patrick.net

economies are like bears on unicycles

For those old enough to have taken #2 pencil & paper SAT(AT)'s:

Bears are to Economies as __________ are to Governments.

Why does this feel like a MENSA moment?

I'll go for 'Patty Hearst', Randy.

libertarian syndicalists

(I know that's an oxymoron, but who even knows what syndicalism is anymore?)

justme, RE: Greenspan purposely turning us into landless peons

Per Voltaire, "If God did not exist, it would be necessary to invent him." *

People will invent vast conspiracies because they need structure to feel safe. It is more comfortable for many to believe that Alan Greenspan heads a secret new world order than to believe the obvious uncomfortable truth----that he was a man with little more insight into the future than other brilliant people, which is to say that he had none, in control of vast sums of money with which he could exert only marginal control over a huge economy that is at best imperfectly understood.

I seriously doubt that Greenspan was trying to create a real estate bubble. That is backwards-looking attribution on our part. The guy was trying to stop the economy from stalling after the tech bust, and the best way to spur investment is to inject liquidity. And to his credit, the economy did not go into a major recession. This real estate bubble is a secondary unintended consequence of the cheap money. Maybe Greenspan could foresee this result, probably not, but I would inject the liquidity no matter what, because I would take a housing bubble over a serious recession any day.

Sorry folks, we regret to inform you that there is no one flying this plane... :)

btw, I say this having had long conversations with upper managers in charge of divisions making hundreds of millions in revenue per year. Their visibility into the future is only marginally better than your own, mostly because they have some additional information. The truth is that you can steer the objectives, and sometimes you're right, sometimes wrong, but you can rarely control the secondary effects. And unfortunately at that level of power, the secondary effects can cause huge disruptions to the lives of your employees. In Greenspan's case, his span of control was so vast that he accidentally minted legions of millionaires and bankrupted tens of thousands on a monthly basis.

* I am indeed a Christian, but Voltaire's statement about human psychology still holds truth.

Bears are to Economies as __________ are to Governments.

I'm pretty sure that the Bulls would answer "Terrorists". :o

Yes indeed, sounds familiar Space Ace. Like the topic a few threads back "September 12, 2037", it frickin' blows me away. So eerie to see rhetoric repeating itself. So eerie I was thinking that post was a belated April Fool's joke.

Assuming you were in or around the South Bay then (I was not), was the mania as prevalent then leading up to '89? I mean, were people hocking their first born to get into a house, taking 103% loans? Did NINJA loans or HELOC's even exist then?

I believe back then interest on all debts was tax deductible, not just today's last bastion of mortgage interest. And from what I've read, that decline took about 6 years. I'm just trying to get an idea of what is different this time around. And not so much the economics of it, which is no small factor, but more the psychology and culture surrounding RE. I think that's the underlying theme in HARM's post anyway.

Extra points to any respondents who use the word of the day: frickin'

I mean, were people hocking their first born to get into a house, taking 103% loans? Did NINJA loans or HELOC’s even exist then?

yes... actually as little as 3%...would get you in....so 97% was typical
and so was specultion... where people sold a mega losses...
as well as "everyone wants to live here"... which they finally moved out
and well paid jobs which disappeared for both renters and homeowners
and "great weather"...
and "prices will go up because places like SF and SV are land locked"

and all the other nonsense we hear today...

I just laught and tell them the history...

"I believe back then interest on all debts was tax deductible, not just today’s last bastion of mortgage interest."

Up to 1986 ... The Tax reform act of 1986 changed all that.

http://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986

:)

This song fits the zaniness of the housing bubble:

http://www.youtube.com/watch?v=ZfqN0wupduI

Fake transisper light...la, la-la, la-la.

Fake transisper light...la, la-la, la-la...

Capital gains tax is a thing of the past. We should just abolish it to simplify the tax code.

Justme -
No! Actually tax reform act lowered the
rates from 50% down to 38%.

Had no impact on recession of 1991.

Justme -
No! Actually tax reform act lowered the
rates from 50% down to 38%.

