patrick.net

So Greenspan had a faulty idelology. Who could have guessed?

Its comforting to know that Alan Greenspan is apparently less intelligent re: financial matters than a bunch of random IT dorks running housing blogs.

I don't really feel that Greenspan was to blame. If you want to argue for not having a central bank at all, then you might have a good point. But if you DO have a central bank that controls interest rates, then Greenspans model actually wasn't that ridiculous.

Note that low interest rates DID NOT cause the problem we're in. The problem was caused by fraud on many levels of our financial system. The banks thought they found a way to game the system, and they did, until they sucked all the marrow out of America. Now that the bone is dry, we're experiencing the after affects.

His biggest mistake was underestimating the animal nature of man. Which, really, we're all guilty of. Except Peter P of course.

It will be interesting to see how this affects research and academia in general. There will be less endowment income to pay for the programs and less to reinvest.

The UC already froze wages for the year.

Beyond that Uni endowments are notoriously conservative. They are also absolutely enormous these days. Stanford and Princeton are basically free if you come from a needy family.

FuzzyMath Wrote : I don’t really feel that Greenspan was to blame.

Its unbelievable you still believe that !!

Greenspan's fault was that he could not figure out the biggest asset bubble in history that was taking place. He was in the field for 40 years. His brain has to be pea sized to miss that.The ideology that greenspan followed was that asset bubbles matter little when it comes to fiscal policy even though the bubble is big and is hitting you on the face.

Don't get me wrong snmr, his hands are not clean. He had a flaw in his model. But really, who doesn't?

I'm sure there are bigger flaws in our amateur models.

Greenspan made a mistake. The banks committed fraud. There is a very important difference there.

FuzzyMath wrote : Greenspan made a mistake. The banks committed fraud. There is a very important difference there.

It would be a fraud if he did it on purpose to remotely benefit him or his pals or his wife or his relatives.

It premature to assume that he just committed a mistake and not a fraud. I would hold him guilty until proven innocent (which i generally do with all high office positions :-) )

Its frustrating to see the gurus blaming the average Joe for causing the bubble by buying unaffordable houses.
You cannot blame joe because joe is personification of human nature. human nature didn't change during the bubble and will not change ever....period. Trying to change average joe is like trying to change all the millions of years of evolution. BTW, Average joe's memory fades every bubble year(TM) so good luck with financial awareness programs.

Bubble year - The time it takes for a bubble to form and pop.

Joe's hands are clean. He might have made a bad financial decision, but he's also going to lose his house and most of his money.

Like he was supposed to be aware that there were millions of other Joe's who were making the same financial mistake at the same time, thereby causing a financial crisis? Give me a break.

The banks gambled, they lost. Simple story. Should have been a simple ending.

>>Don’t get me wrong snmr, his hands are not clean. He had a flaw in his model

Green-san had a flaw in his model? I think the problem was that he thought he did not need any model, because the free market would automagically take care of everything.

Greenspan is a joke. He is a free marketeer that nevertheless believes in regulating the interest rate. The guy is a walking (oxy)moron.

justme:

OK. Where to begin...
I would be truly interested in seeing an example or two of your ever-changing-coalition multiparty system that lasted more than an election cycle. (or even a year.)

I would be very interested in knowing what your criteria are for judging one governmental system "better" than another.

Europeans were able to move quickly because a great deal more power is vested in their President's/Chancellor's/PM's hands than in the US President's. You want we should give GWB that much more power? Me neither. Nor BHO. Nor JSM. Quick movement doesn't correlate to wise movement. "Democratic" passions poisoned Socrates.

"Mini-party" is not meant to be perjorative: simply a way of talking about parties that fall below the, say, 25% threshold of stated support. Most times these days, neither Republican nor Democrat self-identification rises much beyond 35% in the US.

