patrick.net

As for "being angry" at sellers who won't drop their price...

It's not anger so much as frustration. It is frustrating because it is not an action without consequence. The realtor's common practice of "market comps" is polluted with all this false inventory of wishing-price homes. It's very hard as a seller to willingly undercut a dozen comps by $300K (as in our seller's example from the article). The seller may know their price is too high, but price discovery mechanisms aren't working, so they're rightfully worried they might be leaving too much on the table at $300K down. Maybe they'll only go $50K down instead, and see how that hangs. Then, when that doesn't move, they get frustrated and delist. It could well have been that in a more fluid market they would have been more psychologically accepting of a price closer to market-clearing.

Also, the "market sorts itself out" arguments are flawed. Markets do not ever sort themselves out in the face of government intervention. This situation is inviting -- no ensuring -- intense government intervention.

Martin Wolf, Today's FT. Read it if you haven't.

Randy H Says:

> Isn’t fear of death enough? That’s what I don’t get. I would
> think seniors would eventually, as FAB proposes, want to
> get out of their houses sooner than later because they have
> a limited amount of “later” left in their lives.

I think there is a big difference between the many “Boomers ® ” who planned on using home equity to fund their retirement and older people (like my parents in their 70’s) who don’t ever plan on cashing out. I know that if someone gave my parents (or most of their friends) $5 million tomorrow that their lives would not change (my Dad would probably give it all to charity) while most Boomers ® would spend it all…

The rescue of Bear Stearns marks liberalisation’s limit
By Martin Wolf

Published: March 25 2008 19:06 | Last updated: March 25 2008 19:06

Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Josef Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

EDITOR’S CHOICE
Economists’ forum - Nov-16
Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com
Mine is not a judgment on whether the Fed was right to rescue Bear Stearns from bankruptcy. I do not know whether the risks justified the decisions not only to act as lender of last resort to an investment bank but to take credit risk on the Fed’s books. But the officials involved are serious people. They must have had reasons for their decisions. They can surely point to the dangers of the times – a crisis that Alan Greenspan, former chairman of the Federal Reserve, calls “the most wrenching since the end of the second world war” – and the role of Bear Stearns in these fragile markets.

Mine is more a judgment on the implications of the Fed’s decision. Put simply, Bear Stearns was deemed too systemically important to fail. This view was, it is true, reached in haste, at a time of crisis. But times of crisis are when new functions emerge, notably the practices associated with the lender-of-last-resort function of central banks, in the 19th century.

The implications of this decision are evident: there will have to be far greater regulation of such institutions. The Fed has provided a valuable form of insurance to the investment banks. Indeed, that is already evident from what has happened in the stock market since the rescue: the other big investment banks have enjoyed sizeable jumps in their share prices (see chart below). This is moral hazard made visible. The Fed decided that a money market “strike” against investment banks is the equivalent of a run on deposits in a commercial bank. It concluded that it must, for this reason, open the monetary spigots in favour of such institutions. Greater regulation must be on the way.

The lobbies of Wall Street will, it is true, resist onerous regulation of capital requirements or liquidity, after this crisis is over. They may succeed. But, intellectually, their position is now untenable. Systemically important institutions must pay for any official protection they receive. Their ability to enjoy the upside on the risks they run, while shifting parts of the downside on to society at large, must be restricted. This is not just a matter of simple justice (although it is that, too). It is also a matter of efficiency. An unregulated, but subsidised, casino will not allocate resources well. Moreover, that subsidisation does not now apply only to shareholders, but to all creditors. Its effect is to make the costs of funds unreasonably cheap. These grossly misaligned incentives must be tackled.

I greatly regret the fact that the Fed thought it necessary to take this step. Once upon a time, I had hoped that securitisation would shift a substantial part of the risk-bearing outside the regulated banking system, where governments would no longer need to intervene. That has proved a delusion. A vast amount of risky, if not downright fraudulent, lending, promoted by equally risky finance, has made securitised markets highly risky. This has damaged institutions, notably Bear Stearns, that operated intensively in these markets.