Had no impact on recession of 1991.

http://en.wikipedia.org/wiki/Late_1980s_recession

Ok I see your point ... you may also consider the 33% crash in 1987 as a start for speculation out of the equity market and into housing market just like the 2000-01 Nas crash !!! :)

I prefer the 88/89 nightclub scene in LA/SF .. wow!!
them was the days...
You just see girls wearing mini-skirts
anymore like that ....

I think we agree on what the Fed’s goal is. Just a few threads ago, I stated that the objective of the Fed is and always has been to maximize asset inflation under the constraint that inflation of consumables must be kept in check.

Great minds think alike, I guess. :)

Though I actually agree more with Brand that this was an unintentional side effect of trying to keep us out of a recession. But the point I am trying to make is that our current economic conditions exacerbate that effect. I guess another way of thinking about it is that there is a surplus of cheap labor in the world right now, so of course the retuns on capital are higher. Maybe there is nothing that can be done about that, short of protectionism, which would be even worse in the long run.

Which thread was this brought up in farside?

Peter you said,

PAR, the rich will always get richer. It is NOT a new paradigm.

This means that no matter how you redistribute wealth, the same group will become rich in no time.

I know your ideology tends you to believe this, but you don't *really* believe this do you? Even under, say, feudalism?

Thanks Muggy, but I'm not sure how well a "techno-finance" thriller would sell, or be thrilling. One Neal Stephenson is probably enough. And he can write, whereas I have a bad tendency for starting sentences with conjunctions.

German designs are even more durable than German cars.

Jimbo says: But the point I am trying to make is that our current economic conditions exacerbate that effect. I guess another way of thinking about it is that there is a surplus of cheap labor in the world right now, so of course the retuns on capital are higher. Maybe there is nothing that can be done about that, short of protectionism, which would be even worse in the long run.

There is nothing that the FED or the government can do about globalism. If we want to remain a world power, we must do two things. At a government level, we need to borrow a lot less and spend a lot less. On a personal level, we need to kick our consumer addictions to cheap electronics, clothes and other material goods. That's really where this thread has been going.

Look at China. Their savings rate is phenomenal, somewhere in the 40-50% range. You don't see them taking HELOCs to buy a damn Lexus or a second plasma screen TV. We need to return the U.S. to its economic roots---owning permanent productive resources like farms, timber land, mines and water. We should invest in companies that produce goods wanted elsewhere in the world, even as we reduce our own consumer tendencies. The U.S. has such influence in the world that if we reversed the trade deficit for a couple years, the effect would be tremendous.

Very nice synthesis Brand. I don't tend to say much when I agree, not much point to a "me too" post but yes, we seem to have lost our economic moorings. Someone will end up paying for this but unfortunately it probably won't be the ones responsible.

Let's speculate that the people who pay for it will be Gen X and onwards. It's not too late to get our act together, both personally and in government. Everybody has a vote.

A depression is clearly very possible. Not a certainty but it won't take much more to set it off. I have just driven across NM and I can tell you that most large parcels are for sale, and we saw REAL modern ghost towns.

justme: Was Greenspan looking out for Wall Street specifically, or the firms that American stocks represent? I think it's pretty easy for most investment teams to have a stellar day with this much liquidity sloshing around.

Perhaps a question for Randy H---is the stock market going to reverse its gains when the cheap money dries up? Do liquidity booms tend to stabilize at certain levels, or eventually retract?

Malcom: That's New Mexico. Who would want to buy huge parcels out in the middle of the desert? If it were huge parcels near populated areas, then I would be more curious.

I've wondered, was Albuquerque a real estate boom town? I heard it was going even crazier than Phoenix. It was going to be the next Silly Con Valley, according to certain publications.

LowlySmartRenter,

If you stick around long enough you will see everything discussed multiple times. There is really only so much you can say about real estate and watching the "bubble" collapse is liking watching paint dry.

Add to the fact that some of us seem to have Early Onset Alzheimers and can't remember that we already talked about something a short while back. :-D

We could always fall back on our default discussion, which is food. Find any good new sushi places Peter?

I want to talk about NYT's wedding announcement sections.

How about posting wedding announcements here and then have people predict the kind of house the couple will buy/rent/inherit.

How about posting wedding announcements here and then have people predict the kind of house the couple will buy/rent/inherit.

That would be interesting.

We could always fall back on our default discussion, which is food. Find any good new sushi places Peter?