Anybody can start a party in the US. All you need do is convince about 150,000 of your neighbors in your congressional district, and you, too, can have a seat in the House. Not even a 5% demarcation line, more like .06%. Have at it, my friend. Oh, sorry, I see: You want to automatically get handed a seat or ten because you can scrape together 4 million (abt 5% of voters) or so other like-minded folks scattered all around the country? Proportional representation, eh? And that is better why? Because that is the only way your out-of-the-mainstream views could possibly get into Congress perhaps?

Is it time for a new thread?

Note that today stock futures hit the 500 point drop limit hours before the opening bell, AND gold dipped below 700.

One theory I heard is hat the hedge funds lined up this morning to drop stocks. If so, I wonder where they put the cash? Not gold, it seems.

Strong dollar, anyone?

Malcolm:
Yes please. This is comment number 338.

Headset:
love CNN's Commodities headlines:
The Old: Oil rises on expected OPEC cut
Just below this one...
The New: OPEC cuts production, oil sinks

you'd think they'd know about editors...

MST

LOL!

One theory I heard is hat the hedge funds lined up this morning to drop stocks. If so, I wonder where they put the cash? Not gold, it seems.

My theory is that there is some behind-the-scenes action going on to cripple the rest of the worlds markets in order to save ours. I'm imaging something like an orchestrated dumping of foreign equities alongside mass short-selling.

Once we squeeze liquidity out of the foreign markets, we dump it into domestic indexes. A huge stock market surge along with a strong dollar will pull whatever capital is left over into domestic equities.

Ain't capitalism grand?

Headset, BTW:

One theory I heard is hat the hedge funds lined up this morning to drop stocks.

Take it from me (inside a Hedge Fund, but just on the IT side) it's not a simple matter to "drop stocks" or particularly any of the more exotic instruments: You also have to find Buyers. With Cash. And cashing out can have two explanations: either the managers think it's a good idea to go cash strong right then, or the investors want out, and have asked for redemptions so they can strengthen their cash positions. Also look at volume figures. Low volume + low prices still equate to cash poor, which means deflationary which means strong relative dollar. And, as well, look at fundamentals: are we actually down to decent P/E ratios for Corps. That would be deflationary, too.

What a scary day.
The scariest by far is that Russia is on the watch list for another bond default. You would think that their petro dollars would provide cover. sadly, the capital flight is, in fact, larger than their reservs.
As for what is happening. Why, it is the Great Deleveraging. And where is the money going? To the Bank balck-hole. If a Bank is levered at 40:1 (and many, many Euro banks were) it starts calling back its loans. Espcially if it calls into question the value of the collateral set against the loan. As the borrowers liquiidate, banks are losing as many borrowers are going under and pay less than their full amount. Banks now hve to shift more collateral to provisions for losses which shrins their reserves, and thus the cycle continues.
Where does this stop?
Typically it only stops once a governement that islarge enough to backstop the problem steps in. Since Western Europe seems to have cut Eastern Europe free and since the IMF, with a paultry $200b, is nowhere near large enough - your big backstoppers are The European Union, Japan, and the US.
Now, the EU has its own problem - really meaning more leverage than they ever let on. Japan is beging to be a player that is trying to help, but their position as a shrinking exporter is pretty tenuous.
This leaves the US. We did not enter this in a good position. Starting with $10t in debt is no way to start backstopping a global recession/depression.
Still, we are the worlds only $14t economy and we have a god chunk of wealth laying around to buy bargains. (I would love to inlcude places like Dubai, but they have not put their cash to good use, they just keep putting up 6 star hotels and creating new islands - which are pretty useless right about now).
So we are getting a flight to the US.
Also, have you seen the yen? Wow. That carry trade is as big as I thought. The world keeps blaming this problem on the US, but his credit bubble was being inflated for YEARS by the ZIRP at Japan.
Wow - this is amazing stuff.

(I would love to inlcude places like Dubai, but they have not put their cash to good use, they just keep putting up 6 star hotels and creating new islands - which are pretty useless right about now).

Artificial "natural" features (e.g. islands, beaches) tend to be a sign of bubble tops.