Yet the extension of the Fed’s safety net to investment banks is not the only reason this crisis must mark a turning-point in attitudes to financial liberalisation. So, too, is the mess in the US (and perhaps quite soon several other developed countries’) housing markets. Ben Bernanke, Fed chairman, famously understated, described much of the subprime mortgage lending of recent years as “neither responsible nor prudent” in a speech whose details make one’s hair stand on end.* This is Fed-speak for “criminal and crazy”. Again, this must not happen again, particularly since the losses imposed on the financial system by such lending could yet prove enormous. The collapse in house prices, rising defaults and foreclosures will affect millions of voters. Politicians will not ignore their plight, even if the result is a costly bail-out of the imprudent. But the aftermath will surely be much more regulation than today’s.

If the US itself has passed the high water mark of financial deregulation, this will have wide global implications. Until recently, it was possible to tell the Chinese, the Indians or those who suffered significant financial crises in the past two decades that there existed a financial system both free and robust. That is the case no longer. It will be hard, indeed, to persuade such countries that the market failures revealed in the US and other high-income countries are not a dire warning. If the US, with its vast experience and resources, was unable to avoid these traps, why, they will ask, should we expect to do better?

These longer-term implications for attitudes to deregulated financial markets are far from the only reason the present turmoil is so significant. We still have to get through the immediate crisis. A collapse in financial profits (so significant in the US economy), a house-price crash and a big rise in commodity prices are a combination likely to generate a long and deep recession. To tackle this danger the Fed has already slashed short-term rates to 2.25 per cent. Meanwhile, the Fed also clearly risks a global flight from dollar- denominated liabilities and a resurgence in inflation. It is hard to see a reason for yields on long-term Treasuries being so low, other than a desire to hold the liabilities of the US Treasury, safest issuer of dollar- denominated securities.

“Some say the world will end in fire, Some say in ice.” Harvard’s Kenneth Rogoff recently quoted Robert Frost’s words in describing the dangers of financial ruin (fire) and inflation (ice) confronting us.** These are perilous times. They are also historic times. The US is showing the limits of deregulation. Managing this unavoidable shift, without throwing away what has been gained in the past three decades, is a huge challenge. So is getting through the deleveraging ahead in anything like one piece. But we must start in the right place, by recognising that even the recent past is a foreign country.

Someone Says:

> Honestly, if renting makes more sense then rent, when it
> makes sense to buy then buy. I don’t get the emotionalism
> on either side.

Then HARM Says:

> Because, a house isn’t just house. It’s the Amerikan Dream.
> And becoming a Loanowner confers higher social status.
> People will listen to you and respect your opinions, even
> on matters you clearly know nothing about. Renters, OTH,
> are permanently relegated to second-class citizenship, and
> must forever taste the bitter fruit of mortgage-envy.

HARM is correct that a large number of Americans feel that they “need” to own a home (just like they feel that they “need” to own a nice car or designer clothes). I was once one of those people… As a poor kid growing up around rich people I tried to fit in with fancy cars and fancy clothes, but it was about the time that I sold my Home in Burlingame (in my late 30’s) when I realized that I had about $1mm in liquid assets that I didn’t care any more… My fiancée was a rich kid that grew up in a rich area and never felt the need to fit in with fancy clothes or cars (her car is worth less than her bike and her most recent clothing purchase was at the Colma Target). We don’t have any mortgage envy and don’t feel like “second-class citizens” since we can buy 90% of the homes in the Bay Area for cash…

I saw that guy in the DB9 a couple weeks ago heading up HWY1 towards Stintson. Only this time he had a beautiful woman riding shotgun. I swear that's gotta be you FAB. I usually see him driving down Bay St. in the City.