There are a few new places in the Mountain View / Sunnyvale area. :)

I know your ideology tends you to believe this, but you don’t *really* believe this do you? Even under, say, feudalism?

I really do think so.

However, we should care only about our own standard of living, right? I do not care if rich people start having private space shuttles. So long as we are all moving forward, it is fine if our speeds are different.

http://www.02138mag.com/tribe/loves/1077.html

"Emily Sweeney and Lauralee Summer A.B. ’98...Lauralee is a high school English teacher who grew up on both coasts, as well as the author of the memoir Learning Joy from Dogs Without Collars (Simon & Schuster)...They knew things were different when Emily noticed that Lauralee was "well-spoken" and "really confident. I realized I had a crush on her.""

Perhaps an urban loft.

I doubt they can afford it by themselves, but maybe Ms. Harvard '98 has a rich daddy.

To balance things out: http://en.wikipedia.org/wiki/Divorce_Court

Huh?

The girl in this blogs main picture could not look more happy.
She is debt free and riding in a convertable. What could be better?

It's kinda funny knowing that she is getting paid to give the most happiest facial expression she can muster and she is doing it quite well.

I only wish the pic included more cleavage, but that's just me. Then again, it would distract me from the main happy concept. I would get caught up in thinking about how nice her boobs would look if she would suddenly strip off her shirt and throw it up in the air. How's that for a mental image.
She's debt free and completely liberated. Let's see um shake baby. Yeah!!

i am going to thailand in 4 weeks. I will spend my summer in asia again, i hope my fudging roommates deposit all the rent they are supposed to while i am gone, and feed my dog :-) bangkok and shanghai have even worse realestate bubbles then here. You can rent a nice apartment conveniently located near skytrain (public transit) with maid service cable tv ect for 600 a month (short time... much cheaper if your staying a year), but buy a condo there is almost as much as phoenix.... go figure. shanghai is even worse... last time i stayed in a small but clean hotel for a month, only cost about 600 a month and the bed made, room cleaned every day, but an ok 2 bedroom condo would set me back well over 100thousand us...mind you that was a hotel; if i wanted a one year lease and had somebody chinese negotiate i could easily find an apartment for $400... the whole world has gone crazy... one girl i know in shanghai bought an apartment as an investment; but she doesn't rent it out because the rent would be so small its not worth the trouble... then why was the apartment so expensive? cause it will go up!!! go figure! I own 2 homes in phoenix, one is paid off, the other will be next year... I am kinda voting for the bubble/collaps; maybe i will kick myself for not selling at least one of the homes but what do i really care as long as they are rented? and rents seem to be going up at least where i am not out on the overbuilt fringes...

Look at China. Their savings rate is phenomenal, somewhere in the 40-50% range. You don’t see them taking HELOCs to buy a damn Lexus or a second plasma screen TV. We need to return the U.S. to its economic roots—owning permanent productive resources like farms, timber land, mines and water.

For now.

It's because all of the consumption of their output happens here, in our country. So, they can thank Walmart and us.

The powers that be have decided there that consumption is the best way to improve their nation! They're encouraging the build up of massive car production for internal consumption - and they expect that to lead to massive economic growth. Kinda like us in 1950's, sprawl, traffic, Pier 1, etc.

Give them about 65 years - they'll be screwed too.

It's because all of the consumprion of their output happens here, in our country.

I've seen this statement or ones with similar wording many times over the past few years and think it would be useful to know in better detail to what extent it's true.

There are others here far better qualified than I am to comment, but the last figure I saw cited for Chinese export to the US was 2005 when we made up something like 17% of their export trade. If that's correct - I can't find the citation now - we are far from being China's sole trading partner while at the same time remaining very important to them.

China has signalled a desire to diversify their investing to include non dollar denominated assets and have recently taken the steps necessary to act upon that intention. Though they have not said so explicitly, I have the impression they will continue to acquire US treasuries in quantities sufficient to avoid blame for triggering any significant upsets here.

I think it's pretty clear they wish to continue to encourage a brisk trade with the US marketplace at least as long as we continue to be an active market, but also and at the same time to protect themselves in the event trade with the US should begin to sour. In their position, I'd do the same.