Artificial “natural” features (e.g. islands, beaches) tend to be a sign of bubble tops.

'specially when built on spec that somebody else wants to buy 'em. ;-)

One more explanation for Hedgies et al "Cashing out"

Margin calls. See Duke.

Exactly. ;)

Margin calls.

Yen shot up really high overnight.

BTW, Duke:

Don't know if I mentioned it here before, but we have a friend in Monaco who has been watching the Russians coming there for the last few years each with suitcases and steamer trunks full of cold hard cash -- billions. They buy a mega yacht apiece, and have a new twelve-year-old virgin delivered every night.

"Capital Flight" indeed

MST,

>>I would be truly interested in seeing an example or two of your
ever-changing-coalition multiparty system that lasted more than an
election cycle. (or even a year.)

Ok, You moved the goalpost again by changing what you asked to be proved,
but this time I will indulge you because the data is very easy to find:

http://rulers.org

Some excerpts that ought to satisfy you:

Federal Republic of Germany:

Presidents
7 Sep 1949 - 12 Sep 1949 Karl Arnold (acting) CDU (b. 1901 - d. 1958)
12 Sep 1949 - 12 Sep 1959 Theodor Heuss FDP (b. 1884 - d. 1963)
13 Sep 1959 - 30 Jun 1969 Heinrich Lübke CDU (b. 1894 - d. 1972)
1 Jul 1969 - 30 Jun 1974 Gustav Heinemann SPD (b. 1899 - d. 1976)
1 Jul 1974 - 30 Jun 1979 Walter Scheel FDP (b. 1919)
1 Jul 1979 - 30 Jun 1984 Karl Carstens CDU (b. 1914 - d. 1992)
1 Jul 1984 - 30 Jun 1994 Richard von Weizsäcker CDU (b. 1920)
1 Jul 1994 - 30 Jun 1999 Roman Herzog CDU (b. 1934)
1 Jul 1999 - 30 Jun 2004 Johannes Rau SPD (b. 1931 - d. 2006)
1 Jul 2004 - Horst Köhler CDU (b. 1943)
Chancellors
16 Sep 1949 - 16 Oct 1963 Konrad Adenauer CDU (b. 1876 - d. 1967)
16 Oct 1963 - 1 Dec 1966 Ludwig Erhard CDU (b. 1897 - d. 1977)
1 Dec 1966 - 21 Oct 1969 Kurt Georg Kiesinger CDU (b. 1904 - d. 1988)
21 Oct 1969 - 7 May 1974 Willy Brandt SPD (b. 1913 - d. 1992)
7 May 1974 - 16 May 1974 Walter Scheel (acting) FDP (s.a.)
16 May 1974 - 1 Oct 1982 Helmut Schmidt SPD (b. 1918)
1 Oct 1982 - 27 Oct 1998 Helmut Kohl CDU (b. 1930)
27 Oct 1998 - 22 Nov 2005 Gerhard Schröder SPD (b. 1944)
22 Nov 2005 - Angela Merkel (f) CDU (b. 1954)

Netherlands, Prime Minister

24 Jun 1945 - 3 Jul 1946 Willem Schermerhorn VDB;
9 Feb 1946: PvdA (b. 1894 - d. 1977)
3 Jul 1946 - 7 Aug 1948 Louis Beel (1st time) KVP (b. 1902 - d. 1977)
7 Aug 1948 - 22 Dec 1958 Willem Drees PvdA (b. 1886 - d. 1988)
22 Dec 1958 - 19 May 1959 Louis Beel (2nd time) KVP (s.a.)
19 May 1959 - 24 Jul 1963 Jan Eduard de Quay KVP (b. 1901 - d. 1985)
24 Jul 1963 - 14 Apr 1965 Victor Marijnen KVP (b. 1917 - d. 1975)
14 Apr 1965 - 22 Nov 1966 Jo Cals KVP (b. 1914 - d. 1971)
22 Nov 1966 - 5 Apr 1967 Jelle Zijlstra ARP (b. 1918 - d. 2001)
5 Apr 1967 - 6 Jul 1971 Piet de Jong KVP (b. 1915)
6 Jul 1971 - 11 May 1973 Barend Biesheuvel ARP (b. 1920 - d. 2001)
11 May 1973 - 19 Dec 1977 Joop den Uyl PvdA (b. 1919 - d. 1987)
19 Dec 1977 - 4 Nov 1982 Andreas van Agt KVP;
11 Oct 1980: CDA (b. 1931)
4 Nov 1982 - 22 Aug 1994 Ruud Lubbers CDA (b. 1939)
22 Aug 1994 - 22 Jul 2002 Wim Kok PvdA (b. 1938)
22 Jul 2002 - Jan Peter Balkenende CDA (b. 1956)

