyone, but it is more than possible here in the USA than anywhere else.
There are a lot of people that work hard 50-60 hours or more a week and do not have a paid for house, a ranch, and are semi retired after a business that was started in 1991. As far as America being the best place for upward mobility studies have shown this is not the case, and cases such as yours are becoming more and more the exception in a society that resembles the “Gilded Age” of the late 1800’s where the income disparity is very wide.
An earlier statement of yours in another post confuses me however:
Most people I know that own businesses don’t refer to their business in this manner, especially a smug condescending republican who can’t wait to tell you how successful he is.
I'm afraid it is the fate of the majority of humans to have a miserable, horrible existance.
In America, the poor have it much, much better than the vast majority of the poor of the world.
The fact is that the majority of people who did work 50-60 hours a week, as I did, didn't live beneath their means, like I did.
I haven't owned a new car since 1983. I lived in an Apartment throughout the 1990s, investing 30-40K a year from my business while most people I knew were going to Europe or Australia every year and/or buying a new car every 4 years. I took my money out of the market at the end of 1999 because I saw it was a bubble (three months later it tanked). I then bought a house. The house in five years more than doubled to 1.2 million. I sold the house in 2006- just before the bubble burst.
Sorry, its not my fault I stay up late reading the WSJ or that I get up at 600AM to watch CNBC before the market opens. The rest of the slugs I know sleep in and watch some stupid reality show instead of doing their homework on investing.
Let's face it, most people are lazy, self-indulget malcontents. If they want to piss away their time watching mindless TV sitcoms or reality shows than piss on them and they deserve everything that is coming along the pike.
We get what we deserve in life. I accept that, most don't.
50 - 60 hours a week ain’t shit. I used to do that in a “normal” workweek. I’ve had months building new accounts where 12 hours a day six days a week was the minimum to get the job finished. I have friends from law school working at large firms who are on the partnership track who have to sleep in accommodations at the firm because they don’t have time to go home and get back to work the next day. Obviously you don’t have much experience in the workplace or otherwise you would have stated more hours. And not only did you cash out right before the tech stock crash, but you cashed out on the housing bubble! LOL!!! I smell bullshit on this one.
If you don't care to believe it, that is fine. Don't get me wrong, I've taken some losses in life, $12,000 down the tube on Enron, but I had to cash out most of my market holdings to buy the house in 1999.
Am I supposed to feel guilty about my wisdom or good luck? Not a bit.
But we digress, I'm curious about your story Bruce.
No it’s not that you should feel guilty, you put the ball in play and it paid off. But for many people they work their ass off in a situation they have little control over, live within their means, and still cannot get ahead. Life is also often very unfair. I’ve seen people struck down in the prime of life by illness or tragedy and never recover. Does one deserve to get cancer, or have a spouse run out and leave one with the kids? Forget any kind of a social safety net for these situations. And the reason your hearing a lot of griping here is that there are a lot of engineers on this site and they have been hit the hardest by our country’s economic policies. I presently work in the trade show industry. The best machinery and electronics I see at the shows and booths I supervise comes from abroad, either Asia or Europe. It’s just sickening.
And the reason your hearing a lot of griping here is that there are a lot of engineers on this site and they have been hit the hardest by our country’s economic policies.
I was a thin-film engineer. I got laid off in 1989 and for 6 months couldn't find a job. I changed careers, started my own business.
I think the problem is that most people end up working for someone else. One will never get rich working for some one else. They refuse to work for themselves because its too hard.
Take care.
I think you need to read Eric Hoffer's "The True Believer". for you it might be like looking in a mirror.
I don't know what to tell you Bruce. My job feels like work, I only have to work part of the year, but it feels like work.
Sorry I tried to share my success story with the list, given how everyone seemed to be bitching about how bad their lives are.
Whatever.
So what is your story Bruce?
Me I’m just a humble city boy from Chicago’s south side who moved out to the country and bought a small farm to grow my grapes, fruits and veggies. Don‘t need much more than that. And I certainly won’t work for much more than that. I guess that makes me lazy and shiftless.
jbunt
BRussellNM
You cannot post here anymore. I think that it is a requirement that you cannot post if you are a successful, intelligent person, which you obviously are. You have to be an engineer or a scientist of somesort who has failed miserably (economically) and is now pissed off at the entire world. They are all paranoid!!
These jerks are unemployed for five years and go thru all of their savings!! My God!! Rent a small space in a strip shopping center for less than $1,000 month. Purchase less than $10,000 worth of equipment. Start grooming dogs and cats at $20 to $50 each. Work 5 days a week, with 2 helpers and gross over $1,000 per day. You should net $125,000 - $150,000 a year pretax, if you do a good job.
Dog-walkers in L.A. make six-figures.
That includes hazardous duty pay and combat pay.
After we finished selling each other insurance, we can groom each other's cats and dogs.
People lost their homes due to layoffs and medical bills long before the current toxic mortgage craze. And that sort of crap will keep happenning long after the current markets have sorted themselves out. I didn't mean to imply that everybody that bought a home was in it for the money. I meant to say the guy who took out an adjustible teaser rate mortgage and borrowed an additional four hundred grand on his home and is now gonna lose his home is stretching my sympathy button. I'm sorry you are going through this. You did everything right, got a fixed rate mortgage, and s--- happens.
I am there, doing that, got the t-shirt. I was laid off of my air force contractor job at VAFB so the air force can spend their money on the war. Lots of people are being laid off of VAFB. I've accepted an offer to start working again next month. I just have to move. Not what I would have liked but you do what you gotta do. There are people paying a much higher price than I did because of the war. I try to keep some perspective.
You wrote:
"I guess I'm taking your comment personally because those are the things that are slamming me right now. I bought my current house three years ago (very low fixed rate - with a solid bank lender) and seven months later I lost my job."
Hang in there. In the mid-1980s, when oil went bust and I could only earn half of what I had been making, I nearly lost it all. Don't give up, keep trying and be optimistic in any interviews. Eventually, years later, things became much better. Most lives do have some serious downturns, so you are not alone in this experience.
http://home.entouch.net/dmd/Oilcrisis.htm
You wrote:
"I guess I'm taking your comment personally because those are the things that are slamming me right now. I bought my current house three years ago (very low fixed rate - with a solid bank lender) and seven months later I lost my job."