Randy said
"Also, the “market sorts itself out” arguments are flawed. Markets do not ever sort themselves out in the face of government intervention. This situation is inviting — no ensuring — intense government intervention."

I wanted to comment on this very thing as well. Why would someone lower the price if they think a mandated mortgage reduction is coming? I totally agree that just the perception of government intervention is affecting the market, so I say wait 'em out. You buyers can do a German type siege on the market and starve 'em, and hey in this case waiting for the winter will work for you.

Surfer, Dennis is a good guy.

Randy H Says:

> I saw that guy in the DB9 a couple weeks ago heading
> up HWY1 towards Stintson. Only this time he had a beautiful
> woman riding shotgun. I swear that’s gotta be you FAB.
> I usually see him driving down Bay St. in the City.

I have a lot of friends with family beach houses in Seadrift, but I usually take Pano Hwy rather than Hwy 1 over the hill). I may end up with a DB9 or Vantage Volante some day (Bob Cole let me drive a DB9s from Sears Point to Sonoma a few years back), but I have no plans to replace my aging 2001 996 Cabrio (or my beautiful fiancée) any time soon. If I did buy a new car I would probably buy an older BMW like the one in the link below before I got a late model AM.
http://www.renestaud.com/shop/en/art-prints/bmw/bmw-1600-convertible-p-192.html

>>Surfer, Dennis is a good guy.

I didn't get this particular surfer-x rant, either. What is this all about? I think Dennis has been very much an upstanding contributor.

I think Dennis has been very much an upstanding contributor.

Yep. Perhaps Surfer got into a fresh anti-boomer mode?

NVR,

I think WSJ advocating demolishing "surplus" housing is an abomination.
This is the most perverse idea I have encountered in a long time. Shame on WSJ and their ilk.

Keep in mind that surplus is defined as "cannot be sold at peak prices".

WSJ is literally saying: You damn peons, if you will not buy houses at the inflated peak bubble prices, we shall burn them down. That ought to teach you peons a lesson. No house for you!

What happened to the "free market"? Oh, that's right. The free market applies only when advantageous to the ruling class of capitalism.

Phew.

The joke's on surfer-x.....I'm not married.

What happened to the “free market”? Oh, that’s right. The free market applies only when advantageous to the ruling class of capitalism.

Obviously, that is a perverted version of a "free" market. I call it Capital-socialism.

People are just too eager to "solve" economic problems. Sometimes, problems are best solved by themselves.

Nature definitely solves its own problem.

Peter P Says:
March 26th, 2008 at 10:18 pm
"Yep. Perhaps Surfer got into a fresh anti-boomer mode?"

He was probably agitated at work by some boomer coworker encroaching in his space or apropriating something of his because he didn't write his name on his lunch or stapler. Dennis might have made a pro Hillary remark at the wrong time, it happens. After a day like that, the last thing someone who works hard to make a little bread wants to hear is a Hillary (take my wealth, please) supporter rooting for him to have to spend even more time at that job to take home the same amount.

Not taking sides, just commenting.

DennisN Says:
March 26th, 2008 at 10:24 pm
"The joke’s on surfer-x…..I’m not married."

Come on, how can you be a successful boomer and not have a trophy wife?

Dennis might have made a pro Hillary remark at the wrong time, it happens.

Huh?

@Surfer-X,

Please save the hate (sweet, sweet hate... mmm...) for a deserving target. Like Lawrence Yun, or HeliBen or Tan Man. What did DennisN say anyway?

@justme,

Spot on, man.

Kind of reminds me of that part in Grapes of Wrath when the farmers literally piled up heaps of food, doused it in kerosene and set fire to it --while the Joads and other starving people looked on. All for the sole purpose of propping up food prices. "Oh, sure, you're starving and badly in need of some food, but, hey, I could lose money if I 'just give it away'!

There's the classic Boomer ethos right there.

Kidding.