I could post a whole slew more of these, but you get the idea. Go to the
site yourself and look the countries up. Start with Germany, France,
Denmark, Sweden, Norway, Finland, Italy, Netherlands etc etc.

So you agree with me now? Yes or no?

MST,

>>I would be very interested in knowing what your criteria are for judging one governmental system “better” than another.

Very simple: A structure of government is superior well IF

1. Each law enacted or rejected is the most likely to have a majority of voters supporting the decision made.

2. That the executive branch cannot easily perform unilateral actions that are against the will of the majority of the people.

Can we agree on the criteria?

MST,

>>Europeans were able to move quickly because a great deal more power is vested in their President’s/Chancellor’s/PM’s hands than in the US President’s.

This is also false. Most any European PM or equivalent has LESS intrinsic power than POTUS. However, when they have the support of the legislature, on a case-by-case baisis, they can indeed act swiftly and decisively.

MST,

>>“Mini-party” is not meant to be perjorative: simply a way of talking about parties that fall below the, say, 25% threshold of stated support. Most times these days, neither Republican nor Democrat self-identification rises much beyond 35% in the US.

I hardly think that a party with support from 25% of the voter is a mini-party. 25% is a very significant number. The fact us parties can only get 35%2=-70% of the electorate to vote is simply a further indication that the election system is deply flawed.

If so, I wonder where they put the cash? Not gold, it seems.
Oh, you just couldn't resist... Hedge fund selling... Margin calls I tell ya... Hey, look, its up for the day :-)
For the record, my PM disaster portfolio is still ahead of my mutual fund portfolio -- which really isn't saying much. When they cross, I will admit defeat and sell.
I think StuckInBA got it right... lost decade. I probably would have fared better with a coffee can full of cash buried in the back yard.

>>Proportional representation, eh? And that is better why? Because that is the only way your out-of-the-mainstream views could possibly get into Congress perhaps?

As I explained above in the "what are the criteria for a good structure of government", Democracy is about maximimizing the likelihood that each law passed has the support of the majority of the people.

If you cannot get elected unless you can get 50% of the voters, then the test fails.

>>Proportional representation, eh? And that is better why? Because that is the only way your out-of-the-mainstream views could possibly get into Congress perhaps?

I also find it troubling that you want to exclude all minority views.

I also find it troubling that you want to exclude all dismiss minority views. Each party will have many minority views. Toegther the parties will form majorities to pass or reject each law. This is a fundamentally good way to govern.

Duke,

Agree Russia debacle is a big worry from a world economic standpoint. The leadership is much too intelligent to start a war over this, but they may squeeze energy prices to recover, especially the captive audience along the gas pipelines.

I think gold PM will do well. But not until the deleveraging is about complete. At that point we are going to look at the super scary debts of the 'rich' world and the inflation race will be on. Gold PM will hold its own as a store of value in that environment. For now, gold is being treated as any other commoditiy, subject to demand destruction of price.
How long will that be? I would say the triggering event for a serious rise in gold will be a significant failure of a Treasury auction. As long as the US succeeds in funding its debt the world is voting that it has confidence we can and will pay off that debt.
But wow. All of the rules are being rewritten. The arguments against the gold standard made sense when we abonded it. Why limit growth to how fast we can pull a good conductor out of the ground? Why do nations rich in other resources have to lose transaction fees to buy a monetary base only becasue their dirt does not have enough gold? Etc.
If Sarcozy success in a new financial world order, gold could go really sour.
Who the heck knows at this point?