Hang in there. In the mid-1980s, when oil went bust and I could only earn half of what I had been making, I nearly lost it all. Don't give up, keep trying and be optimistic in any interviews. Eventually, years later, things became much better. Most lives do have some serious downturns, so you are not alone in this experience.
http://home.entouch.net/dmd/Oilcrisis.htm
The above comment sounds like the discredited "efficient markets" theory in another guise. Read any article about sub-prime borrowers in financial collapse and it is immediately clear that most of them certainly did not "know exactly" what they were doing. The whole point of the ARM/sub-prime scam was to find and mislead suckers into financial disaster.
Look at the crowds of homeless people in any US city and you cannot pretend that "Everybody made money on the merry-go-round". Lots of people fell off the merry-go-round into the gutter.
The point that Jerome is making is that unregulated markets always eventually lead to bubbles/collapses and obscenely inequitable wealth distribution. That is the reason that throughout history democratic governments always end up intervening to regulate and moderate the effects of "free" markets. Only those willfully ignoring history could believe that the invisible hand of the market place magically maximizes human happiness, and yet it is not hard to find the true believers.
"Those who cannot remember the past are condemned to repeat it."
Santayana,
When I find an efficient market I'll let you know. My house was making more money than I was and I'm an electrical engineer. The whole point of the ARM/sub-prime scam is to make fees by doing deals. If you have an ARM loan, they'll offer to refinance you into a fixed rate. The mortgage lenders and brokers aren't your financial advisor. They don't care if you pick a mortgage that meets your needs or not. I don't think they have a fiduciary duty to their clients but somebody can correct me.
We never had homeless people until 2007? Who fell off the merry-go-round into the gutter? Yes, we've had the usual churn of creative destruction including myself who is currently out of a job. For another month. Why do you think I hang out on the oil drum?
The point Robert is making is that regulated markets always eventually lead to bubbles/collapses and obscenely inequitable wealth distribution. Do you want to know how I know this? Because there are no unregulated markets.
Dude,
That is why you are still an engineer.
You still believe the BS plus PhD your economics professors laid on you in college.
You still believe that The Market will see the error of its ways and re-employ you for your true value and talents.
No dude.
It's over.
Time to move on.
You've been had by the brainwashers.
But by the time you get wise enough to figure it out, it's too late.
Here is how the "unregulated" markets work:
1. Someone who is skilled in the "art of the deal" convinces some young inexperienced engineering graduate (YOU) to work in a cubicle for next to nothing wages while promising them (YOU) stock options in a start-up that is guaranteed to make gazillions.
2. You sign up and work unpaid voluntary overtime (VOT) to show "management" how devoted you are to them.
3. You wake up in the parking lot one morning not knowing what hit you. The company has folded. The managers have run off with their millions to do another start-up. And you're still in shock, holding on to your pink slip and vigorously rubbing your graphing calculator up and down while still not understanding what just happened.
I've accepted an offer and I'll start working again next month. My true value is whatever the market will bear.
I've worked plenty of unpaid overtime but not with the military industrial complex. They aren't going to give the government 41 hours of "work" and get paid for 40. Many people have lost their job due to the greed of management but I was laid off due to the cost of the war.
I've been screwed by your point 1). I joined a start-up during the dot com craze of the mid nineties. I never believed my founders stock was worth anything or there were any guarantees, but I thought management was trying to grow the company instead of running off with their hundreds of thousands.
Robert,
Congratulations on landing a gig. Good luck!
P.S. Your true "value" is that you are a human being.
Don't "sell" yourself short.
http://reddit.com/info/2gfs6/comments
if you are so inclined...
Perhaps the true cause of the crisis is what was briefly mentioned at the end of the article, that is the drop in real wages most American families have experienced over the last 30 years. The cure advocated by the free market advocates has caused the present disease. Michigan governor John Engler actually publically said that he believed most Michigan workers were over paid. I have heard recently 'expert' opinion that too many Americans own their own homes. Instead of investing in a home they should have rented and invested in 401K mutuals. But part of the sales pitch of realtors is that you get a bigger home by paying a mortgsge for the same or lower price of rent. If this is true then how much money is available to renters for those 401Ks. Maybe the problem is we do not have enough homeless families. That's it! The bubble was caused by people unwilling to be homeless thereby artificially driving up demand for homes. Low wage uncreditworthy people unable to afford rent certainly shouldn't be allowed to have a mortgage. Who knows when their job will be outsourced to India or China.
That no one knew this was a bubble is patently silly - the very same vibe that was felt right before the dotbomb crash a few years back permeated the air. Everyone knew - the smart money got out, but the bagholders at the bottom end (subprime borrowers) and the bagholders at the top end(hedge funds and other players to large to admit their run was ending) had no choice but to stay for the final act.
It is a gruesome shame that bailout money comes promptly for those gamblers at the top end while the new bankruptcy laws ensure those are the bottom are ground into hamburger. We need another FDR and I'm cheering for Edwards to get the Democratic nomination.
This meltdown couldn't have come at a worse time as its going to mask the arrival of the post peak oil period with a global downturn. We'll see a few more years of foolish misallocation of resources towards things like The Great Ethanol Boondoggle, then the BTU deficit will become as painfully obvious as this bubble was, but we'll lack the energy to remediate.
Sacred--
That is the way it always works---
You privatize the profits, and socialize the risk--
Corporate welfare works that way, and the pigs feed at the trough.
This is a pyramid scheme that is guaranteed by the feds for the creditor class.
hightrekker--
Amen.
This time it's different though.
There are no factories for Americans to go back to for starting over again.
There are no family farms to go back to.
Our economy has been hollowed out and shipped off to China.
If you are strong, maybe you can pull a rickshaw.
After Peak Oil, we will need rickshaw operators to help haul the elite about town.
Have you seen "City of Joy"?
There is much joy soon heading our way.
You have hit upon a problem I have wrestled with for a really long time.
That third party contractors will be corrupted by the money, while federal regulators are corrupted by power and eventually devolve into an inept bureaucracy. We keep swinging between regulation and free market, always getting it wrong.
I've worked within a federal bureaucracy for decades, and I can't decide what is more revolting, the story of the contractor that robbed the government blind, or the inept, spineless federal manager who got the job thought political connections and the “good old boy” network.