No you're not ;-)

I can't imagine myself making a "pro-Hillary remark". Right now I'm not all that thrilled with any of the remaining candiates. At least Hillary isn't as far-out leftist as that Irishman O'Bama.

Hey Ayn Coulter has come out for Hillary over McCain, and you can't exactly call her a leftist.

I wish it wasn't Dennis as the target because like Harm I would have really enjoyed seeing a real jerk be on the receiving end of that.

All for the sole purpose of propping up food prices.

That is anti-market.

There’s the classic Boomer ethos right there.

Everybody needs food, but renters can choose to remain jealous and bitter. :)

Right now I’m not all that thrilled with any of the remaining candiates.

The next four years are going to be interesting anyway.

HARM and NVR,

I went over and posted a comment on WSJ with roughly the same content as I did here. Let's see if it gets through censorship, errr, I mean, "moderation".

That is unbelieveable. What is it about him that the die hard Republicans hate so much? Even Nancy Reagan the other day said, he was the last Republican in the race so she was backing him, like she was wishing it was anyone else.

There is no way that Obama is further left than Hillary.

The Bank is something more than men, I tell you. It's the monster. Men made it, but they can't control it.

-- The Grapes of Wrath

We have made progress since Steinbeck's times. Now we have the Federal Reserve and its fleet of liquidity helicopters.

There is no way that Obama is further left than Hillary.

How so?

Peter P,

As you know, the problem is that 99.9....% of the people that fashion themselves as "the noble capitalist" really are socio-capitalists, to twist your word just a little. Quite a few of them have an even more extreme form of the decease, they are sociopath-capitalists.

Well I would think the word "hate" is a little strong for my feelings about McCain. I'm a libertarian-conservative, not a social-conservative. The problem with McCain is that his approach to bi-partisanship is to just give in to the other side. The McCain-Feingold law completely disrespects the 1st Amendment, even though it got sort-of a pass from the Supremes.

In general Senators without any executive experience are less-attractive candidates for President.

According to Derbyshire over at the National Review, after Hillary and Obama beat each other up Al Gore will emerge as the Democrat candidate and go on to win the Presidency.

DennisN,

Funny one about Conan O'Bama.

According to Derbyshire over at the National Review, after Hillary and Obama beat each other up Al Gore will emerge as the Democrat candidate and go on to win the Presidency.

Huh? We are free from the Religion of "Global Warming," right?

Hopefully the Supreme Court will soon rule that religious thoughts such as hypothetical pseudo-scientific convenient fictions shall not be taught in public schools.

Did you ever check out the climate-change blog over at NRO?

http://planetgore.nationalreview.com/

I will take a look...

I am not denying climate change. Nature is about changes. However, blaming "global warming" on CO2 emission is just weird.

I speculate that climate change is caused by solar activities. We can do nothing about it. Yep, sea-level is going to rise and our toes will get wet.

Brilliant!

If Kyoto Protocol is about free trade of Kobe beef I am all for it. :)

As a poor kid growing up around rich people I tried to fit in with fancy cars and fancy clothes...

Oh, c'mon FAB, you were never poor. Middle class around a bunch of rich kids I believe, but how many times did you have the Sheriff throw your family out of the apartment you were living in while you were growing up? How many different trailer parks have you lived in?

Here's Derb's most recent piece about Al Gore.

http://article.nationalreview.com/?q=MWQxY2Q2ZWRmZGRkMDYwNzU1ZWQxMGU4YzY5ODY1YTQ=

Note: Idaho is the top producer of Kobe beef in the US.

Peter P and DennisN,

Let's get down to fundamentals about global warming. The below article in Wikipedia describes the greenhouse effect:

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

The greenhouse effect (trapping of incoming solar heat by so-called greenhouse gases, which include CO2) is the basic mechanism of global warming. The change in one input parameter (concentration of CO2 in the atmosphere) is the deemed the reason for global warming.

My question is: Do believe that the greenhouse effect is real, and if not, why not?