I would say the triggering event for a serious rise in gold will be a significant failure of a Treasury auction.
Since we are on this topic, the Treasury shoveled $30 billion into the Fed last week.

Yea - Russia has already cut gas to the Ukraine, but it isn't tipping them into buying - its making them move for the winter.
Fast tracking nuclear power is interesting. In theory it s something GE could do really well. But Immelt is such an idiot I see the French reactors being sold around the world. It will be intersting to see if Canada and Australia (almost 50% or world production) can supply enough uranium to power Eastern Europe.
Of course, eastern Europe would need to change over o electrical heating. . .
Sigh.

PM = Physical Money ?

Sorry - to me PM means Physical Metal. I am probably wrong. I am trying to state that stock in gold, or certificates of claims on gold are not worthwhile in a gold as reborn reserve currency.

Back to housing.

Here are some risks as I see them:
1. It seems increasingly likely that the governement may have to do away with the Mortgage Interest Deduction. If we are chosing to learn from this mess anyways.
2. Cities may be voting fairly large new property tax special fund items if the State of CA has to go on an austerity budget. Fudning Fire/Police/Schools may all become local tax issues.
3. Interest rates are up, and at the rate we are spending money on bailouts, rates can noly go up further. While this means you can get a decent rate today (by historical standards, not recent stadards), it means you lose value on your house later as you will be selling into a high mortgage rate future.
4. Housing is likely to go down further in CA. In many places, a good deal further. The macro econmic scene looks like a prolonged stagnant economy. Buying today means going upside down and then having to wait forever to get out of your house.
5. In a shrinking business world, might not some companies try to stay alive by shrinking costs, by doing things like moving to lower cost areas?
6. Will wages hold up in the face of growing unemplyment and verifiable deflation?

I think this Blog, at its core, is about risk.
People here felt that those who were buying at the incredible prices over the bubble years were mispricing risk. Since many here would not tolerate that risk it left them on the sidelines. Now, as people finally being to pay for their misunderstanding of risk, old factors are once again being considered.
1. Ability to sell if the need arises.
2. Job prospects.
3. Cash reserves to face dislocations.

Once the rest of the market prices risk the way Patrick readers have priced risk, I think many heer will breath a big sigh of relief.

justme:

We're probably boring these people silly.

First:

I actually was talking about your earlier terms which I try to paraphrase here: during any particular prime ministership, show me a situation where the various party alliances (may) change constantly on *each* vote. I think that's your thesis. Instead you give me a list of German Chancellors (Grm. Presidents are ceremonial) that flip back and forth between the CDU and SPD. Center-right, center-left, otherwise to be seen as republicans and democrats. And the Netherlands? Christian Democrats vs. Social Democrats. The names change (quite regularly), the basis of the parties remain. Might as well mention that Walter Mondale was VP of the US and belonged to the MDFLP.

As always in parliamentarian systems, The ruling coalition Vs. The opposition. When the ruling coalition breaks over an issue, the government comes down. See Italy.

Point not conceded, as you haven't demonstrated *your* thesis, (and I *am* trying to understand it.) By all means, rephrase so you can answer whatever question you want to.

MST,

>>I actually was talking about your earlier terms which I try to paraphrase here: during any particular prime ministership. (ETC).

You were "actually" talking about something else than what you were writing about?
Well, I think it is time that YOU do some work now. The burden of evidence is not just mine. How about you PROVE some of your assertions now?

You keep changing the criteria.

And you should answer my question: Do you agree with my criteria for what constitutes good governmental structure or not?

I will contemplate answering more of your questions after you answer some of mine.

justme, why don't we come back in ten years and do a Europe vs US comparison.

Facts speak for themselves. A successful system IS the perfect system.