I watched a history of Wallstreet special once. Every major U.S. economic crisis seems to stem from the greed and corruption on that street.
I've come to the conclusion that we should just outlaw most of the activity that occurs in the financial markets. Loans must have real physical collateral, and they can not be resold in any way. Stocks and bonds must be held for 1year before reselling and you can't borrow against either.
That an entire country keeps getting snookered over and over, by one group of people is just not acceptable.
"Snookered?" That's very diplomatic of you. :) I think I'd use a somewhat more pointed term. One that would convey the true meaning of what goes on. Kind of a "Don't I even get a kiss?" ;)
I will be even less diplomatic and say that we have all been f****d up the A$$
Yes, indeed. Without K-Y Jelly even.
The "Blowback" is gonna be incredible when we have 20-30 million out of work, etc.
Its a recession when your neighbor loses his job, its a depression when you lose yours, and its a revolution when there are twenty million more like you.
Twenty million out of work are twenty million newly minted Democratic party activists. Karl Rove's permanent majority was the right idea but the wrong end of the political spectrum.
Post hoc proctor hoc. There is always greed and corruption on wallstreet. Every once in a while the U.S. suffers an economic crisis.
post hoc ergo propter hoc?
Romans eunt domus. I gambled on procter and lost.
Unfortunately, some of the instruments that are used for rampant speculation are also perfect for risk mitigation when used properly. A smart company with a lot of exposure to something (price of x, interest rates, exchange rates) hedges.
Lets say that I get a contract to build valves. I manufacture in India, and costs are in Rupees. I have a long term contract, making good money at the current exchange rate that is priced in US$. Think I might want to enter into some sort of future exchange rate contract? You betcha'. If I don't, then I'm by default gambling that the US$ doesn't fall against the Rupee. Doh!
Forcing the return of jobs to the USA!
Seems like an even better idea now.
One of the largest manufacturing plants in my home town made valves for about 50 years. They closed the plant about a decade ago and sent the work off shore. My uncle worked there. Now his 70+ year old widow has lost her health insurance.
Jerome,Great Post! I think that everyone is going to have to realise that their 401K and IRA has been Enroned, and that may take a few months. As a guy who was raised in Houston in Southhampton, where the Enron pirates like Fastow, Koppers and Sharon Watkins settled and Jeff Skillings lived for awhile, I've studied their larceny. And, just as Jerome has so succinctly summarised, most of the fraud was done with totally unreal valuations of thinly traded securities, if thinly traded can be used to decribe the tranches and future profits in non-existent businesses.
Sharon Watkins is not a hero, she was a snitch playing cover her ass.
How in the hell can they justify paying commissions on revenues to be collected in the future?
We have to get basic reform in accounting and we need to have financial executives responsible fot the fraud committed by their corporations. Bankrupt them and put them to work at MickeyD's flipping burgers and paying off a multi-million dollar judgement at minimum wage.
And SacredCowTipper, Edwards isn't an FDR, plus I can't vote for any candidate who doesn't understand peak oil. So far, Mitt Romney is the only one. Bob Ebersole
Of the four in front if it isn't Edwards who will it be? If Clinton wins the primary we might as well start rolling up the sidewalks - we desperately need change and she ain't it. Obama the same, Edwards seems most likely to actually change things, and Richardson is a hard man to read.
Republicans at the level needed to win the party nomination are going to be war mongering corpWHORErate servants and I'm having none of that. So Romney understands peak oil? Big deal - all of the Democratic offerings will, too, as soon as We, The People make it clear to them ...
SCT,
I was a yellow dog democrat until the last couple of years, until sold down the river by Kerry. He didn't even verbally protest an obviously fixed election. When it happened with Gore (and I was an Aternate Gore Delgate to the State Democratic convention in '92) I thought it was just him in 2000. But, when it happened in '04 I new the fix was in. I think we have lost our republic, I'm now a wobbly.
Bob Ebersole
We had a 43%/44% split going into the 2006 election and a 35%/50% advantage coming out of it. I'm hoping the steady drumbeat of Republican sleaze is starting to sink in for people, but who knows.
We have mercenaries fighting in Iraq. That meme always comes up in the last chapter of a book about a failing empire.
A wobbly, as in the IWW? And what is a landman?
Petroleum landmen are the guys who assemble the oil and gas leases for exploration deals. I'm an independent contractor, working for oil and gas companies.
Hasn't this thread taught you that the working calss an the owning class have nothing in common? Join the one big union,the Industrial Workers of the World!
Bob Ebersole
Petroleum landmen are the guys who assemble the oil and gas leases for exploration deals. I'm an independent contractor, working for oil and gas companies.
Hasn't this thread taught you that the working calss an the owning class have nothing in common? Join the one big union,the Industrial Workers of the World!
Bob Ebersole
Kerry's job was to come close enough that the sheeple would believe they lost fair and square. No, he didn't contest the results in Ohio and elsewhere.
Kerry is a long time member of the Council of Foreign Relations(CFR) and like bush is a Skull & Bones guy.
The Fix was in.
The End Game is in place boys and Girls.
SacredCowTipper and to anyone else who thinks that
there are redies and blueies running for the nomination:
THEY ALL are the SAME PARTY.
We're quite aware that we have corporate owned Republicans and corporate owned Democrats. Fixing the rule of the law is the first step and since the Republicans are the ones who've broke it they're the ones that have to go. Once we don't have to worry about Democratic leaders being locked away on trumped up charges and elections being stolen then the next step is some real change ... Chris Bowers seems to have a plan, so we'll follow his lead as long as the lights are on.
Ummm... SCT, you may wish to reconsider your views on Edwards after reading this article.
http://www.americanthinker.com/blog/2007/08/more_jaw_dropping_hypocrisy_...
August 17, 2007
More Jaw Dropping Hypocrisy from Edwards
Rick Moran
Ed Lasky gives us this story about John Edwards and the continuing disconnect between his class warfare rhetoric, skewering the rich for practices he himself takes part in:
As a presidential candidate, Democrat John Edwards has regularly attacked subprime lenders, particularly those that have filed foreclosure suits against victims of Hurricane Katrina. But as an investor, Mr. Edwards has ties to lenders foreclosing on Katrina victims.
The Wall Street Journal has identified 34 New Orleans homes whose owners have faced foreclosure suits from subprime-lending units of Fortress Investment Group LLC. Mr. Edwards has about $16 million invested in Fortress funds, according to a campaign aide who confirmed a more general Federal Election Commission report. Mr. Edwards worked for Fortress, a publicly held private-equity fund, from late 2005 through 2006.
Asked about the matter, Mr. Edwards yesterday pledged that he would personally provide financial assistance to New Orleanians who are facing foreclosure by Fortress-affiliated businesses or have lost their homes already. "I intend to help these people," the former North Carolina senator said.
Simply incredible.
Ed Lasky adds "When you lie down with dogs, don't be surprised if you end up with fleas. Funny, how the New York Times missed out on this story."
You can bet it would be all over the front pages of the Times if it had been a Republican being such a hypocrite. Here's what Edwards had to say about sub prime lenders:
"While Washington turns a blind eye, irresponsible lenders are pulling a fast one on hard-working homeowners,'' Mr. Edwards said a few days later. ... It's time to put an end to the shameful lending practices that are compromising our strength as a nation."
It's amazing this guy is still in the race.
Right wing claptrap. I'd be more likely to engage in a pie fight on RedState.com than wade through that junk. Spin, spin, spin ... if there were any substance to it Edwards would have been crucified on DailyKos.com long ago.
Umm... SCT, that's the yet another example of how we are unwilling to examine ideas outside our "view of the world" that is leading humanity to a crisis over peak oil. It just so happens that the daily kos has quoted the exact same article and spun it in a completely different direction.
http://www.dailykos.com/storyonly/2007/8/17/123035/090
Will you wade through it now?
Plus, with Elizabeth being sick, I think Edwards will have a personal "feeling" for what the average worker goes through in our Health-crisised America.
The only malady Bill suffered from while in the White House was rope burn.
I don't get the feeling that Hillary really cares for the downtrodden.
When did she last tour New Orleans?
More likely that she was up in the air with the Shrubmaster looking down on the little people and figuring out how to profit from the ordeal. The only one who seems to give a crap is Edwards.
Oh, please. Edwards can afford his own hospital. He may be worried about his wife's illness but not in the same way an average Joe without tons of money would be.
So, O ...
Who are you backing? And first of all, which place along the magical one political line do you place yourself, on the extreme left end or on the wrong-but-right-anyway end?
Also, which end do you break your egg open on in the morning?
Edwards scares the neoconians and right wingnuts to death. They see him as a person of his word...the two americas theme would be the deathnell for the plutocrats of the republican party. They think they have a good chance against bilary and obama so they attack edwards now and sharpen their knives for the Hillary nomination. If you look at Edward's campaigns for president, his messages are internally consistent and offer a true alternative to business as usual. Unfortunately the republican media has attacked Edwards on haircuts and a large house... issues that have stuck with the public. Like gay marriage, death tax, and other issues from that sleazy Rovian wedge issue machine they seek to deceive the public.
It's Hlllary that "scares the neoconians and right wingnuts to death", not Edwards. In the first place he doesn't have a chance in Hades of winning the nominination and it's generally accepted that he's only in it for whatever political influence he can glean from the winner; in the second Hillary has a much scarier agenda than him.
orion says the second Hillary has a much scarier agenda than him.
Sorry you are misinformed, Hillary is the machine candidate. The business as usual forces have backed her with the lucre. The right wingnut media is in full force attacking Edwards. They are scared of his integrity and his vision. But it's interesting to see the hatchet job done on him like they did to the insurgent vermont governor when he looked like he had a shot at it.
Edwards is in it for exactly the same reason he was in it in 2004: to see what he can get. Last time it was a VP nomination, this time he'll settle for Secretary of Commerce.
Bob, name an action Mitt Romney took as Governor of Massachusetts that indicates that he is peak oil aware. I can list two that suggest otherwise: (1) pulling Massachusetts out of the New England greenhouse gas compact and (2) opposing the Cape Wind project. If you read the book Cape Wind, you'll come away with a heightened revulsion for that man, for he was eager to kill a wind project large enough to serve the entire New England region for no other reason than to placate the Cape and Islands bluebloods who put the views they command from their vacation Xanadus above all other considerations.
"Save the sound, save the sound, especially the view from our ... compound."
The smartest guys in the room. I'm more fascinated by the dysfunctional psychology than the nuts and bolts of their fraud. A company up and down loaded with egomaniacal sociopaths who genuinely believed that valuation is whatever they say it is and physically unable to have compassion for another human being. We deserve these millions we are defrauding our shareholders out of because we are smarter than everybody else. Reminds me of the wanasee conference.
Actually, a lot of them merely studied "MBA stuff" in business school.
There are all these complicated speadsheets to fill out and all that fuzzy math that Bush-astard hurts his head on when he bumps into it.
I'm watching my post-college kids going into the business world. That's what happens. Spreadsheets.
Jerome,
I also congratulate you on a good summary. I have been uneasy about the financial dealings of Wall street and easy credit for years (a decade?) now. The funny thing is that during that entire time being prudent financially (not playing the games) really hurt you in real life. Someone said on TOD a few days ago that there are two types of economies: savings based or debt based. Being a saver in a debt economy means you lose wealth. Just as being a debtor in a saving economy loses you wealth. The question going forward is always will we be rewarded for saving or for taking on debt?
I can't answer that so I can't plan actions very effectively, and must hedge my bets to both camps. This means I have been part of the problem leading to too much debt even if it is in a small way.
Oh, and Oilmanbob. I like what Bill Richardson says and does and I do think he is peak aware coming from an oil state.
I like a lot of things about Richardson, mainly that he's thoughtfull and with enough personal strength to change his mind.
On Romney being peak oil aware, Matt Simmons is raising money for him and he's coming to ASPO. But any candidate will have to earn my vote. If they can't even see that energy is our most important problem, they will not get my vote.
Bob Ebersole
NC,
"Being a saver in a debt economy means you lose wealth. "
Maybe, but I was raised in a household where if you couldn't pay for it, you didn't buy it. In my younger years I believed that statement, and took on a mortgage (@10%) and car payments. However by midlife I began to see that something had to change, quit buying anything I could not pay for and paid off my mortgage as quickly as possible. Maybe I have missed the opportunity to own more 'stuff', but I really feel that life has been much calmer and happier since I am debt-free. What is wealth beyond having food on the table and a comfortable place to live? I have been counciling one of my very stressed-out friends who has her own business and a huge mortgage that she needs to really cinch down her belt and try to work down her debt load. So what does she do the very next week? She takes more money out of her home equity loan to re-decorate her bathroom! There was not a problem with it; she just saw a really neat shower curtain and then had to redo the bathroom to match.....
Hi TnGran,
Yes, it's funny-odd. Like people pick something to do that they can control, when they can't see a way to get a handle on the real picture - the one that's out of control. It sounds like she felt overwhelmed, in other words. (It sounds like that huge mortgage is too huge to contemplate.)
And who gets the 100s of billions that the Americans, Europeans, Japanese and Australians have been injecting into the credit markets? Think we will get an inflationary depression?
Here is another view: “The nationalization of the Fed is more feasible now than it was a few months ago. Wall Street is boiling with resentment against Helicopter Ben Bernake, partly for his failure to bail out the Bear Stearns hedge funds and other entities silently, through the back door. A cartoon lampooning Helicopter Ben’s ineptitude and incompetence has even appeared in the Washington Post, which since the mid-1930s has been the house organ of the Federal Reserve System. (August 11, 2007) In the current crisis, Helicopter Ben may well assume the role of the infamous Brownie of Hurricane Katrina, and this is in fact the theme of the cartoon just mentioned. Helicopter Ben may actually believe some of the monetarist garbage that he has been spouting before his students for so many years. If he does, the damage will be incalculable. The Fed may soon become so hated by wide sectors of the US population, providing the first chance we have had for a serious attack on this illegal institution since the late 1930s.
Cheney’s thermonuclear bailout
The disintegration of the dollar system is ultimately one of the strongest factors impelling Cheney’s controllers -- meaning the George Shultz-Rupert Murdoch faction of the US-UK ruling elite. From Cheney’s point of view, an economic depression requires drastic austerity measures to drive the standard of living down even further below its present reduced level, with the proceeds going to the finance oligarchs. Can these cuts in the standard of living be accomplished under the present system? If not, what kind of dictatorship can be used to impose them? This is, after all, the reason the German financiers like Schacht turned to Hitler.”
Fed attempts to bail out bankrupt Wall Street speculators; Cheney demands staged terror attacks, war with Iran a 3-part series By Webster G. Tarpley
Online Journal Contributing Writer
http://onlinejournal.com/artman/publish/article_2304.shtml
http://onlinejournal.com/artman/publish/article_2310.shtml
http://onlinejournal.com/artman/publish/article_2316.shtml
A two billion or twenty billion dollar screw up can be bailed out and its just noise in the signal. A two trillion dollar mess simply can't be covered up by printing/not printing/burning as offerings dollars.
We can keep talking but in reality we need to watch what happens from now till the end of the quarter as the hedge funds liquidate everything that isn't nailed down to return cash to nervous investors.
SCT,
They will contain it, till what they do doesn't work any more; and we will all suffer further from it.
What will the next bubble be I wonder?
Speaking of the rule of law as you were, this is an oldie but goodie: The Myth of the Rule of Law
Really, Edwards, Clinton, Paul, why watch or listen to any of them? If voting could change anything it would be illegal. The media is controlled. The parties are controlled. "Campaign Reform" is perennially controlled. Even the voting machines are now proprietary. Phooie on the whole dismal political class.
Don't you know the answer is obvious? It is what this board is about, the bubble of oil/energy consumption. All the experience we can get from the past bubbles, and especially this one, will apply times ten. It will be the Mother of all Bubbles.
Sam Penny
the Prudent RVer
Prudent RVer,
I call a bubble something created artificially, intentionally and divorced from underlying real picture.
I believe Matt Simmons that we are “off the clock”, time has run out for increasing petroleum production. http://www.netcastdaily.com/broadcast/fsn2007-0818-2.mp3 I was told that half the U.S. auto miles driven are by vehicles 5 years old or less. We need to obsolete the oil dependent internal combustion engine. We need an electric economy. Big changes could be made in auto fleets in five years. I’ve also been told the electric grid, such as it is, could accommodate the nightly recharging of seventy percent of U.S. automobiles if they were replaced with electrics or hybrids. Geothermal has great power production prospects, as do ocean waves and thermals.
Oil has been so good for so long there is inertia and moves to get off the oil economy are discouraged. If anything this seems a conspiracy to keep us hooked on oil till the last drop is gone and last money made, not my definition of a bubble exactly.
If I had to guess the next bubble, my guess would be commodities. Although it may seem like we're already in a commodity bubble, I think, in actuality, they have simply come up to their real values - gold, silver, copper, oil, palladium, etc. They have appreciated in the last 5 years, but for many of them, there are good fundamental reasons for them to have slightly outpaced inflation. When oil shortages start, people will overreact and that overreaction will spill into other commodities, and we'll get a bubble.
The next bubble?, the biggest fraud of all. Carbon Credits.
An excellent overview of the situation that deserves wide-spread distribution. Digg It!
Also lots of good belly-laughs in there:
"The dirty secret of bankers is that they are bad at science and maths"
"Thus, models work until they don't."
"People say these are one-in-a-100,000-years events but they seem to happen every year,"
Ya gotta laugh or you'd cry....
Whoops, no diggin, so let 'em know you reddit.
I like the comment "Pierre" posted on the original thread.
My 2¢ worth, from one year ago:
http://www.energybulletin.net/19420.html
Published on 21 Aug 2006 by GraphOilogy / Energy Bulletin. Archived on 21 Aug 2006.
Net Oil Exports Revisited
by Jeffrey J. Brown
There are a huge number of ways the models can go wrong. Some of these are
• Estimating default rates over too short an experience period, when experience is better than the long tern.
• Assuming that variables in the model are independent, when they are not.
• Assuming distributions are "normal", when in fact they have "fat tails" (see The (Mis) Behavior of Markets: A Fractal View of Risk Ruin and Reward by Benoit Mandelbrot and Richard Hudson)
• Assuming that the information provided on stated income application is true.
• Assuming that default rates will be the same when the down payment is borrowed as when the buyer puts 20% down.
When you put these things together with the conflict of interest of the rating agencies, the brokers, and almost everyone else, it is hard to see how one can make a system like this work without exactly this kind of blow-up. I have doubts about its long-term viability.
ah yes, the fat tail problem. I suffer from that.
but seriously, what do those distributions usually look like in the real world, Gail? It would seem to me they'd be skewed AND leptokurtic (as you suggested...).
I think the spread of the Reagan theology to the culture of Wall Street goes both ways. Now we've had the generation of rich white guys who benefitted from deregulation entering politics and taking their shady business practices with them. The Enron collapse and the public denial of the oil industry that there was an oil discovery problem are two good places to start. It is hardly surprising that an administration that has many who were close to Ken Lay's gang and to the oil industry in general would believe that they could fool most of the people most of the time.
What about the whole idea of leverage, the owning of 50% of 50% of 50% to gain 100% control of an asset? Look at the neocon approach to global domination. They think if they can rig an election in one country, they can control an entire continent. But just as an overleveraged asset can suddenly collapse due to conditions the investor hypnotized himself into ignoring, our global network of military bases and color-coded capitalist revolution might not take too many more hits before unraveling. I am laughing at the jam we face in the Republic of Georgia, where a Charlie Rose-interviewed IMF frontman now is stuck between begging for natural gas from Iran or from Russia, and the US has no way to bail him out. Our fragile little schemes unravel no matter who he chooses. We made so many enemies, they're practically fighting each other for the chance to pick off our weakest puppets. Colombia next.
I hope no one's ever written a smug business book about the "nuclear option".
Jerome,
Why blame the Reagan-Thatcher revolution when greed was built into the system via the moral hazards created by the actions of the Federal Reserve?
And who was responsible for the creation of this entity? Did not 2 Democrats sponsor the Federal Reserve Bill? Was it not passed in a sneaky manner before the Christmas holidays? Was it not a fact that very few Democrats voted against it? Did not a Democratic president sign it into law?
The political system is corrupt and broken, pitting the rich against the poor, irrespective of party affliations. The rich Democrats are just as likely to mess things up as the rich Republicans. It's just that they dress it up with a different rhetorical paradigm.
regards,
ob
An observer from Asia
Super---
I agree- No more trust in Stupid Rich White Guys---
The results are directly observable--
(I consider Thatcher to be a Stupid Rich White Guy)----
They seen to thrive on superstition based economics, charge and run strategies for wealth creation, and pyramid style financial arrangements---
But, hey, it was a fun ride while tit lasted.
This sort of outcome is engineered into the system. Blaming Reagan or Thatcher doesn't change that and they were not around when the system was constructed. Now they may be blamed for hastening things along but not for creating the mess. People before them did that and the system was headed for meltdown anyway, the only variant being time. Given that by the Federal Reserve's own admission the dollar has lost 95% of its original value, anyone who ever expected this system to be "stable" in any way, shape, or form was ignorant or delusional.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
I strongly disagree with this. Even if prices stay completely flat forever, people will still buy houses. (all situations, barring deflation)
Despite people treating their homes as an investment vehicle, EVERYONE needs a place to live. As long as there are buildings in which to live, someone/some entity will own them. Given our current tax structure, even with zero appreciation (being inflation + X) it is advantageous to own vs. rent.
True, while when you rent, someone else takes care of the maintenance, taxes, etc., but it will always be covered by rental costs.
Think about it. If you own property, you're not going rent to people for a loss. You'll take the cost of the financing for the building, plus the cost of maintenance, taxes, etc, and pass it on to the renter. Even if the building is paid for, renters don't get to use your capital for free, right? If so, that will make other investments more attractive. You'll sell the building and place your money elsewhere. On a large scale, the disincentive to invest in housing, creates a shortage, driving prices up. Eventually equilibrium is found. That equilibrium is found at costs + a minimal profit.
Even if there is no appreciation in the price of housing, a 30 year mortgage will eventually be paid off. It then becomes an asset to be used yourself or passed on to your heirs.
Besides, there is a not a credit crunch going on. What is there is a liquidity crunch. There is still PLENTY of money to go around. The problem is that banks are suddenly unwilling to loan to certain people, due to fear of losing their principal. A liquidity crunch is a purely psychological barrier. But, banks will get over this. The very lifeblood of a bank is making loans, off which they make money. If they stop loaning money, they choke themselves.
My MIL is an high management officer at a national mortgage corporation. She has repeatedly told us that banks are still willing to loan money. The difference is that they won't loan to people whose only qualification is fogging a mirror.
You have some good ideas on regulation.
Think back to the same kind of mess 20 years ago with
the S&l crisis. Everybody was saying the same things
about Lincoln Savings and Charles Keating and his gang
of 6 senators including John McCain. Here we are back
in a financial mess because of the same reasons. Crooks
being aided by the corrupt and looking for a bailout.
Will the taxpayers never learn.
So far they haven't learned, and it didn't just start. Human beings are best at deception and stealth -- that would seem to be our evolutionary flower.
Who, exactly, will enforce all the wonderful reforms that have been proposed? The democrats?
Who will watch the watchers? Who will bell the cat?
Democracy on a large scale is unworkable -- it only seemed to work in North America for a couple of hundred years because a bunch of energetic immigrants came to these shores, which were unbelievably stocked by Nature with trees, oil, coal, fish, water power -- whatever -- that hadn't been destroyed by the natives. After they dispatched the natives, they grabbed the goodies -- there was no capital investment, and in the beginning the population was small, so there was a rough equality.
Equality is gone, the trees are gone, the coal is gone, the fish are gone, the iron ore is gone, the oil is gone, and soon the water and the air will be gone.
We must now live out the choices -- the ride could be interesting, because people are really imaginative and clever.
Or we can all wring our hands.
My vote is for getting to work and doing useful, interesting things. Relocalize, economize -- we know the mantra.
Human beings are best at deception and stealth -- that would seem to be our evolutionary flower.
Yessss!!!!! A side of effect of pretending to be monogamous which is a side effect of giving birth to helpless, premature by ape standard babies which require a family to raise. Which is a side effect of having huge heads that won't make it out otherwise.
Human females are the only great ape that don't have outward signs when they are menstrating. They don't want you to know it ain't your baby.
All of which is probably good evidence that human beings evolved for tribal, rather than for individual dominance. And that it really does take a village to raise a child. And that the hyper-individualism that underlies the global "market" economy (whether "capitalist" or "socialist") can not have any other trajectory than boom-and-bust and collapse back to villages. Over and over. There is nothing in human psychology or physiology that will allow for organization on a global scale-- air travel and Internet-speed communication simply exacerbates the problem and speeds up the cycles of boom and bust.
The prudentbear.com site mains a "drumbeat" of their own. If you've followed it, you would know that most of the large bankers did know what was going on was crazy, but were really powerless to act. Powerless is probably the wrong term. They joined the party because they knew these things can last for a very long time.
I've known for quite some time what was coming in creditville. I also know that like the internet bubble, which I said was going to explode in 1998, kept going for several more years. TOD prides itself on the knowledge that the oil is going to run out, yet for whatever reason, nothing is changing and won't until it does.
The MSM don't know what they're talking about, but the real rich guys certainly knew what they were doing and that it would probably end badly. Most of them are good at math, too, and can easily count the barrels.
These guys probably have a staff of peak oil guys watching very carefully. In fact, "Hi guys".
My point, which runs against yours, is that people do know what was and is going on. The phrase in this country is "you ride it until it bucks you". If a poor dumbass like me can figure it out, you know the KKR crowd is way ahead of us.
As I point out below, a number of people did know - and as you point out, some also chose to ride the wave. But, being inside a bank, I can tell you that most people around me - those that took business and credit decisions - did not think it was a bubble: 'that's just where the market is', and you do it, however insane, because others are doing it and if you don't you don't get your bonus at the end of the year.
"To make it simple: market psychology has flipped - from "prices will continue to go up" to "prices will no longer go up" - and thus the herd will stop buying. It doesn't really matter if it starts selling, or if it holds tight - buyers have become scarce (both because they suddenly don't think it's a good thing to buy, and because banks have stopped lending them money to do so - that's the credit crunch bit of the current crisis), and people don't expect prices to go up anymore. That, in itself, in enough to cool the markets. No expectations of quick gains and fewer buyers means, at the very best, stagnant markets."
What are you willing to bet on that paragraph? What are you betting on that paragraph?
If you are right you should be able to tell us exactly what will happen(will some small caveats).
If you are wrong you will just claim some other caveats. You will will never admit that you were completely wrong in your over simpliflication of events and overestimation of your own brilliance.
Your infallible brilliance is the reason you write, right?
Have you ever lost a bet? Made a bad trade? Would you ever take responsibility for people losing money on your advice? Would you ever consider paying them back?
Or are you just trying to make money. Cavorting as an expert?
An expert? Or a Strahan? Who knows as much about oil as he does about his elbow.
Notice the sentence after the one you bolded. because these Cassandras have been wrong for so long
Why have you been wrong for so long, Jerome? And why did you bold the sentence before but not that one. Strange. Not very introspective. I'd feel much better about following your advice if you had written 500 words about the phrase I bolded.
Ms. Ricci--
You're a hot bitch, I must say. Especially in Woody Allen's shittiest movie. Jesus...
You're right though, the Cassandras have been wrong for goddamn forever. "GO LONG." Hooyah! Oh wonderous replication and tabloid bullshit, go forth and comment.
Given that many people are going to end up living under overpasses in the pretty near future I'm willing to bet your under the bridge living skills will have you in demand in a consulting role. You don't appear to have any other skills or knowledge, unlike Jerome who is making quite the name for himself on both sides of the Atlantic.
"making quite the name for himself."
Yes I noticed. I work in Hollywood. We don't have skills or bridges. Where I come from all there is are names.
SacredCowTipper is pretty good. But how exactly does this help you? Am I missing something?
Are you still a fan of Ann Coulter?
I'm the Coulter fan. Christ, Christina, I mean really--judging from your titties I thought you were smarter than this. The only way I could love the woman more was if I was eighty-five, owned an O'Rielly Factor mug and Charlton Heston's Bible video box-set (I'm saving up.)
I guess I only need to wait 60 more years. Hopefully technology will have advanced by then so that Coulter will still be alive, so we can have nasty geriatric sex. By then they'll have digitally-enhanced-nano-Viagra, and we'll be screwing ourselves away from here to eternity.
I can't wait, this is going to be great--I'll even let you join in (to add a little youth to the old Coulter bush). Talk to you in sixty.
I've sold all the stock of the bank I'm working in that I'm allowed to, and put the cash on basic interest bearing accounts with several different banks.
I've been arguing for years against my wife's strong desire to own our home and thus we rent.
Is that enough for you?
Why I write is pretty much irrelevant, but, as you suggest, it's likely that I think I have relevant insights. What's maybe more interesting is why people would want to read me, and why people like the editors of the Oil Drum would want to have me on their front page. Do think about who exactly you're trying to insult when you're throwing out all these sharp words.
But have I, really? I've been writing about the housing market overvaluation since early 2005. Everything points to a top of the market in the second half of 2005, so I was not so far off. I've been writing about $100 oil since mid-2005. While we haven't reached that level, we're not that far off, and oil prices certainly have not gone down in the period, except temporarily. I haven't written much about the stock markets themselves.
And I'm not providing any advice. Just my personal opinion, based as much as I can do it on the facts I see around me.
Jerome
I have never been your biggest fan (there is perhaps something too much of the statist about your comments for my liking) but may I compliment you
a) on the above article
b) your forebearance in dealing with the above poster.
That response blew me away. Literally.
I wasn't trying to insult you. I was trying against all odds to get a response like that. I've become cynical I guess.
I have been a fan of yours for long time. Meaning I read you in the different forums.
You just gained a tremendous amount of respect from me. And I hope another 10,000 readers. Thank you.
Yup. I'm backing down. I'll even join your team. I don't know how you did it, but you did.
Thanks for your gracious reply. I do try to be as consistent and honest as possible, and I do try to read comments and to respond to those that either ask questions or critique my text. Questions, new info, criticism or skepticism are always welcome as far as I'm concerned. It may not change my mind each time, but it sometimes does - and it keeps me on my toes.
I guess the hard part is that it is easy to misunderstand the intent of what someone else writes on the basis on only written text, and thus it is prudent not to think the worst of commenters or writers from the start, but to try to go for the most innocuous intepretation of words or to ask for clarification first.
Anyway, I'm glad my response was helpful.
Jerome:
Thanks for your and Stoneleigh's insight into these issues. (And also thanks to Prof G for allowing review of financial hurricanes in addition to the other kind :-))
I find it hard to escape the conclusion we are headed for a US consumer lead recession that will do significant damage to the world economy and likely restructure international relations. I would appreciate any comment you care to make on the following.
1) The financial problems are just beginning. Most of the ARMs have one or two year teaser rates followed by a period of resets to rates as high as 12%. We are now at the front end of that reset period and are encountering significant issues. The storm is still building strength. It is likely to continue to build in strength over the next year. So the worst is yet to come.
2) Given the amount of leverage involved (up to 80 to 1 has been reported!!!) further institutional failures and bankruptcies appear unavoidable due to the destructive power of negative leverage. This is not a simple LTCM problem; this is LTCM times an order of magnitude. The storm is still growing and the full intensity of the storm is not yet completely known.
3) Given the way CDOs and other instruments were packaged and resold no one can be completely certain where this storm will make landfall. This uncertainty will poison western financial markets for a period of years. Just wait for the lawsuits!!
4) US financial policies have to this point been hugely stimulative. The US has benefited from a stream of cheap consumer imports, low cost migrant labour, zero recognition of emissions externalities, minimal recognition of infrastructure maintenance costs, free financing from the yen carry trade, reduction in tax rates, high levels of defense spending and a stream of foreign investment. If your nation depends on the kindness of others and you seek to escape your problems through devaluation then why should your lenders continue to lend? And if there are other currencies that offer equal security and greater returns then why not switch? I anticipate an exit from the dollar. US rates will need to rise to reflect a higher risk premium.
5a) The Fed can seek to reduce rates to provide succor to domestic entities but this will provoke further international flight from US assets, driving the dollar down and increasing the cost to US consumers. I think we can expect a return to the stagflation of the 1970's.
5b) The other alternative is for the Fed to run interest rates up to continue to attract the billions in financing required daily. The question here is what level of risk premium is required and how will that impact the domestic economy?
5c) In an integrated world economy, if the Americans catch a cold then everybody sneezes. Why accept such a situation? Would not the Dubai Bourse profit if America weakened? If America's factories are in China, her software engineers and call centers are in India, her fuel in Arabia and Africa, what does America contribute to world apart from haircuts, shoe repair, and financial legerdemain? Why is our money being invested in negative returns in America when we could obtain positive returns elsewhere? Why put up with intrusive American apparatchiks who first borrow our money and then try and tell us what we can, or cannot do? Why put up with this "system?" Why not recast it to better suit our needs? If they are not already doing it I suspect there are legions of people currently asking these questions. Few of them are Americans.
Not much to comment on - you're spot on. I expect a crash of the dollar, or some nasty upwards increase in interest rates (those set by the bond markets, not those that the Fed can influence) - or both. Either way, it's highly likely, in my view, to be nasty.
But as to your question in 5c), just look at how Europe is behaving. Too many just cannot imagine a world where the USA are no longer 'the good guys'. Americans are supposed to be the optimistic, dynamic version of Europeans, and dumping that ideal is just not thinkable.
I think Christina Ricci bears an amazing resemblance to our troll buddy Oil CEO, who was banned from TOD because of his late night craziness
Are you Oil CEO ?
Bob Ebersole
[because these Cassandras have been wrong for so long. Why have you been wrong for so long]
I realize you changed positions later in the thread, but this argument comes up constantly in the peak oil debate--why should we listen to the doomsayers (or even those not that negative) when none of their terrible predictions has come true? Suppose someone were building a house of cards and I say stop because it is going to collapse, and they keep building and it doesn't immediately collapse. This happens several times, and the house of cards hasn't collapsed. Is it reasonable to then assume that it will never collapse and the person could continue building it forever? Obviously not, but people argue the same way because past predictions of failure of our unsustainable systems, whether oil, housing prices, evergrowing economies, greenhouse gases, increasing mortgages, or whatever, haven't yet come true.
Bond Rating Agencies to be Investigated by US & EU
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/18/AR200708...
Best Hopes (?) for Integrity
Alan
The bond raters get paid for showing up after the battle has been fought and baynetting the wounded.
Jerome’s understanding of the credit crisis appears to be accurate to me. However, the solution he offers is as naive as his analysis is penetrating.
“Unless we have a coherent alternative economic discourse on the crisis - that of strict regulation of the financial world (real regulation, not the busybody but pretend kind like we have right now) ....”
The problem with this idea, as a solution, is Eddie Sutton, famous robber of banks (who, upon being asked why he robbed them, answered: “that’s where the money is”).
The world has a supply of Eddie-Suttons, some of whom are smart. They go where the money is. In order to block their access money, you have to give real power to somebody, usually a bureaucrat. (In Jerome’s formula “real regulation” = real power.)
But the matter does not end there. The smart Eddie-Suttons of the world figure out instantly where the power lies, and use their brains and their lack of moral constraint to gain access to it. Then they use their newly acquired power to get to the money, or to get what they wanted the money for.
In other words, the problem is deeper than institutional design.
In fact, the politics of “institutional design,” now well over 350 years old (counting from the triennial act of 1643, the first real institutional constraint placed upon royal authority, in England), has about played itself out. Now we are in a different drama, although the vocabulary we use to understand the new drama comes from the old one
You certainly flag a legitimate (and, as you point out, not new) problem, to which there is no easy solution.
Reinstating Glass-Steagall would be a start. Imposing some sort of personal liability for bankers in a position to decide transactions might be another solution that would help concentrate minds. But yes, as you point out, the smart money will find ways around it.
Which points us, inevitably, to the role of tax havens - the main advantage of which is lower regulation, not just lower taxes. the aftermath of 9/11 would have been an ideal time to clean up that world, but the crowd in the WH certainly had other priorities...
CNNMoney.com has been conducting a poll asking "Is the worst of the stock market sell-off over?"
46% of those responding, by far the largest category, seem to agree with Jerome. Their answer: "NO WAY!"